WRL FREEDOM ENHANCER(SM)
VARIABLE ANNUITY
Issued Through
WRL SERIES ANNUITY ACCOUNT
By
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
PROSPECTUS
MAY 17, 2000
This prospectus gives you important information about the WRL Freedom
Enhancer(SM), a flexible payment variable accumulation deferred annuity
contract. Please read this prospectus and the fund prospectuses 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 30 investment choices: a fixed account and 29
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 29 portfolios we currently offer through the subaccounts under this
Contract are:
WRL SERIES FUND, INC.
WRL VKAM Emerging Growth WRL Great Companies -- America (SM)
WRL T. Rowe Price Small Cap WRL Salomon All Cap
WRL Goldman Sachs Small Cap WRL C.A.S.E. Growth
WRL Pilgrim Baxter Mid Cap Growth WRL Dreyfus Mid Cap
WRL Alger Aggressive Growth WRL NWQ Value Equity
WRL Third Avenue Value WRL T. Rowe Price Dividend Growth
WRL Value Line Aggressive Growth WRL Dean Asset Allocation
WRL GE International Equity WRL LKCM Strategic Total Return
WRL Janus Global WRL J.P. Morgan Real Estate Securities
WRL Great Companies -- Technology (SM) WRL Federated Growth & Income
WRL Janus Growth WRL AEGON Balanced
WRL Goldman Sachs Growth WRL AEGON Bond
WRL GE U.S. Equity WRL J.P. Morgan Money Market
VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2
The Enhancer credits a Premium Enhancement of 4.5% to your initial and
subsequent premiums, although we reserve the right to change the rate or
discontinue crediting Premium Enhancements in the future. The overall expenses
for the Enhancer may be higher than the expenses for a similar contract without
a Premium Enhancement. Over time, the value of the Premium Enhancements may be
more than offset by the higher fees.
If you would like more information about the WRL Freedom Enhancer(SM), you
can obtain a free copy of the Statement of Additional Information ("SAI") dated
May 17, 2000. Please call us at 1-800-851-9777 or write us at: Western Reserve,
Administrative Office - Annuity Department, 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 (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 FUNDS:
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.
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TABLE OF CONTENTS
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DEFINITIONS OF SPECIAL TERMS ....................................... 1
SUMMARY ............................................................ 3
ANNUITY CONTRACT FEE TABLE ......................................... 11
EXAMPLES ........................................................... 14
1. THE ANNUITY CONTRACT .......................................... 15
The Contract .................................................. 15
Other Contracts ............................................... 16
2. ANNUITY PAYMENTS (THE INCOME PHASE) ........................... 16
Annuity Payment Options Under the Contract .................... 17
Fixed Annuity Payment Options ................................. 18
Variable Annuity Payment Options .............................. 18
Guaranteed Minimum Income Benefit Rider (the "Rider") ......... 19
3. PURCHASE ...................................................... 23
Contract Issue Requirements ................................... 23
Premium Payments .............................................. 23
Initial Premium Requirements .................................. 23
Additional Premium Payments ................................... 24
Maximum Annual Premium Payments ............................... 24
Premium Enhancement ........................................... 24
Allocation of Premium Payments ................................ 25
Right to Cancel Period ........................................ 26
Annuity Value ................................................. 26
Accumulation Units ............................................ 27
4. INVESTMENT CHOICES ............................................ 27
The Separate Account .......................................... 27
The Fixed Account ............................................. 29
Transfers ..................................................... 29
Dollar Cost Averaging Program ................................. 30
Asset Rebalancing Program ..................................... 31
Telephone or Fax Transactions ................................. 31
Third Party Investment Services ............................... 32
5. EXPENSES ...................................................... 32
Mortality and Expense Risk Charge ............................. 33
Administrative Charge ......................................... 33
Guaranteed Minimum Income Benefit Rider Charge ................ 33
Separate Account Annuitization Charge ......................... 34
Annual Contract Charge ........................................ 34
Transfer Charge ............................................... 34
Loan Processing Fee ........................................... 34
Change in Allocation Fee ...................................... 34
Premium Taxes ................................................. 34
Federal, State and Local Taxes ................................ 35
Surrender Charge .............................................. 35
Portfolio Management Fees ..................................... 39
Reduced or Waived Charges and Expenses to Employees ........... 40
This Contract is not available in the State of New York or Alabama.
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6. TAXES ............................................................... 40
Annuity Contracts in General ........................................ 40
Qualified and Nonqualified Contracts ................................ 40
Partial and Complete Surrenders -- Nonqualified Contracts ........... 41
Multiple Contracts .................................................. 42
Diversification and Distribution Requirements ....................... 42
Partial and Complete Surrenders -- Qualified Contracts .............. 42
Net Income Makeup Charitable Remainder Unitrusts (NIMCRUTs) ......... 43
Taxation of Death Benefit Proceeds .................................. 43
Annuity Payments .................................................... 43
Transfers, Assignments or Exchanges of Contracts .................... 44
Possible Tax Law Changes ............................................ 44
7. ACCESS TO YOUR MONEY ............................................... . 44
Partial and Complete Surrenders ..................................... 44
Delay of Payment and Transfers ...................................... 46
Partial Surrenders and Premium Enhancements ......................... 46
Systematic Partial Surrenders ....................................... 46
Contract Loans For Qualified Contracts .............................. 47
8. PERFORMANCE ......................................................... 49
9. DEATH BENEFIT ....................................................... 50
When We Pay a Death Benefit ......................................... 50
When We Do Not Pay a Death Benefit .................................. 51
Standard Death Benefit .............................................. 51
Compounding Minimum Death Benefit ................................... 53
Effect of Adjusted Partial Surrender on Certain Death Benefits ...... 53
Alternate Payment Elections Before the Maturity Date ................ 54
10. OTHER INFORMATION ................................................... 54
Ownership ........................................................... 54
Annuitant ........................................................... 54
Beneficiary ......................................................... 54
Assignment .......................................................... 54
Western Reserve Life Assurance Co. of Ohio .......................... 55
The Separate Account ................................................ 55
Voting Rights ....................................................... 56
Distribution of the Contracts ....................................... 56
Non-Participating Contract .......................................... 56
Variations in Contract Provisions ................................... 57
IMSA ................................................................ 57
Legal Proceedings ................................................... 57
Financial Statements ................................................ 57
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............. 58
APPENDIX A -- CONDENSED FINANCIAL INFORMATION ............................ 59
APPENDIX B -- HISTORICAL PERFORMANCE DATA ................................ 64
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DEFINITIONS OF SPECIAL TERMS
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accumulation The period between the Contract date and the maturity date while the Contract is
period in force.
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accumulation An accounting unit we use to calculate subaccount values during the accumulation
unit value period.
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administrative The address of our Administrative Office is: Western Reserve, Annuity Department,
office P.O. Box 9051, Clearwater, Florida 33758-9051.
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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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annuitant The person you named on the application (or later 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 unit An accounting unit we use to calculate annuity payments from the subaccounts
value after the maturity date.
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annuity value The sum of the separate account value and the fixed account value.
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beneficiary(ies) The person(s) you elect to receive the death benefit proceeds under the Contract.
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cash value The annuity value less the annual Contract charge, any applicable premium taxes,
any surrender charge and any Guaranteed Minimum Income Benefit Rider 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 or 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
Contract years, Contract months and Contract anniversaries from the Contract date.
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death report day The valuation date on which we have received both proof of the annuitant's death
and your beneficiary's election regarding payment.
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fixed account An option to which you can direct your money under the Contract, other than the
separate account. It provides a guarantee of principal and interest. The assets
supporting the fixed account are held in the general account. The fixed account
may not be available in all states.
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fixed account During the accumulation period, your Contract's value in the fixed account.
value
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funds Investment companies which are registered with the U.S. Securities and Exchange
Commission. The Contract allows you to invest in the portfolios of the funds
through our subaccounts. We reserve the right to add other registered investment
companies to the 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. The
latest maturity date is the annuitant's 95th birthday. For Contracts issued in
conjunction with the Net Income Makeup Charitable Remainder Unitrust, the latest
maturity date is the annuitant's 100th birthday.
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NYSE New York Stock Exchange.
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nonqualified Contracts issued other than in connection with retirement plans.
Contracts
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owner (you, The person(s) entitled to exercise all rights under the Contract. The annuitant is the
your) owner unless the application states otherwise, or unless a change of ownership is
made at a later time. Joint owners may be named, provided the joint owners are
husband and wife.
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portfolio A separate investment portfolio of a fund.
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Premium Premium Enhancements are amounts we add to your annuity value. Premium
Enhancement Enhancements are not considered premiums.
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premium Amounts paid by an owner or on the owner's behalf to Western Reserve as
payments consideration for the benefits provided by the Contract. When we use the term
"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 qualify for special federal
Contracts 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, your Contract's value in the separate account,
value 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
portfolio hold assets under the Contract during the accumulation period. Other
subaccounts corresponding to each portfolio will hold assets after the maturity date
if you select a variable annuity option.
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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
business day corresponding portfolio does not value its shares. Western Reserve is open for
business on each day that the NYSE is open. When we use the term "business
day," it has the same meaning as valuation date.
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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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Western Reserve Western Reserve Life Assurance Co. of Ohio.
(we, us, our)
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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 Enhancer(SM) is a flexible payment variable accumulation
deferred annuity contract (the "Contract") offered by Western Reserve. 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 29
subaccounts. Each subaccount invests exclusively in a single portfolio of a
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 certain limits on transfers from the fixed
account.
We credit a Premium Enhancement of 4.5% of your initial premium to your
annuity value on the Contract date. We will credit a Premium Enhancement of
4.5% on future premiums you pay, although we may, at our discretion, change the
rate or discontinue crediting Premium Enhancements to future premium payments.
The Contract also allows you to select a compounding minimum death benefit (see
page 53) and a Guaranteed Minimum Income Benefit Rider (see page 19).
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 ordinary 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, and whether you choose the Guaranteed
Minimum Income Benefit Rider, will largely determine the amount of any income
payments you receive during the income phase.
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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 elect 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, and will be reduced by the separate
account annuitization charge. You cannot annuitize until your Contract's fifth
anniversary.
You may also elect a rider for an extra charge that guarantees a minimum
amount of income payments if you annuitize under one of the rider's variable
payment options. See Guaranteed Minimum Income Benefit Rider page 19.
3. PURCHASE
You can buy this Contract with $10,000 ($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.
We credit a Premium Enhancement of 4.5% of your initial premium to your
annuity value on the Contract date. Each premium payment you pay after the
initial premium will receive a Premium Enhancement of 4.5% that we will add to
your annuity value, although we may change the rate or discontinue the Premium
Enhancement at any time at our discretion. If we change the rate or discontinue
crediting Premium Enhancements to future premium payments, we will provide you
with notice in advance. Under certain circumstances, you might forfeit (that
is, lose) the Premium Enhancement we credited.
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4. INVESTMENT CHOICES
You can invest your money in any of the 29 fund portfolios by directing it
to the corresponding subaccount. The portfolios are described in the fund
prospectuses. The portfolios now available to you under the Contract are:
WRL SERIES FUND, INC.
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[ ] WRL VKAM Emerging Growth [ ] WRL Great Companies -- America(SM)
[ ] WRL T. Rowe Price Small Cap [ ] WRL Salomon All Cap
[ ] WRL Goldman Sachs Small Cap [ ] WRL C.A.S.E. Growth
[ ] WRL Pilgrim Baxter Mid Cap Growth [ ] WRL Dreyfus Mid Cap
[ ] WRL Alger Aggressive Growth [ ] WRL NWQ Value Equity
[ ] WRL Third Avenue Value [ ] WRL T. Rowe Price Dividend Growth
[ ] WRL Value Line Aggressive Growth [ ] WRL Dean Asset Allocation
[ ] WRL GE International Equity [ ] WRL LKCM Strategic Total Return
[ ] WRL Janus Global [ ] WRL J.P. Morgan Real Estate Securities
[ ] WRL Great Companies -- Technology(SM) [ ] WRL Federated Growth & Income
[ ] WRL Janus Growth [ ] WRL AEGON Balanced
[ ] WRL Goldman Sachs Growth [ ] WRL AEGON Bond
[ ] WRL GE U.S. Equity [ ] WRL J.P. Morgan Money Market
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VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2
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. Unless
otherwise required by state law, we will limit your allocations or 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, Oregon, New Jersey and Massachusetts may not
direct or transfer any money to the fixed account.
TRANSFERS. You have the flexibility to transfer assets within your
Contract. At any time during the accumulation period you may transfer amounts
among the subaccounts and between the subaccounts and the fixed account.
Certain restrictions apply.
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.
During the accumulation period, we deduct a daily mortality and expense
risk charge of 1.25% (1.40% if you select the compounding minimum death
benefit) and a daily administrative charge of 0.40% each year from the money
you have invested in the
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subaccounts. During the income phase, if you elect a variable payment option,
we deduct a separate account annuitization charge at an annual rate of 1.40%
from your subaccount assets in place of the mortality and expense risk and
administrative charges.
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 a
complete 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. However, we will deduct this charge from your annuity value if you
surrender your Contract completely.
We impose a $10 charge per transfer if you make more than 12 transfers
among the subaccounts per Contract year.
We may deduct state premium taxes, which currently range from 0% to 3.50%,
when you pay your premiums, 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 surrender your Contract completely, we
will deduct a surrender charge for premium payments surrendered within nine
years after we receive the premium payment. This charge is 8% on the amount
that must be surrendered if the surrender occurs within 36 months of our
receipt of the premium payment, and then declines gradually to 7% -- 37 through
48 months; 6% -- 49 through 60 months; 5% -- 61 through 72 months; 4% -- 73
through 84 months; 3% -- 85 through 96 months; 2% -- 97 through 108 months; and
no surrender charge -- 109 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 page 35
for how we calculate the surrender charge waiver.
The portfolios deduct management fees and expenses from amounts you have
invested in the portfolios. These fees and expenses currently range from 0.44%
to 1.20% annually, depending on the portfolio. See the Annuity Contract Fee
Table page 11 in this prospectus and How The Fund Is Managed And Organized in
the WRL Fund prospectus and Fund Management in the Fidelity VIP Funds
prospectuses.
If you select the Guaranteed Minimum Income Benefit Rider (the "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. We waive the
Rider charge if your annuity value
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on any Contract anniversary exceeds the Rider charge waiver threshold
(currently 2.0) times the minimum annuitization value. 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.
Death benefits are taxable and generally are included in the income of the
recipient as follows: if received under an annuity payment option, death
benefits are taxed in the same manner as annuity payouts; if not received under
an annuity option (for instance, if paid out in a lump sum), death benefits are
taxed in the same manner as a partial or complete surrender.
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 $10,000. No partial surrenders may be made from the fixed account
without prior consent from us. Access to amounts held in qualified Contracts
may be restricted or prohibited. 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 Rider) by more than the amount surrendered. In the future, we may, in our
sole discretion, reduce the amount of future Premium Enhancements by the amount
of certain partial surrenders. If we were to reduce future Premium Enhancements
by the amount of future partial surrenders, the reduction could be on a
dollar-for-dollar basis or on a proportional basis. We will send you advance
notice explaining how the reduction would work. The reduction would only apply
to partial surrenders taken after we send you notice.
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.
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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,
reduced by the amount of any Premium Enhancements credited to the
annuity value during the twelve month period before the death report
day; or
o the total premium payments you make to the Contract, reduced by
partial surrenders; or
o the annual step-up reduced by the amount of any Premium
Enhancements credited to the annuity value during the twelve month
period before the death report day; 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. We will retain any
Premium Enhancement(s) we credited to your account value. You will keep any
gains, and bear any losses, on amounts, including any Premium Enhancements, you
invested. 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 shown on your Contract
schedule page. We determine the value of the refund as of the date we receive
the returned Contract at our administrative office. 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 and/or receive a different refund amount.
WHO SHOULD PURCHASE THE CONTRACT? We have designed this Contract for
people seeking long-term tax-deferred accumulation of assets, generally for
retirement. This includes persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts. The tax-deferred feature is most attractive to people in high federal
and state tax brackets. You should not buy this Contract if you are looking for
a short-term investment or if you cannot take the risk of getting back less
money than you put in. If you are purchasing the Contract through a tax favored
arrangement, including IRAs and Roth IRAs, you should carefully consider the
costs and benefits of the Contract (including annuity income benefits) before
purchasing the Contract, since the tax favored arrangement itself provides
tax-sheltered growth.
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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 $10,000, if you indicate on your application that you
anticipate making minimum monthly payments of at least $100 by
electronic funds 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 TERMINAL CONDITION WAIVER -- Under a terminal condition waiver,
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 variable payment options available in the Rider. This Rider is not
available in all states and may vary by state.
o COMPOUNDING MINIMUM DEATH BENEFIT -- You may add this feature for
an additional charge. You must select this feature on your application.
This feature is not available to annuitants or owners age 74 or older on
the Contract date. This feature ensures that any death benefit payable
on the death of the annuitant will be no less than total premium
payments paid for this Contract, plus the Premium Enhancement
corresponding to the initial premium only, plus interest at an effective
annual rate of 5% (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 5% rate from the date of
partial surrender to the date of death. Interest is not credited after
your 81st birthday.
9
<PAGE>
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, on the annuity payment options, 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
Administrative Office
Annuity Department
P.O. Box 9051
Clearwater, FL 33758-9051
1-800-851-9777
www.westernreserve.com
10
<PAGE>
ANNUITY CONTRACT FEE TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
Sales Load On Premium Payments ............... None
Maximum Surrender Charge(1)(2)
(as a % of premium payments) ............... 8%
Transfer Charge .............................. $10 After 12 Per Year
Loan Processing Fee(3) ....................... $30 Per Loan
Guaranteed Minimum Income
Benefit Rider Charge during the accumula-
tion period (optional)(4) .................. 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)
- -----------------------------------------------------
UNDER STANDARD DEATH BENEFIT:
Mortality and Expense Risk Charge(5) ......... 1.25%
Administrative Charge(5) ..................... 0.40%
----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES ................................... 1.65%
WITH COMPOUNDING MINIMUM DEATH BENEFIT ADDED:
Mortality and Expense Risk Charge(5) ......... 1.40%
Administrative Charge(5) ..................... 0.40%
----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES ................................... 1.80%
- --------------------------------------------------------------------------------
PORTFOLIO ANNUAL EXPENSES(7)
(as a percentage of average net assets and after expense reimbursements)
<TABLE>
<CAPTION>
MANAGEMENT OTHER
PORTFOLIO FEES EXPENSES
<S> <C> <C>
WRL SERIES FUND, INC.(8)(9)
WRL VKAM Emerging Growth 0.80% 0.07%
WRL T. Rowe Price Small Cap(10) 0.75% 0.25%
WRL Goldman Sachs Small Cap(10) 0.90% 0.10%
WRL Pilgrim Baxter Mid Cap Growth(10) 0.90% 0.10%
WRL Alger Aggressive Growth 0.80% 0.09%
WRL Third Avenue Value 0.80% 0.20%
WRL Value Line Aggressive Growth(11) 0.80% 0.20%
WRL GE International Equity(16) 1.00% 0.20%
WRL Janus Global(12) 0.80% 0.12%
WRL Great Companies -- Technology(SM)(11) 0.80% 0.20%
WRL Janus Growth(13) 0.80% 0.05%
WRL Goldman Sachs Growth(10) 0.90% 0.10%
WRL GE U.S. Equity 0.80% 0.13%
WRL Great Companies -- America(SM)(11) 0.80% 0.20%
WRL Salomon All Cap(10) 0.90% 0.10%
WRL C.A.S.E. Growth 0.80% 0.20%
WRL Dreyfus Mid Cap(10) 0.85% 0.15%
WRL NWQ Value Equity 0.80% 0.10%
WRL T. Rowe Price Dividend Growth(10) 0.90% 0.10%
WRL Dean Asset Allocation 0.80% 0.07%
WRL LKCM Strategic Total Return 0.80% 0.06%
WRL J.P. Morgan Real Estate Securities 0.80% 0.20%
WRL Federated Growth & Income 0.75% 0.14%
WRL AEGON Balanced 0.80% 0.09%
WRL AEGON Bond 0.45% 0.08%
WRL J.P. Morgan Money Market 0.40% 0.04%
VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio --Service Class 2(14) 0.48% 0.10%
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio --Service Class 2(14) 0.58% 0.12%
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio --Service Class 2(14) 0.58% 0.13%
<CAPTION>
TOTAL PORTFOLIO
RULE 12B-1 ANNUAL
PORTFOLIO FEES EXPENSES
<S> <C> <C>
WRL SERIES FUND, INC.(8)(9)
WRL VKAM Emerging Growth N/A 0.87%
WRL T. Rowe Price Small Cap(10) N/A 1.00%
WRL Goldman Sachs Small Cap(10) N/A 1.00%
WRL Pilgrim Baxter Mid Cap Growth(10) N/A 1.00%
WRL Alger Aggressive Growth N/A 0.89%
WRL Third Avenue Value N/A 1.00%
WRL Value Line Aggressive Growth(11) N/A 1.00%
WRL GE International Equity(16) N/A 1.20%
WRL Janus Global(12) N/A 0.92%
WRL Great Companies -- Technology(SM)(11) N/A 1.00%
WRL Janus Growth(13) N/A 0.85%
WRL Goldman Sachs Growth(10) N/A 1.00%
WRL GE U.S. Equity N/A 0.93%
WRL Great Companies -- America(SM)(11) N/A 1.00%
WRL Salomon All Cap(10) N/A 1.00%
WRL C.A.S.E. Growth N/A 1.00%
WRL Dreyfus Mid Cap(10) N/A 1.00%
WRL NWQ Value Equity N/A 0.90%
WRL T. Rowe Price Dividend Growth(10) N/A 1.00%
WRL Dean Asset Allocation N/A 0.87%
WRL LKCM Strategic Total Return N/A 0.86%
WRL J.P. Morgan Real Estate Securities N/A 1.00%
WRL Federated Growth & Income N/A 0.89%
WRL AEGON Balanced N/A 0.89%
WRL AEGON Bond N/A 0.53%
WRL J.P. Morgan Money Market N/A 0.44%
VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio --Service Class 2(14) 0.25%(15) 0.83%
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund/registered trademark/ Portfolio --Service Class 2(14) 0.25%(15) 0.95%
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio --Service Class 2(14) 0.25%(15) 0.96%
</TABLE>
11
<PAGE>
(1) The surrender charge decreases based on the number of years since each
premium payment was made, from 8% in the first three years after the
premium payment was made to 0% in the tenth year after the 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. This loan fee may not be
applicable in all states.
(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. We deduct the
Rider charge from the fixed account and from each subaccount in proportion
to the amount of the annuity value in each account. If the annuity value
on any Contract anniversary exceeds the Rider charge threshold (currently
2.0) times the minimum annuitization value, we will waive the Rider charge
otherwise payable on that Contract anniversary. This Rider is not
available in all states.
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 1.25% 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 1.40%. These charges apply during the accumulation period.
After the maturity date, if you elect a variable payment option, we will
deduct a daily separate account annuitization charge equal to an annual
rate of 1.40% of your subaccount assets 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. However, we
will deduct this charge from your annuity value if you surrender your
Contract completely.
(7) The fee table information relating to the portfolios was provided to
Western Reserve by the funds. Western Reserve has not independently
verified such information.
(8) Effective January 1, 1997, the WRL Series Fund, Inc. ("WRL Fund") Board
authorized the WRL Fund to charge each portfolio of the WRL Fund an annual
Rule 12b-1 fee of up to 0.15% of each portfolio's average daily net
assets. However, the WRL Fund will not deduct the fee from any portfolio
before April 30, 2001. You will receive advance written notice if a Rule
12b-1 fee is to be deducted. See the WRL Fund prospectus for more details.
12
<PAGE>
(9) WRL Investment Management, Inc. ("WRL Management"), the investment adviser
of the WRL Fund, has undertaken, until at least April 30, 2001, to pay
expenses on behalf of the portfolios of the WRL Fund, to the extent normal
total operating expenses of a portfolio exceed a stated percentage of the
WRL portfolio's average daily net assets. The expense limit amount
reimbursed by WRL Management (if applicable) and the expense ratio without
the reimbursement are listed below for each portfolio:
<TABLE>
<CAPTION>
Expense Reimbursement Expense Ratio
Limit Amount Without Reimbursement
<S> <C> <C> <C>
WRL VKAM Emerging Growth ....................... 1.00% N/A N/A
WRL T. Rowe Price Small Cap .................... 1.00% 63,542 2.46%
WRL Goldman Sachs Small Cap .................... 1.00% 60,555 5.57%
WRL Pilgrim Baxter Mid Cap Growth .............. 1.00% 34,986 1.40%
WRL Alger Aggressive Growth .................... 1.00% N/A N/A
WRL Third Avenue Value ......................... 1.00% 10,734 1.06%
WRL Value Line Aggressive Growth ............... 1.00% N/A N/A
WRL GE International Equity .................... 1.20% 112,088 1.84%
WRL Janus Global ............................... 1.00% N/A N/A
WRL Great Companies -- Technology(SM)........... 1.00% N/A N/A
WRL Janus Growth ............................... 1.00% N/A N/A
WRL Goldman Sachs Growth ....................... 1.00% 49,677 2.68%
WRL GE U.S. Equity ............................. 1.00% N/A N/A
WRL Great Companies -- America(SM).............. 1.00% N/A N/A
WRL Salomon All Cap ............................ 1.00% 53,174 2.87%
WRL C.A.S.E. Growth ............................ 1.00% N/A N/A
WRL Dreyfus Mid Cap ............................ 1.00% 34,541 4.89%
WRL NWQ Value Equity ........................... 1.00% N/A N/A
WRL T. Rowe Price Dividend Growth .............. 1.00% 46,989 2.35%
WRL Dean Asset Allocation ...................... 1.00% N/A N/A
WRL LKCM Strategic Total Return ................ 1.00% N/A N/A
WRL J.P. Morgan Real Estate Securities ......... 1.00% 51,924 2.69%
WRL Federated Growth & Income .................. 1.00% N/A N/A
WRL AEGON Balanced ............................. 1.00% N/A N/A
WRL AEGON Bond ................................. 0.70% N/A N/A
WRL J.P. Morgan Money Market ................... 0.70% N/A N/A
</TABLE>
(10) Because these portfolios commenced operations on May 3, 1999, the
percentages set forth as "Other Expenses" and "Total Portfolio Annual
Expenses" are annualized.
(11) Because these portfolios commenced operations on May 1, 2000, the
percentages set forth as "Other Expenses" and "Total Portfolio Annual
Expenses" are estimates.
(12) WRL Management currently waives 0.025% of its advisory fee on portfolio
average daily net assets over $2 billion (net fee -- 0.775%.) This waiver
is voluntary and will be terminated on June 25, 2000.
(13) WRL Management currently waives 0.025% of its advisory fee for the first
$3 billion of the portfolio's average daily net assets (net fee --
0.775%); and 0.05% for the portfolio's average daily net assets above $3
billion (net fee -- 0.75%). This waiver is voluntary and will be
terminated on June 25, 2000. The fee table reflects estimated 2000
expenses because of the termination of the fee waiver.
(14) Service Class 2 expenses are based on estimated expenses for the year
2000.
(15) The 12b-1 fee deducted for the Variable Insurance Products Fund (VIP),
Variable Insurance Products Fund II (VIP II), and Variable Insurance
Products Fund III (VIP III) (the "Fidelity VIP Funds") covers certain
shareholder support services provided by companies selling variable
contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed
against the Fidelity VIP Funds shares held for the Contracts will be
remitted to AFSG Securities Corporation ("AFSG"), the principal
underwriter for the Contracts.
(16) The fee table reflects estimated 2000 expenses because the expense limit
for this portfolio will be reduced from 1.50% to 1.20% effective May 1,
2000.
After the maturity date, if you elect a variable payment option, we will
charge a daily separate account annuitization charge equal to an annual rate of
1.40% of the daily net asset values in the subaccounts 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, the daily separate account annuitization charge will equal 2.50% of the
daily net asset values in the subaccounts.
13
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment assuming a
hypothetical 5% annual return on assets, assuming the entire $1,000 is invested
in the subaccount listed, and assuming the Guaranteed Minimum Income Benefit
Rider has been selected and assuming the Premium Enhancement has not been
added.
The expense examples reflect mortality and expense risk and administrative
charges totaling 1.80% of subaccount value (assuming that the compounding
minimum death benefit has been added), the $30 annual Contract charge, plus the
Guaranteed Minimum Income Benefit Rider charge of 0.30% of minimum
annuitization value (MAV). In the examples, the annual Contract charge of $30
and the Guaranteed Minimum Income Benefit Rider charge of 0.30% are charged at
the end of every Contract year.
<TABLE>
<CAPTION>
IF YOU SURRENDER THE
CONTRACT AT THE END OF THE
SUBACCOUNTS APPLICABLE TIME PERIOD
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
WRL VKAM Emerging Growth $113 182 233 366
WRL T. Rowe Price Small Cap 114 185 239 377
WRL Goldman Sachs Small Cap 114 185 239 377
WRL Pilgrim Baxter Mid Cap Growth 114 185 239 377
WRL Alger Aggressive Growth 113 182 234 367
WRL Third Avenue Value 114 185 239 377
WRL Value Line Aggressive Growth 114 185 239 377
WRL GE International Equity 116 191 249 396
WRL Janus Global 114 183 236 370
WRL Great Companies -- Technology(SM) 114 185 239 377
WRL Janus Growth 113 181 232 364
WRL Goldman Sachs Growth 114 185 239 377
WRL GE U.S. Equity 114 183 236 371
WRL Great Companies -- AmericaSM 114 185 239 377
WRL Salomon All Cap 114 185 239 377
WRL C.A.S.E. Growth 114 185 239 377
WRL Dreyfus Mid Cap 114 185 239 377
WRL NWQ Value Equity 113 183 235 368
WRL T. Rowe Price Dividend Growth 114 185 239 377
WRL Dean Asset Allocation 113 182 233 366
WRL LKCM Strategic Total Return 113 181 233 365
WRL J.P. Morgan Real Estate Securities 114 185 239 377
WRL Federated Growth & Income 113 182 234 367
WRL AEGON Balanced 113 182 234 367
WRL AEGON Bond 110 172 217 334
WRL J.P. Morgan Money Market 109 169 212 325
Fidelity VIP Equity-Income Portfolio --
Service Class 2 113 180 231 362
Fidelity VIP II Contrafund/registered trademark/ Portfolio --
Service Class 2 114 184 237 373
Fidelity VIP III Growth Opportunities Portfolio --
Service Class 2 114 184 237 374
<CAPTION>
IF YOU ANNUITIZE* OR REMAIN
INVESTED IN THE CONTRACT AT THE
END OF THE APPLICABLE TIME PERIOD
OR IF YOU DO NOT SURRENDER OR
SUBACCOUNTS ANNUITIZE UNDER THE CONTRACT
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
WRL VKAM Emerging Growth 33 102 173 366
WRL T. Rowe Price Small Cap 34 105 179 377
WRL Goldman Sachs Small Cap 34 105 179 377
WRL Pilgrim Baxter Mid Cap Growth 34 105 179 377
WRL Alger Aggressive Growth 33 102 174 367
WRL Third Avenue Value 34 105 179 377
WRL Value Line Aggressive Growth 34 105 179 377
WRL GE International Equity 36 111 189 396
WRL Janus Global 34 103 176 370
WRL Great Companies -- Technology(SM) 34 105 179 377
WRL Janus Growth 33 101 172 364
WRL Goldman Sachs Growth 34 105 179 377
WRL GE U.S. Equity 34 103 176 371
WRL Great Companies -- America(SM) 34 105 179 377
WRL Salomon All Cap 34 105 179 377
WRL C.A.S.E. Growth 34 105 179 377
WRL Dreyfus Mid Cap 34 105 179 377
WRL NWQ Value Equity 33 103 175 368
WRL T. Rowe Price Dividend Growth 34 105 179 377
WRL Dean Asset Allocation 33 102 173 366
WRL LKCM Strategic Total Return 33 101 173 365
WRL J.P. Morgan Real Estate Securities 34 105 179 377
WRL Federated Growth & Income 33 102 174 367
WRL AEGON Balanced 33 102 174 367
WRL AEGON Bond 30 92 157 334
WRL J.P. Morgan Money Market 29 89 152 325
Fidelity VIP Equity-Income Portfolio --
Service Class 2 33 100 171 362
Fidelity VIP II Contrafund/registered trademark/ Portfolio --
Service Class 2 34 104 177 373
Fidelity VIP III Growth Opportunities Portfolio --
Service Class 2 34 104 177 374
</TABLE>
* You cannot annuitize your Contract before your Contract's fifth anniversary.
14
<PAGE>
The fee table and examples above will help you understand the costs of
investing in the subaccounts. The fee table and examples reflect 1999 expenses
(except as noted in the footnotes) of the portfolios and the subaccount fees
and charges, but do not reflect premium taxes which may range up to 3.50%,
depending on the jurisdiction.
PLEASE REMEMBER THAT THE EXAMPLES ARE ILLUSTRATIONS AND DO NOT REPRESENT
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES PAID MAY BE HIGHER OR LOWER THAN
THOSE SHOWN. SIMILARLY, YOUR RATE OF RETURN MAY BE MORE OR LESS THAN THE 5%
ASSUMED IN THE EXAMPLES.
The examples above assume 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 average Contract size 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%.
FINANCIAL INFORMATION. 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 1.65%)
and the compounding minimum death benefit (total separate account annual
expenses of 1.80%).
1. THE ANNUITY CONTRACT
THE CONTRACT
This prospectus describes the WRL Freedom Enhancer(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 page 16.) 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 payment 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 payment" 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
15
<PAGE>
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 investment performance.
The Contract also contains a fixed account. Unless otherwise required by
state law, we will limit your allocations or transfers to the fixed account if
the fixed account value following the allocation or transfer would exceed
$500,000. 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, Oregon, New Jersey 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 funds. 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.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the date when annuity payments start under the Contract. 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 annuitant's 95th birthday. 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 page 16) 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.
16
<PAGE>
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.
FIXED ANNUITY 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 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 matches 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% of subaccount assets) 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.
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The annuity payment options are explained below. Options A, B, and C are
fixed only. Options D and E are variable only. Some of these options may not be
available in all states.
FIXED ANNUITY PAYMENT 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.
PAYMENT OPTION C -- JOINT AND SURVIVOR LIFE INCOME: Fixed Payments. We
will make level payments during the joint lifetime of the annuitant and a joint
annuitant of your choice. Payments will be made as long as either person is
living.
VARIABLE ANNUITY PAYMENT OPTIONS
PAYMENT OPTION D -- VARIABLE LIFE INCOME. The annuity proceeds are used to
purchase variable annuity units in 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 joint
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: The death benefit payable after the maturity date will be
affected by the annuity option you choose.
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;
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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 annuitant's address of record. The annuitant is responsible to
keep Western Reserve informed of the annuitant's current address of record.
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" after a waiting period (currently,
10 years) from the date of purchasing or upgrading the Rider. By electing this
Rider, you are guaranteed a future minimum level of income under the Rider's
variable payment options based on the minimum annuitization value, regardless
of the performance of the underlying investment portfolios.
To purchase the Rider, you must elect it at issue or within 30 days after
any Contract anniversary. The Rider will be added to the Contract on the
Contract date or the Contract anniversary date. In addition, so long as the
waiting period is 10 years, you must purchase the Rider as of a Contract
anniversary before your 85th birthday. If we increase the length of the waiting
period, you would have to purchase the Rider on an earlier date. We will notify
you of any change in the length of the waiting period within 30 days of the
change.
MINIMUM ANNUITIZATION VALUE. If you purchase the Rider at issue, the
minimum annuitization value is:
o the initial annuity value (including any Premium Enhancement credited
with the initial premium payment only) on the date the Rider is
issued, plus
o any additional premiums paid after the Rider is issued (not including
any Premium Enhancements), minus
o an adjustment for any partial surrenders made after the date the Rider
is issued,
o accumulated at the annual growth rate.
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<PAGE>
If you purchase the Rider at a future Contract anniversary date, the
minimum annuitization value would be:
o the annuity value (including any Premium Enhancements credited with
the initial and subsequent premium payments) on the date the Rider is
issued, plus
o any additional premiums paid after the Rider is issued (not including
any Premium Enhancements), minus
o an adjustment for any partial surrenders made after the date the Rider
is issued,
o accumulated at the annual growth rate.
Any premium taxes will also be deducted.
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 unless you upgrade 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 UNDER THE RIDER. 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 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.
Both before and after you annuitize under the Rider, you may transfer
values from one subaccount to another. After the maturity date, no transfers
may be made to or from the fixed account. There are no limitations on transfers
among the subaccounts after you annuitize under the Rider.
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MINIMUM ANNUITIZATION VALUE UPGRADE. With a 10 year waiting period, 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). For your convenience, we
will put the last date to upgrade on page one of the Rider.
If you elect to upgrade, the current Rider will terminate, we will assess
the Rider charge, and a new rider will be issued. The new rider will have a new
rider date, a 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 not be as advantageous as the previous Rider's benefits and charges
prior to upgrading.
It generally will not be to your advantage to upgrade unless your annuity
value exceeds your minimum annuitization value on the applicable Contract
anniversary.
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, change the waiting period in the future
if you choose to upgrade the minimum annuitization value, or for new issues of
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). For your convenience, we will put the first and last
date to annuitize using the Rider on page one of the Rider.
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
payments starting on each Contract anniversary will equal the greater of the
initial variable annuity payment or the payment that can be supported by the
number of annuity units in the subaccounts on the Contract anniversary. 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.
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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 if you surrender the Contract. 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.
TERMINATION. The Rider is irrevocable. You have the option not to
annuitize under the Rider but we will not refund 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 RIDER DOES NOT ESTABLISH OR GUARANTEE ANNUITY VALUE OR GUARANTEE
PERFORMANCE OF ANY SUBACCOUNT. Because the 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 Rider should be
regarded as a safety net. The costs of annuitizing under the Rider include the
separate account annuitization charge, and also the lower levels inherent in
the annuity tables used for the minimum payouts. These costs should be balanced
against the benefits of a minimum payout level.
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<PAGE>
The Rider may vary by state and is not available in all states.
3. PURCHASE
CONTRACT ISSUE REQUIREMENTS
We will issue a Contract IF:
o we receive information we need to issue the Contract;
o we receive a minimum initial premium payment; and
o the annuitant is age 80 or younger.
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
$10,000. However, you may make a minimum initial premium payment of $1,000,
rather than $10,000, 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 at our administrative office 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 as follows:
All First Bank of Baltimore
ABA #: 052000113
For credit to: Western Reserve Life
Account #: 89539600
Owner's Name:
Contract Number:
Attention: Annuity Accounting
We may reject any application or premium payments for any reason permitted
by law.
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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. We will accept premium
payments by bank wire or check. 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 any additional premium
payments you make to your Contract at the accumulation unit value computed at
the end of the business day on which we receive them at our Administrative
Office. Our business day closes at 4:00 p.m. Eastern Time. If we receive your
premium payments after the close of our business day, we will calculate and
credit them as of the close of the next business day.
MAXIMUM ANNUAL PREMIUM PAYMENTS
We allow premium payments up to a total of $1,000,000 in any Contract year
without prior approval.
PREMIUM ENHANCEMENT
We will add an amount we call a Premium Enhancement (currently equal to
4.5% of the initial premium payment) to the annuity value on the Contract date.
The amount of the Premium Enhancement is not considered a premium payment. We
will also credit a Premium Enhancement of 4.5% (this percentage could vary
based on state laws) on subsequent premium payments, although we reserve the
right, at our sole discretion, to change the rate of the Premium Enhancement or
to discontinue crediting Premium Enhancements in the future. Any Premium
Enhancement we credit will never be more than 8%. We will establish the rate,
at our sole discretion, for each future Premium Enhancement. Rates may vary
based on the annuitant's age and the Contract year at the time the premium
payment is made. The amount of future Premium Enhancements may be reduced by
the amount of future partial surrenders. If we were to reduce future Premium
Enhancements by the amount of future partial surrenders, the reduction could be
on a dollar-for-dollar basis or on a proportional basis. The reduction would
only apply to partial surrenders taken after we send you notice. If we change
the rate or amount of the Premium Enhancement or if we eliminate the Premium
Enhancement, we will send you notice in advance. In addition, we will send you
a confirmation that will state the amount of any Premium Enhancement that was
credited to your annuity value.
If you cancel your Contract during the Right to Cancel Period, we will
deduct the Premium Enhancement from your refund. See Right to Cancel Period
page 26. The death benefit may be reduced by the amount of any Premium
Enhancements credited to the annuity value during the 12 months before the
death report day. See Death Benefit page 50. We will also reduce any partial or
complete surrenders taken under the nursing home waiver or the terminal
condition waiver by the amount of any Premium Enhancements credited to the
annuity value during the 12 months before the surrender. See Surrender Charge
page 35.
We expect to use a portion of the mortality and expense risk charge and/or
the surrender charge to pay the Premium Enhancement.
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In certain unusual circumstances, you might be worse off because of the
Premium Enhancement. This could happen if we recapture the dollar amount of the
Premium Enhancement and the overall investment performance of your Contract was
negative. The expenses for this Contract may be higher than the expenses for a
contract without any Premium Enhancements.
EXAMPLES. The following examples illustrate how a 4.5% credit works.
SUPPOSE YOU INVEST $10,000 IN A CONTRACT. WE IMMEDIATELY CREDIT AN
ADDITIONAL 4.5% OR $450, SO YOUR ANNUITY VALUE BEGINS AT $10,450. Assume that
in six months the annuity value increases by 5%, so it is $10,972.50 (($10,450
x 0.05 = $522.50) ($522.50 + $10,450 = $10,972.50)). At that point in time, the
death benefit would be $10,522.50 ($10,972.50 less the $450 credit). Note that
although the credit is not included in the death benefit, the $22.50 of
earnings on the credit is included. The cash value would be $10,972.50 minus
the surrender charge of 8%, minus other applicable deductions. ASSUME THAT AT
THE END OF TWELVE MONTHS, THE ANNUITY VALUE HAS INCREASED BY 10% SO IT IS
$11,495 (($10,450 x 0.10 = $1,045) ($1,045 + $10,450 = 11,495)). The death
benefit at that time would be the full annuity value of $11,495 and the cash
value would be $11,495 minus the surrender charge of 8% and other applicable
deductions.
A DECREASE IN VALUE WORKS IN A SIMILAR MANNER. AGAIN SUPPOSE YOU INVEST
$10,000 AND WE CREDIT A 4.5%, OR $450 CREDIT, AND THE ANNUITY VALUE DECREASES
5% TO $9,950 ($10,450 MINUS $500). Your death benefit in six months time would
be $10,000 since it is never less than your premium payments, less any partial
surrenders and premium taxes. Your cash value would be $9,950 minus the
surrender charge of 8% and other applicable deductions.
IN THE CASE OF MULTIPLE PREMIUM PAYMENTS, FOR PURPOSES OF THE CREDIT, THE
MOST RECENT PREMIUM PAYMENT IS DEEMED TO BE WITHDRAWN FIRST. SUPPOSE YOU MAKE A
$10,000 PREMIUM PAYMENT IN JUNE 2000 (GETTING A $450 CREDIT) AND A $20,000
PREMIUM PAYMENT IN DECEMBER 2000 (GETTING A $900 CREDIT). If you die in August
2001 (more than 12 months after the June 2000 premiuum payment, but less than
12 months after the December 2000 premium payment), the $900 credit for the
December premium payment has not vested (since it is less than 12 months old)
so the full $900 is deducted in calculating the death benefit. However, the
death benefit would include any earnings/loss attributable to that credit. The
$450 credit for the June payment is over 12 months old so it (and any
earnings/loss on it) is included in the death benefit.
ALLOCATION OF PREMIUM PAYMENTS
On the Contract date, we will allocate your premium payment (plus the
Premium Enhancement) to the investment choices you selected on your
application, or we will place your premium 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
(plus Premium Enhancements, if any) as you selected on your application, unless
you request a different allocation.
Unless otherwise required by state law, we will limit allocations and
transfers to the fixed account if the fixed account value following the
allocation or transfer would exceed $500,000.
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You may change allocations for future additional premium payments by
writing or telephoning the administrative office, subject to the limitations
described under Telephone or Fax Transactions on page 28. The allocation change
will apply to premium payments received after the date we receive the change
request. In the future we may charge a fee of $25 for each change in allocation
that you make, if you make more than one change in a Contract quarter.
YOU SHOULD REVIEW PERIODICALLY HOW YOUR PAYMENTS ARE DIVIDED AMONG THE
SUBACCOUNTS BECAUSE MARKET CONDITIONS AND YOUR OVERALL FINANCIAL OBJECTIVES MAY
CHANGE.
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 (less any Premium Enhancement) plus (or minus) any gains (or
losses) in the amounts you invested in the subaccounts. The refund will not
include any Premium Enhancements we credited to your annuity value. You will
keep any gains, and bear any losses, on amounts (including any Premium
Enhancements) that you invested in the subaccounts. We determine the value of
the refund as of the date we receive the returned Contract at our
administrative office. 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 and/or
receive a different refund amount.
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 until the reallocation date shown on
your Contract schedule page. 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 (including the Premium Enhancement) from the
reallocation account to the fixed account and/or subaccounts you selected on
your application.
For states which do not require a 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
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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 measurement called an accumulation unit. During the income phase, we
use a measurement called an annuity unit. When you direct money into a
subaccount, we credit your Contract with accumulation units for that
subaccount. We determine how many accumulation units to credit by dividing the
dollar amount you direct to the subaccount by the subaccount's accumulation
unit value as of the end of that valuation date. If you partially surrender or
transfer out of a subaccount, or if we assess a transfer charge, annual
Contract charge, any surrender charge or Guaranteed Minimum Income Benefit
Rider charge, or a change in allocation fee, 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 29 subaccounts.
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The Funds. Each subaccount invests exclusively in one portfolio of a fund.
The portfolios and their adviser or sub-adviser are listed below.
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER
<S> <C>
WRL VKAM EMERGING GROWTH Van Kampen Asset Management Inc.
WRL T. ROWE PRICE SMALL CAP T. Rowe Price Associates, Inc.
WRL GOLDMAN SACHS SMALL CAP Goldman Sachs Asset Management
WRL PILGRIM BAXTER MID CAP GROWTH Pilgrim Baxter & Associates, Ltd.
WRL ALGER AGGRESSIVE GROWTH Fred Alger Management, Inc.
WRL THIRD AVENUE VALUE EQSF Advisers, Inc.
WRL VALUE LINE AGGRESSIVE GROWTH Value Line, Inc.
WRL GE INTERNATIONAL EQUITY GE Asset Management Incorporated
WRL JANUS GLOBAL Janus Capital Corporation
WRL GREAT COMPANIES -- TECHNOLOGY(SM) Great Companies, L.L.C.
WRL JANUS GROWTH Janus Capital Corporation
WRL GOLDMAN SACHS GROWTH Goldman Sachs Asset Management
WRL GE U.S. EQUITY GE Asset Management Incorporated
WRL GREAT COMPANIES -- AMERICA(SM) Great Companies, L.L.C.
WRL SALOMON ALL CAP Salomon Brothers Asset Management Inc
WRL C.A.S.E GROWTH C.A.S.E Management, Inc.
WRL DREYFUS MID CAP The Dreyfus Corporation
WRL NWQ VALUE EQUITY NWQ Investment Management Company, Inc.
WRL T. ROWE PRICE DIVIDEND GROWTH T. Rowe Price Associates, Inc.
WRL DEAN ASSET ALLOCATION Dean Investment Associates
WRL LKCM STRATEGIC TOTAL RETURN Luther King Capital Management Corporation
WRL J.P. MORGAN REAL ESTATE SECURITIES J.P. Morgan Investment Management Inc.
WRL FEDERATED GROWTH & INCOME Federated Investment Counseling
WRL AEGON BALANCED AEGON USA Investment Management, Inc.
WRL AEGON BOND
WRL J.P. MORGAN MONEY MARKET J.P. Morgan Investment Management Inc.
PORTFOLIO ADVISER
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- SERVICE CLASS 2 Fidelity Management & Research Company
FIDELITY VIP II CONTRAFUND/registered trademark/ PORTFOLIO -- SERVICE CLASS 2
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO --
SERVICE CLASS 2
</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 sub-adviser 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 the 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 PROSPECTUSES. YOU
SHOULD READ THE FUND PROSPECTUSES CAREFULLY BEFORE YOU INVEST.
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THE FIXED ACCOUNT
Premium payments (and any Premium Enhancements) you allocate to, and
amounts you transfer 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 Act or
1940 Act. 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 otherwise required by state law, we will limit 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, Oregon, New Jersey 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. However, if
you have elected the dollar cost averaging or asset rebalancing program, you
may not make any transfers if you want to continue in any of these programs. A
transfer would automatically cancel your participation in that program. We may
also limit "substantive" transfers as discussed below.
Transfers from the fixed account are allowed only once each Contract year.
We must receive written notice within 30 days after a Contract anniversary. 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.
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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, Oregon, New Jersey 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 under Telephone or Fax Transactions on page 31.
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.
Transfers to and from the subaccounts will be processed based on the
accumulation unit values determined at the end of the business day on which we
receive your written, telephoned, or faxed request, provided we receive your
request at our administrative office before the close of our business day
(usually 4:00 p.m. Eastern Time). If we receive your request after the close of
our business day, we will process the transfer request using the accumulation
unit value for the next business day.
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, discontinue transfer privileges, modify our
procedures, or limit the number of transfers we permit.
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.
There is no charge for this program. These transfers do count towards the
12 free transfers allowed during each Contract year.
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If you make dollar cost averaging transfers from the fixed account, each
month you may transfer no more than 1/10th of the dollar amount in the fixed
account on the date you start dollar cost averaging.
By transferring a set amount on a regular schedule instead of transferring
the total amount at one particular time, you may reduce the risk of investing
in the portfolios only when the price is high. Dollar cost averaging does not
guarantee a profit and it does not protect you from loss if market prices
decline.
We reserve the right to discontinue offering dollar cost averaging 30 days
after we send notice to you. Dollar cost averaging is not available if you have
elected the asset rebalancing program or you elect to participate in any asset
allocation service provided by a third party.
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, you elect to participate in any asset
allocation service provided by a third party, 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 $10,000 for
an existing Contract, or a minimum initial premium payment of $10,000, for a
new Contract, is required. Asset rebalancing does not guarantee gains, nor does
it assure that any subaccount will not have losses.
There is no charge for this program. 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.
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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.
Please use the following fax numbers for the following types of
transactions:
o to request a transfer, please fax your request to us at 727-299-1648.
WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS IF YOU
FAXED YOUR REQUEST TO A NUMBER OTHER THAN THIS FAX NUMBER; and
o to request a partial withdrawal, please fax your request to us at
727-299-1620.
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.
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 below apply only during the accumulation period.
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MORTALITY AND EXPENSE RISK CHARGE
We charge a fee as compensation for bearing certain mortality and expense
risks and Premium Enhancement expenses 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 1.25% of the
average daily net assets that you have invested in each subaccount. If you add
the compounding minimum death benefit, the mortality and expense risk charge
increases to 1.40%. This charge is deducted daily from the subaccounts during
the accumulation period. During the income phase, if you elect a variable
annuity option, we deduct a daily separate account annuitization charge from
your subaccount assets, equal to an annual rate 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 mortality and expense risk costs
and the Premium Enhancement expenses, 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 on each Contract anniversary and on
the termination date of the Rider (including Contract surrender and upgrades of
minimum annuitization value). 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.
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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.
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 from the fixed
account and each subaccount in proportion to the amount of annuity value in
each account. 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. You
have the option to either send us a $30 check for this fee or to have us deduct
the $30 from the loan amount. This fee may not be applicable for all states.
This fee covers loan processing and other expenses associated with establishing
and administering the loan reserve. Only qualified Contracts can take Contract
loans.
CHANGE IN ALLOCATION FEE
You may change the allocation of future premium payments. The request for
a change of allocations must be in a manner satisfactory to us. We reserve the
right to charge a fee of $25 for each change of allocation in excess of one per
Contract quarter. The allocation change will be effective on the date the
request for a change is recorded by us.
PREMIUM TAXES
Some states assess premium taxes on the premium payments you make. A
premium tax is a regulatory tax that some states assess on the premium payments
made into a contract. If we should have to pay any premium tax, we will deduct
the tax from each
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premium payment or from the accumulation unit value as we incur the tax. We may
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.
As of the date of this prospectus, the following states assess a premium
tax on all initial and subsequent premium payments:
STATE QUALIFIED CONTRACTS NONQUALIFIED CONTRACTS
South Dakota 0.00% 1.25%
Wyoming 0.00% 1.00%
As of the date of this prospectus, the following states assess a premium
tax against the accumulation unit value if you choose an annuity payment option
instead of receiving a lump sum distribution:
STATE QUALIFIED CONTRACTS NONQUALIFIED CONTRACTS
California 0.50% 2.35%
Kentucky 2.00% 2.00%
Maine 0.00% 2.00%
Nevada 0.00% 3.50%
West Virginia 1.00% 1.00%
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, printing, sales literature and
advertising costs and Premium Enhancement expenses. We expect to profit from
this charge. We deduct this charge from your annuity value at the time you
request the partial or complete surrender.
Unless we consent otherwise, the minimum amount available each time you
request a partial surrender is $500.
If you take a partial surrender or if you surrender your Contract
completely, we will deduct a surrender charge of up to 8.0% of premium payments
surrendered within nine years
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after we receive a premium payment. We calculate the surrender charge on the
full amount we must withdraw from your annuity value in order to pay the
surrender amount, including the surrender charge. To calculate surrender
charges, we treat surrenders as coming first from the oldest premium payment,
then the next oldest and so forth.
The following schedule shows the surrender charges that apply during the
nine years following each premium payment:
NUMBER OF MONTHS SINCE SURRENDER
PREMIUM PAYMENT DATE CHARGE
12 or less 8%
13 through 24 8%
25 through 36 8%
37 through 48 7%
49 through 60 6%
61 through 72 5%
73 through 84 4%
85 through 96 3%
97 through 108 2%
109 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. However, if you later completely
surrender your Contract while surrender charges still apply, we will deduct
from your annuity value the charge we would have deducted if there had been no
free amount (this does not apply to New Jersey residents). For the first
partial surrender under the Contract, the maximum free amount you can partially
surrender without a surrender charge is the greater of (A) earnings in the
Contract minus any Premium Enhancements, or (B) 10% of the annuity value. For
all subsequent partial surrenders, the maximum free amount you can partially
surrender without a surrender charge is (A) or (B), adjusted to reflect prior
partial surrenders, according to the following formula:
(A) is calculated as:
(i) the annuity value on the date of the partial surrender; plus
(ii) the net amount of any previous partial surrenders; minus
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(iii) the total of all premiums you have paid; minus
(iv) the total of any Premium Enhancement amounts; minus
(v) any amounts previously surrendered under (A).
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 the partial surrender was requested.
If the partial surrender is less than the value of (A), the partial
surrender will be taken completely from (A). If the partial surrender is in
excess of (A), but less than the value of (B), the partial surrender will be
taken first from (A), with the excess taken from (B). If (A) is ever less than
or equal to zero, the partial surrender will be taken entirely from (B).
For example, assume that you make a $100,000 premium payment to your
Contract at issue, receive a Premium Enhancement of $4,500, and make no more
premium payments. Also assume at the end of the 13th Contract month there is an
annuity value of $120,000 before a partial surrender of $15,500 is taken out
surrender charge free (the greater of $15,500 under (A) ($120,000 - $100,000 -
$4,500), or $12,000 under (B) ($120,000 x 10%)).
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) $15,500 is the net amount of the partial surrender that
occurred in the 13th month; minus
(A)(iii) $100,000 is the total of all premiums paid; minus
(A)(iv) $4,500 is the total of any Premium Enhancement amounts; minus
(A)(v) $15,500 is the total of any growth in the Contract previously
surrendered.
The total for (A) is: $106,000 + $15,500 - $100,000 - $4,500 - $15,500 =
$1,500
OR
(B)(i) $10,600 is 10% of the annuity value; minus
(B)(ii) $15,500.
The total for (B) is: $10,600 - $15,500 = $-4,900.
The maximum amount of this partial surrender available without a surrender
charge is $1,500 (A).
The portion of this partial surrender which is subject to a surrender
charge is $20,000 - $1,500 = $18,500.
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The surrender charge is calculated on the amount that must be surrendered
($20,108.70) in order to leave $18,500 after the 8% surrender charge is
applied. The surrender charge is: $20,108.70 x .08 = $1,608.70. Subtracting
$1,608.70 from $20,108.70 leaves $18,500, which is the amount you will receive
after the 8% surrender charge has been taken.
To sum up: The total amount we will deduct from your annuity value so that
you receive $20,000 is $21,608.70. That is calculated as: $1,500 (free amount)
+ $18,500 (amount after surrender charge has been taken) + $1,608.70 (surrender
charge) = $21,608.70.
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 $10,000.
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 page 46.)
NURSING CARE FACILITY WAIVER. If your Contract contains a nursing care
facility waiver, 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 waiver only for partial and
complete surrenders made during your confinement or within two months after
your confinement ends. This waiver may not be available in all states.
If you take a partial or complete surrender under the nursing care
facility waiver, the amount of your surrender value will be reduced by the
total Premium Enhancements we credited to your annuity value during the twelve
months before the partial or complete surrender.
TERMINAL CONDITION WAIVER. If your Contract contains a terminal condition
waiver, we will waive the surrender charge upon a complete or partial
surrender, provided:
o you (or any joint owner) is diagnosed with a terminal condition after
the Contract date;
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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 minimum amount that you may partially surrender under this
waiver 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. This waiver may not be available in all states
The surrender value will be reduced by the total Premium Enhancements we
credited to your annuity value during the twelve months before the complete or
partial surrender under the terminal condition waiver provision
NIMCRUT CONTRACTS. The Contract may be utilized to fund a Net Income
Makeup Charitable Remainder Unitrust (NIMCRUT). If an owner of a NIMCRUT takes
a partial surrender from a NIMCRUT Contract, we will deduct surrender charges.
However, once each calendar quarter, the NIMCRUT owner may surrender from the
NIMCRUT Contract any portion of the annuity value that is greater than the
total premium payments made, then we will not deduct surrender charges on such
surrenders.
If the NIMCRUT owner surrenders the Contract completely within the
surrender charge period, we will deduct surrender charges as specified above.
The surrender charges will be applied to total premium payments made, less any
previous surrenders on which you paid surrender charges. For important
information regarding ownership of a Contract by a NIMCRUT, see Taxes--Net
Income Makeup Charitable Remainder Unitrusts (NIMCRUTs) page 43.
PORTFOLIO MANAGEMENT FEES
The value of the assets in each subaccount is reduced by the management
fees and expenses paid by the portfolios. Some portfolios also deduct 12b-1
fees from portfolio assets. A description of these fees and expenses is found
in the fund prospectuses and in the Annuity Contract Fee Table page 11 of this
prospectus.
Our affiliate, AFSG, the principal underwriter for the Contracts, will
receive the 12b-1 fees deducted from portfolio assets for providing shareholder
support services to the
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portfolios. We and our affiliates, including the principal underwriter for the
Contracts, may receive compensation from the investment advisers,
administrators, and/or distributors (and an affiliate thereof) of the
portfolios in connection with administrative or other services and cost savings
experienced by the investment advisers, administrators or distributors. It is
anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract and may be significant. Some advisers,
administrators, distributors or portfolios may pay us (and our affiliates) more
than others.
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 generally 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 PLAN (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. Loans,
pledges and assignments are taxed in the same manner as surrenders. The Premium
Enhancement(s) will be considered earnings. Different rules apply for annuity
payments.
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.
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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;
o paid after the owner 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. Nonqualified and qualified Contracts 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 AND COMPLETE SURRENDERS -- 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. 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.
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The Code limits partial surrenders 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.
Loans, pledges and assignments of qualified Contracts are taxed in the
same manner as surrenders from such Contracts.
NET INCOME MAKEUP CHARITABLE REMAINDER UNITRUSTS (NIMCRUTS)
Issues arising in connection with the ownership of certain annuity
products by charitable remainder trusts are currently under extensive study by
the Internal Revenue Service. You should consult a competent legal or tax
advisor before you purchase a Contract by, or transfer a Contract to, a
charitable remainder trust.
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. The Premium Enhancement(s) that we add to your
annuity value are not included in the "investment in the contract."
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.
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.
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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.
It is unclear whether your annuity payments under the Guaranteed Minimum
Income Benefit Rider will be treated as fixed payments or as variable payments,
for federal tax purposes. You should consult a competent tax advisor with
respect to this issue.
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
legal 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
o by taking annuity payments.
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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.
The cash value will be determined at the accumulation unit value next
determined as of the end of the business day (usually 4:00 p.m. Eastern Time)
on which we receive your request for surrender at our administrative office,
unless you specify a later date in your request.
No partial surrender is permitted if it would reduce the cash value below
$10,000. 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.
Unless we otherwise consent, the minimum amount available each time you
request a partial surrender is $500.
Remember that any partial surrender you make will reduce the annuity
value. 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, and the SAI 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
($30 for Saturday 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.
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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.
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 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 NYSE 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.
PARTIAL SURRENDERS AND PREMIUM ENHANCEMENTS
In the future, we may, in our sole discretion, reduce the amount of future
Premium Enhancements by the amount of certain partial surrenders. If we were to
reduce future Premium Enhancements by the amount of future partial surrenders,
the reduction could be on a dollar-for-dollar basis or on a proportionate
basis. We will send you advance notice explaining how the reduction would work.
The reduction would only apply to partial surrenders taken after we send you
notice.
SYSTEMATIC PARTIAL SURRENDERS
You can elect to receive regular payments from your Contract without
paying surrender charges 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
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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 $10,000. No systematic partial surrenders are
permitted from the fixed account without our prior consent.
You may stop systematic partial surrenders at any time but we must receive
written notice at least 30 days prior to the date systematic partial surrenders
are to be discontinued. We reserve the right to discontinue offering systematic
partial surrenders 30 days after we send you written notice.
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:
o is used in connection with a tax-sheltered annuity plan under Section
403(b) of the Code (limit of one Contract loan per calendar year);
o is purchased by a pension, profit-sharing, or other similar plan under
Section 401(a) of the Code (including Section 401(k) plans, please
contract your plan administrator); 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
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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.
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 701/2.
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.
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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 standardized total return figures for the
subaccounts that reflect the initial Premium Enhancement of 4.5% and deduction
of all charges assessed during the accumulation period under the Contract,
including the mortality and expense risk charges, the administrative charge,
the annual Contract charge and the surrender charge. Charges for the optional
Guaranteed Minimum Income Benefit Rider are not deducted. THESE FIGURES ARE
BASED ON THE ACTUAL HISTORICAL PERFORMANCE OF THE SUBACCOUNTS INVESTING IN THE
UNDERLYING PORTFOLIOS SINCE THEIR INCEPTION, ADJUSTED TO REFLECT CURRENT
CONTRACT CHARGES.
Second, we may disclose total return figures on a non-standardized basis.
This means that the data may be presented for different time periods and
different dollar amounts. The data will not be increased by the Premium
Enhancement or reduced by the surrender charge currently assessed under the
Contract. We will only disclose non-standardized performance data if it is
accompanied by standardized 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 WRL Fund prospectus presents the total return of certain existing
SEC-registered funds that are managed by sub-advisers to the WRL 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-Adviser Funds." None of the fees and charges under the Contract
has been deducted from the performance data of the Similar Sub-Adviser Funds.
If Contract fees and charges were deducted, the investment returns would be
lower. The Similar Sub-Adviser 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.
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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:
o you are not the annuitant; and
o you die prior to the maturity date; and
o there is no surviving joint owner.
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.
Federally prescribed mandatory distribution requirements apply to the
annuity value upon the death of any owner or annuitant. These restrictions are
detailed in the SAI.
AFTER THE MATURITY DATE. The death benefit payable, if any, on or after
the maturity date depends on the annuity payment option selected. See Fixed
Annuity Payment Options and Variable Annuity Payment Options on page 18 for a
description of the annuity payment options. Please note that not all payment
options provide for a death benefit.
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.
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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. In
the case of joint owners, the younger joint owner will automatically
become the annuitant.
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 the Contract will continue
with the surviving joint owner as sole owner;
o if the beneficiary is alive and is your spouse, the Contract will
continue with the spouse as the new owner; or
o if the beneficiary is alive and not your spouse, the beneficiary will
become the new owner. This new owner generally must surrender the
Contract for the cash value within five years of your death.
NOTE CAREFULLY: If the owner does not name a beneficiary or if no
beneficiary is alive, the owner's estate will become the new owner. The
Contract's cash value must generally be distributed within five years of your
death. 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.
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 but in all events will be paid
in accordance with any applicable federal (or state) laws, rules or
regulations. 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, reduced by the amount of any
Premium Enhancements credited to the annuity value during the twelve
month period before the death report day; or
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o RETURN OF PREMIUM -- total premium payments paid as of the death report
day (not including Premium Enhancements), less partial surrenders; or
o ANNUAL STEP-UP -- on each Contract anniversary 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 Contract anniversary before the
annuitant's 81st birthday. If the Contract anniversary with the
highest annuity value occurs during the twelve month period before
the death report day, then the highest annuity value will be
reduced by the amount of any Premium Enhancements credited to the
annuity value from the beginning of this twelve month period to
that Contract anniversary. The highest annuity value will be
increased for any premium payments you have made (but not
increased for the Premium Enhancements applicable to those
premiums), and decreased for any adjusted partial surrenders we
have paid to you, following the Contract anniversary on which the
highest annuity value occurs.
For example, assume that you make a $100,000 [P(0)] premium payment at
issue, receive a Premium Enhancement of $4,500 [E(0)] on the initial premium
payment; then you make a subsequent premium payment of $20,000 [P(1)] at the
beginning of your 20th Contract month and receive a Premium Enhancement of $900
[E(1)] on this payment; and then make another subsequent premium payment of
$10,000 [P(2)] at the beginning of your 27th Contract month and receive a
Premium Enhancement of $300 [E(2)] on this payment. Also assume an annuity
value of $110,000 [A(1)] at the end of your first Contract anniversary, and an
annuity value of $200,000 [A(2)] at the end of the second Contract anniversary,
and an annuity value of $150,000 [A(3)] on the death report day (at the end of
the 30th Contract month).
The standard death benefit will be the greatest of:
1) Annuity value: A(3) - [E(1) + E(2)] = $150,000 - ($900 + $300) =
$148,800
2) Return of premium: P(0) + P(1) + P(2) = $100,000 + $20,000 + $10,000 =
$130,000
3) Annual step-up: A(2) - E(1) + P(2) = $200,000 - $900 + $10,000 =
$209,100
The standard death benefit will be $209,100 from the annual step-up.
NOTE: In the example above, we assume that the initial premium payment and
the next premium payment paid (at the beginning of the 20th Contract month),
each receive a 4.5% Premium Enhancement. However, we assume that the premium
payment paid at the beginning of the 27th Contract month receives a 3% Premium
Enhancement.
The standard death benefit is not payable after the maturity date. The
standard death benefit is referred to as Option A in the Contract form and as
the Guaranteed Minimum Death Benefit on the Contract application.
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COMPOUNDING MINIMUM DEATH BENEFIT
On the Contract application, you may add the compounding minimum death
benefit to the Contract for an additional charge. This option is not available
to annuitants or owners age 74 or older on the Contract date. This death
benefit option is only payable during the accumulation period and is not
payable after the maturity date. 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 paid plus the Premium Enhancement corresponding
to the initial premium payment only, plus interest at an effective
annual rate of 5% (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
5% rate from the date of partial surrender to the date of death.
Interest is not credited after your 81st birthday. If you select
this option, then the mortality and expense risk charge will
increase to 1.40%.
The compounding minimum death benefit is referred to as Option B in the
Contract form and as the Annual 5% Compound Death Benefit on the Contract
application.
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 annual step-up death benefit.
A partial surrender will reduce the compounding minimum death benefit, if
selected, and the annual 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 annual
step-up death benefit) immediately before the partial surrender, to
o the annuity value immediately before the partial surrender.
We have included a more detailed explanation of this adjustment in the
SAI.
If the compounding minimum death benefit or the annual 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.
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ALTERNATE PAYMENT ELECTIONS BEFORE THE MATURITY DATE
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
including the right to transfer ownership (subject to any assignee or
irrevocable beneficiary's consent). You can change the owner at any time by
notifying us in writing. An ownership change may be a taxable event. Joint
owners may be named provided they are husband and wife.
ANNUITANT
The annuitant is the person named in the application to receive annuity
payments. If no person is named, the owner will be the annuitant. As of the
maturity date, and upon our agreement, the owner may change the annuitant or,
if either annuity Option C or Option E has been selected, add a co-annuitant.
On the maturity date, the annuitant(s) will become the payee(s) and receive the
annuity payments.
BENEFICIARY
The beneficiary is the person who receives the death benefit proceeds upon
the death of the annuitant when the owner is the same individual as the
annuitant or other than a natural person. You may change the beneficiary during
the lifetime of the annuitant, subject to the rights of any irrevocable
beneficiary. Any change must be made in writing and received by us at our
Administrative Office and, if accepted, will be effective as of the date on
which the request was signed by the owner. Prior to the maturity date, if no
owner or beneficiary survives the annuitant, the owner's estate will be the
beneficiary. In the case of certain qualified Contracts, the Treasury
Regulations prescribe certain limitations on the designation of a beneficiary.
See the SAI for more details on the beneficiary.
ASSIGNMENT
You can also assign the Contract any time prior to the maturity date. We
will not be bound by the assignment until we receive written notice of the
assignment. We will not be
54
<PAGE>
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,
and such assignments may be subject to tax penalties and taxed as distributions
under the Code.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve was incorporated under the laws of Ohio on October 1,
1957. It is engaged in the business of writing life insurance policies and
annuity contracts. Western Reserve is wholly-owned by First AUSA Life Insurance
Company, a stock life insurance company which is wholly-owned indirectly 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 29 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 (www.sec.gov) that
contains other information regarding the separate account.
55
<PAGE>
VOTING RIGHTS
Western Reserve will vote all shares of the portfolios in accordance with
instructions we receive from you and other owners that have voting interests in
the portfolios. We will send you and other owners written requests for
instructions on how to vote those shares. When we receive those instructions,
we will vote all of the shares in accordance with those instructions. We will
vote shares for which no timely instructions were received in the same
proportion as the voting instructions we received. However, if we determine
that we are permitted to vote the shares in our own right, we may do so. Each
person having a voting interest will receive proxy material, reports, and other
materials relating to the appropriate portfolio. More information on voting
rights is provided in the SAI.
DISTRIBUTION OF THE CONTRACTS
AFSG Securities Corporation ("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.
AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Funds'
shares held for the Contracts as compensation for providing certain shareholder
support services. AFSG will also receive an additional fee based on the value
of shares of the Fidelity VIP Funds held for the Contracts as compensation for
providing certain recordkeeping services.
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, including InterSecurities, Inc.,
Transamerica Capital, Inc. and Transamerica Financial Resources, Inc., all
affiliates of Western Reserve. Western Reserve will generally pay
broker-dealers sales commissions in an amount equal to 4.0% of premium
payments. In addition, broker-dealers may receive trail commissions ranging
from 0.20% to 0.90% of the annuity value in each Contract year, starting at the
end of the first quarter of the second Contract year, provided the Contract has
an annuity value of $10,000 or more in the subaccounts. 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 higher
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.
56
<PAGE>
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, Oregon, New Jersey and Massachusetts may not direct or transfer any
money to the fixed account.
IMSA
We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales and advertising of
individual life insurance and annuity products. Companies must undergo a
rigorous self and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
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.
57
<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
Administrative Office
Attention: Annuity Department
P.O. Box 9051
Clearwater, Florida 33758-9051
1-800-851-9777
58
<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 as follows:
o Two variable annuity contracts issued by Western Reserve with subaccount
classes that deduct a 1.65% separate account annual expense; and
o One variable annuity contract issued by Western Reserve with subaccount
classes that deduct a 1.80% separate account annual expense.
<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>
11/29/1999(1)-12/31/1999 $10.000 $10.046 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BOND SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
11/29/1999(1)-12/31/1999 $10.000 $9.979 2,500
</TABLE>
<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>
11/29/1999(1)-12/31/1999 $10.000 $10.870 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
11/29/1999(1)-12/31/1999 $10.000 $11.387 2,500
</TABLE>
59
<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>
11/29/1999(1)-12/31/1999 $10.000 $10.316 2,500
</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>
11/29/1999(1)-12/31/1999 $10.000 $12.108 2,500
</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>
11/29/1999(1)-12/31/1999 $10.000 $11.705 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BALANCED SUBACCOUNT
NUMBER OF
ACCUMULATION ACCUMULATION
UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF UNIT VALUE AT OUTSTANDING AT
PERIOD END OF PERIOD END OF PERIOD
<S> <C> <C> <C>
11/29/1999(1)-12/31/1999 $10.000 $10.001 2,500
</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>
11/29/1999(1)-12/31/1999 $10.000 $10.074 2,500
</TABLE>
60
<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>
11/29/1999(1)-12/31/1999 $10.000 $9.907 2,500
</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>
11/29/1999(1)-12/31/1999 $10.000 $10.053 2,500
</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>
11/29/1999(1)-12/31/1999 $10.000 $10.421 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL GE 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>
11/29/1999(1)-12/31/1999 $10.000 $11.124 2,500
</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>
11/29/1999(1)-12/31/1999 $10.000 $10.424 2,500
</TABLE>
61
<PAGE>
<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>
11/29/1999(1)-12/31/1999 $10.000 $10.660 2,500
</TABLE>
<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>
11/29/1999(1)-12/31/1999 $10.000 $10.398 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL GOLDMAN SACHS 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>
11/29/1999(1)-12/31/1999 $10.000 $10.731 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL GOLDMAN SACHS SMALL CAP 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>
11/29/1999(1)-12/31/1999 $10.000 $10.891 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL T. ROWE PRICE DIVIDEND 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>
11/29/1999(1)-12/31/1999 $10.000 $9.872 2,500
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
WRL T. ROWE PRICE SMALL CAP 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>
11/29/1999(1)-12/31/1999 $10.000 $11.398 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL SALOMON ALL CAP 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>
11/29/1999(1)-12/31/1999 $10.000 $10.459 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL PILGRIM BAXTER MID CAP 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>
11/29/1999(1)-12/31/1999 $10.000 $12.092 2,500
</TABLE>
<TABLE>
<CAPTION>
WRL DREYFUS MID CAP 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>
11/29/1999(1)-12/31/1999 $10.000 $10.510 2,500
</TABLE>
(1) Commencement of operations of these subaccounts.
Because the WRL Value Line Aggressive Growth, WRL Great Companies --
America(SM) and WRL Great Companies -- Technology(SM) portfolios did not
commence operations until May 1, 2000 and because Fidelity VIP Equity-Income
Portfolio -- Service Class 2, Fidelity VIP II Contrafund/registered trademark/
Portfolio -- Service Class 2 and Fidelity VIP III Growth Opportunities Portfolio
- -- Service Class 2 were not offered under this prospectus until May 1, 2000,
there is no condensed financial information for these subaccounts for the year
ended December 31, 1999.
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<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.
OTHER SUBACCOUNTS. The YIELD of a subaccount, other than the WRL J.P.
Morgan Money Market subaccount, refers to the annualized income generated by an
investment 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 a subaccount for various periods of time including a period measured from
the date the first subaccount investing in the underlying portfolios began
operations. When the first subaccount investing in the underlying portfolios
has been in operation for 1, 5, and 10 years, the total return for these
periods will be provided, adjusted to reflect current subaccount charges and
the crediting of the Premium Enhancement to the initial premium. The total
return quotations will represent the average annual compounded rates of return
of investment of $1,000 in the subaccount as of the last day of each period.
The yield and total return calculations are not reduced by any premium
taxes. For additional information regarding yields and total returns, please
refer to the SAI.
Based on the method of calculation described in the SAI, the standardized
average annual total returns of the subaccounts for periods from inception of
the subaccounts investing in the underlying portfolios to December 31, 1999,
and for the one, five and ten year periods ended December 31, 1999 are shown in
Tables 1 and 2 below. Although the Contract did not exist during the periods
shown in Tables 1 and 2, the returns of the subaccounts shown have been
adjusted to reflect the Premium Enhancement of 4.5% and current subaccount
charges imposed under the Contract. Total returns shown in Table 1 reflect
deductions of 1.25% for the mortality and expense risk charge for the standard
death benefit, 0.40% for the administrative charge, $30 for the annual Contract
charge and the
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<PAGE>
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 standardized total returns of Table 1, adjusted to reflect
1.40% for the mortality and expense risk charge (assuming selection of the
compounding minimum death benefit), 0.40% for the administrative charge and $30
for the annual Contract charge. THE OPTIONAL GUARANTEED MINIMUM INCOME BENEFIT
RIDER CHARGE OF 0.30% OF MINIMUM ANNUITIZATION VALUE ("MAV") HAS NOT BEEN
DEDUCTED. Total returns also assume a complete surrender of the Contract at the
end of the period; therefore, the surrender charge is deducted.
65
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES SURRENDER, SELECTION OF STANDARD DEATH BENEFIT
WITHOUT THE GUARANTEED MINIMUM INCOME BENEFIT RIDER
AND WITH THE CREDITING OF THE PREMIUM ENHANCEMENT)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
1 YEAR 5 YEARS
ENDED ENDED
SUBACCOUNT 12/31/99 12/31/99
<S> <C> <C>
WRL J.P. Morgan Money Market* (4.68)% 2.13%
WRL AEGON Bond (12.33)% 4.33%
WRL Janus Growth 49.16% 36.86%
WRL Janus Global 60.39% 29.97%
WRL LKCM Strategic Total Return 2.41% 13.57%
WRL VKAM Emerging Growth 93.83% 39.90%
WRL Alger Aggressive Growth 58.34% 33.62%
WRL AEGON Balanced (6.48)% 8.37%
WRL Federated Growth & Income (13.82)% 8.43%
WRL Dean Asset Allocation (14.99)% N/A
WRL C.A.S.E. Growth 23.79% N/A
WRL NWQ Value Equity (1.64)% N/A
WRL GE International Equity 15.06% N/A
WRL GE U.S. Equity 8.63% N/A
WRL Third Avenue Value 5.99% N/A
WRL J.P. Morgan Real Estate Securities (13.15)% N/A
WRL Goldman Sachs Growth N/A N/A
WRL Goldman Sachs Small Cap N/A N/A
WRL T. Rowe Price Dividend Growth N/A N/A
WRL T. Rowe Price Small Cap N/A N/A
WRL Salomon All Cap N/A N/A
WRL Pilgrim Baxter Mid Cap Growth N/A N/A
WRL Dreyfus Mid Cap N/A N/A
WRL Value Line Aggressive Growth N/A N/A
WRL Great Companies -- America(SM) N/A N/A
WRL Great Companies -- Technology(SM) N/A N/A
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A
<CAPTION>
10 YEARS INCEPTION OF THE SUBACCOUNT
ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99** DATE**
<S> <C> <C> <C>
WRL J.P. Morgan Money Market* 2.71% 2.97% 02/24/1989
WRL AEGON Bond 5.23% 5.91% 02/24/1989
WRL Janus Growth 21.20% 22.58% 02/24/1989
WRL Janus Global N/A 25.31% 12/03/1992
WRL LKCM Strategic Total Return N/A 11.33% 03/01/1993
WRL VKAM Emerging Growth N/A 29.96% 03/01/1993
WRL Alger Aggressive Growth N/A 27.61% 03/01/1994
WRL AEGON Balanced N/A 5.85% 03/01/1994
WRL Federated Growth & Income N/A 6.13% 03/01/1994
WRL Dean Asset Allocation N/A 7.40% 01/03/1995
WRL C.A.S.E. Growth N/A 15.80% 05/01/1995
WRL NWQ Value Equity N/A 7.14% 05/01/1996
WRL GE International Equity N/A 10.68% 01/02/1997
WRL GE U.S. Equity N/A 18.66% 01/02/1997
WRL Third Avenue Value N/A (1.95)% 01/02/1998
WRL J.P. Morgan Real Estate Securities N/A (18.08)% 05/01/1998
WRL Goldman Sachs Growth N/A 8.49% 05/03/1999
WRL Goldman Sachs Small Cap N/A 8.39% 05/03/1999
WRL T. Rowe Price Dividend Growth N/A (16.12)% 05/03/1999
WRL T. Rowe Price Small Cap N/A 29.24% 05/03/1999
WRL Salomon All Cap N/A 6.58% 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth N/A 68.29% 05/03/1999
WRL Dreyfus Mid Cap N/A (1.69)% 05/03/1999
WRL Value Line Aggressive Growth N/A N/A 05/01/2000
WRL Great Companies -- America(SM) N/A N/A 05/01/2000
WRL Great Companies -- Technology(SM) N/A N/A 05/01/2000
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A 05/01/2000
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** Refers to the date when the separate account first invested in the
underlying portfolios.
66
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS OF THE SUBACCOUNTS
(ASSUMES SURRENDER, SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT
WITHOUT THE GUARANTEED MINIMUM INCOME BENEFIT RIDER
AND WITH THE CREDITING OF THE PREMIUM ENHANCEMENT)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.80%)
1 YEAR 5 YEARS
ENDED ENDED
SUBACCOUNT 12/31/99 12/31/99
<S> <C> <C>
WRL J.P. Morgan Money Market* (4.82)% 1.96%
WRL AEGON Bond (12.46)% 4.17%
WRL Janus Growth 48.94% 36.65%
WRL Janus Global 60.16% 29.77%
WRL LKCM Strategic Total Return 2.26% 13.39%
WRL VKAM Emerging Growth 93.56% 39.68%
WRL Alger Aggressive Growth 58.11% 33.41%
WRL AEGON Balanced (6.61)% 8.19%
WRL Federated Growth & Income (13.95)% 8.26%
WRL Dean Asset Allocation (15.11)% N/A
WRL C.A.S.E. Growth 23.61% N/A
WRL NWQ Value Equity (1.79)% N/A
WRL GE International Equity 14.89% N/A
WRL GE U.S. Equity 8.47% N/A
WRL Third Avenue Value 5.83% N/A
WRL J.P. Morgan Real Estate Securities (13.28)% N/A
WRL Goldman Sachs Growth N/A N/A
WRL Goldman Sachs Small Cap N/A N/A
WRL T. Rowe Price Dividend Growth N/A N/A
WRL T. Rowe Price Small Cap N/A N/A
WRL Salomon All Cap N/A N/A
WRL Pilgrim Baxter Mid Cap Growth N/A N/A
WRL Dreyfus Mid Cap N/A N/A
WRL Value Line Aggressive Growth N/A N/A
WRL Great Companies -- America(SM) N/A N/A
WRL Great Companies -- Technology(SM) N/A N/A
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A
<CAPTION>
10 YEARS INCEPTION OF THE SUBACCOUNT
ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99** DATE**
<S> <C> <C> <C>
WRL J.P. Morgan Money Market* 2.55% 2.80% 02/24/1989
WRL AEGON Bond 5.06% 5.74% 02/24/1989
WRL Janus Growth 21.00% 22.38% 02/24/1989
WRL Janus Global N/A 25.11% 12/03/1992
WRL LKCM Strategic Total Return N/A 11.16% 03/01/1993
WRL VKAM Emerging Growth N/A 29.76% 03/01/1993
WRL Alger Aggressive Growth N/A 27.41% 03/01/1994
WRL AEGON Balanced N/A 5.68% 03/01/1994
WRL Federated Growth & Income N/A 5.96% 03/01/1994
WRL Dean Asset Allocation N/A 7.23% 01/03/1995
WRL C.A.S.E. Growth N/A 15.62% 05/01/1995
WRL NWQ Value Equity N/A 6.97% 05/01/1996
WRL GE International Equity N/A 10.50% 01/02/1997
WRL GE U.S. Equity N/A 18.47% 01/02/1997
WRL Third Avenue Value N/A (2.11)% 01/02/1998
WRL J.P. Morgan Real Estate Securities N/A (18.21)% 05/01/1998
WRL Goldman Sachs Growth N/A 8.39% 05/03/1999
WRL Goldman Sachs Small Cap N/A 8.29% 05/03/1999
WRL T. Rowe Price Dividend Growth N/A (16.20)% 05/03/1999
WRL T. Rowe Price Small Cap N/A 29.12% 05/03/1999
WRL Salomon All Cap N/A 6.48% 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth N/A 68.14% 05/03/1999
WRL Dreyfus Mid Cap N/A (1.78)% 05/03/1999
WRL Value Line Aggressive Growth N/A N/A 05/01/2000
WRL Great Companies -- America(SM) N/A N/A 05/01/2000
WRL Great Companies -- Technology(SM) N/A N/A 05/01/2000
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A 05/01/2000
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** Refers to the date when the separate account first invested in the
underlying portfolios.
67
<PAGE>
NON-STANDARDIZED PERFORMANCE DATA
In addition to the standardized 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-standardized formats for the
subaccounts. The non-standardized 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-standardized performance data will be advertised only if the
standardized performance data as shown in Tables 1 and 2, 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-standardized average annual total returns for periods from inception of the
subaccounts investing in the underlying portfolios to December 31, 1999, and
for the one, five and ten year periods ended December 31, 1999 are shown in
Table 3 below. Total returns shown reflect deductions of 1.25% for the
mortality and expense risk charge for the standard death benefit, 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-standardized total
returns of Table 3 adjusted to reflect 1.40% for the mortality and expense risk
charge (assuming selection of the compounding minimum death benefit), 0.40% for
the administrative charge and $30 for the annual Contract charge. THE OPTIONAL
GUARANTEED MINIMUM INCOME BENEFIT RIDER CHARGE OF 0.30% OF MAV HAS NOT BEEN
DEDUCTED. 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 and that no
Premium Enhancement is credited.
68
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF STANDARD DEATH BENEFIT
WITHOUT THE GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.65%)
1 YEAR 5 YEARS
ENDED ENDED
SUBACCOUNT 12/31/99 12/31/99
<S> <C> <C>
WRL J.P. Morgan Money Market* 2.97% 3.16%
WRL AEGON Bond (4.68)% 5.29%
WRL Janus Growth 56.81% 37.19%
WRL Janus Global 68.04% 30.37%
WRL LKCM Strategic Total Return 10.06% 14.25%
WRL VKAM Emerging Growth 101.49% 40.20%
WRL Alger Aggressive Growth 66.00% 33.98%
WRL AEGON Balanced 1.18% 9.19%
WRL Federated Growth & Income (6.17)% 9.25%
WRL Dean Asset Allocation (7.33)% N/A
WRL C.A.S.E. Growth 31.45% N/A
WRL NWQ Value Equity 6.01% N/A
WRL GE International Equity 22.72% N/A
WRL GE U.S. Equity 16.29% N/A
WRL Third Avenue Value 13.64% N/A
WRL J.P. Morgan Real Estate Securities (5.50)% N/A
WRL Goldman Sachs Growth N/A N/A
WRL Goldman Sachs Small Cap N/A N/A
WRL T. Rowe Price Dividend Growth N/A N/A
WRL T. Rowe Price Small Cap N/A N/A
WRL Salomon All Cap N/A N/A
WRL Pilgrim Baxter Mid Cap Growth N/A N/A
WRL Dreyfus Mid Cap N/A N/A
WRL Value Line Aggressive Growth N/A N/A
WRL Great Companies -- America(SM) N/A N/A
WRL Great Companies -- Technology(SM) N/A N/A
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A
<CAPTION>
10 YEARS INCEPTION OF THE SUBACCOUNT
ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99** DATE**
<S> <C> <C> <C>
WRL J.P. Morgan Money Market* 2.71% 2.97% 02/24/1989
WRL AEGON Bond 5.23% 5.91% 02/24/1989
WRL Janus Growth 21.20% 22.58% 02/24/1989
WRL Janus Global N/A 25.41% 12/03/1992
WRL LKCM Strategic Total Return N/A 11.63% 03/01/1993
WRL VKAM Emerging Growth N/A 30.08% 03/01/1993
WRL Alger Aggressive Growth N/A 27.86% 03/01/1994
WRL AEGON Balanced N/A 6.46% 03/01/1994
WRL Federated Growth & Income N/A 6.74% 03/01/1994
WRL Dean Asset Allocation N/A 8.25% 01/03/1995
WRL C.A.S.E. Growth N/A 16.51% 05/01/1995
WRL NWQ Value Equity N/A 8.63% 05/01/1996
WRL GE International Equity N/A 12.73% 01/02/1997
WRL GE U.S. Equity N/A 20.45% 01/02/1997
WRL Third Avenue Value N/A 1.89% 01/02/1998
WRL J.P. Morgan Real Estate Securities N/A (12.95)% 05/01/1998
WRL Goldman Sachs Growth N/A 16.15% 05/03/1999
WRL Goldman Sachs Small Cap N/A 16.05% 05/03/1999
WRL T. Rowe Price Dividend Growth N/A (8.47)% 05/03/1999
WRL T. Rowe Price Small Cap N/A 36.89% 05/03/1999
WRL Salomon All Cap N/A 14.24% 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth N/A 75.95% 05/03/1999
WRL Dreyfus Mid Cap N/A 5.96% 05/03/1999
WRL Value Line Aggressive Growth N/A N/A 05/01/2000
WRL Great Companies -- America(SM) N/A N/A 05/01/2000
WRL Great Companies -- Technology(SM) N/A N/A 05/01/2000
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A 05/01/2000
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** Refers to the date when the separate account first invested in the
underlying portfolios.
69
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
NON-STANDARDIZED AVERAGE TOTAL RETURNS
(ASSUMES NO SURRENDER AND SELECTION OF
COMPOUNDING MINIMUM DEATH BENEFIT
WITHOUT THE GUARANTEED MINIMUM INCOME BENEFIT RIDER)
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.80%)
1 YEAR 5 YEARS
ENDED ENDED
SUBACCOUNT 12/31/99 12/31/99
<S> <C> <C>
WRL J.P. Morgan Money Market* 2.83% 3.00%
WRL AEGON Bond (4.81)% 5.12%
WRL Janus Growth 56.60% 36.98%
WRL Janus Global 67.81% 30.17%
WRL LKCM Strategic Total Return 9.91% 14.07%
WRL VKAM Emerging Growth 101.21% 39.98%
WRL Alger Aggressive Growth 65.77% 33.77%
WRL AEGON Balanced 1.04% 9.02%
WRL Federated Growth & Income (6.29)% 9.08%
WRL Dean Asset Allocation (7.46)% N/A
WRL C.A.S.E. Growth 31.26% N/A
WRL NWQ Value Equity 5.87% N/A
WRL GE International Equity 22.55% N/A
WRL GE U.S. Equity 16.13% N/A
WRL Third Avenue Value 13.49% N/A
WRL J.P. Morgan Real Estate Securities (5.63)% N/A
WRL Goldman Sachs Growth N/A N/A
WRL Goldman Sachs Small Cap N/A N/A
WRL T. Rowe Price Dividend Growth N/A N/A
WRL T. Rowe Price Small Cap N/A N/A
WRL Salomon All Cap N/A N/A
WRL Pilgrim Baxter Mid Cap Growth N/A N/A
WRL Dreyfus Mid Cap N/A N/A
WRL Value Line Aggressive Growth N/A N/A
WRL Great Companies -- America(SM) N/A N/A
WRL Great Companies -- Technology(SM) N/A N/A
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A
<CAPTION>
10 YEARS INCEPTION OF THE SUBACCOUNT
ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/99 12/31/99** DATE**
<S> <C> <C> <C>
WRL J.P. Morgan Money Market* 2.55% 2.80% 02/24/1989
WRL AEGON Bond 5.06% 5.74% 02/24/1989
WRL Janus Growth 21.00% 22.38% 02/24/1989
WRL Janus Global N/A 25.22% 12/03/1992
WRL LKCM Strategic Total Return N/A 11.45% 03/01/1993
WRL VKAM Emerging Growth N/A 29.88% 03/01/1993
WRL Alger Aggressive Growth N/A 27.66% 03/01/1994
WRL AEGON Balanced N/A 6.30% 03/01/1994
WRL Federated Growth & Income N/A 6.57% 03/01/1994
WRL Dean Asset Allocation N/A 8.09% 01/03/1995
WRL C.A.S.E. Growth N/A 16.34% 05/01/1995
WRL NWQ Value Equity N/A 8.47% 05/01/1996
WRL GE International Equity N/A 12.56% 01/02/1997
WRL GE U.S. Equity N/A 20.27% 01/02/1997
WRL Third Avenue Value N/A 1.75% 01/02/1998
WRL J.P. Morgan Real Estate Securities N/A (13.07)% 05/01/1998
WRL Goldman Sachs Growth N/A 16.05% 05/03/1999
WRL Goldman Sachs Small Cap N/A 15.95% 05/03/1999
WRL T. Rowe Price Dividend Growth N/A (8.55)% 05/03/1999
WRL T. Rowe Price Small Cap N/A 36.77% 05/03/1999
WRL Salomon All Cap N/A 14.14% 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth N/A 75.79% 05/03/1999
WRL Dreyfus Mid Cap N/A 5.87% 05/03/1999
WRL Value Line Aggressive Growth N/A N/A 05/01/2000
WRL Great Companies -- America(SM) N/A N/A 05/01/2000
WRL Great Companies -- Technology(SM) N/A N/A 05/01/2000
Fidelity VIP Equity-Income Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP II Contrafund/registered trademark/ Portfolio -- Service Class 2 N/A N/A 05/01/2000
Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 N/A N/A 05/01/2000
</TABLE>
* Yield more closely reflects the current earnings of the WRL J.P. Morgan
Money Market subaccount than its total return.
** Refers to the date when the separate account first invested in the
underlying portfolios.
70
<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 would
include data that precedes the inception dates of the subaccounts investing in
the underlying portfolios. 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 subaccounts
available under the Contract were 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.
Because the separate account has been invested in portfolio shares since
the inception of the class of portfolio shares held by the separate account,
the adjusted historic portfolio data for the Contract corresponds to the
performance data displayed in Tables 1 through 4 of this Appendix B.
WRL00350-5/2000
71
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WRL FREEDOM ENHANCER
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 Enhancer(SM) Variable Annuity offered by
Western Reserve Life Assurance Co. of Ohio. You may obtain a copy of the
prospectus dated May 17, 2000, 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: MAY 17, 2000
WRL00351-5/2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS OF SPECIAL TERMS....................................................................... 1
THE CONTRACT--GENERAL PROVISIONS................................................................... 3
Owner......................................................................................... 3
Entire Contract............................................................................... 3
Misstatement of Age or Gender................................................................. 3
Addition, Deletion or Substitution of Investments............................................. 3
Annuity Payment Options....................................................................... 4
Death Benefit................................................................................. 5
Assignment.................................................................................... 7
Proof of Age, Gender and Survival............................................................. 7
Non-Participating............................................................................. 7
Employee and Agent Purchases.................................................................. 8
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ........................................................... 8
Tax Status of the Contract.................................................................... 8
Taxation of Western Reserve................................................................... 10
INVESTMENT EXPERIENCE.............................................................................. 11
Accumulation Units............................................................................ 11
Accumulation Unit Value....................................................................... 11
Annuity Unit Value and Annuity Payment Rates.................................................. 12
Guaranteed Minimum Income Benefit Rider (the "Rider") - Hypothetical Illustrations............ 13
HISTORICAL PERFORMANCE DATA ....................................................................... 14
Money Market Yields........................................................................... 14
Other Subaccount Yields....................................................................... 15
Total Returns................................................................................. 16
Other Performance Data........................................................................ 16
Advertising and Sales Literature.............................................................. 17
PUBLISHED RATINGS.................................................................................. 17
ADMINISTRATION..................................................................................... 17
RECORDS AND REPORTS................................................................................ 17
DISTRIBUTION OF THE CONTRACTS...................................................................... 18
OTHER PRODUCTS..................................................................................... 18
CUSTODY OF ASSETS.................................................................................. 18
LEGAL MATTERS...................................................................................... 18
INDEPENDENT ACCOUNTANTS............................................................................ 18
OTHER INFORMATION.................................................................................. 18
FINANCIAL STATEMENTS............................................................................... 19
</TABLE>
i
<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 we use to calculate subaccount
values during the accumulation period.
- --------------------------- ----------------------------------------------------
administrative office The address of our administrative office is:
Western Reserve, Annuity Department, P.O. Box 9051,
Clearwater, Florida 33758-9051.
- --------------------------- ---------------------------------------------------
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.
- --------------------------- ---------------------------------------------------
annuitant The person you named on the application (or later
changed), to receive annuity payments. The annuitant
may be changed as provided in the Contract's death
benefit provisions and annuity provision.
- --------------------------- ---------------------------------------------------
annuity unit value An accounting unit we use to calculate annuity
payments from the subaccounts after the maturity
date.
- --------------------------- ---------------------------------------------------
annuity value The sum of the separate account value and the fixed
account value.
- --------------------------- ----------------------------------------------------
beneficiary(ies) The person(s) you elect to receive the death benefit
proceeds under the Contract.
- --------------------------- ----------------------------------------------------
cash value The annuity value less the annual Contract charge,
any applicable premium taxes, any surrender charge
and any Guaranteed Minimum Income Benefit Rider
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 or 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 Contract years and Contract anniversaries
from the Contract date.
- --------------------------- ----------------------------------------------------
death report day The valuation date on which we have received both
proof of the annuitant's death and your
beneficiary's election regarding payment.
- --------------------------- ----------------------------------------------------
fixed account An option to which you can direct money under the
Contract, other than the separate account. It
provides a guarantee of principal and interest. The
assets supporting the fixed account are held in the
general account. The fixed account may not be
available in all states.
- --------------------------- ----------------------------------------------------
fixed account value During the accumulation period, your Contract's
value in the fixed account.
- --------------------------- ---------------------------------------------------
funds Investment companies which are registered with the
U.S. Securities and Exchange Commission. The
Contract allows you to invest in the portfolios of
the funds through our subaccounts. We reserve the
right to add other registered investment companies
to the 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. The latest maturity date is
the annuitant's 95th birthday. For Contracts issued
in conjunction with the Net Income Charitable
Remainder Unitrust, the latest maturity date is the
annuitant's 100th birthday.
- --------------------------- ---------------------------------------------------
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. Joint owners may
be named, provided the joint owners are husband and
wife.
- --------------------------- ----------------------------------------------------
portfolio A separate investment portfolio of a fund.
- --------------------------- ---------------------------------------------------
Premium Enhancement Premium Enhancements are amounts we add to your
annuity value. Premium Enhancements are not
considered premiums.
- --------------------------- ----------------------------------------------------
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, your 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 portfolio hold assets under
the Contract during the accumulation period. Other
subaccounts corresponding to each portfolio will
hold assets after the maturity date if you select a
variable annuity option.
- --------------------------- ---------------------------------------------------
1
<PAGE>
- --------------------------- ---------------------------------------------------
Surrender The termination of a Contract at the option of the
owner.
- --------------------------- ---------------------------------------------------
valuation date/business Each day on which the NYSE is open for trading,
day 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. When
we use the term "business day" it has the same
meaning as valuation date.
- --------------------------- ----------------------------------------------------
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.
- --------------------------- ----------------------------------------------------
Western Reserve (we, us, Western Reserve Life Assurance Co. of Ohio.
our)
- --------------------------- ----------------------------------------------------
2
<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about Western Reserve and the Contract, which may be of
interest to a prospective purchaser.
THE CONTRACT--GENERAL PROVISIONS
OWNER
The Contract shall belong to the owner upon issuance of the Contract after
completion of an application and delivery of the initial 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 may only be a spouse and may be named in the Contract application
or in a written notice. The surviving joint owner will become the sole 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, provided no beneficiary is named and
alive. However, if a beneficiary is named and alive, the beneficiary will
receive the death benefit.
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 a fund and to substitute
shares of another portfolio of a fund (or of another open-end registered
investment company) if the shares of a portfolio are no longer available for
investment or, if in our 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 a fund, or in shares of another investment
company, with a specified investment objective. New subaccounts may be
established when, in the sole
3
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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.
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 Scale G 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.
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DEATH BENEFIT
ADJUSTED PARTIAL SURRENDER. A partial surrender will reduce the amount of your
annual 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 annual 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 ANNUAL STEP-UP
DEATH BENEFIT OR COMPOUNDING MINIMUM DEATH BENEFIT, AND ANNUITY VALUE.
- -------------------------------------------------------------------------------
EXAMPLE 1
(ASSUMED FACTS FOR EXAMPLE)
- ----------------- -------------------------------------------------------------
$75,000 current annual step-up death benefit (ASUDB) 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 ASUDB 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 = 5,000 + 319.15
- ----------------- -------------------------------------------------------------
$22,500 adjusted partial surrender = $15,000* (75,000/50,000)
- ----------------- -------------------------------------------------------------
$52,500 new ASUDB or CMDB (after partial surrender) = 75,000 - 22,500
- ----------------- -------------------------------------------------------------
$34,680.85 new annuity value (after partial surrender) = 50,000 -
10,000 - 5,319.15
- ----------------- -------------------------------------------------------------
SUMMARY:
Reduction in ASUDB or CMDB = $22,500.00
Reduction in annuity value = $15,319.15
NOTE: The ASUDB or CMDB is reduced more than the annuity value since the ASUDB
or CMDB was greater than the annuity value just prior to the partial surrender.
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- --------------------------------------------------------------------------------
EXAMPLE 2
(Assumed Facts for Example)
- ---------------- ---------------------------------------------------------------
$50,000 current annual step-up death benefit (ASUDB) 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 ASUDB 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 = 3,750 + 239.36
- ---------------- ---------------------------------------------------------------
$15,000 adjusted partial surrender = $15,000* (75,000/75,000)
- ---------------- ---------------------------------------------------------------
$35,000 new ASUDB 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 ASUDB or CMDB = $15,000.00
Reduction in annuity value = $15,239.36
NOTE: The ASUDB or CMDB and annuity value are reduced by the same amount since
the annuity value was higher than the ASUDB or AMDB just prior to the partial
surrender.
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 on
page 8 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.
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<PAGE>
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. The new owner generally must surrender the Contract for the annuity
value within five years of the annuitant's death.
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 8.)
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 charge 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 charge 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.
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 the request is received at our administrative office
and is 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.
7
<PAGE>
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 funds and their 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 funds) will be structured to comply with the
diversification standards because it serves as the investment vehicle for
nonqualified contracts as well as qualified contracts.
OWNER CONTROL. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possesses incidents
of 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. 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.
8
<PAGE>
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 the Contracts and 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.
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. If your Contract is used in
connection with an IRA, only rollover or transfer contributions are permitted.
No regular contributions may be made. 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.
9
<PAGE>
No part of the funds for an IRA, including a Roth 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 as an IRA. 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 to the rollover or conversion and to
distributions attributable thereto. 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 modified 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. As with the traditional IRA, only
rollover or transfer contributions are permitted. 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 of the individual 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 generally 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.
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
10
<PAGE>
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 a 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 by the Premium Enhancement payment on initial or additional
premium payments; plus
4. Units purchased through transfers from another subaccount or the fixed
account; minus
5. Any units that are redeemed to pay for partial surrenders; minus
6. Any units that are redeemed as part of a transfer to another subaccount or
the fixed account; minus
7. 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
determined by multiplying the accumulation unit value for that subaccount at the
end of the immediately preceding valuation period by the net investment factor
for that subaccount for the current valuation period.
During the accumulation period, the net investment factor measures investment
experience for a valuation period. Each subaccount has its own distinct net
investment factor. The net investment factor for the Contract used to calculate
the value of an accumulation 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 mortality and expense risk charge.
This factor is equal, on an annual basis, to 1.40% of the daily
net asset value of each subaccount.
11
<PAGE>
During the accumulation period, the mortality and expense risk charge is
deducted at an annual rate of 1.25% of net assets for each day in the valuation
period (1.40% 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 including
the separate account annuitization charge that will equal an annual rate of
1.40%) exceeds the assumed interest rate of 5% annually. Conversely, annuity
unit values fall if the net investment performance of the subaccount is less
than the assumed rate. The value of a variable annuity unit in each subaccount
was established at $10.00 on the date operations began for that subaccount. The
value of a variable annuity unit on any subsequent business day is equal to (a)
multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the
valuation period; and
(c) is the investment return adjustment factor for the valuation
period.
The investment return adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
assumed investment return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
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 each 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. See
Determination of the First Variable Payment on page 4 of this SAI.
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity unit value = ABC
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume.............................................................................. = $ X
12
<PAGE>
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
Then, the annuity unit value is:....$ XYZ = $Q
</TABLE>
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF
FIRST MONTHLY VARIABLE ANNUITY PAYMENT
First monthly variable annuity payment = A B
------
$1,000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Where: A = The annuity value as of the maturity date.
Assume......................................................................... = $ X
B = The annuity purchase rate per $1,000 based upon the option selected, the gender and adjusted age of the
annuitant according to the tables contained in the Contract.
Assume......................................................................... = $ Y
Then, the first monthly variable annuity payment = $XY = $Z
--------
1,000
</TABLE>
FORMULA AND ILLUSTRATION FOR DETERMINING THE NUMBER OF ANNUITY UNITS
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
Number of annuity units = A
--
B
<TABLE>
<CAPTION>
<S> <C> <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
Then, the number of annuity units = $ X = Z
---
$ Y
</TABLE>
GUARANTEED MINIMUM INCOME BENEFIT RIDER (THE "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.
13
<PAGE>
<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
- ----------------------- ----------------- --------------- --------------- ---------------- --------------- --------------
</TABLE>
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with
10 Years Certain
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 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.
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<PAGE>
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 8% 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 35 of the prospectus.) No fees or sales charges are assessed upon
annuitization under the Contracts, except premium taxes. Realized gains and
losses from the sale of securities, and unrealized appreciation and depreciation
of assets held by the WRL J.P. Morgan Money Market subaccount and the fund are
excluded from the calculation of yield.
The yield on amounts held in the WRL J.P. Morgan Money Market subaccount
normally will fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The WRL J.P. Morgan Money Market subaccount actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the WRL J.P. Morgan Money Market, the types and quality of
portfolio securities held by the WRL J.P. Morgan Money Market and its operating
expenses.
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 a 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 8% 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 35 of the prospectus.)
15
<PAGE>
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.
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 first date any subaccounts
investing in an underlying portfolio 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 adjusted to reflect current subaccount
charges and the crediting of the Premium Enhancement to the initial premium
payment, 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 $1,000 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 current
fees that are charged under the Contract to all owner accounts during the
accumulation period, except the 0.30% for the original Rider, and the crediting
of the Premium Enhancement to the initial premium payment. 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.) The calculations
do not reflect the 0.30% charge for the optional 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.
OTHER PERFORMANCE DATA
We may present the total return data stated in the prospectus on a
non-standardized basis. This means that the data will not be increased by any
Premium Enhancement or reduced by the surrender charge under the Contract and
that the data may be presented for different time periods and for different
premium payment amounts. NON-STANDARDIZED PERFORMANCE DATA WILL ONLY BE
DISCLOSED IF STANDARDIZED 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 1.25% (1.40% if the compounding minimum death benefit is added), the
administrative charge of 0.40% 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. THE CHARGE FOR THE OPTIONAL RIDER OF 0.30% OF
THE MINIMUM ANNUITIZATION VALUE WILL NOT BE DEDUCTED.
16
<PAGE>
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 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 funds or their 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.
17
<PAGE>
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 4.0% of premium payments.
In addition, broker-dealers may receive trail commissions ranging from 0.20% to
0.90% of the annuity value (excluding the fixed account) in each Contract year,
starting at the end of the first quarter of the second Contract year, provided
the Contract has an annuity value of $10,000 or more in the subaccounts. 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 higher 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 funds.
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.,
Senior Vice President, General Counsel and Assistant Secretary of Western
Reserve.
INDEPENDENT ACCOUNTANTS
The accounting firm of PricewaterhouseCoopers LLP, independent certified public
accountants, provided audit services to the separate account for the year ended
December 31, 1999. The principal business address of PricewaterhouseCoopers LLP
is 400 North Ashley Street, Suite 2800, Tampa, Florida 33602-4319. The
accounting firm of Ernst & Young LLP, independent auditors, provided audit
services to Western Reserve for the year ended December 31, 1999. The principal
business address of Ernst & Young LLP is 801 Grand Avenue, Suite 3400, Des
Moines, Iowa 50309-2764.
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.
18
<PAGE>
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.
Financial statements for Western Reserve as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 have been
prepared on the basis of statutory accounting principles, rather than generally
accepted accounting principles.
19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC 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 statements of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
each of the Subaccounts constituting the WRL Series Annuity Account (a separate
account of Western Reserve Life Assurance Co. of Ohio ("WRL")) at December 31,
1999, the results of each of their operations, the changes in each of their net
assets and financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of WRL's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
[GRAPHIC OMITTED]
PricewaterhouseCoopers LLP
Tampa, Florida
February 16, 2000
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................... 367,330 11,747 34,589 38,303
======= ====== ====== ======
Cost ................................................. $ 367,330 $ 135,532 $ 1,620,829 $ 837,123
========= ========= =========== ===========
Investment, at net asset value ........................ $ 367,330 $ 124,601 $ 2,697,769 $ 1,434,873
Transfers receivable from depositor ................... 866 0 982 820
--------- --------- ----------- -----------
Total assets ......................................... 368,196 124,601 2,698,751 1,435,693
--------- --------- ----------- -----------
LIABILITIES:
Accrued expenses ...................................... 0 0 0 0
Transfers payable to depositor ........................ (1,878) (435) (1,415) (500)
--------- --------- ----------- -----------
Total liabilities .................................... (1,878) (435) (1,415) (500)
--------- --------- ----------- -----------
Net assets ........................................... $ 366,318 $ 124,166 $ 2,697,336 $ 1,435,193
========= ========= =========== ===========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 96,984 $ 37,241 $ 1,166,818 $ 458,385
Class B ............................................. 269,284 86,875 1,530,405 976,752
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's equity:
Class A ............................................. 0 0 0 0
Class B ............................................. 0 0 59 0
Class C ............................................. 25 25 27 28
Class D ............................................. 25 25 27 28
--------- --------- ----------- -----------
Net assets applicable to units outstanding ......... $ 366,318 $ 124,166 $ 2,697,336 $ 1,435,193
========= ========= =========== ===========
Contract Owners' units:
Class A ............................................. 6,518 1,843 11,831 8,767
Class B ............................................. 21,724 6,281 32,274 18,875
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's units:
Class A ............................................. 0 0 0 0
Class B ............................................. 0 0 1 0
Class C ............................................. 3 3 3 3
Class D ............................................. 3 3 3 3
--------- --------- ----------- -----------
Units outstanding .................................. 28,248 8,130 44,112 27,648
========= ========= =========== ===========
Accumulation unit value - Class A ................... $ 14.88 $ 20.20 $ 98.62 $ 52.29
========= ========= =========== ===========
Accumulation unit value - Class B ................... $ 12.40 $ 13.83 $ 47.42 $ 51.75
========= ========= =========== ===========
Accumulation unit value - Class C ................... $ 10.05 $ 9.98 $ 10.87 $ 11.39
========= ========= =========== ===========
Accumulation unit value - Class D ................... $ 10.05 $ 9.98 $ 10.87 $ 11.39
========= ========= =========== ===========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investments in WRL Series Fund, Inc.:
Shares ............................................... 30,439 27,834 22,415 6,993
====== ====== ====== =====
Cost ................................................. $ 444,233 $ 742,889 $ 464,568 $ 85,165
========= =========== ========= ========
Investment, at net asset value ........................ $ 512,796 $ 1,280,534 $ 745,871 $ 88,532
Transfers receivable from depositor ................... 353 1,389 277 0
--------- ----------- --------- --------
Total assets ......................................... 513,149 1,281,923 746,148 88,532
--------- ----------- --------- --------
LIABILITIES:
Accrued expenses ...................................... 0 0 0 0
Transfers payable to depositor ........................ (48) (148) (32) (94)
--------- ----------- --------- --------
Total liabilities .................................... (48) (148) (32) (94)
--------- ----------- --------- --------
Net assets ........................................... $ 513,101 $ 1,281,775 $ 746,116 $ 88,438
========= =========== ========= ========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 156,928 $ 390,626 $ 170,691 $ 21,830
Class B ............................................. 356,072 891,089 575,367 66,558
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's equity:
Class A ............................................. 0 0 0 0
Class B ............................................. 49 0 0 0
Class C ............................................. 26 30 29 25
Class D ............................................. 26 30 29 25
--------- ----------- --------- --------
Net assets applicable to units outstanding ......... $ 513,101 $ 1,281,775 $ 746,116 $ 88,438
========= =========== ========= ========
Contract Owners' units:
Class A ............................................. 7,040 6,154 3,898 1,453
Class B ............................................. 16,135 14,179 13,252 4,467
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's units:
Class A ............................................. 0 0 0 0
Class B ............................................. 2 0 0 0
Class C ............................................. 3 3 3 3
Class D ............................................. 3 3 3 3
--------- ----------- --------- --------
Units outstanding .................................. 23,183 20,339 17,156 5,926
========= =========== ========= ========
Accumulation unit value - Class A ................... $ 22.29 $ 63.48 $ 43.79 $ 15.03
========= =========== ========= ========
Accumulation unit value - Class B ................... $ 22.07 $ 62.85 $ 43.42 $ 14.90
========= =========== ========= ========
Accumulation unit value - Class C ................... $ 10.32 $ 12.11 $ 11.70 $ 10.00
========= =========== ========= ========
Accumulation unit value - Class D ................... $ 10.32 $ 12.11 $ 11.70 $ 10.00
========= =========== ========= ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN ASSET C.A.S.E. NWQ
INCOME ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................... 5,239 18,679 4,183 8,647
===== ====== ===== =====
Cost ................................................. $ 64,802 $ 250,586 $ 61,945 $ 117,027
======== ========= ======== =========
Investment, at net asset value ........................ $ 57,131 $ 226,587 $ 65,682 $ 110,415
Transfers receivable from depositor ................... 1 0 0 0
-------- --------- -------- ---------
Total assets ......................................... 57,132 226,587 65,682 110,415
-------- --------- -------- ---------
LIABILITIES:
Accrued expenses ...................................... 0 0 0 0
Transfers payable to depositor ........................ (25) (342) (83) (314)
-------- --------- -------- ---------
Total liabilities .................................... (25) (342) (83) (314)
-------- --------- -------- ---------
Net assets ........................................... $ 57,107 $ 226,245 $ 65,599 $ 110,101
======== ========= ======== =========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 11,318 $ 59,161 $ 14,425 $ 32,947
Class B ............................................. 45,739 167,034 51,124 77,102
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's equity:
Class A ............................................. 0 0 0 0
Class B ............................................. 0 0 0 0
Class C ............................................. 25 25 25 26
Class D ............................................. 25 25 25 26
-------- --------- -------- ---------
Net assets applicable to units outstanding ......... $ 57,107 $ 226,245 $ 65,599 $ 110,101
======== ========= ======== =========
Contract Owners' units:
Class A ............................................. 742 3,845 684 2,371
Class B ............................................. 3,024 10,939 3,137 5,579
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's units:
Class A ............................................. 0 0 0 0
Class B ............................................. 0 0 0 0
Class C ............................................. 3 3 3 3
Class D ............................................. 3 3 3 3
-------- --------- -------- ---------
Units outstanding .................................. 3,772 14,790 3,827 7,956
======== ========= ======== =========
Accumulation unit value - Class A ................... $ 15.26 $ 15.38 $ 21.10 $ 13.90
======== ========= ======== =========
Accumulation unit value - Class B ................... $ 15.13 $ 15.27 $ 16.30 $ 13.82
======== ========= ======== =========
Accumulation unit value - Class C ................... $ 10.07 $ 9.91 $ 10.05 $ 10.42
======== ========= ======== =========
Accumulation unit value - Class D ................... $ 10.07 $ 9.91 $ 10.05 $ 10.42
======== ========= ======== =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL WRL
EQUITABLE WRL THIRD J.P. MORGAN
INTERNATIONAL GE AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................... 1,850 9,657 1,495 243
===== ===== ===== ===
Cost ................................................. $ 23,929 $ 142,695 $ 13,720 $ 2,057
======== ========= ======== ========
Investment, at net asset value ........................ $ 26,415 $ 152,501 $ 15,626 $ 1,955
Transfers receivable from depositor ................... 0 195 0 130
-------- --------- -------- --------
Total assets ......................................... 26,415 152,696 15,626 2,085
-------- --------- -------- --------
LIABILITIES:
Accrued expenses ...................................... 0 0 0 0
Transfers payable to depositor ........................ (14) (19) (115) 0
-------- --------- -------- --------
Total liabilities .................................... (14) (19) (115) 0
-------- --------- -------- --------
Net assets ........................................... $ 26,401 $ 152,677 $ 15,511 $ 2,085
======== ========= ======== ========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 5,881 $ 32,459 $ 5,309 $ 207
Class B ............................................. 20,464 120,166 10,148 1,386
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's equity:
Class A ............................................. 0 0 0 200
Class B ............................................. 0 0 0 240
Class C ............................................. 28 26 27 26
Class D ............................................. 28 26 27 26
-------- --------- -------- --------
Net assets applicable to units outstanding ......... $ 26,401 $ 152,677 $ 15,511 $ 2,085
======== ========= ======== ========
Contract Owners' units:
Class A ............................................. 403 1,823 505 26
Class B ............................................. 1,408 6,781 968 173
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's units:
Class A ............................................. 0 0 0 25
Class B ............................................. 0 0 0 30
Class C ............................................. 3 3 3 3
Class D ............................................. 3 3 3 3
-------- --------- -------- --------
Units outstanding .................................. 1,817 8,610 1,479 260
======== ========= ======== ========
Accumulation unit value - Class A ................... $ 14.60 $ 17.80 $ 10.51 $ 8.02
======== ========= ======== ========
Accumulation unit value - Class B ................... $ 14.54 $ 17.72 $ 10.48 $ 8.00
======== ========= ======== ========
Accumulation unit value - Class C ................... $ 11.12 $ 10.42 $ 10.66 $ 10.40
======== ========= ======== ========
Accumulation unit value - Class D ................... $ 11.12 $ 10.42 $ 10.66 $ 10.40
======== ========= ======== ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................... 612 214 886 660
=== === === ===
Cost ................................................. $ 6,229 $ 2,267 $ 8,474 $ 7,269
======== ======== ======== ========
Investment, at net asset value ........................ $ 7,196 $ 2,395 $ 8,207 $ 8,850
Transfers receivable from depositor ................... 40 23 1 45
-------- -------- -------- --------
Total assets ......................................... 7,236 2,418 8,208 8,895
-------- -------- -------- --------
LIABILITIES:
Accrued expenses ...................................... 0 0 0 0
Transfers payable to depositor ........................ 0 0 0 0
-------- -------- -------- --------
Total liabilities .................................... 0 0 0 0
-------- -------- -------- --------
Net assets ........................................... $ 7,236 $ 2,418 $ 8,208 $ 8,895
======== ======== ======== ========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 1,055 $ 167 $ 1,605 $ 3,669
Class B ............................................. 5,574 1,644 6,117 4,587
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's equity:
Class A ............................................. 262 262 207 240
Class B ............................................. 291 291 229 343
Class C ............................................. 27 27 25 28
Class D ............................................. 27 27 25 28
-------- -------- -------- --------
Net assets applicable to units outstanding ......... $ 7,236 $ 2,418 $ 8,208 $ 8,895
======== ======== ======== ========
Contract Owners' units:
Class A ............................................. 91 14 175 267
Class B ............................................. 479 141 667 334
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
Depositor's units:
Class A ............................................. 23 23 23 18
Class B ............................................. 25 25 25 25
Class C ............................................. 3 3 3 3
Class D ............................................. 3 3 3 3
-------- -------- -------- --------
Units outstanding .................................. 624 209 896 650
======== ======== ======== ========
Accumulation unit value - Class A ................... $ 11.65 $ 11.64 $ 9.18 $ 13.73
======== ======== ======== ========
Accumulation unit value - Class B ................... $ 11.64 $ 11.63 $ 9.17 $ 13.72
======== ======== ======== ========
Accumulation unit value - Class C ................... $ 10.73 $ 10.89 $ 9.87 $ 11.40
======== ======== ======== ========
Accumulation unit value - Class D ................... $ 10.73 $ 10.89 $ 9.87 $ 11.40
======== ======== ======== ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................... 561 1,809 283
=== ===== ===
Cost ................................................. $ 6,031 $ 22,992 $ 2,891
======== ========= ========
Investment, at net asset value ........................ $ 6,271 $ 32,102 $ 3,029
Transfers receivable from depositor ................... 22 222 50
-------- --------- --------
Total assets ......................................... 6,293 32,324 3,079
-------- --------- --------
LIABILITIES:
Accrued expenses ...................................... 0 0 0
Transfers payable to depositor ........................ 0 0 0
-------- --------- --------
Total liabilities .................................... 0 0 0
-------- --------- --------
Net assets ........................................... $ 6,293 $ 32,324 $ 3,079
======== ========= ========
NET ASSETS CONSISTS OF:
Contract Owners' equity:
Class A ............................................. $ 1,116 $ 6,660 $ 561
Class B ............................................. 4,581 25,604 1,962
Class C ............................................. 0 0 0
Class D ............................................. 0 0 0
Depositor's equity:
Class A ............................................. 258 0 239
Class B ............................................. 286 0 265
Class C ............................................. 26 30 26
Class D ............................................. 26 30 26
-------- --------- --------
Net assets applicable to units outstanding ......... $ 6,293 $ 32,324 $ 3,079
======== ========= ========
Contract Owners' units:
Class A ............................................. 97 377 53
Class B ............................................. 400 1,452 185
Class C ............................................. 0 0 0
Class D ............................................. 0 0 0
Depositor's units:
Class A ............................................. 23 0 23
Class B ............................................. 25 0 25
Class C ............................................. 3 3 3
Class D ............................................. 3 3 3
-------- --------- --------
Units outstanding .................................. 551 1,835 292
======== ========= ========
Accumulation unit value - Class A ................... $ 11.46 $ 17.65 $ 10.63
======== ========= ========
Accumulation unit value - Class B ................... $ 11.45 $ 17.63 $ 10.62
======== ========= ========
Accumulation unit value - Class C ................... $ 10.46 $ 12.09 $ 10.51
======== ========= ========
Accumulation unit value - Class D ................... $ 10.46 $ 12.09 $ 10.51
======== ========= ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 11,065 $ 7,190 $ 39,761 $ 0
Capital gain distributions ................................ 0 0 431,307 93,912
-------- --------- --------- ---------
Total investment income .................................. 11,065 7,190 471,068 93,912
-------- --------- --------- ---------
EXPENSES:
Mortality and expense risk:
Class A ................................................. 885 546 11,640 4,131
Class B ................................................. 2,243 1,266 15,310 9,006
Class C ................................................. 0 0 0 0
Class D ................................................. 0 0 0 0
-------- --------- --------- ---------
Total expenses ......................................... 3,128 1,812 26,950 13,137
-------- --------- --------- ---------
Net investment income (loss) ............................. 7,937 5,378 444,118 80,775
-------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 0 1,119 159,503 75,281
Change in unrealized appreciation (depreciation) .......... 0 (12,394) 370,303 425,741
-------- --------- --------- ---------
Net gain (loss) on investment securities ................. 0 (11,275) 529,806 501,022
-------- --------- --------- ---------
Net increase (decrease) in net assets resulting
from operations ....................................... $ 7,937 $ (5,897) $ 973,924 $ 581,797
======== ========= ========= =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 10,373 $ 5,955 $ 32,212 $ 1,817
Capital gain distributions ................................ 32,562 174,041 48,122 0
--------- --------- --------- --------
Total investment income .................................. 42,935 179,996 80,334 1,817
--------- --------- --------- --------
EXPENSES:
Mortality and expense risk:
Class A ................................................. 1,949 3,036 1,538 272
Class B ................................................. 4,673 7,170 5,178 914
Class C ................................................. 0 0 0 0
Class D ................................................. 0 0 0 0
--------- --------- --------- --------
Total expenses ......................................... 6,622 10,206 6,716 1,186
--------- --------- --------- --------
Net investment income (loss) ............................. 36,313 169,790 73,618 631
--------- --------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 25,051 98,709 38,716 2,671
Change in unrealized appreciation (depreciation) .......... (11,686) 366,224 174,915 (2,221)
--------- --------- --------- --------
Net gain (loss) on investment securities ................. 13,365 464,933 213,631 450
--------- --------- --------- --------
Net increase (decrease) in net assets resulting
from operations ....................................... $ 49,678 $ 634,723 $ 287,249 $ 1,081
========= ========= ========= ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN ASSET C.A.S.E. NWQ
INCOME ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................... $ 3,843 $ 7,767 $ 6,318 $ 987
Capital gain distributions ............................ 500 1,374 0 1,702
--------- ---------- -------- -------
Total investment income .............................. 4,343 9,141 6,318 2,689
--------- ---------- -------- -------
EXPENSES:
Mortality and expense risk:
Class A ............................................. 170 929 177 456
Class B ............................................. 697 2,982 642 1,237
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
--------- ---------- -------- -------
Total expenses ..................................... 867 3,911 819 1,693
--------- ---------- -------- -------
Net investment income (loss) ......................... 3,476 5,230 5,499 996
--------- ---------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ..... (221) 8,077 1,994 (949)
Change in unrealized appreciation (depreciation) ...... (7,068) (33,009) 8,116 6,231
--------- ---------- -------- -------
Net gain (loss) on investment securities ............. (7,289) (24,932) 10,110 5,282
--------- ---------- -------- -------
Net increase (decrease) in net assets resulting
from operations ................................... $ (3,813) $ (19,702) $ 15,609 $ 6,278
========= ========== ======== =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL WRL
EQUITABLE WRL THIRD J.P. MORGAN
INTERNATIONAL GE AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................... $ 95 $ 4,587 $ 436 49
Capital gain distributions ............................ 1,234 6,500 0 0
------- -------- ------- --
Total investment income .............................. 1,329 11,087 436 49
------- -------- ------- --
EXPENSE:
Mortality and expense risk:
Class A ............................................. 73 344 71 6
Class B ............................................. 288 1,385 131 24
Class C ............................................. 0 0 0 0
Class D ............................................. 0 0 0 0
------- -------- ------- --
Total expenses ..................................... 361 1,729 202 30
------- -------- ------- --
Net investment income (loss) ......................... 968 9,358 234 19
------- -------- ------- --
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ..... 3,571 7,340 (823) (165)
Change in unrealized appreciation (depreciation) ...... 1,811 2,118 2,530 (34)
------- -------- ------- ----
Net gain (loss) on investment securities ............. 5,382 9,458 1,707 (199)
------- -------- ------- ----
Net increase (decrease) in net assets resulting
from operations ................................... $ 6,350 $ 18,816 $ 1,941 $ (180)
======= ======== ======= =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 0 $ 83 $ 0 $ 270
Capital gain distributions ................................ 0 0 0 0
------ ----- ------- -------
Total investment income .................................. 0 83 0 270
------ ----- ------- -------
EXPENSES:
Mortality and expense risk:
Class A ................................................. 7 5 9 20
Class B ................................................. 30 11 36 33
Class C ................................................. 0 0 0 0
Class D ................................................. 0 0 0 0
------ ----- ------- -------
Total expenses ......................................... 37 16 45 53
------ ----- ------- -------
Net investment income (loss) ............................. (37) 67 (45) 217
------ ----- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 38 206 (100) 404
Change in unrealized appreciation (depreciation) .......... 967 128 (267) 1,581
------ ----- ------- -------
Net gain (loss) on investment securities ................. 1,005 334 (367) 1,985
------ ----- ------- -------
Net increase (decrease) in net assets resulting
from operations ....................................... $ 968 $ 401 $ (412) $ 2,202
====== ===== ======= =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 187 $ 87 $ 0
Capital gain distributions ................................ 0 0 0
----- -------- -----
Total investment income .................................. 187 87 0
----- -------- -----
EXPENSES:
Mortality and expense risk:
Class A ................................................. 9 21 3
Class B ................................................. 28 84 8
Class C ................................................. 0 0 0
Class D ................................................. 0 0 0
----- -------- -----
Total expenses ......................................... 37 105 11
----- -------- -----
Net investment income (loss) ............................. 150 (18) (11)
----- -------- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 224 1,363 8
Change in unrealized appreciation (depreciation) .......... 240 9,110 138
----- -------- -----
Net gain (loss) on investment securities ................. 464 10,473 146
----- -------- -----
Net increase (decrease) in net assets resulting
from operations ....................................... $ 614 $ 10,455 $ 135
===== ======== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL
J.P. MORGAN AEGON
MONEY MARKET BOND
SUBACCOUNT SUBACCOUNT
------------------------- -------------------------
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1999(1) 1998 1999(1) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 7,937 $ 5,242 $ 5,378 $ 5,213
Net gain (loss) on investment securities ......... 0 0 (11,275) 3,752
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 7,937 5,242 (5,897) 8,965
--------- --------- --------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 291,332 89,466 6,238 39,699
--------- --------- --------- ---------
Less cost of units redeemed:
Administrative charges .......................... 87 67 67 74
Policy loans .................................... 151 10 1 9
Surrender benefits .............................. 73,392 51,046 18,318 15,360
Death benefits .................................. 2,150 2,489 516 1,002
--------- --------- --------- ---------
75,780 53,612 18,902 16,445
--------- --------- --------- ---------
Increase (decrease) in net assets from
capital unit transactions ...................... 215,552 35,854 (12,664) 23,254
--------- --------- --------- ---------
Net increase (decrease) in net assets ........... 223,489 41,096 (18,561) 32,219
Depositor's equity contribution
(net redemption) ................................ 50 0 50 0
NET ASSETS:
Beginning of year ................................ 142,779 101,683 142,677 110,458
--------- --------- --------- ---------
End of year ...................................... $ 366,318 $ 142,779 $ 124,166 $ 142,677
========= ========= ========= =========
<CAPTION>
WRL
JANUS
GROWTH
SUBACCOUNT
------------------------------
DECEMBER 31,
------------------------------
1999(1) 1998
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 444,118 $ (3,071)
Net gain (loss) on investment securities ......... 529,806 619,001
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 973,924 615,930
----------- -----------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 283,212 176,685
----------- -----------
Less cost of units redeemed:
Administrative charges .......................... 1,134 924
Policy loans .................................... 1,099 276
Surrender benefits .............................. 192,295 145,324
Death benefits .................................. 8,618 6,422
----------- -----------
203,146 152,946
----------- -----------
Increase (decrease) in net assets from
capital unit transactions ...................... 80,066 23,739
----------- -----------
Net increase (decrease) in net assets ........... 1,053,990 639,669
Depositor's equity contribution
(net redemption) ................................ 96 0
NET ASSETS:
Beginning of year ................................ 1,643,250 1,003,581
----------- -----------
End of year ...................................... $ 2,697,336 $ 1,643,250
=========== ===========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
JANUS
GLOBAL
SUBACCOUNT
---------------------------
DECEMBER 31,
---------------------------
1999(1) 1998
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 80,775 $ 22,977
Net gain (loss) on investment securities ......... 501,022 153,591
----------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 581,797 176,568
----------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 123,780 84,146
----------- ---------
Less cost of units redeemed:
Administrative charges .......................... 566 531
Policy loans .................................... 596 169
Surrender benefits .............................. 88,761 67,089
Death benefits .................................. 3,381 2,884
----------- ---------
93,304 70,673
----------- ---------
Increase (decrease) in net assets from
capital unit transactions ...................... 30,476 13,473
----------- ---------
Net increase (decrease) in net assets ........... 612,273 190,041
Depositor's equity contribution
(net redemption) ................................ 50 0
NET ASSETS:
Beginning of year ................................ 822,870 632,829
----------- ---------
End of year ...................................... $ 1,435,193 $ 822,870
=========== =========
<CAPTION>
WRL
LKCM WRL
STRATEGIC VKAM
TOTAL RETURN EMERGING GROWTH
SUBACCOUNT SUBACCOUNT
------------------------- ---------------------------
DECEMBER 31, DECEMBER 31,
------------------------- ---------------------------
1999(1) 1998 1999(1) 1998
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 36,313 $ 14,285 $ 169,790 $ 13,033
Net gain (loss) on investment securities ......... 13,365 22,007 464,933 135,100
--------- --------- ----------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 49,678 36,292 634,723 148,133
--------- --------- ----------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 22,908 53,733 132,553 52,394
--------- --------- ----------- ---------
Less cost of units redeemed:
Administrative charges .......................... 235 257 456 370
Policy loans .................................... 130 75 425 81
Surrender benefits .............................. 46,748 41,421 65,473 39,571
Death benefits .................................. 1,980 2,375 2,456 1,824
--------- --------- ----------- ---------
49,093 44,128 68,810 41,846
--------- --------- ----------- ---------
Increase (decrease) in net assets from
capital unit transactions ...................... (26,185) 9,605 63,743 10,548
--------- --------- ----------- ---------
Net increase (decrease) in net assets ........... 23,493 45,897 698,466 158,681
Depositor's equity contribution
(net redemption) ................................ 97 0 50 0
NET ASSETS:
Beginning of year ................................ 489,511 443,614 583,259 424,578
--------- --------- ----------- ---------
End of year ...................................... $ 513,101 $ 489,511 $ 1,281,775 $ 583,259
========= ========= =========== =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
ALGER AEGON FEDERATED
AGGRESSIVE GROWTH BALANCED GROWTH & INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ----------------------- -----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------- ----------------------- -----------------------
1999(1) 1998 1999(1) 1998 1999(1) 1998
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 73,618 $ 15,953 $ 631 $ 848 $ 3,476 $ 2,617
Net gain (loss) on investment securities ......... 213,631 99,018 450 2,982 (7,289) (1,401)
--------- --------- -------- -------- --------- --------
Net increase (decrease) in net assets
resulting from operations ....................... 287,249 114,971 1,081 3,830 (3,813) 1,216
--------- --------- -------- -------- --------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 112,487 61,019 16,567 21,611 (1,114) 22,549
--------- --------- -------- -------- --------- --------
Less costs of units redeemed:
Administrative charges .......................... 330 253 48 47 38 37
Policy loans .................................... 277 191 24 34 5 15
Surrender benefits .............................. 39,958 23,320 7,558 7,504 6,215 5,368
Death benefits .................................. 1,354 922 378 334 408 342
--------- --------- -------- -------- --------- --------
41,919 24,686 8,008 7,919 6,666 5,762
--------- --------- -------- -------- --------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... 70,568 36,333 8,559 13,692 (7,780) 16,787
--------- --------- -------- -------- --------- --------
Net increase (decrease) in net assets ........... 357,817 151,304 9,640 17,522 (11,593) 18,003
Depositor's equity contribution
(net redemption) ................................ 50 0 50 0 50 0
NET ASSETS:
Beginning of year ................................ 388,249 236,945 78,748 61,226 68,650 50,647
--------- --------- -------- -------- --------- --------
End of year ...................................... $ 746,116 $ 388,249 $ 88,438 $ 78,748 $ 57,107 $ 68,650
========= ========= ======== ======== ========= ========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL
DEAN ASSET C.A.S.E.
ALLOCATION GROWTH
SUBACCOUNT SUBACCOUNT
-------------------------- ------------------------
DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------
1999(1) 1998 1999(1) 1998
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 5,230 $ 26,761 $ 5,499 $ 4,303
Net gain (loss) on investment securities ......... (24,932) (7,555) 10,110 (3,980)
--------- --------- -------- --------
Net increase (decrease) in net asset
resulting from operations ....................... (19,702) 19,206 15,609 323
--------- --------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... (48,724) 60,662 3,993 5,436
--------- --------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 141 145 41 33
Policy loans .................................... 62 61 23 17
Surrender benefits .............................. 27,289 27,240 5,232 3,062
Death benefits .................................. 1,211 1,105 498 578
--------- --------- -------- --------
28,703 28,551 5,794 3,690
--------- --------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... (77,427) 32,111 (1,801) 1,746
--------- --------- -------- --------
Net increase (decrease) in net assets ........... (97,129) 51,317 13,808 2,069
Depositor's equity contribution
(net redemption) ................................ 50 0 50 0
NET ASSETS:
Beginning of year ................................ 323,324 272,007 51,741 49,672
--------- --------- -------- --------
End of year ...................................... $ 226,245 $ 323,324 $ 65,599 $ 51,741
========= ========= ======== ========
<CAPTION>
WRL
NWQ
VALUE EQUITY
SUBACCOUNT
--------------------------
DECEMBER 31,
--------------------------
1999(1) 1998
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 996 $ 10,027
Net gain (loss) on investment securities ......... 5,282 (22,340)
--------- ---------
Net increase (decrease) in net asset
resulting from operations ....................... 6,278 (12,313)
--------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... (15,351) 11,585
--------- ---------
Less cost of units redeemed:
Administrative charges .......................... 73 84
Policy loans .................................... 32 64
Surrender benefits .............................. 11,160 14,233
Death benefits .................................. 468 682
--------- ---------
11,733 15,063
--------- ---------
Increase (decrease) in net assets from
capital unit transactions ...................... (27,084) (3,478)
--------- ---------
Net increase (decrease) in net assets ........... (20,806) (15,791)
Depositor's equity contribution
(net redemption) ................................ 50 0
NET ASSETS:
Beginning of year ................................ 130,857 146,648
--------- ---------
End of year ...................................... $ 110,101 $ 130,857
========= =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNT IN THOUSANDS
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY
SUBACCOUNT
-------------------------
DECEMBER 31,
-------------------------
<S> <C> <C>
1999(1) 1998
------ ----
OPERATIONS:
Net investment income (loss) ..................... $ 968 $ (299)
Net gain (loss) on investment securities ......... 5,382 2,052
--------- --------
Net increase (decrease) in net assets
resulting from operations ....................... 6,350 1,753
--------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... (4,546) 9,266
--------- --------
Less cost of units redeemed:
Administrative charges .......................... 14 13
Policy loans .................................... 9 26
Surrender benefits .............................. 1,520 1,407
Death benefits .................................. 69 207
--------- --------
1,612 1,653
--------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... (6,158) 7,613
--------- --------
Net increase (decrease) in net assets ........... 192 9,366
Depositor's equity contribution
(net redemption) ................................ 50 (725)
NET ASSETS:
Beginning of year ................................ 26,159 17,518
--------- --------
End of year ...................................... $ 26,401 $ 26,159
========= ========
<CAPTION>
WRL WRL
GE THIRD AVENUE
U.S. EQUITY VALUE
SUBACCOUNT SUBACCOUNT
---------------------------- ---------------------------
DECEMBER 31, DECEMBER 31,
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
1999(1) 1998 1999(1) 1998(1)
------ ---- ------ ------
OPERATIONS:
Net investment income (loss) ..................... $ 9,358 $ 2,698 $ 234 $ (118)
Net gain (loss) on investment securities ......... 9,458 10,725 1,707 (991)
---------- -------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ....................... 18,816 13,423 1,941 (1,109)
---------- -------- --------- ---------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 47,958 52,247 (406) 16,606
---------- -------- --------- ---------
Less cost of units redeemed:
Administrative charges .......................... 54 25 5 4
Policy loans .................................... 29 22 2 0
Surrender benefits .............................. 10,589 7,153 978 453
Death benefits .................................. 350 386 133 0
---------- -------- --------- ---------
11,022 7,586 1,118 457
---------- -------- --------- ---------
Increase (decrease) in net assets from
capital unit transactions ...................... 36,936 44,661 (1,524) 16,149
---------- -------- --------- ---------
Net increase (decrease) in net assets ........... 55,752 58,084 417 15,040
Depositor's equity contribution
(net redemption) ................................ 50 (408) (246) 300
NET ASSETS:
Beginning of year ................................ 96,875 39,199 15,340 0
---------- -------- --------- ---------
End of year ...................................... $ 152,677 $ 96,875 $ 15,511 $ 15,340
========== ======== ========= =========
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE
REAL ESTATE SECURITIES GROWTH SMALL CAP DIVIDEND GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------- --------------- --------------- ----------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- --------------- --------------- ----------------
1999(1) 1998(1) 1999(1) 1999(1) 1999(1)
----------- ----------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 19 $ (10) $ (37) $ 67 $ (45)
Net gain (loss) on investment securities ......... (199) (165) 1,005 334 (367)
------- ------- ------- ------- -------
Net increase (decrease) in net assets
resulting from operations ....................... (180) (175) 968 401 (412)
------- ------- ------- ------- -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 430 1,484 5,819 1,512 8,269
------- ------- ------- ------- -------
Less cost of units redeemed:
Administrative charges .......................... 1 0 0 0 0
Policy loans .................................... 0 0 0 0 0
Surrender benefits .............................. 70 14 75 18 174
Death benefits .................................. 0 0 0 0 0
------- ------- ------- ------- -------
71 14 75 18 174
------- ------- ------- ------- -------
Increase (decrease) in net assets from
capital unit transactions ...................... 359 1,470 5,744 1,494 8,095
------- ------- ------- ------- -------
Net increase (decrease) in net assets ........... 179 1,295 6,712 1,895 7,683
Depositor's equity contribution
(net redemption) ................................ 11 600 524 523 525
NET ASSETS:
Beginning of year ................................ 1,895 0 0 0 0
------- ------- ------- ------- -------
End of year ...................................... $ 2,085 $ 1,895 $ 7,236 $ 2,418 $ 8,208
======= ======= ======= ======= =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
T. ROWE PRICE SALOMON PILGRIM BAXTER DREYFUS
SMALL CAP ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- -------------- ---------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- -------------- ---------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
--------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 217 $ 150 $ (18) $ (11)
Net gain (loss) on investment securities ......... 1,985 464 10,473 146
------- ------- -------- -------
Net increase (decrease) in net assets
resulting from operations ....................... 2,202 614 10,455 135
------- ------- -------- -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ........... 6,412 5,251 22,426 2,434
------- ------- -------- -------
Less cost of units redeemed:
Administrative charges .......................... 1 1 2 0
Policy loans .................................... 0 0 0 0
Surrender benefits .............................. 180 94 384 14
Death benefits .................................. 0 0 0 0
------- ------- -------- -------
181 95 386 14
------- ------- -------- -------
Increase (decrease) in net assets from
capital unit transactions ...................... 6,231 5,156 22,040 2,420
------- ------- -------- -------
Net increase (decrease) in net assets ........... 8,433 5,770 32,495 2,555
Depositor's equity contribution
(net redemption) ................................ 462 523 (171) 524
NET ASSETS:
Beginning of year ................................ 0 0 0 0
------- ------- -------- -------
End of year ...................................... $ 8,895 $ 6,293 $ 32,324 $ 3,079
======= ======= ======== =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT
------------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 14.37 $ 13.82 $ 13.29 $ 12.80 $ 12.29
Income from operations:
Net investment income (loss) ..................... 0.51 0.55 0.53 0.49 0.51
Net realized and unrealized gain (loss) on
investment ...................................... 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 0.51 0.55 0.53 0.49 0.51
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 14.88 $ 14.37 $ 13.82 $ 13.29 $ 12.80
======== ======== ======== ======== ========
Total return ....................................... 3.55% 3.99% 4.00% 3.81% 4.12%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 96,984 $ 48,797 $ 39,531 $ 51,141 $ 41,596
Ratio of net investment income (loss) to average
net assets ....................................... 3.52% 3.89% 3.92% 3.72 % 4.03%
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BOND SUBACCOUNT
--------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 21.08 $ 19.52 $ 18.11 $ 18.31 $ 15.08
Income from operations:
Net investment income (loss) ..................... 0.76 0.82 0.73 0.77 0.83
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.64) 0.74 0.68 ( 0.97) 2.40
-------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 0.88) 1.56 1.41 ( 0.20) 3.23
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 20.20 $ 21.08 $ 19.52 $ 18.11 $ 18.31
======== ======== ======== ======== ========
Total return ....................................... ( 4.14)% 7.96% 7.80% ( 1.10)% 21.46%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 37,241 $ 50,893 $ 46,082 $ 45,516 $ 54,109
Ratio of net investment income (loss) to average
net assets ....................................... 3.69% 4.02% 3.95% 4.34% 4.94%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL JANUS GROWTH SUBACCOUNT
----------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 62.54 $ 38.50 $ 33.17 $ 28.47 $ 19.60
Income from operations:
Net investment income (loss) ..................... 15.61 ( 0.08) 3.42 1.64 2.35
Net realized and unrealized gain (loss) on
investment ...................................... 20.47 24.12 1.91 3.06 6.52
---------- -------- -------- -------- --------
Net income (loss) from operations ............... 36.08 24.04 5.33 4.70 8.87
---------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 98.62 $ 62.54 $ 38.50 $ 33.17 $ 28.47
========== ======== ======== ======== ========
Total return ....................................... 57.69% 62.43% 16.09% 16.50% 45.29%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $1,166,818 $817,014 $571,456 $576,115 $532,646
Ratio of net investment income (loss) to average
net assets ....................................... 20.94% ( 0.18)% 9.36% 5.22% 9.81%
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL SUBACCOUNT
----------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 30.94 $ 24.10 $ 20.55 $ 16.29 $ 13.40
Income from operations:
Net investment income (loss) ..................... 2.84 0.83 2.55 1.62 0.42
Net realized and unrealized gain (loss) on
investment ...................................... 18.51 6.01 1.00 2.64 2.47
---------- -------- -------- -------- --------
Net income (loss) from operations ............... 21.35 6.84 3.55 4.26 2.89
---------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 52.29 $ 30.94 $ 24.10 $ 20.55 $ 16.29
========== ======== ======== ======== ========
Total return ....................................... 68.98% 28.40% 17.28% 26.15% 21.53%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 458,385 $298,285 $261,317 $221,185 $ 141,425
Ratio of net investment income (loss) to average
net assets ....................................... 7.93% 2.97% 11.01% 8.60% 2.89%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT
--------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 20.14 $ 18.60 $ 15.46 $ 13.61 $ 11.06
Income from operations:
Net investment income (loss) ..................... 1.52 0.56 1.34 0.68 0.59
Net realized and unrealized gain (loss) on
investment ...................................... 0.63 0.98 1.80 1.17 1.96
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 2.15 1.54 3.14 1.85 2.55
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 22.29 $ 20.14 $ 18.60 $ 15.46 $ 13.61
======== ======== ======== ======== ========
Total return ....................................... 10.68% 8.28% 20.34% 13.57% 23.11%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $156,928 $160,783 $164,259 $136,789 $116,374
Ratio of net investment income (loss) to average
net assets ....................................... 7.33% 2.95% 7.83% 4.75% 4.74%
</TABLE>
<TABLE>
<CAPTION>
WRL VKAM EMERGING GROWTH SUBACCOUNT
--------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 31.33 $ 23.10 $ 19.26 $ 16.40 $ 11.31
Income from operations:
Net investment income (loss) ..................... 8.33 0.69 1.85 0.63 0.51
Net realized and unrealized gain (loss) on
investment ...................................... 23.82 7.54 1.99 2.23 4.58
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 32.15 8.23 3.84 2.86 5.09
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 63.48 $ 31.33 $ 23.10 $ 19.26 $ 16.40
======== ======== ======== ======== ========
Total return ....................................... 102.62% 35.63% 19.95% 17.41% 44.97%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $390,626 $201,838 $165,848 $143,282 $115,797
Ratio of net investment income (loss) to average
net assets ....................................... 21.35% 2.69% 8.73% 3.42% 3.68%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT
-----------------------------------------------------------------------
DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 26.23 $ 17.86 $ 14.56 $ 13.35 $ 9.79
Income from operations:
Net investment income (loss) ..................... 4.29 1.13 1.42 0.25 0.29
Net realized and unrealized gain (loss) on
investment ...................................... 13.27 7.24 1.88 0.96 3.27
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 17.56 8.37 3.30 1.21 3.56
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 43.79 $ 26.23 $ 17.86 $ 14.56 $ 13.35
======== ======== ======== ======== ========
Total return ....................................... 66.92% 46.84% 22.71% 9.07% 36.31%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $170,691 $106,742 $ 74,544 $ 63,843 $ 65,666
Ratio of net investment income (loss) to average
net assets ....................................... 13.95% 5.39% 8.51% 1.77% 2.28%
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BALANCED SUBACCOUNT
----------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 14.77 $ 13.99 $ 12.09 $ 11.06 $ 9.35
Income from operations:
Net investment income (loss) ..................... 0.12 0.17 1.32 0.26 0.29
Net realized and unrealized gain (loss) on
investment ...................................... 0.14 0.61 0.58 0.77 1.42
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 0.26 0.78 1.90 1.03 1.71
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.03 $ 14.77 $ 13.99 $ 12.09 $ 11.06
======== ======== ======== ======== ========
Total return ....................................... 1.75% 5.60% 15.65% 9.34% 18.31%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 21,830 $ 19,730 $ 17,324 $ 13,598 $ 11,343
Ratio of net investment income (loss) to average
net assets ....................................... 0.82% 1.19% 10.01% 2.29% 2.85%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL FEDERATED GROWTH & INCOME SUBACCOUNT
---------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 16.17 $ 15.89 $ 12.91 $ 11.71 $ 9.46
Income from operations:
Net investment income (loss) ..................... 0.83 0.66 2.06 0.50 0.45
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.74) ( 0.38) 0.92 0.70 1.80
-------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 0.91) 0.28 2.98 1.20 2.25
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.26 $ 16.17 $ 15.89 $ 12.91 $ 11.71
======== ======== ======== ======== ========
Total return ....................................... ( 5.64)% 1.77% 23.10% 10.25% 23.70%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 11,318 $ 16,502 $ 14,056 $ 12,397 $ 11,890
Ratio of net investment income (loss) to average
net assets ....................................... 5.27% 4.17% 14.87% 4.17% 4.26%
</TABLE>
<TABLE>
<CAPTION>
WRL DEAN ASSET ALLOCATION SUBACCOUNT
--------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 16.51 $ 15.43 $ 13.40 $ 11.86 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.32 1.40 1.02 0.46 0.58
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.45) ( 0.32) 1.01 1.08 1.28
-------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 1.13) 1.08 2.03 1.54 1.86
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.38 $ 16.51 $ 15.43 $ 13.40 $ 11.86
======== ======== ======== ======== ========
Total return ....................................... ( 6.81)% 6.98% 15.14% 13.00% 18.61%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 59,161 $ 85,428 $ 77,923 $ 62,195 $ 34,910
Ratio of net investment income (loss) to average
net assets ....................................... 1.95% 8.72% 6.99% 3.71% 5.25%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL C.A.S.E. GROWTH SUBACCOUNT
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996(1)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 15.96 $ 15.77 $ 13.88 $ 12.87
Income from operations:
Net investment income (loss) ..................... 1.62 1.27 3.15 0.39
Net realized and unrealized gain (loss) on
investment ...................................... 3.52 ( 1.08) ( 1.26) 0.62
-------- -------- -------- --------
Net income (loss) from operations ............... 5.14 0.19 1.89 1.01
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 21.10 $ 15.96 $ 15.77 $ 13.88
======== ======== ======== ========
Total return ....................................... 32.18% 1.20% 13.60% 7.84%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 14,425 $ 14,161 $ 17,677 $ 3,612
Ratio of net investment income (loss) to average
net assets ....................................... 8.55% 8.11% 20.61% 4.43%
</TABLE>
<TABLE>
<CAPTION>
WRL NWQ VALUE EQUITY SUBACCOUNT
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996(1)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 13.04 $ 13.86 $ 11.22 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.13 0.89 0.07 0.02
Net realized and unrealized gain (loss) on
investment ...................................... 0.73 ( 1.71) 2.57 1.20
-------- -------- -------- --------
Net income (loss) from operations ............... 0.86 ( 0.82) 2.64 1.22
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 13.90 $ 13.04 $ 13.86 $ 11.22
======== ======== ======== ========
Total return ....................................... 6.61% ( 5.96)% 23.49% 12.25%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 32,947 $ 38,640 $ 49,376 $ 16,679
Ratio of net investment income (loss) to average
net assets ....................................... 0.92% 6.44% 0.55% 0.30%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL GE/SCOTTISH EQUITABLE WRL GE
INTERNATIONAL EQUITY SUBACCOUNT U.S. EQUITY SUBACCOUNT
-------------------------------------- ----------------------------------------
DECEMBER 31, DECEMBER 31,
-------------------------------------- ----------------------------------------
1999 1998 1997(1) 1999 1998 1997(1)
------------ ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ...... $ 11.83 $ 10.62 $ 10.00 $ 15.22 $ 12.54 $ 10.00
Income from operations:
Net investment income (loss) .................. 0.49 ( 0.14) ( 0.05) 1.21 0.54 0.75
Net realized and unrealized gain (loss) on
investment .................................. 2.28 1.35 0.67 1.37 2.14 1.79
-------- -------- -------- -------- -------- --------
Net income (loss) from operations ............ 2.77 1.21 0.62 2.58 2.68 2.54
-------- -------- -------- -------- -------- --------
Accumulation unit value, end of year ............ $ 14.60 $ 11.83 $ 10.62 $ 17.80 $ 15.22 $ 12.54
======== ======== ======== ======== ======== ========
Total return .................................... 23.40% 11.45% 6.17% 16.94% 21.35% 25.44%
Ratios and supplemental data:
Net assets at end of year (in thousands) ....... $ 5,881 $ 6,783 $ 6,377 $ 32,459 $ 23,419 $ 12,377
Ratio of net investment income (loss) to average
net assets ................................... 4.08% ( 1.16)% ( 0.52)% 7.35% 3.90% 6.37%
</TABLE>
<TABLE>
<CAPTION>
WRL J.P. MORGAN
WRL THIRD AVENUE REAL ESTATE SECURITIES
VALUE SUBACCOUNT SUBACCOUNT
---------------------------- --------------------------
DECEMBER 31, DECEMBER 31,
---------------------------- --------------------------
1999 1998(1) 1999 1998(1)
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 9.20 $ 10.00 $ 8.44 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.15 ( 0.08) 0.03 ( 0.07)
Net realized and unrealized gain (loss)
oninvestment .................................... 1.16 ( 0.72) ( 0.45) ( 1.49)
-------- -------- ------- --------
Net income (loss) from operations ............... 1.31 ( 0.80) ( 0.42) ( 1.56)
-------- -------- ------- --------
Accumulation unit value, end of year ............... $ 10.51 $ 9.20 $ 8.02 $ 8.44
======== ======== ======= ========
Total return ....................................... 14.28% ( 7.99)% ( 4.97)% ( 15.65)%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 5,309 $ 5,921 $ 407 $ 571
Ratio of net investment income (loss) to average
net assets ....................................... 1.58% ( 0.89)% 0.42 % ( 1.26)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL
GOLDMAN SACHS GOLDMAN SACHS
GROWTH SUBACCOUNT SMALL CAP SUBACCOUNT
------------------- ---------------------
DECEMBER 31, DECEMBER 31,
------------------- ---------------------
1999(1) 1999(1)
------------------- ---------------------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... ( 0.09) 0.23
Net realized and unrealized gain (loss) on
investment ...................................... 1.74 1.41
-------- --------
Net income (loss) from operations ............... 1.65 1.64
-------- --------
Accumulation unit value, end of year ............... $ 11.65 $ 11.64
======== ========
Total return ....................................... 16.52% 16.42%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 1,317 $ 429
Ratio of net investment income (loss) to average
net assets ....................................... (1.25)% (3.36%
</TABLE>
<TABLE>
<CAPTION>
WRL WRL
T. ROWE PRICE DIVIDEND T. ROWE PRICE
GROWTH SUBACCOUNT SMALL CAP SUBACCOUNT
------------------------ ---------------------
DECEMBER 31, DECEMBER 31,
------------------------ ---------------------
1999(1) 1999(1)
------------------------ ---------------------
<S> <C> <C>
CLASS A UNITS:
Accumulation unit value, beginning of year .......... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ...................... ( 0.08) 0.47
Net realized and unrealized gain (loss) on
investment ....................................... ( 0.74) 3.26
-------- --------
Net income (loss) from operations ................ ( 0.82) 3.73
-------- --------
Accumulation unit value, end of year ................ $ 9.18 $ 13.73
======== ========
Total return ........................................ ( 8.17)% 37.33%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 1,812 $ 3,909
Ratio of net investment income (loss) to average
net assets ........................................ (1.25)% 6.22%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON ALL CAP PILGRIM BAXTER MID CAP DREYFUS MID CAP
SUBACCOUNT GROWTH SUBACCOUNT SUBACCOUNT
----------------- ------------------------ ----------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------- ------------------------ ----------------
1999(1) 1999(1) 1999(1)
----------------- ------------------------ ----------------
CLASS A UNITS:
<S> <C> <C> <C>
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.37 (0.02) (0.08)
Net realized and unrealized gain (loss) on
investment ...................................... 1.09 7.67 0.71
-------- -------- --------
Net income (loss) from operations ............... 1.46 7.65 0.63
-------- -------- --------
Accumulation unit value, end of year ............... $ 11.46 $ 17.65 $ 10.63
======== ======== ========
Total return ....................................... 14.60% 76.51% 6.30%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 1,374 $ 6,660 $ 800
Ratio of net investment income (loss) to average
net assets ....................................... 5.20% (0.22)% (1.25)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT
----------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 11.99 $ 11.55 $ 11.12 $ 10.73 $ 10.32
Income from operations:
Net investment income (loss) ..................... 0.41 0.44 0.43 0.39 0.41
Net realized and unrealized gain (loss) on
investment ...................................... 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- ------- -------
Net income (loss) from operations ............... 0.41 0.44 0.43 0.39 0.41
-------- ------- ------- ------- -------
Accumulation unit value, end of year ............... $ 12.40 $ 11.99 $ 11.55 $ 11.12 $ 10.73
======== ======= ======= ======= =======
Total return ....................................... 3.39% 3.83% 3.84% 3.65% 3.96%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $269,284 $93,982 $62,152 $58,415 $28,524
Ratio of net investment income (loss) to average
net assets ....................................... 3.37% 3.72% 3.78% 3.57% 3.89%
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BOND SUBACCOUNT
-------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 14.45 $ 13.41 $ 12.46 $ 12.61 $ 10.40
Income from operations:
Net investment income (loss) ..................... 0.59 0.60 0.67 0.56 0.64
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.21) 0.44 0.28 ( 0.71) 1.57
------- ------- ------- ------- -------
Net income (loss) from operations ............... ( 0.62) 1.04 0.95 ( 0.15) 2.21
------- ------- ------- ------- -------
Accumulation unit value, end of year ............... $ 13.83 $ 14.45 $ 13.41 $ 12.46 $ 12.61
======= ======= ======= ======= =======
Total return ....................................... ( 4.29)% 7.80% 7.64% ( 1.25)% 21.28%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $86,875 $91,784 $64,376 $38,055 $32,772
Ratio of net investment income (loss) to average
net assets ....................................... 4.16% 4.31%% 5.26% 4.60% 5.45%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL JANUS GROWTH SUBACCOUNT
----------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 30.12 $ 18.57 $ 16.02 $ 13.77 $ 9.49
Income from operations:
Net investment income (loss) ..................... 8.20 ( 0.08) 1.87 0.95 1.30
Net realized and unrealized gain (loss) on
investment ...................................... 9.10 11.63 0.68 1.30 2.98
---------- -------- -------- -------- --------
Net income (loss) from operations ............... 17.30 11.55 2.55 2.25 4.28
---------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 47.42 $ 30.12 $ 18.57 $ 16.02 $ 13.77
========== ======== ======== ======== ========
Total return ....................................... 57.45% 62.19% 15.91% 16.32% 45.08%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $1,530,464 $826,236 $432,125 $317,705 $198,139
Ratio of net investment income (loss) to average
net assets ....................................... 22.70% ( 0.33)% 10.53% 6.21% 11.07%
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL SUBACCOUNT
--------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 30.67 $ 23.92 $ 20.43 $ 16.22 $ 13.36
Income from operations:
Net investment income (loss) ..................... 3.02 0.88 2.85 1.79 0.43
Net realized and unrealized gain (loss) on
investment ...................................... 18.06 5.87 0.64 2.42 2.43
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 21.08 6.75 3.49 4.21 2.86
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 51.75 $ 30.67 $ 23.92 $ 20.43 $ 16.22
======== ======== ======== ======== ========
Total return ....................................... 68.73% 28.21% 17.10% 25.96% 21.35%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $976,752 $524,585 $371,512 $227,955 $111,958
Ratio of net investment income (loss) to average
net assets ....................................... 8.45% 3.16% 12.33% 9.45% 2.96%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT
--------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 19.97 $ 18.47 $ 15.37 $ 13.56 $ 11.03
Income from operations:
Net investment income (loss) ..................... 1.54 0.59 1.42 0.94 0.59
Net realized and unrealized gain (loss) on
investment ...................................... 0.56 0.91 1.68 0.87 1.94
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 2.10 1.50 3.10 1.81 2.53
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 22.07 $ 19.97 $ 18.47 $ 15.37 $ 13.56
======== ======== ======== ======== ========
Total return ....................................... 10.51% 8.11% 20.16% 13.40% 22.93%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $356,121 $328,728 $279,355 $196,305 $101,651
Ratio of net investment income (loss) to average
net assets ....................................... 7.46% 3.11% 8.31% 6.55% 4.76%
</TABLE>
<TABLE>
<CAPTION>
WRL VKAM EMERGING GROWTH SUBACCOUNT
--------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 31.06 $ 22.94 $ 19.15 $ 16.34 $ 11.29
Income from operations:
Net investment income (loss) ..................... 8.95 0.72 2.00 0.73 0.54
Net realized and unrealized gain (loss) on
investment ...................................... 22.84 7.40 1.79 2.08 4.51
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 31.79 8.12 3.79 2.81 5.05
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 62.85 $ 31.06 $ 22.94 $ 19.15 $ 16.34
======== ======== ======== ======== ========
Total return ....................................... 102.31% 35.42% 19.77% 17.23% 44.75%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $891,089 $381,421 $258,730 $179,589 $105,115
Ratio of net investment income (loss) to average
net assets ....................................... 22.92% 2.80% 9.45% 3.96% 3.85%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT
-------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 26.05 $ 17.77 $ 14.50 $ 13.31 $ 9.78
Income from operations:
Net investment income (loss) ..................... 4.68 1.17 1.60 0.31 0.40
Net realized and unrealized gain (loss) on
investment ...................................... 12.69 7.11 1.67 0.88 3.13
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 17.37 8.28 3.27 1.19 3.53
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 43.42 $ 26.05 $ 17.77 $ 14.50 $ 13.31
======== ======== ======== ======== ========
Total return ....................................... 66.67% 46.62% 22.52% 8.91% 36.10%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $575,367 $281,507 $162,401 $100,832 $ 60,420
Ratio of net investment income (loss) to average
net assets ....................................... 15.21% 5.57% 9.55% 2.22% 3.04%
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BALANCED SUBACCOUNT
---------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 14.67 $ 13.91 $ 12.05 $ 11.03 $ 9.34
Income from operations:
Net investment income (loss) ..................... 0.10 0.17 1.40 0.30 0.32
Net realized and unrealized gain (loss) on
investment ...................................... 0.13 0.59 0.46 0.72 1.37
-------- -------- -------- -------- --------
Net income (loss) from operations ............... 0.23 0.76 1.86 1.02 1.69
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 14.90 $ 14.67 $ 13.91 $ 12.05 $ 11.03
======== ======== ======== ======== ========
Total return ....................................... 1.59% 5.45% 15.47% 9.18% 18.13%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 66,558 $ 59,018 $ 43,902 $ 28,734 $ 16,069
Ratio of net investment income (loss) to average
net assets ....................................... 0.69% 1.19% 10.72% 2.69% 3.16%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL FEDERATED GROWTH & INCOME SUBACCOUNT
-------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 16.06 $ 15.80 $ 12.85 $ 11.68 $ 9.45
Income from operations:
Net investment income (loss) ..................... 0.87 0.66 2.52 0.68 0.47
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.80) ( 0.40) 0.43 0.49 1.76
-------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 0.93) 0.26 2.95 1.17 2.23
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.13 $ 16.06 $ 15.80 $ 12.85 $ 11.68
======== ======== ======== ======== ========
Total return ....................................... ( 5.78)% 1.62% 22.92% 10.08% 23.52%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 45,739 $ 52,148 $ 36,591 $ 19,972 $ 10,086
Ratio of net investment income (loss) to average
net assets ....................................... 5.55% 4.20% 18.15% 5.68% 4.50%
</TABLE>
<TABLE>
<CAPTION>
WRL DEAN ASSET ALLOCATION SUBACCOUNT
------------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 16.41 $ 15.36 $ 13.36 $ 11.84 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.29 1.43 1.06 0.47 0.82
Net realized and unrealized gain (loss) on
investment ...................................... ( 1.43) ( 0.38) 0.94 1.05 1.02
-------- -------- -------- -------- --------
Net income (loss) from operations ............... ( 1.14) 1.05 2.00 1.52 1.84
-------- -------- -------- -------- --------
Accumulation unit value, end of year ............... $ 15.27 $ 16.41 $ 15.36 $ 13.36 $ 11.84
======== ======== ======== ======== ========
Total return ....................................... ( 6.95)% 6.82% 14.97% 12.83% 18.43%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $167,034 $237,896 $194,084 $125,177 $ 72,300
Ratio of net investment income (loss) to average
net assets ....................................... 1.78% 8.92% 7.30% 3.72% 7.29%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL C.A.S.E. GROWTH SUBACCOUNT
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996(1)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 12.35 $ 12.22 $ 10.77 $ 10.00
Income from operations:
Net investment income (loss) ..................... 1.37 1.06 1.34 0.36
Net realized and unrealized gain (loss) on
investment ...................................... 2.58 ( 0.93) 0.11 0.41
-------- -------- -------- --------
Net income (loss) from operations ............... 3.95 0.13 1.45 0.77
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 16.30 $ 12.35 $ 12.22 $ 10.77
======== ======== ======== ========
Total return ....................................... 31.98% 1.05% 13.43% 7.73%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 51,124 $ 37,580 $ 31,995 $ 12,542
Ratio of net investment income (loss) to average
net assets ....................................... 9.34% 8.79% 11.31% 5.46%
</TABLE>
<TABLE>
<CAPTION>
WRL NWQ VALUE EQUITY SUBACCOUNT
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996(1)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 12.98 $ 13.83 $ 11.21 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.10 0.91 0.08 0.02
Net realized and unrealized gain (loss) on
investment ...................................... 0.74 ( 1.76) 2.54 1.19
-------- -------- -------- --------
Net income (loss) from operations ............... 0.84 ( 0.85) 2.62 1.21
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 13.82 $ 12.98 $ 13.83 $ 11.21
======== ======== ======== ========
Total return ....................................... 6.45% ( 6.10)% 23.30% 12.13%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 77,102 $ 92,217 $ 97,272 $ 23,759
Ratio of net investment income (loss) to average
net assets ....................................... 0.75% 6.63% 0.63% 0.33%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY SUBACCOUNT
-----------------------------------------
DECEMBER 31,
-----------------------------------------
1999 1998 1997(1)
------------- ------------- -------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ...... $ 11.80 $ 10.60 $ 10.00
Income from operations:
Net investment income (loss) .................. 0.43 ( 0.15) ( 0.06)
Net realized and unrealized gain (loss) on
investment ................................... 2.31 1.35 0.66
-------- -------- --------
Net income (loss) from operations ............ 2.74 1.20 0.60
-------- -------- --------
Accumulation unit value, end of year ............ $ 14.54 $ 11.80 $ 10.60
======== ======== ========
Total return .................................... 23.22% 11.28% 6.01%
Ratios and supplemental data:
Net assets at end of year (in thousands) ....... $ 20,464 $ 19,376 $ 11,141
Ratio of net investment income (loss) to average
net assets .................................... 3.54% ( 1.31)% ( 0.58)%
<CAPTION>
WRL GE
U.S. EQUITY SUBACCOUNT
-----------------------------------------
DECEMBER 31,
-----------------------------------------
1999 1998 1997(1)
-------------- ------------- ------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ...... $ 15.18 $ 12.53 $ 10.00
Income from operations:
Net investment income (loss) .................. 1.21 0.62 0.95
Net realized and unrealized gain (loss) on
investment ................................... 1.33 2.03 1.58
-------- -------- --------
Net income (loss) from operations ............ 2.54 2.65 2.53
-------- -------- --------
Accumulation unit value, end of year ............ $ 17.72 $ 15.18 $ 12.53
======== ======== ========
Total return .................................... 16.76% 21.16% 25.26%
Ratios and supplemental data:
Net assets at end of year (in thousands) ....... $120,166 $ 73,456 $ 26,822
Ratio of net investment income (loss) to average
net assets .................................... 7.40% 4.55% 7.99%
</TABLE>
<TABLE>
<CAPTION>
WRL J.P. MORGAN
WRL THIRD AVENUE REAL ESTATE SECURITIES
VALUE SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------
DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------
1999 1998(1) 1999 1998(1)
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ...... $ 9.19 $ 10.00 $ 8.43 $ 10.00
Income from operations:
Net investment income (loss) .................. 0.14 ( 0.09) 0.08 ( 0.08)
Net realized and unrealized gain (loss) on
investment ................................... 1.15 ( 0.72) ( 0.51) ( 1.49)
-------- -------- ------- --------
Net income (loss) from operations ............ 1.29 ( 0.81) ( 0.43) ( 1.57)
-------- -------- ------- --------
Accumulation unit value, end of year ............ $ 10.48 $ 9.19 $ 8.00 $ 8.43
======== ======== ======= ========
Total return .................................... 14.11% ( 8.13)% ( 5.11)% ( 15.73)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ....... $ 10,148 $ 9,419 $ 1,626 $ 1,324
Ratio of net investment income (loss) to average
net assets .................................... 1.54% ( 1.03)% 1.01% ( 1.41)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL
GOLDMAN SACHS GOLDMAN SACHS
GROWTH SUBACCOUNT SMALL CAP SUBACCOUNT
------------------- ---------------------
DECEMBER 31, DECEMBER 31,
------------------- ---------------------
1999(1) 1999(1)
------------------- ---------------------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... ( 0.10) 0.44
Net realized and unrealized gain (loss) on
investment ...................................... 1.74 1.19
-------- --------
Net income (loss) from operations ............... 1.64 1.63
-------- --------
Accumulation unit value, end of year ............... $ 11.64 $ 11.63
======== ========
Total return ....................................... 16.40% 16.31%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 5,865 $ 1,935
Ratio of net investment income (loss) to average
net assets ....................................... ( 1.40)% 6.35%
</TABLE>
<TABLE>
<CAPTION>
WRL WRL
T. ROWE PRICE DIVIDEND T. ROWE PRICE
GROWTH SUBACCOUNT SMALL CAP SUBACCOUNT
------------------------ ---------------------
DECEMBER 31, DECEMBER 31,
------------------------ ---------------------
1999(1) 1999(1)
------------------------ ---------------------
<S> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... ( 0.09) 0.36
Net realized and unrealized gain (loss) on
investment ...................................... ( 0.74) 3.36
-------- --------
Net income (loss) from operations ............... ( 0.83) 3.72
-------- --------
Accumulation unit value, end of year ............... $ 9.17 $ 13.72
======== ========
Total return ....................................... ( 8.27)% 37.19%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 6,346 $ 4,930
Ratio of net investment income (loss) to average
net assets ....................................... ( 1.40)% 4.79%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON ALL CAP PILGRIM BAXTER MID CAP DREYFUS MID CAP
SUBACCOUNT GROWTH SUBACCOUNT SUBACCOUNT
----------------- ------------------------ ----------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------- ------------------------ ----------------
1999(1) 1999(1) 1999(1)
----------------- ------------------------ ----------------
<S> <C> <C> <C>
CLASS B UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.40 ( 0.02) ( 0.09)
Net realized and unrealized gain (loss) on
investment ...................................... 1.05 7.65 0.71
-------- -------- --------
Net income (loss) from operations ............... 1.45 7.63 0.62
-------- -------- --------
Accumulation unit value, end of year ............... $ 11.45 $ 17.63 $ 10.62
======== ======== ========
Total return ....................................... 14.49% 76.33% 6.20%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 4,867 $ 25,604 $ 2,227
Ratio of net investment income (loss) to average
net assets ....................................... 5.63% ( 0.26)% ( 1.40)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- -------------- -------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- -------------- -------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
CLASS C UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.05 0.56 1.59 0.64
Net realized and unrealized gain (loss) on
investment ...................................... 0.00 ( 0.58) ( 0.72) 0.75
-------- -------- -------- --------
Net income (loss) from operations ............... 0.05 ( 0.02) 0.87 1.39
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.05 $ 9.98 $ 10.87 $ 11.39
======== ======== ======== ========
Total return ....................................... 0.46% ( 0.21)% 8.70% 13.87%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 25 $ 25 $ 27 $ 28
Ratio of net investment income (loss) to average
net assets ....................................... 5.28% 64.13% 173.48% 70.01%
</TABLE>
<TABLE>
<CAPTION>
WRL
LKCM WRL WRL WRL
STRATEGIC VKAM ALGER AEGON
TOTAL RETURN EMERGING GROWTH AGGRESSIVE GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ----------------- ------------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- ----------------- ------------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
-------------- ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
CLASS C UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.55 1.56 1.01 0.15
Net realized and unrealized gain (loss) on
investment ...................................... ( 0.23) 0.55 0.69 ( 0.15)
-------- -------- -------- --------
Net income (loss) from operations ............... 0.32 2.11 1.70 0.00
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.32 $ 12.11 $ 11.70 $ 10.00
======== ======== ======== ========
Total return ....................................... 3.16% 21.08% 17.05% 0.01%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 26 $ 30 $ 29 $ 25
Ratio of net investment income (loss) to average
net assets ....................................... 61.80% 163.83% 106.09% 16.83%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL WRL
FEDERATED DEAN ASSET C.A.S.E. NWQ
GROWTH & INCOME ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------- -------------- -------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------- -------------- -------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
----------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
CLASS C UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.47 0.28 0.54 0.20
Net realized and unrealized gain (loss) on
investment ...................................... ( 0.40) ( 0.37) ( 0.49) 0.22
-------- -------- -------- --------
Net income (loss) from operations ............... 0.07 ( 0.09) 0.05 0.42
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.07 $ 9.91 $ 10.05 $ 10.42
======== ======== ======== ========
Total return ....................................... 0.74% ( 0.93)% 0.53% 4.21%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 25 $ 25 $ 25 $ 26
Ratio of net investment income (loss) to average
net assets ....................................... 54.01% 32.57% 61.53% 22.95%
</TABLE>
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY
SUBACCOUNT
-----------------------
DECEMBER 31,
-----------------------
1999(1)
-----------------------
<S> <C>
CLASS C UNITS:
Accumulation unit value, beginning of year .......... $ 10.00
Income from operations:
Net investment income (loss) ...................... 0.53
Net realized and unrealized gain (loss) on
investment ....................................... 0.59
---------
Net income (loss) from operations ................ 1.12
---------
Accumulation unit value, end of year ................ $ 11.12
=========
Total return ........................................ 11.24%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 28
Ratio of net investment income (loss) to average
net assets ........................................ 57.96%
<CAPTION>
WRL WRL WRL
GE THIRD AVENUE J.P. MORGAN
U.S. EQUITY VALUE REAL ESTATE SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- -------------- -----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- -------------- -----------------------
1999(1) 1999(1) 1999(1)
-------------- -------------- -----------------------
<S> <C> <C> <C>
CLASS C UNITS:
Accumulation unit value, beginning of year .......... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ...................... 0.62 0.11 0.00
Net realized and unrealized gain (loss) on
investment ....................................... ( 0.20) 0.55 0.40
--------- --------- ---------
Net income (loss) from operations ................ 0.42 0.66 0.40
--------- --------- ---------
Accumulation unit value, end of year ................ $ 10.42 $ 10.66 $ 10.40
========= ========= =========
Total return ........................................ 4.24% 6.60% 3.98%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 26 $ 27 $ 26
Ratio of net investment income (loss) to average
net assets ........................................ 69.78% 12.46% 0.00%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ----------------- --------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- --------------- ----------------- --------------
1999(1) 1999(1) 1999(1) 1999(1)
--------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
CLASS C UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.00 0.49 0.00 0.35
Net realized and unrealized gain (loss) on
investment ...................................... 0.73 0.40 ( 0.13) 1.05
-------- -------- -------- --------
Net income (loss) from operations ............... 0.73 0.89 ( 0.13) 1.40
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.73 $ 10.89 $ 9.87 $ 11.40
======== ======== ======== ========
Total return ....................................... 7.31% 8.91% ( 1.28)% 13.98%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 27 $ 27 $ 25 $ 28
Ratio of net investment income (loss) to average
net assets ....................................... 0.00% 54.08% 0.00% 38.09%
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ---------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- ---------------- -------------
1999(1) 1999(1) 1999(1)
-------------- ---------------- -------------
<S> <C> <C> <C>
CLASS C UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.34 0.03 0.00
Net realized and unrealized gain (loss) on
investment ...................................... 0.12 2.06 0.51
-------- -------- --------
Net income (loss) from operations ............... 0.46 2.09 0.51
-------- -------- --------
Accumulation unit value, end of year ............... $ 10.46 $ 12.09 $ 10.51
======== ======== ========
Total return ....................................... 4.59% 20.92% 5.10%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 26 $ 30 $ 26
Ratio of net investment income (loss) to average
net assets ....................................... 38.27% 3.47% 0.00%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- -------------- -------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- -------------- -------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
CLASS D UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.05 0.56 1.59 0.64
Net realized and unrealized gain (loss) on
investment ...................................... 0.00 ( 0.58) ( 0.72) 0.75
-------- -------- -------- --------
Net income (loss) from operations ............... 0.05 ( 0.02) 0.87 1.39
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.05 $ 9.98 $ 10.87 $ 11.39
======== ======== ======== ========
Total return ....................................... 0.46% ( 0.21)% 8.70% 13.87%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 25 $ 25 $ 27 $ 28
Ratio of net investment income (loss) to average
net assets ....................................... 5.28% 64.13% 173.48% 70.01%
</TABLE>
<TABLE>
<CAPTION>
WRL
LKCM WRL WRL WRL
STRATEGIC VKAM ALGER AEGON
TOTAL RETURN EMERGING GROWTH AGGRESSIVE GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ----------------- ------------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- ----------------- ------------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
-------------- ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
CLASS D UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.55 1.56 1.01 0.15
Net realized and unrealized gain (loss) on
investment ...................................... ( 0.23) 0.55 0.69 ( 0.15)
-------- -------- -------- --------
Net income (loss) from operations ............... 0.32 2.11 1.70 0.00
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.32 $ 12.11 $ 11.70 $ 10.00
======== ======== ======== ========
Total return ....................................... 3.16% 21.08% 17.05% 0.01%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 26 $ 30 $ 29 $ 25
Ratio of net investment income (loss) to average
net assets ....................................... 61.80% 163.83% 106.09% 16.83%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL WRL
FEDERATED DEAN C.A.S.E. NWQ
GROWTH & INCOME ASSET ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------- ------------------ -------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------- ------------------ -------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
----------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C>
CLASS D UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.47 0.28 0.54 0.20
Net realized and unrealized gain (loss) on
investment ...................................... ( 0.40) ( 0.37) ( 0.49) 0.22
-------- -------- -------- --------
Net income (loss) from operations ............... 0.07 ( 0.09) 0.05 0.42
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.07 $ 9.91 $ 10.05 $ 10.42
======== ======== ======== ========
Total return ....................................... 0.74% ( 0.93)% 0.53% 4.21%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 25 $ 25 $ 25 $ 26
Ratio of net investment income (loss) to average
net assets ....................................... 54.01% 32.57% 61.53% 22.95%
</TABLE>
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY
SUBACCOUNT
-----------------------
DECEMBER 31,
-----------------------
1999(1)
-----------------------
<S> <C>
CLASS D UNITS:
Accumulation unit value, beginning of year .......... $ 10.00
Income from operations:
Net investment income (loss) ...................... 0.53
Net realized and unrealized gain (loss) on
investment ....................................... 0.59
---------
Net income (loss) from operations ................ 1.12
---------
Accumulation unit value, end of year ................ $ 11.12
=========
Total return ........................................ 11.24%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 28
Ratio of net investment income (loss) to average
net assets ........................................ 57.96%
<CAPTION>
WRL WRL WRL
GE THIRD AVENUE J.P. MORGAN
U.S. EQUITY VALUE REAL ESTATE SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- -------------- -----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- -------------- -----------------------
1999(1) 1999(1) 1999(1)
-------------- -------------- -----------------------
<S> <C> <C> <C>
CLASS D UNITS:
Accumulation unit value, beginning of year .......... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ...................... 0.62 0.11 0.00
Net realized and unrealized gain (loss) on
investment ....................................... ( 0.20) 0.55 0.40
--------- --------- ---------
Net income (loss) from operations ................ 0.42 0.66 0.40
--------- --------- ---------
Accumulation unit value, end of year ................ $ 10.42 $ 10.66 $ 10.40
========= ========= =========
Total return ........................................ 4.24% 6.60% 3.98%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 26 $ 27 $ 26
Ratio of net investment income (loss) to average
net assets ........................................ 69.78% 12.46% 0.00%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ----------------- --------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- --------------- ----------------- --------------
1999(1) 1999(1) 1999(1) 1999(1)
--------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
CLASS D UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.00 0.49 0.00 0.35
Net realized and unrealized gain (loss) on
investment ...................................... 0.73 0.40 ( 0.13) 1.05
-------- -------- -------- --------
Net income (loss) from operations ............... 0.73 0.89 ( 0.13) 1.40
-------- -------- -------- --------
Accumulation unit value, end of year ............... $ 10.73 $ 10.89 $ 9.87 $ 11.40
======== ======== ======== ========
Total return ....................................... 7.31% 8.91% ( 1.28)% 13.98%%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 27 $ 27 $ 25 $ 28
Ratio of net investment income (loss) to average
net assets ....................................... 0.00% 54.08% 0.00% 38.09%
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ---------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- ---------------- -------------
1999(1) 1999(1) 1999(1)
-------------- ---------------- -------------
<S> <C> <C> <C>
CLASS D UNITS:
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ..................... 0.34 0.03 0.00
Net realized and unrealized gain (loss) on
investment ...................................... 0.12 2.06 0.51
-------- -------- --------
Net income (loss) from operations ............... 0.46 2.09 0.51
-------- -------- --------
Accumulation unit value, end of year ............... $ 10.46 $ 12.09 $ 10.51
======== ======== ========
Total return ....................................... 4.59% 20.92% 5.10%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 26 $ 30 $ 26
Ratio of net investment income (loss) to average
net assets ....................................... 38.27% 3.47% 0.00%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1999
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" or the "depositor") and is registered as a unit
investment trust under the Investment Company Act of 1940, as amended. The
Annuity Account encompasses various contract types:
Class A: WRL Freedom Variable Annuity
WRL Freedom Attainer
Class B: WRL Freedom Bellwether
WRL Freedom Conqueror
WRL Freedom Creator
WRL Freedom Premier
Class C: WRL Freedom Premier
WRL Freedom Access
Class D: WRL Freedom Access
Each contract type contains twenty-three investment options referred to as
subaccounts. Each subaccount invests in the corresponding Portfolio of the WRL
Series Fund, Inc. (collectively referred to as the "Fund" and individually as a
"Portfolio"), a registered management investment company under the Investment
Company Act of 1940, as amended.
The Fund has entered into annually renewable investment advisory agreements for
each Portfolio with WRL Investment Management, Inc. ("WRL Management") as
investment adviser. Costs incurred in connection with the advisory services
rendered by WRL Management are paid by each Portfolio. WRL Management has
entered into sub-advisory agreements with
various management companies ("Sub-Advisers"), some of which are affiliates of
WRL. Each sub-adviser is compensated directly by WRL Management.
Effective May 1, 1999 the names on the following subaccounts were changed:
<TABLE>
<CAPTION>
SUBACCOUNT FORMERLY
- -------------------------- ----------------------------------
<S> <C>
WRL J.P. Morgan Money Money Market Subaccount
Market
WRL AEGON Bond Bond Subaccount
WRL Janus Growth Growth Subaccount
WRL Janus Global Global Subaccount
WRL LKCM Strategic Strategic Total Return Subaccount
Total Return
WRL VKAM Emerging Emerging Growth Subaccount
Growth
WRL Alger Aggressive Aggressive Growth Subaccount
Growth
WRL AEGON Balanced Balanced Subaccount
WRL Federated Growth & Growth & Income Subaccount
Income
WRL Dean Asset Tactical Asset Allocation
Allocation Subaccount
WRL C.A.S.E. Growth C.A.S.E. Growth Subaccount
WRL NWQ Value Equity Value Equity Subaccount
WRL GE/Scottish International Equity Subaccount
Equitable International
Equity
WRL GE U.S. Equity U.S. Equity Subaccount
WRL Third Avenue Value Third Avenue Value Subaccount
WRL J.P. Morgan Real Real Estate Securities Subaccount
Estate Securities
</TABLE>
On January 20, 1999, the Annuity Account received approval from the Securities
and Exchange Commission pursuant to an exemptive order (Rel. No. IC - 23657)
for the substitution of securities issued by WRL Series Fund, Inc., and held by
the Annuity Account to support individual flexible premium
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 1 -- (CONTINUED)
deferred variable annuity contracts, investments were transferred from the
Global Sector Subaccount to the WRL Janus Global Subaccount.
The Financial Statements reflect a full twelve month period for each year
reported on, except as follows: CLASS A AND CLASS B
<TABLE>
<CAPTION>
SUBACCOUNT INCEPTION DATE
- ---------------------------------------- ---------------
<S> <C>
WRL Dean Asset Allocation 01/03/1995
WRL C.A.S.E. Growth 05/01/1996
WRL NWQ Value Equity 05/01/1996
WRL GE/Scottish Equitable International
Equity 01/02/1997
WRL GE U.S. Equity 01/02/1997
WRL Third Avenue Value 01/02/1998
WRL J.P. Morgan Real Estate Securities 05/01/1998
WRL Goldman Sachs Growth 05/03/1999
WRL T. Rowe Price Dividend Growth 05/03/1999
WRL T. Rowe Price Small Cap 05/03/1999
WRL Salomon All Cap 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth 05/03/1999
WRL Dreyfus Mid Cap 05/03/1999
</TABLE>
On May 3, 1999, the inception date of the following subaccounts, WRL made
initial contributions totaling $ 3,500,000 to the Annuity Account. The
respective amounts of the contributions and units received are as follows:
CLASS A AND CLASS B
<TABLE>
<CAPTION>
SUBACCOUNT CONTRIBUTION UNITS
- ----------------------------------- -------------- ---------
<S> <C> <C>
WRL Goldman Sachs Growth $ 250,000 25,000
WRL Goldman Sachs Small Cap 250,000 25,000
WRL T. Rowe Price Dividend Growth 250,000 25,000
WRL T. Rowe Price Small Cap 250,000 25,000
WRL Salomon All Cap 250,000 25,000
WRL Pilgrim Baxter Mid Cap Growth 250,000 25,000
WRL Dreyfus Mid Cap 250,000 25,000
</TABLE>
On November 30, 1999, the inception date of Class C and Class D subaccounts,
WRL made initial contributions of $ 25,000 for 2,500 units for each subaccount
totaling $ 1,150,000 to the Annuity Account.
The Annuity Account holds 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
accounting principles generally accepted in the United States, have been
consistently applied in the preparation of the Annuity Account Financial
Statements. The preparation of the Financial Statements required management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are valued at the closing net asset value
("NAV") per share of the underlying Portfolio, as determined by the Fund.
Investment transactions are accounted for on the trade date at the Portfolio
NAV next determined after receipt of sale or redemption orders without sales
charges. Dividend income and capital gains distributions are recorded on the
ex-dividend date. The cost of investments sold is determined on a first-in,
first-out basis.
B. FEDERAL INCOME TAXES
The operations of the 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.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 2 -- (CONTINUED)
B. SUBACCOUNT CHARGES
A daily charge as a percentage of average daily net assets 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 following reflects the annual
rate for daily charges as assessed by each Annuity Account class:
Class A 1.25%
Class B 1.40%
Class C 1.65%
Class D 1.80%
NOTE 3 -- DIVIDEND 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
accumulation 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 accumulation unit price or equity values within the Annuity
Account.
NOTE 4 --SECURITIES TRANSACTIONS
Securities transactions for the year ended December 31, 1999, are as follows
(in thousands):
<TABLE>
<CAPTION>
PURCHASES PROCEEDS
OF FROM SALES
SUBACCOUNT SECURITIES OF SECURITIES
- --------------------------------- ------------ --------------
<S> <C> <C>
WRL J.P. Morgan Money Market $ 864,574 $ 640,263
WRL AEGON Bond 41,367 48,922
WRL Janus Growth 777,038 252,442
WRL Janus Global 290,487 178,616
WRL LKCM Strategic Total Return 83,858 73,967
WRL VKAM Emerging Growth 426,493 193,184
WRL Alger Aggressive Growth 228,337 83,885
WRL AEGON Balanced 22,833 13,544
WRL Federated Growth & Income 16,326 21,412
WRL Dean Asset Allocation 19,892 91,702
WRL C.A.S.E. Growth 51,139 47,220
WRL NWQ Value Equity 49,991 75,921
WRL GE/Scottish Equitable
International Equity 195,762 200,996
WRL GE U.S. Equity 93,027 46,602
WRL Third Avenue Value 6,186 7,602
WRL J.P. Morgan Real Estate
Securities 5,862 5,414
WRL Goldman Sachs Growth 7,723 1,532
WRL Goldman Sachs Small Cap 6,670 4,609
WRL T. Rowe Price Dividend
Growth 10,188 1,614
WRL T. Rowe Price Small Cap 15,157 8,292
WRL Salomon All Cap 11,652 5,845
WRL Pilgrim Baxter Mid Cap
Growth 29,715 8,086
WRL Dreyfus Mid Cap 3,974 1,091
</TABLE>
NOTE 5 -- FINANCIAL HIGHLIGHTS
Per unit information has been computed using average units outstanding
throughout the year. Total return is not annualized for periods less than one
year. The ratio of net investment income (loss) to average net assets is
annualized for periods less than one year.
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 6 -- EQUITY TRANSACTIONS
(All amounts in thousands)
<TABLE>
<CAPTION>
WRL
J.P. MORGAN
MONEY MARKET
SUBACCOUNT
-----------------------------
DECEMBER 31,
-----------------------------
1999(1) 1998
--------------- -------------
<S> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ................................ 3,396 2,861
Units issued ......................................................... 15,925 12,716
Units redeemed ....................................................... (12,803) (12,181)
------- -------
Units outstanding - end of year ...................................... 6,518 3,396
======= =======
Class B:
Units outstanding - beginning of year ................................ 7,839 5,383
Units issued ......................................................... 109,714 42,233
Units redeemed ....................................................... (95,829) (39,777)
------- -------
Units outstanding - end of year ...................................... 21,724 7,839
======= =======
Class C:
Units outstanding - beginning of year ................................ 0
Units issued ......................................................... 3
Units redeemed ....................................................... 0
-------
Units outstanding - end of year ...................................... 3
=======
Class D:
Units outstanding - beginning of year ................................ 0
Units issued ......................................................... 3
Units redeemed ....................................................... 0
-------
Units oustanding - end of year ....................................... 3
=======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ........................................... $ 232,910 $ 179,547
Cost of units redeemed ............................................... (187,224) (172,316)
------------ ----------
Increase (decrease) in net assets from capital unit transactions ..... $ 45,686 $ 7,231
============ ==========
Class B:
Proceeds from units issued ........................................... $ 1,338,148 $ 498,610
Cost of units redeemed ............................................... (1,168,282) (469,987)
------------ ----------
Increase (decrease) in net assets from capital unit transactions ..... $ 169,866 $ 28,623
============ ==========
Class C:
Proceeds from units issued ........................................... $ 25
Cost of units redeemed ............................................... 0
------------
Increase (decrease) in net assets from capital unit transactions ..... $ 25
============
Class D:
Proceeds from units issued ........................................... $ 25
Cost of units redeemed ............................................... 0
------------
Increase (decrease) in net assets from capital unit transactions ..... $ 25
============
<CAPTION>
WRL WRL
AEGON JANUS
BOND GROWTH
SUBACCOUNT SUBACCOUNT
--------------------------- ---------------------------
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
1999(1) 1998 1999(1) 1998
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ................................ 2,415 2,360 13,063 14,842
Units issued ......................................................... 739 1,411 2,081 2,325
Units redeemed ....................................................... (1,311) (1,356) (3,313) (4,104)
------ ------ ------ ------
Units outstanding - end of year ...................................... 1,843 2,415 11,831 13,063
====== ====== ====== ======
Class B:
Units outstanding - beginning of year ................................ 6,351 4,801 27,435 23,273
Units issued ......................................................... 4,449 5,846 18,424 14,632
Units redeemed ....................................................... (4,519) (4,296) (13,584) (10,470)
------ ------ ------- -------
Units outstanding - end of year ...................................... 6,281 6,351 32,275 27,435
====== ====== ======= =======
Class C:
Units outstanding - beginning of year ................................ 0 0
Units issued ......................................................... 3 3
Units redeemed ....................................................... 0 0
------ -------
Units outstanding - end of year ...................................... 3 3
====== =======
Class D:
Units outstanding - beginning of year ................................ 0 0
Units issued ......................................................... 3 3
Units redeemed ....................................................... 0 0
------ -------
Units oustanding - end of year ....................................... 3 3
====== =======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ........................................... $ 15,202 $ 29,044 $ 152,871 $ 115,049
Cost of units redeemed ............................................... (26,921) (27,598) (244,654) (196,117)
---------- --------- ---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ (11,719) $ 1,446 $ (91,783) $ (81,068)
========== ========= ========== ==========
Class B:
Proceeds from units issued ........................................... $ 62,733 $ 82,089 $ 658,516 $ 349,932
Cost of units redeemed ............................................... (63,678) (60,281) (486,621) (245,125)
---------- --------- ---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ (945) $ 21,808 $ 171,895 $ 104,807
========== ========= ========== ==========
Class C:
Proceeds from units issued ........................................... $ 25 $ 25
Cost of units redeemed ............................................... 0 0
---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ 25 $ 25
========== ==========
Class D:
Proceeds from units issued ........................................... $ 25 $ 25
Cost of units redeemed ............................................... 0 0
---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ 25 $ 25
========== ==========
</TABLE>
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 6 -- (continued)
(All amounts in thousands)
<TABLE>
<CAPTION>
WRL
JANUS
GLOBAL
SUBACCOUNT
-----------------------------
DECEMBER 31,
-----------------------------
1999(1) 1998
-------------- --------------
<S> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ................................ 9,640 10,843
Units issued ......................................................... 1,729 2,177
Units redeemed ....................................................... (2,602) (3,380)
------ ------
Units outstanding - end of year ...................................... 8,767 9,640
====== ======
Class B:
Units outstanding - beginning of year ................................ 17,105 15,530
Units issued ......................................................... 11,751 8,478
Units redeemed ....................................................... (9,981) (6,903)
------ ------
Units outstanding - end of year ...................................... 18,875 17,105
====== ======
Class C:
Units outstanding - beginning of year ................................ 0
Units issued ......................................................... 3
Units redeemed ....................................................... 0
------
Units outstanding - end of year ...................................... 3
======
Class D:
Units outstanding - beginning of year ................................ 0
Units issued ......................................................... 3
Units redeemed ....................................................... 0
------
Units oustanding - end of year ....................................... 3
======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ........................................... $ 61,533 $ 60,997
Cost of units redeemed ............................................... (92,690) (93,858)
---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ (31,157) $ (32,861)
========== ==========
Class B:
Proceeds from units issued ........................................... $ 418,291 $ 236,884
Cost of units redeemed ............................................... (356,658) (190,550)
---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ 61,633 $ 46,334
========== ==========
Class C:
Proceeds from units issued ........................................... $ 25
Cost of units redeemed ............................................... 0
----------
Increase (decrease) in net assets from capital unit transactions ..... $ 25
==========
Class D:
Proceeds from units issued ........................................... $ 25
Cost of units redeemed ............................................... 0
----------
Increase (decrease) in net assets from capital unit transactions ..... $ 25
==========
<CAPTION>
(All amounts in thousands)
WRL WRL
LKCM VKAM
STRATEGIC EMERGING
TOTAL RETURN GROWTH
SUBACCOUNT SUBACCOUNT
----------------------------- -------------
DECEMBER 31, DECEMBER 31,
----------------------------- -------------
1999(1) 1998 1999(1)
-------------- -------------- -------------
<S> <C> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ................................ 7,983 8,831 6,443
Units issued ......................................................... 1,196 1,416 2,008
Units redeemed ....................................................... (2,139) (2,264) (2,297)
------ ------ ------
Units outstanding - end of year ...................................... 7,040 7,983 6,154
====== ====== ======
Class B:
Units outstanding - beginning of year ................................ 16,462 15,125 12,279
Units issued ......................................................... 6,053 5,389 10,810
Units redeemed ....................................................... (6,378) (4,052) (8,910)
------ ------ ------
Units outstanding - end of year ...................................... 16,137 16,462 14,179
====== ====== ======
Class C:
Units outstanding - beginning of year ................................ 0 0
Units issued ......................................................... 3 3
Units redeemed ....................................................... 0 0
------ ------
Units outstanding - end of year ...................................... 3 3
====== ======
Class D:
Units outstanding - beginning of year ................................ 0 0
Units issued ......................................................... 3 3
Units redeemed ....................................................... 0 0
------ ------
Units oustanding - end of year ....................................... 3 3
====== ======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ........................................... $ 24,844 $ 27,037 $ 79,034
Cost of units redeemed ............................................... (44,414) (43,014) (88,629)
---------- ---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ (19,570) $ (15,977) $ (9,595)
========== ========== ==========
Class B:
Proceeds from units issued ........................................... $ 124,950 $ 101,973 $ 422,476
Cost of units redeemed ............................................... (131,518) (76,391) (349,138)
---------- ---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ (6,568) $ 25,582 $ 73,338
========== ========== ==========
Class C:
Proceeds from units issued ........................................... $ 25 $ 25
Cost of units redeemed ............................................... 0 0
---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ 25 $ 25
========== ==========
Class D:
Proceeds from units issued ........................................... $ 25 $ 25
Cost of units redeemed ............................................... 0 0
---------- ----------
Increase (decrease) in net assets from capital unit transactions ..... $ 25 $ 25
========== ==========
<CAPTION>
(All amounts in thousands)
WRL
VKAM
EMERGING GROWTH
SUBACCOUNT
--------------
DECEMBER 31,
--------------
1998
--------------
<S> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ................................ 7,180
Units issued ......................................................... 1,612
Units redeemed ....................................................... (2,349)
------
Units outstanding - end of year ...................................... 6,443
======
Class B:
Units outstanding - beginning of year ................................ 11,279
Units issued ......................................................... 6,337
Units redeemed ....................................................... (5,337)
------
Units outstanding - end of year ...................................... 12,279
======
Class C:
Units outstanding - beginning of year ................................
Units issued .........................................................
Units redeemed .......................................................
Units outstanding - end of year ......................................
Class D:
Units outstanding - beginning of year ................................
Units issued .........................................................
Units redeemed .......................................................
Units oustanding - end of year .......................................
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ........................................... $ 41,762
Cost of units redeemed ............................................... (59,102)
----------
Increase (decrease) in net assets from capital unit transactions ..... $ (17,340)
==========
Class B:
Proceeds from units issued ........................................... $ 162,954
Cost of units redeemed ............................................... (135,066)
----------
Increase (decrease) in net assets from capital unit transactions ..... $ 27,888
==========
Class C:
Proceeds from units issued ...........................................
Cost of units redeemed ...............................................
Increase (decrease) in net assets from capital unit transactions .....
Class D:
Proceeds from units issued ...........................................
Cost of units redeemed ...............................................
Increase (decrease) in net assets from capital unit transactions .....
</TABLE>
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 6 -- (continued)
(All amounts in thousands)
<TABLE>
<CAPTION>
WRL
ALGER
AGGRESSIVE GROWTH
SUBACCOUNT
---------------------------
DECEMBER 31,
---------------------------
1999(1) 1998
------------- -------------
<S> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ........................... 4,069 4,173
Units issued .................................................... 1,440 1,588
Units redeemed .................................................. (1,611) (1,692)
------ ------
Units outstanding - end of year ................................. 3,898 4,069
====== ======
Class B:
Units outstanding - beginning of year ........................... 10,807 9,141
Units issued .................................................... 8,405 6,364
Units redeemed .................................................. (5,960) (4,698)
------ ------
Units outstanding - end of year ................................. 13,252 10,807
====== ======
Class C:
Units outstanding - beginning of year ........................... 0
Units issued .................................................... 3
Units redeemed .................................................. 0
------
Units outstanding - end of year ................................. 3
======
Class D:
Units outstanding - beginning of year ........................... 0
Units issued .................................................... 3
Units redeemed .................................................. 0
------
Units oustanding - end of year .................................. 3
======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ...................................... $ 44,279 $ 33,380
Cost of units redeemed .......................................... (48,859) (34,274)
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ (4,580) $ (894)
========== =========
Class B:
Proceeds from units issued ...................................... $ 257,678 $ 134,461
Cost of units redeemed .......................................... (182,530) (97,234)
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ 75,148 $ 37,227
========== =========
Class C:
Proceeds from units issued ...................................... $ 25
Cost of units redeemed .......................................... 0
----------
Increase (decrease) in net assets from capital unit transactions $ 25
==========
Class D:
Proceeds from units issued ...................................... $ 25
Cost of units redeemed .......................................... 0
----------
Increase (decrease) in net assets from capital unit transactions $ 25
==========
<CAPTION>
WRL WRL
AEGON FEDERATED
BALANCED GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
------------------------- -------------------------
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1999(1) 1998 1999(1) 1998
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ........................... 1,336 1,239 1,021 885
Units issued .................................................... 688 652 225 654
Units redeemed .................................................. (571) (555) (504) (518)
----- ----- ----- ----
Units outstanding - end of year ................................. 1,453 1,336 742 1,021
===== ===== ===== =====
Class B:
Units outstanding - beginning of year ........................... 4,024 3,157 3,248 2,316
Units issued .................................................... 2,279 2,021 1,704 2,664
Units redeemed .................................................. (1,836) (1,154) (1,928) (1,732)
------ ------ ------ ------
Units outstanding - end of year ................................. 4,467 4,024 3,024 3,248
====== ====== ====== ======
Class C:
Units outstanding - beginning of year ........................... 0 0
Units issued .................................................... 3 3
Units redeemed .................................................. 0 0
------ ------
Units outstanding - end of year ................................. 3 3
====== ======
Class D:
Units outstanding - beginning of year ........................... 0 0
Units issued .................................................... 3 3
Units redeemed .................................................. 0 0
------ ------
Units oustanding - end of year .................................. 3 3
====== ======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ...................................... $ 10,368 $ 9,298 $ 3,553 $ 10,307
Cost of units redeemed .......................................... (8,530) (7,930) (7,926) (8,136)
--------- --------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ 1,838 $ 1,368 $ (4,373) $ 2,171
========= ========= ========= =========
Class B:
Proceeds from units issued ...................................... $ 33,951 $ 28,613 $ 26,708 $ 41,704
Cost of units redeemed .......................................... (27,230) (16,289) (30,115) (27,088)
--------- --------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ 6,721 $ 12,324 $ (3,407) $ 14,616
========= ========= ========= =========
Class C:
Proceeds from units issued ...................................... $ 25 $ 25
Cost of units redeemed .......................................... 0 0
--------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25
========= =========
Class D:
Proceeds from units issued ...................................... $ 25 $ 25
Cost of units redeemed .......................................... 0 0
--------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25
========= =========
</TABLE>
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 6 -- (continued)
(All amounts in thousands)
<TABLE>
<CAPTION>
WRL WRL
DEAN ASSET C.A.S.E.
ALLOCATION GROWTH
SUBACCOUNT SUBACCOUNT
--------------------------- --------------------------
DECEMBER 31, DECEMBER 31,
--------------------------- --------------------------
1999(1) 1998 1999(1) 1998
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ........................... 5,174 5,049 887 1,121
Units issued .................................................... 850 1,544 789 538
Units redeemed .................................................. (2,179) (1,419) (992) (772)
------ ------ ---- -----
Units outstanding - end of year ................................. 3,845 5,174 684 887
====== ====== ==== =====
Class B:
Units outstanding - beginning of year ........................... 14,496 12,633 3,043 2,618
Units issued .................................................... 3,195 5,679 3,570 1,879
Units redeemed .................................................. (6,752) (3,816) (3,476) (1,454)
------ ------ ------ ------
Units outstanding - end of year ................................. 10,939 14,496 3,137 3,043
====== ====== ====== ======
Class C:
Units outstanding - beginning of year ........................... 0 0
Units issued .................................................... 3 3
Units redeemed .................................................. 0 0
------ ------
Units outstanding - end of year ................................. 3 3
====== ======
Class D:
Units outstanding - beginning of year ........................... 0 0
Units issued .................................................... 3 3
Units redeemed .................................................. 0 0
------ ------
Units oustanding - end of year .................................. 3 3
====== ======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ...................................... $ 13,824 $ 24,856 $ 15,227 $ 8,282
Cost of units redeemed .......................................... (35,141) (22,698) (18,868) (12,019)
---------- --------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ (21,317) $ 2,158 $ (3,641) $ (3,737)
========== ========= ========= =========
Class B:
Proceeds from units issued ...................................... $ 51,728 $ 90,625 $ 52,397 $ 22,803
Cost of units redeemed .......................................... (107,838) (60,672) (50,557) (17,320)
---------- --------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ (56,110) $ 29,953 $ 1,840 $ 5,483
========== ========= ========= =========
Class C:
Proceeds from units issued ...................................... $ 25 $ 25
Cost of units redeemed .......................................... 0 0
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25
========== =========
Class D:
Proceeds from units issued ...................................... $ 25 $ 25
Cost of units redeemed .......................................... 0 0
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25
========== =========
<CAPTION>
WRL
NWQ
VALUE EQUITY
SUBACCOUNT
----------------------------
DECEMBER 31,
----------------------------
1999(1) 1998
-------------- -------------
<S> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ........................... 2,964 3,562
Units issued .................................................... 1,392 2,145
Units redeemed .................................................. (1,985) (2,743)
------ ------
Units outstanding - end of year ................................. 2,371 2,964
====== ======
Class B:
Units outstanding - beginning of year ........................... 7,103 7,035
Units issued .................................................... 5,308 5,002
Units redeemed .................................................. (6,832) (4,934)
------ ------
Units outstanding - end of year ................................. 5,579 7,103
====== ======
Class C:
Units outstanding - beginning of year ........................... 0
Units issued .................................................... 3
Units redeemed .................................................. 0
------
Units outstanding - end of year ................................. 3
======
Class D:
Units outstanding - beginning of year ........................... 0
Units issued .................................................... 3
Units redeemed .................................................. 0
------
Units oustanding - end of year .................................. 3
======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ...................................... $ 19,668 $ 29,077
Cost of units redeemed .......................................... (27,513) (36,336)
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ (7,845) $ (7,259)
========== =========
Class B:
Proceeds from units issued ...................................... $ 75,522 $ 69,109
Cost of units redeemed .......................................... (94,761) (65,328)
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ (19,239) $ 3,781
========== =========
Class C:
Proceeds from units issued ...................................... $ 25
Cost of units redeemed .......................................... 0
----------
Increase (decrease) in net assets from capital unit transactions $ 25
==========
Class D:
Proceeds from units issued ...................................... $ 25
Cost of units redeemed .......................................... 0
----------
Increase (decrease) in net assets from capital unit transactions $ 25
==========
</TABLE>
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 6 -- (continued)
(All amounts in thousands)
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY
SUBACCOUNT
--------------------------
DECEMBER 31,
--------------------------
1999(1) 1998
------------- ------------
<S> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ........................... 573 601
Units issued .................................................... 281 665
Units redeemed .................................................. (451) (693)
---- ----
Units outstanding - end of year ................................. 403 573
==== ====
Class B:
Units outstanding - beginning of year ........................... 1,642 1,051
Units issued .................................................... 17,277 1,776
Units redeemed .................................................. (17,511) (1,185)
------- ------
Units outstanding - end of year ................................. 1,408 1,642
======= ======
Class C:
Units outstanding - beginning of year ........................... 0
Units issued .................................................... 3
Units redeemed .................................................. 0
-------
Units outstanding - end of year ................................. 3
=======
Class D:
Units outstanding - beginning of year ........................... 0
Units issued .................................................... 3
Units redeemed .................................................. 0
-------
Units oustanding - end of year .................................. 3
=======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ...................................... $ 3,420 $ 7,942
Cost of units redeemed .......................................... (5,503) (8,214)
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ (2,083) $ (272)
========== =========
Class B:
Proceeds from units issued ...................................... $ 205,933 $ 20,738
Cost of units redeemed .......................................... (210,008) (13,578)
---------- ---------
Increase (decrease) in net assets from capital unit transactions $ (4,075) $ 7,160
========== =========
Class C:
Proceeds from units issued ...................................... $ 25
Cost of units redeemed .......................................... 0
----------
Increase (decrease) in net assets from capital unit transactions $ 25
==========
Class D:
Proceeds from units issued ...................................... $ 25
Cost of units redeemed .......................................... 0
----------
Increase (decrease) in net assets from capital unit transactions $ 25
==========
<CAPTION>
WRL WRL
GE THIRD AVENUE
U.S. EQUITY VALUE
SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------
DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------
1999(1) 1998 1999(1) 1998(1)
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ........................... 1,538 987 644 0
Units issued .................................................... 1,742 1,779 344 992
Units redeemed .................................................. (1,457) (1,228) (483) (348)
------ ------ ---- ----
Units outstanding - end of year ................................. 1,823 1,538 505 644
====== ====== ==== ====
Class B:
Units outstanding - beginning of year ........................... 4,840 2,141 1,025 0
Units issued .................................................... 6,339 5,244 746 1,702
Units redeemed .................................................. (4,398) (2,545) (803) (677)
------ ------ ----- -----
Units outstanding - end of year ................................. 6,781 4,840 968 1,025
====== ====== ===== =====
Class C:
Units outstanding - beginning of year ........................... 0 0
Units issued .................................................... 3 3
Units redeemed .................................................. 0 0
------ -----
Units outstanding - end of year ................................. 3 3
====== =====
Class D:
Units outstanding - beginning of year ........................... 0 0
Units issued .................................................... 3 3
Units redeemed .................................................. 0 0
------ -----
Units oustanding - end of year .................................. 3 3
====== =====
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ...................................... $ 28,757 $ 24,458 $ 3,180 $ 9,565
Cost of units redeemed .......................................... (23,900) (17,106) (4,457) (3,245)
--------- --------- --------- --------
Increase (decrease) in net assets from capital unit transactions $ 4,857 $ 7,352 $ (1,277) $ 6,320
========= ========= ========= ========
Class B:
Proceeds from units issued ...................................... $ 103,550 $ 71,783 $ 6,830 $ 16,395
Cost of units redeemed .......................................... (71,471) (34,882) (7,373) (6,266)
--------- --------- --------- --------
Increase (decrease) in net assets from capital unit transactions $ 32,079 $ 36,901 $ (543) $ 10,129
========= ========= ========= ========
Class C:
Proceeds from units issued ...................................... $ 25 $ 25
Cost of units redeemed .......................................... 0 0
--------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25
========= =========
Class D:
Proceeds from units issued ...................................... $ 25 $ 25
Cost of units redeemed .......................................... 0 0
--------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25
========= =========
</TABLE>
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 6 -- (continued)
(All amounts in thousands)
<TABLE>
<CAPTION>
WRL
J.P. MORGAN
REAL ESTATE SECURITIES
SUBACCOUNT
-----------------------
DECEMBER 31,
-----------------------
1999(1) 1998(1)
----------- -----------
<S> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year .................................. 68 0
Units issued ........................................................... 29 84
Units redeemed ......................................................... (46) (16)
--- ---
Units outstanding - end of year ........................................ 51 68
=== ===
Class B:
Units outstanding - beginning of year .................................. 157 0
Units issued ........................................................... 711 302
Units redeemed ......................................................... (665) (145)
---- ----
Units outstanding - end of year ........................................ 203 157
==== ====
Class C:
Units outstanding - beginning of year .................................. 0
Units issued ........................................................... 3
Units redeemed ......................................................... 0
----
Units outstanding - end of year ........................................ 3
====
Class D:
Units outstanding - beginning of year .................................. 0
Units issued ........................................................... 3
Units redeemed ......................................................... 0
----
Units oustanding - end of year ......................................... 3
====
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ............................................. $ 250 $ 784
Cost of units redeemed ................................................. (381) (151)
-------- --------
Increase (decrease) in net assets from capital unit transactions ....... $ (131) $ 633
======== ========
Class B:
Proceeds from units issued ............................................. $ 6,089 $ 2,659
Cost of units redeemed ................................................. (5,638) (1,222)
-------- --------
Increase (decrease) in net assets from capital unit transactions ....... $ 451 $ 1,437
======== ========
Class C:
Proceeds from units issued ............................................. $ 25
Cost of units redeemed ................................................. 0
--------
Increase (decrease) in net assets from capital unit transactions ....... $ 25
========
Class D:
Proceeds from units issued ............................................. $ 25
Cost of units redeemed ................................................. 0
--------
Increase (decrease) in net assets from capital unit transactions ....... $ 25
========
<CAPTION>
WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ----------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- --------------- ----------------
1999(1) 1999(1) 1999(1)
--------------- --------------- ----------------
<S> <C> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year .................................. 0 0 0
Units issued ........................................................... 162 244 224
Units redeemed ......................................................... (48) (207) (26)
--- ---- ---
Units outstanding - end of year ........................................ 114 37 198
=== ==== ===
Class B:
Units outstanding - beginning of year .................................. 0 0 0
Units issued ........................................................... 679 437 925
Units redeemed ......................................................... (175) (271) (233)
---- ---- ----
Units outstanding - end of year ........................................ 504 166 692
==== ==== ====
Class C:
Units outstanding - beginning of year .................................. 0 0 0
Units issued ........................................................... 3 3 3
Units redeemed ......................................................... 0 0 0
---- ---- ----
Units outstanding - end of year ........................................ 3 3 3
==== ==== ====
Class D:
Units outstanding - beginning of year .................................. 0 0 0
Units issued ........................................................... 3 3 3
Units redeemed ......................................................... 0 0 0
---- ---- ----
Units oustanding - end of year ......................................... 3 3 3
==== ==== ====
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ............................................. $ 1,614 $ 2,469 $ 2,140
Cost of units redeemed ................................................. (489) (2,190) (239)
-------- -------- --------
Increase (decrease) in net assets from capital unit transactions ....... $ 1,125 $ 279 $ 1,901
======== ======== ========
Class B:
Proceeds from units issued ............................................. $ 6,881 $ 4,542 $ 8,844
Cost of units redeemed ................................................. (1,788) (2,854) (2,175)
-------- -------- --------
Increase (decrease) in net assets from capital unit transactions ....... $ 5,093 $ 1,688 $ 6,669
======== ======== ========
Class C:
Proceeds from units issued ............................................. $ 25 $ 25 $ 25
Cost of units redeemed ................................................. 0 0 0
-------- -------- --------
Increase (decrease) in net assets from capital unit transactions ....... $ 25 25 $ 25
======== ======== ========
Class D:
Proceeds from units issued ............................................. $ 25 $ 25 $ 25
Cost of units redeemed ................................................. 0 0 0
-------- -------- --------
Increase (decrease) in net assets from capital unit transactions ....... $ 25 $ 25 $ 25
======== ======== ========
</TABLE>
<PAGE>
WRL SERIES ANNUITY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 6 -- (continued)
(All amounts in thousands)
<TABLE>
<CAPTION>
WRL WRL WRL WRL
T. ROWE PRICE SALOMON PILGRIM BAXTER DREYFUS
SMALL CAP ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- -------------- ---------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- -------------- ---------------- -------------
1999(1) 1999(1) 1999(1) 1999(1)
--------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
UNIT ACTIVITY:
Class A:
Units outstanding - beginning of year ........................... 0 0 0 0
Units issued .................................................... 609 351 467 80
Units redeemed .................................................. (324) (231) (90) (4)
---- ---- --- -----
Units outstanding - end of year ................................. 285 120 377 76
==== ==== === ====
Class B:
Units outstanding - beginning of year ........................... 0 0 0 0
Units issued .................................................... 929 863 2,223 428
Units redeemed .................................................. (570) (438) (771) (218)
---- ---- ----- ------
Units outstanding - end of year ................................. 359 425 1,452 210
==== ==== ===== ======
Class C:
Units outstanding - beginning of year ........................... 0 0 0 0
Units issued .................................................... 3 3 3 3
Units redeemed .................................................. 0 0 0 0
---- ---- ----- ------
Units outstanding - end of year ................................. 3 3 3 3
==== ==== ===== ======
Class D:
Units outstanding - beginning of year ........................... 0 0 0 0
Units issued .................................................... 3 3 3 3
Units redeemed .................................................. 0 0 0 0
---- ---- ----- ------
Units oustanding - end of year .................................. 3 3 3 3
==== ==== ===== ======
CAPITAL UNITS TRANSACTIONS BY CLASS:
Class A:
Proceeds from units issued ...................................... $ 6,520 $ 3,654 $ 5,562 $ 807
Cost of units redeemed .......................................... (3,636) (2,516) (1,159) (44)
-------- -------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ 2,884 $ 1,138 $ 4,403 $ 763
======== ======== ========= =========
Class B:
Proceeds from units issued ...................................... $ 10,097 $ 9,161 $ 27,496 $ 4,276
Cost of units redeemed .......................................... (6,338) (4,670) (10,080) (2,145)
-------- -------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ 3,759 $ 4,491 $ 17,416 $ 2,131
======== ======== ========= =========
Class C:
Proceeds from units issued ...................................... $ 25 $ 25 $ 25 $ 25
Cost of units redeemed .......................................... 0 0 0 0
-------- -------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25 25 $ 25
======== ======== ========= =========
Class D:
Proceeds from units issued ...................................... $ 25 $ 25 $ 25 $ 25
Cost of units redeemed .......................................... 0 0 0 0
-------- -------- --------- ---------
Increase (decrease) in net assets from capital unit transactions $ 25 $ 25 $ 25 $ 25
======== ======== ========= =========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio (wholly owned indirectly by AEGON N.V.) as
of December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
statutory-basis financial statement schedules required by Regulation S-X,
Article 7. These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits. We did not audit the
"Separate Account Assets" and "Separate Account Liabilities" in the
statutory-basis balance sheets of the Company. The Separate Account financial
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the data included for the
Separate Accounts, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1999 and 1998, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1999.
However, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Department of the State of Ohio. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 18, 2000
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments .......................... $ 23,932 $ 73,808
Bonds .................................................... 119,731 184,697
Common stocks:
Affiliated entities (cost: 1999 and 1998 - $243)......... 2,156 704
Other (cost: 1999 and 1998 - $302)....................... 358 384
Mortgage loans on real estate ............................ 9,698 9,916
Home office properties .................................. 34,066 34,583
Investment properties ................................... 11,078 11,594
Policy loans ............................................ 182,975 112,982
Other invested assets ................................... -- 396
----------- ----------
Total cash and invested assets ............................ 383,994 429,064
Premiums deferred and uncollected ......................... 785 900
Accrued investment income ................................. 1,638 2,867
Transfers from separate accounts due or accrued ........... 463,721 350,633
Cash surrender value of life insurance policies ........... 47,518 45,445
Other assets .............................................. 6,614 9,239
Separate account assets ................................... 11,587,982 6,999,290
----------- ----------
Total admitted assets ..................................... $12,492,252 $7,837,438
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
-------------- ------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life .................................................................... $ 302,138 $ 231,596
Annuity ................................................................. 268,864 265,418
Policy and contract claim reserves ....................................... 9,269 9,233
Other policyholders' funds ............................................... 38,633 38,080
Remittances and items not allocated ...................................... 20,686 20,569
Federal income taxes payable ............................................. 5,873 5,716
Asset valuation reserve .................................................. 3,809 2,848
Interest maintenance reserve ............................................. 7,866 9,684
Short-term note payable to affiliate ..................................... 17,100 44,200
Payable to affiliate ..................................................... 964 37,907
Other liabilities ........................................................ 49,478 31,151
Separate account liabilities ............................................. 11,582,656 6,997,456
----------- ----------
Total liabilities ......................................................... 12,307,336 7,693,858
Commitments and contingencies (NOTE 11) ...................................
Capital and surplus:
Common stock, $1.00 par value, 3,000,000 shares authorized and
2,500,000 shares issued and outstanding at December 31, 1999 and
1,500,000 shares authorized, issued and outstanding at December 31, 1998 2,500 1,500
Paid-in surplus .......................................................... 120,107 120,107
Unassigned surplus ....................................................... 62,309 21,973
----------- ----------
Total capital and surplus ................................................. 184,916 143,580
----------- ----------
Total liabilities and capital and surplus ................................. $12,492,252 $7,837,438
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life .................................................................. $ 584,729 $ 476,053 $ 394,370
Annuity ............................................................... 1,104,525 794,841 822,149
Net investment income .................................................. 39,589 36,315 40,013
Amortization of interest maintenance reserve ........................... 1,751 744 1,576
Commissions and expense allowances on reinsurance ceded ................ 4,178 15,333 11
Income from fees associated with investment management,
administration and contract guarantees for separate accounts ......... 19,620 72,817 --
Other income ........................................................... 44,366 67,751 3,016
---------- ---------- ----------
1,798,758 1,463,854 1,261,135
Benefits and expenses:
Benefits paid or provided for:
Life .................................................................. 35,591 42,982 28,060
Surrender benefits .................................................... 689,535 551,528 431,939
Other benefits ........................................................ 32,201 31,280 28,112
Increase (decrease) in aggregate reserves for policies and
contracts:
Life ................................................................. 70,542 42,940 29,485
Annuity .............................................................. 3,446 (30,872) (35,940)
Other ................................................................ (121) 32,178 794
---------- ---------- ----------
831,194 670,036 482,450
Insurance expenses:
Commissions ............................................................ 246,334 205,939 179,106
General insurance expenses ............................................. 112,536 102,611 70,546
Taxes, licenses and fees ............................................... 19,019 15,545 13,101
Net transfers to separate accounts ..................................... 540,443 475,435 519,214
Other expenses ......................................................... -- 59 21
---------- ---------- ----------
918,332 799,589 781,988
---------- ---------- ----------
1,749,526 1,469,625 1,264,438
---------- ---------- ----------
Gain (loss) from operations before federal income tax expense
(benefit) and net realized capital gains
(losses) on investments ............................................... 49,232 (5,771) (3,303)
Federal income tax expense (benefit) .................................... 11,816 (347) 469
---------- ---------- ----------
Gain (loss) from operations before net realized capital gains (losses)
on investments ........................................................ 37,416 (5,424) (3,772)
Net realized capital gains (losses) on investments
(net of related federal income taxes and amounts transferred to
interest maintenance reserve) ......................................... (716) 1,494 747
---------- ---------- ----------
Net income (loss) ....................................................... $ 36,700 $ (3,930) $ (3,025)
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 .......................... $1,500 $ 68,015 $ 26,041 $ 95,556
Net loss ........................................... -- -- (3,025) (3,025)
Change in non-admitted assets ...................... -- -- (702) (702)
Change in asset valuation reserve .................. -- -- 3,274 3,274
Change in surplus in separate accounts ............. -- -- (2,115) (2,115)
Change in reserve valuation ........................ -- -- (1,872) (1,872)
Capital contribution ............................... -- 20,000 -- 20,000
Tax effect of capital loss carry-forward utilized by
affiliates ....................................... -- -- 3,747 3,747
------ -------- -------- --------
Balance at December 31, 1997 ........................ 1,500 88,015 25,348 114,863
Net loss ........................................... -- -- (3,930) (3,930)
Change in net unrealized capital gains ............. -- -- 248 248
Change in non-admitted assets ...................... -- -- (1,815) (1,815)
Change in asset valuation reserve .................. -- -- (412) (412)
Change in surplus in separate accounts ............. -- -- (341) (341)
Change in reserve valuation ........................ -- -- (2,132) (2,132)
Capital contribution ............................... -- 32,092 -- 32,092
Settlement of prior period tax returns ............. -- -- 353 353
Tax benefits on stock options exercised ............ -- -- 4,654 4,654
------ -------- -------- --------
Balance at December 31, 1998 ........................ 1,500 120,107 21,973 143,580
Net income .......................................... -- -- 36,700 36,700
Change in net unrealized capital gains ............. -- -- 1,421 1,421
Change in non-admitted assets ...................... -- -- 703 703
Change in asset valuation reserve .................. -- -- (961) (961)
Change in surplus in separate accounts ............. -- -- 451 451
Transfer from unassigned surplus to common
stock (stock dividend) ........................... 1,000 -- (1,000) --
Settlement of prior period tax returns ............. -- -- 1,000 1,000
Tax benefits on stock options exercised ............ -- -- 2,022 2,022
------ -------- -------- --------
Balance at December 31, 1999 ........................ $2,500 $120,107 $ 62,309 $184,916
====== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF CASH FLOWS --
STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance .......... $1,738,870 $1,356,732 $1,223,898
Net investment income .......................................... 44,235 38,294 43,802
Life and accident and health claims ............................ (35,872) (44,426) (26,005)
Surrender benefits and other fund withdrawals .................. (689,535) (551,528) (431,939)
Other benefits to policyholders ................................ (32,642) (31,231) (28,147)
Commissions, other expenses and other taxes .................... (382,372) (326,080) (262,901)
Net transfers to separate accounts ............................. (628,762) (461,982) (596,347)
Federal income taxes received (paid) ........................... (9,637) 11,956 5,006
Interest paid .................................................. -- -- (731)
Other, net ..................................................... (21,054) (7,109) (14,901)
---------- ---------- ----------
Net cash used in operating activities .......................... (16,769) (15,374) (88,265)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks .................................... 114,177 143,449 146,963
Mortgage loans on real estate ................................. 212 221 2,116
Other ......................................................... 18 -- --
114,407 143,670 149,079
Cost of investments acquired
Bonds and preferred stocks .................................... (49,279) (68,202) (40,418)
Common stocks ................................................. -- (93) (150)
Mortgage loans on real estate ................................. (1) (5,313) (891)
Real estate ................................................... (286) (26,213) (12,002)
Policy loans .................................................. (69,993) (36,241) (24,137)
Other ......................................................... (855) (414) --
---------- ---------- ----------
(120,414) (136,476) (77,598)
Net cash provided by (used in) investing activities ............ (6,007) 7,194 71,481
FINANCING ACTIVITIES
Issuance (payment) of short-term note payable to
affiliate, net ............................................... (27,100) 36,000 8,200
Capital contribution ........................................... -- 32,092 20,000
---------- ---------- ----------
Net cash provided by (used in) financing activities ............ (27,100) 68,092 28,200
---------- ---------- ----------
Increase (decrease) in cash and short-term investments ......... (49,876) 59,912 11,416
Cash and short-term investments at beginning of year ........... 73,808 13,896 2,480
---------- ---------- ----------
Cash and short-term investments at end of year ................. $ 23,932 $ 73,808 $ 13,896
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and
variable annuity areas of the life insurance business. The Company is licensed
in 49 states, District of Columbia, Puerto Rico and Guam. Sales of the
Company's products are through financial planners, independent representatives,
financial institutions and stockbrokers. The majority of the Company's new life
insurance written and a substantial portion of new annuities written is done
through one marketing organization; the Company expects to maintain this
relationship for the foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Ohio ("Insurance Department"), which practices differ from
generally accepted accounting principles. The more significant of these
differences are as follows: (a) bonds are generally reported at amortized cost
rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring
new business are expensed as incurred rather than deferred and amortized over
the life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
liability rather than shown as gross amounts on the balance sheet; (f) deferred
income taxes are not provided for the difference between the financial
statement amounts and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond or
mortgage loan, rather than recognized as gains or losses in the statement of
operations when the sale is completed; (h) potential declines in the estimated
realizable value of investments are provided for through the establishment of a
formula-determined statutory investment reserve (reported as a liability),
changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated
as "non-admitted assets" have been charged to unassigned surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (k) pension expense is recorded
as amounts are paid rather than accrued and expensed during the periods in
which the employers provide service; (l) stock options settled in cash are
recorded as an expense of the Company's indirect parent rather than charged to
current operations; (m) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of income tax expense in the statement of operations; and (n) the
financial statements of wholly-owned affiliates are not consolidated with those
of the Company. The effects of these variances have not been determined by the
Company, but are presumed to be material.
In 1998, the National Association of Insurance Commissioners (NAIC)
adopted codified statutory accounting principles ("Codification") effective
January 1, 2001. Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that the Company uses to prepare its statutory-basis financial
statements. Codification will require adoption by the various states before it
becomes the prescribed statutory basis of accounting for insurance companies
domesticated within those states. Accordingly, before Codification becomes
effective for the Company, the State of Ohio must adopt Codification as the
prescribed basis of accounting on which domestic insurers must report their
statutory-basis results to the Insurance Department. At this time it is unclear
whether the State of Ohio will adopt Codification. However, based on current
guidance, management believes that the impact of Codification will not be
material to the Company's statutory-basis financial statements.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturities of one year or less when
purchased to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation
Office of the NAIC has ascribed a value), mortgage loans on real estate and
short-term investments are reported at cost adjusted for amortization of
premiums and accrual of discounts. Amortization is computed using methods which
result in a level yield over the expected life of the investment. The Company
reviews its prepayment assumptions on mortgage and other asset backed
securities at regular intervals and adjusts amortization rates retrospectively
when such assumptions are changed due to experience and/or expected future
patterns. Common stocks of unaffiliated companies are carried at market, and
the related unrealized capital gains/(losses) are reported in unassigned
surplus without any adjustment for federal income taxes. Common stocks of the
Company's wholly-owned affiliates are recorded at the equity in net assets.
Home office and investment properties are reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid principal. Other "admitted assets" are
valued, principally at cost, as required or permitted by Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for potential
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1999, 1998 and 1997, net realized capital gains (losses) of $(67),
$1,294 and $3,259, respectively, were credited to the IMR rather than being
immediately
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
recognized in the statements of operations. Amortization of these net gains
aggregated $1,751, $744 and $1,576 for the years ended December 31, 1999, 1998
and 1997, respectively.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. No investment income due and accrued
has been excluded for the years ended December 31, 1999, 1998 and 1997, with
respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.25 to 5.50 percent and are computed principally on the Net Level Premium
Valuation and the Commissioners' Reserve Valuation Methods. Reserves for
universal life policies are based on account balances adjusted for the
Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 5.75 to 8.75 percent and mortality rates, where appropriate, from a
variety of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims
reported to the Company and claims incurred but not yet reported through the
statement date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders and,
accordingly, the operations of the separate accounts are not included in the
accompanying financial statements. The separate accounts do not have any
minimum guarantees and the investment risks associated with market value
changes are borne entirely by the policyholders. The Company received variable
contract premiums of $1,675,642, $1,240,858 and $1,164,013 in 1999, 1998 and
1997, respectively. All variable account contracts are subject to discretionary
withdrawal by the policyholder at the market value of the underlying assets
less the current surrender charge. Separate account contractholders have no
claim against the assets of the general account.
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company, and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to unassigned surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparisons
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement of Financial Accounting Standards No.
107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements and allows companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or (in the case of private placements) are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities are based on quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of
the loans. The fair value of policy loans are assumed to equal their
carrying value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following sets forth a comparison of the fair values and carrying
amounts of the Company's financial instruments subject to the provisions of
Statement of Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1999 1998
--------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments ..... $ 23,932 $ 23,932 $ 73,808 $ 73,808
Bonds ............................... 119,731 119,076 184,697 192,556
Common stocks, other than affiliates 358 358 384 384
Mortgage loans on real estate ....... 9,698 9,250 9,916 10,390
Policy loans ........................ 182,975 182,975 112,982 112,982
Separate account assets ............. 11,587,982 11,587,982 6,999,290 6,999,290
LIABILITIES
Investment contract liabilities ..... 301,403 294,342 297,349 294,105
Separate account annuities .......... 8,271,548 8,079,141 5,096,680 5,038,296
</TABLE>
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
3. INVESTMENTS
The carrying amount and estimated fair value of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Bonds:
United States Government and agencies .......... $ 4,755 $ 4 $ 66 $ 4,693
State, municipal and other government .......... 2,185 12 -- 2,197
Public utilities ............................... 13,134 129 368 12,895
Industrial and miscellaneous ................... 52,997 1,213 1,208 53,002
Mortgage and other asset-backed securities ..... 46,660 480 851 46,289
-------- ------ ------ --------
Total bonds ..................................... $119,731 $1,838 $2,493 $119,076
======== ====== ====== ========
DECEMBER 31, 1998
Bonds: ..........................................
United States Government and agencies .......... $ 4,749 $ 83 $ -- $ 4,832
State, municipal and other government .......... 3,234 117 -- 3,351
Public utilities ............................... 18,792 818 251 19,359
Industrial and miscellaneous ................... 96,332 6,685 577 102,440
Mortgage and other asset-backed securities ..... 61,590 1,235 251 62,574
-------- ------ ------ --------
Total bonds ..................................... $184,697 $8,938 $1,079 $192,556
======== ====== ====== ========
</TABLE>
The carrying amount and fair value of bonds at December 31, 1999 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Amount Value
---------- ----------
<S> <C> <C>
Due in one year or less ............................ $ 10,521 $ 10,560
Due one through five years ......................... 32,248 31,993
Due five through ten years ......................... 17,342 17,104
Due after ten years ................................ 12,960 13,130
-------- --------
73,071 72,787
Mortgage and other asset-backed securities ......... 46,660 46,289
-------- --------
$119,731 $119,076
======== ========
</TABLE>
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
3. INVESTMENTS--(CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Interest on bonds .................... $ 12,094 $ 17,150 $ 25,723
Dividends on equity investments from
subsidiaries ........................ 18,555 13,233 10,855
Interest on mortgage loans ........... 746 499 478
Rental income on real estate ......... 5,794 2,839 1,371
Interest on policy loans ............. 9,303 6,241 4,656
Other investment income .............. 414 540 26
-------- -------- --------
Gross investment income .............. 46,906 40,502 43,109
Investment expenses .................. (7,317) (4,187) (3,096)
-------- -------- --------
Net investment income ................ $ 39,589 $ 36,315 $ 40,013
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds ...................... $114,177 $143,449 $146,963
======== ======== ========
Gross realized gains .......... $ 1,762 $ 4,641 $ 3,921
Gross realized losses ......... 1,709 899 626
-------- -------- --------
Net realized gains ............ $ 53 $ 3,742 $ 3,295
======== ======== ========
</TABLE>
At December 31, 1999, bonds with an aggregate carrying value of $4,152
were on deposit with certain state regulatory authorities or were restrictively
held in bank custodial accounts for benefit of such state regulatory
authorities, as required by statute.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
3. INVESTMENTS--(CONTINUED)
Realized investment gains (losses) and changes in unrealized gains
(losses) for investments are summarized below:
<TABLE>
<CAPTION>
Realized
-------------------------------------
Year ended December 31
-------------------------------------
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
Debt securities .................................. $ 53 $ 3,742 $ 3,295
Other invested assets ............................ 18 (18) --
------ -------- --------
71 3,724 3,295
Tax expense ...................................... (854) (936) (711)
Transfer to interest maintenance reserve ......... 67 (1,294) (3,259)
------ -------- --------
Net realized gains (losses) ...................... $ (716) $ 1,494 $ 747
====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Changes in Unrealized
----------------------------------------
Year ended December 31
----------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Debt securities .......................................... $ (8,514) $ (3,985) $ (896)
Common stocks ............................................ 1,426 248 --
-------- -------- ------
Change in unrealized appreciation (depreciation) ......... $ (7,088) $ (3737) $ (896)
======== ======== ======
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
Unrealized
-------------------
December 31
-------------------
1999 1998
--------- -------
<S> <C> <C>
Unrealized gains ............. $1,995 $ 579
Unrealized losses ............ (26) (36)
------ -----
Net unrealized gains ......... $1,969 $ 543
====== =====
</TABLE>
During 1999, the Company did not issue any mortgage loans. The Company
requires all mortgagees to carry fire insurance equal to the value of the
underlying property.
During 1999, 1998 and 1997, no mortgage loans were foreclosed and
transferred to real estate. During 1999 and 1998, the Company held a mortgage
loan loss reserve in the asset valuation reserve of $110 and $112,
respectively.
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed
its established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Direct premiums ............. $1,748,265 $1,345,752 $1,219,271
Reinsurance assumed ......... -- 461 2,389
Reinsurance ceded ........... (59,011) (75,319) (5,141)
---------- ---------- ----------
Net premiums earned ......... $1,689,254 $1,270,894 $1,216,519
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $4,916,
$5,260 and $2,288 during 1999, 1998 and 1997, respectively. At December 31,
1999 and 1998, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim reserves totaled $1,557 and $1,003,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1999 and 1998 of
$3,487 and $2,849, respectively.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a
tax-sharing agreement between the Company and its affiliates, the Company
computes federal income tax expense as if it were filing a separate income tax
return, except that tax credits and net operating loss carryforwards are
determined on the basis of the consolidated group. Additionally, the
alternative minimum tax is computed for the consolidated group and the
resulting tax, if any, is allocated back to the separate companies on the basis
of the separate companies' alternative minimum taxable income.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
5. INCOME TAXES--(CONTINUED)
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to gain (loss) from operations
before federal income tax expense (benefit) and realized capital gains (losses)
on investments for the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Computed tax (benefit) at federal statutory rate (35%) ......... $ 17,231 $ (2,019) $ (1,156)
Deferred acquisition costs -- tax basis ........................ 11,344 9,672 9,164
Tax reserve valuation .......................................... (2,272) 1,513 (194)
Excess tax depreciation ........................................ (727) (442) (127)
Amortization of IMR ............................................ (613) (260) (552)
Dividend received deduction .................................... (10,784) (6,657) (5,326)
Prior year over-accrual ........................................ (3,167) (2,322) (1,541)
Other, net ..................................................... 804 168 201
--------- -------- --------
Federal income tax expense (benefit) ........................... $ 11,816 $ (347) $ 469
========= ======== ========
</TABLE>
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to realized gains (losses) due
to the differences in book and tax asset bases at the time certain investments
are sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation, but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($293 at December 31, 1999). To the extent dividends are paid
from the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $103.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $10,705, which were utilized by the Company's affiliates in the
consolidated tax return filing in 1997. This transaction resulted in a receipt
from the Company's affiliate of $3,747, which was credited directly to
unassigned surplus.
In 1999, the Company received $1,000 from its former parent, an
unaffiliated company, for reimbursement of prior period tax payments made by
the Company but owed by the former parent. In 1998, the Company reached a final
settlement with the
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
Internal Revenue Service for 1994 and 1995 resulting in a tax refund of $300
and interest received of $53. Tax settlements for 1999 and 1998 were credited
directly to unassigned surplus.
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products,
primarily separate accounts, that are not subject to significant mortality or
morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves
on these products, by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------
1999 1998
-------------------------- -------------------------
Percent Percent
Amount of Total Amount of Total
------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment ..................... $ 12,534 0% $ 12,810 0%
Subject to discretionary withdrawal at book
value less surrender charge ................. 73,903 1 76,289 1
Subject to discretionary withdrawal at market
value ....................................... 8,271,441 96 5,096,680 94
Subject to discretionary withdrawal at book
value (minimal or no charges or
adjustments) ................................ 217,372 3 210,270 4
Not subject to discretionary withdrawal
provision ................................... 15,433 0 15,681 1
---------- -- ---------- --
8,590,683 100% 5,411,730 100%
=== ===
Less reinsurance ceded ....................... 1,581 1,131
---------- ----------
Total policy reserves on annuities and deposit
fund liabilities ............................ $8,589,102 $5,410,599
========== ==========
</TABLE>
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts ................. $1,675,642 $1,240,858 $1,164,013
Transfers from separate accounts ............... 1,056,207 774,690 646,477
---------- ---------- ----------
Net transfers to separate accounts ............. 619,435 466,168 517,536
Reconciling adjustments -- change in accruals
for investment management, administration
fees and contract guarantees, reinsurance and
separate account surplus ..................... (78,992) 9,267 1,678
---------- ---------- ----------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement ............................. $ 540,443 $ 475,435 $ 519,214
========== ========== ==========
</TABLE>
Reserves on the Company's traditional life insurance products are computed
using mean reserving methodologies. These methodologies result in the
establishment of assets for the amount of the net valuation premiums that are
anticipated to be received between the policy's paid-through date to the
policy's next anniversary date. At December 31, 1999 and 1998, these assets
(which are reported as premiums deferred and uncollected) and the amounts of
the related gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
--------- --------- -------
<S> <C> <C> <C>
DECEMBER 31, 1999
Ordinary direct renewal business ......... $1,017 $232 $785
------ ---- ----
$1,017 $232 $785
====== ==== ====
DECEMBER 31, 1998
Ordinary direct renewal business ......... $1,101 $201 $900
------ ---- ----
$1,101 $201 $900
====== ==== ====
</TABLE>
In 1994, the NAIC enacted a guideline to clarify reserving methodologies
for contracts that require immediate payment of claims upon proof of death of
the insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $2,132
and $1,872 was made for the years ended December 31, 1998 and 1997,
respectively, related to the change in reserve methodology.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Ohio, on
the payment of dividends to its parent company. Generally, dividends during any
twelve month period may not be paid; without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to the availability of unassigned surplus at the time
of such dividend, the maximum payment which may be made in 2000, without the
prior approval of insurance regulatory authorities, is $36,700.
8. CAPITAL STRUCTURE
During 1999, the Company's Board of Director's approved an amendment to
the Company's Articles of Incorporation which increased the number of
authorized capital shares to 3,000,000. The Board of Directors also authorized
a stock dividend in the amount of $1,000, which was transferred from unassigned
surplus. This amendment and stock dividend were in response to a change in
California law which requires all life insurance companies which do business in
the state to have capital stock of at least $2,500.
9. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored
by AEGON. The Company has no legal obligation for the plan. The Company
recognizes pension expense equal to its allocation from AEGON. The pension
expense is allocated among the participating companies based on the Statement
of Financial Accounting Standards No. 87 expense as a percent of salaries. The
benefits are based on years of service and the employee's compensation during
the highest five consecutive years of employment. Pension expense aggregated
$1,105, $917 and $659 for the years ended December 31, 1999, 1998 and 1997,
respectively. The plan is subject to the reporting and disclosure requirements
of the Employee Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k) of
the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
9. RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
Pension expense related to this plan was $816, $632 and $448 for the years
ended December 31, 1999, 1998 and 1997, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's
senior management with benefits in excess of normal pension benefits. The plans
are noncontributory and benefits are based on years of service and the
employee's compensation level. The plans are unfunded and nonqualified under
the Internal Revenue Code. In addition, AEGON has established incentive
deferred compensation plans for certain key employees of the Company. AEGON
also sponsors an employee stock option plan for individuals employed at least
three years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
for or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans
sponsored by AEGON that provide postretirement medical, dental and life
insurance benefits to employees meeting certain eligibility requirements.
Portions of the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $81, $157 and $99 for the years ended December 31, 1999, 1998
and 1997, respectively.
10. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $16,905 $12,763 and $10,040, respectively, for
such services, which approximates their costs to the affiliates. The Company
provides office space, marketing and administrative services to certain
affiliates. During 1999, 1998 and 1997, the Company received $3,755, $5,125 and
$4,395, respectively, for such services, which approximates their cost.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.06% at December 31, 1999. During 1999,
1998 and 1997, the Company paid net interest of $1,997, $1,090 and $364,
respectively, to affiliates.
The Company received capital contributions of $32,092 and $20,000 from its
parent in 1998 and 1997, respectively.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
10. RELATED PARTY TRANSACTIONS--(CONTINUED)
At December 31, 1999 and 1998, the Company had short-term note payables to
an affiliate of $17,100 and $44,200, respectively. Interest on these notes
ranged from 5.15% to 5.9% at December 31, 1999 and 5.13% to 5.54% at December
31, 1998.
During 1998, the Company purchased life insurance policies covering the
lives of certain employees of the Company. Premiums of $43,500 were paid to an
affiliate for these policies. At December 31, 1999 and 1998, the cash surrender
value of these policies was $47,518 and $45,445, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as an
asset on the Company's balance sheet. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Association. Potential future obligations for
unknown insolvencies are not determinable by the Company. The Company has
established a reserve of $3,498 and $3,489 and an offsetting premium tax
benefit of $837 and $828 at December 31, 1999 and 1998, respectively, for its
estimated share of future guaranty fund assessments related to several major
insurer insolvencies. The guaranty fund expense (credit) was $(20), $(74) and
$0 at December 31, 1999, 1998 and 1997, respectively.
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME
The following table reconciles capital and surplus and net income as
reported in the 1998 Annual Statement filed with the Insurance Department of
the State of Ohio, to the amounts reported in the accompanying financial
statements:
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME--(CONTINUED)
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1998
------------------- ------------------
Total Capital
and Surplus Net Income/Loss
------------------- ------------------
<S> <C> <C>
Amounts reported in Annual Statement ............. $148,038 $ 528
Adjustment to federal income tax benefit ......... (4,458) (4,458)
-------- --------
Amounts reported herein .......................... $143,580 $ (3,930)
======== ========
</TABLE>
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ------------------------------------------------------------ ------------ ---------- ----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities ................................ $ 5,827 $ 5,820 $ 5,827
States, municipalities and political subdivisions ......... 7,110 7,275 7,110
Public utilities .......................................... 13,134 12,895 13,134
All other corporate bonds ................................. 93,660 93,086 93,660
--------- ------- ---------
Total fixed maturities ..................................... 119,731 119,076 119,731
EQUITY SECURITIES
Common stocks:
Affiliated entities ....................................... 243 2,156 2,156
Industrial, miscellaneous and all other ................... 302 358 358
--------- ------- ---------
Total equity securities .................................... 545 2,514 2,514
Mortgage loans on real estate .............................. 9,698 9,698
Real estate ................................................ 45,144 45,144
Policy loans ............................................... 182,975 182,975
Cash and short-term investments ............................ 23,932 23,932
--------- ---------
Total investments .......................................... $ 382,025 $ 383,994
========= =========
</TABLE>
- ----------------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accruals of discounts.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
BENEFITS,
CLAIMS,
FUTURE POLICY POLICY AND NET LOSSES AND OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
--------------- ------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Individual life ................ $ 291,106 $ 9,152 $ 583,656 $ 10,754 $ 178,237 $ 261,284
Group life ..................... 11,032 100 1,073 706 1,437 599
Annuity ........................ 268,864 17 1,104,525 28,129 651,520 116,006
--------- -------- ----------- -------- --------- ---------
$ 571,002 $ 9,269 $ 1,689,254 $ 39,589 $ 831,194 $ 377,889
========= ======== =========== ======== ========= =========
YEAR ENDED DECEMBER 31, 1998
Individual life ................ $ 221,050 $ 8,624 $ 474,120 $ 9,884 $ 122,542 $ 230,368
Group life ..................... 10,546 100 1,933 723 1,962 2,281
Annuity ........................ 265,418 509 794,841 25,708 545,532 91,505
--------- -------- ----------- -------- --------- ---------
$ 497,014 $ 9,233 $ 1,270,894 $ 36,315 $ 670,036 $ 324,154
========= ======== =========== ======== ========= =========
YEAR ENDED DECEMBER 31, 1997
Individual life ................ $ 177,088 $ 9,533 $ 390,452 $ 13,742 $ 88,738 $ 176,303
Group life ..................... 9,435 805 3,918 810 3,986 3,292
Annuity ........................ 296,290 591 822,149 25,461 389,726 83,179
--------- -------- ----------- -------- --------- ---------
$ 482,813 $ 10,929 $ 1,216,519 $ 40,013 $ 482,450 $ 262,774
========= ======== =========== ======== ========= =========
</TABLE>
- ----------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------- -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Life insurance in force ........ $63,040,741 $11,297,250 $ -- $51,743,494 0.0%
=========== =========== ========== =========== ===
Premiums:
Individual life ............... $ 604,628 $ 20,972 $ -- $ 583,656 0.0%
Group life and health ......... 1,383 310 -- 1,073 0.0
Annuity ....................... 1,142,254 37,729 -- 1,104,525 0.0
----------- ----------- ---------- ----------- ---
$ 1,748,265 $ 59,011 $ -- $ 1,689,254 0.0%
=========== =========== ========== =========== ===
YEAR ENDED DECEMBER 31, 1998
Life insurance in force ........ $51,064,173 $ 9,862,460 $ -- $41,201,713 0.0%
=========== =========== ========== =========== ===
Premiums:
Individual life ............... $ 493,633 $ 19,512 $ -- $ 474,121 0.0%
Group life and health ......... 1,691 220 461 1,932 23.8
Annuity ....................... 850,428 55,587 -- 794,841 0.0
----------- ----------- ---------- ----------- ----
$ 1,345,752 $ 75,319 $ 461 $ 1,270,894 .03%
=========== =========== ========== =========== ====
YEAR ENDED DECEMBER 31, 1997
Life insurance in force ........ $40,221,361 $ 6,776,447 $2,692,822 $36,137,736 7.5%
=========== =========== ========== =========== ====
Premiums:
Individual life ............... $ 395,361 $ 4,910 $ -- $ 390,452 0.0%
Group life and health ......... 1,761 231 2,389 3,918 61.0
Annuity ....................... 822,149 -- -- 822,149 0.0
----------- ----------- ---------- ----------- ----
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
=========== =========== ========== =========== ====
</TABLE>
