-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PJTT1FxnQZoCpkMVRKyXbCQW5lk/MZAOCcRvo/aawqZr0sIE6+FGpftcZaN7euE3 u7ozQcr+Vop+ecF+e4C/cg== 0000950144-02-004209.txt : 20020422 0000950144-02-004209.hdr.sgml : 20020422 ACCESSION NUMBER: 0000950144-02-004209 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020422 EFFECTIVENESS DATE: 20020422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-31140 FILM NUMBER: 02617403 BUSINESS ADDRESS: STREET 1: 570 CARILLON PARKWAY CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 2722991800 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04420 FILM NUMBER: 02617404 BUSINESS ADDRESS: STREET 1: 570 CARILLON PARKWAY CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 2722991800 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 485BPOS 1 g73555e485bpos.txt WRL SERIES LIFE ACCOUNT As filed with the Securities and Exchange Commission on April 22, 2002 Registration File Nos. 33-31140/811-4420 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- POST-EFFECTIVE AMENDMENT NO. 20 FORM S-6 --------------------------------- FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 --------------------------------- WRL SERIES LIFE ACCOUNT (Exact Name of Trust) WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO (Name of Depositor) 570 Carillon Parkway St. Petersburg, Florida 33716 (Complete Address of Depositor's Principal Executive Offices) John K. Carter, Esq. Vice President and Counsel Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 (Name and Complete Address of Agent for Service) Copies to: Stephen E. Roth, Esq. Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2415 --------------------------------- Title of Securities being registered: Units of interest in the separate account under flexible payment deferred variable life policies. It is proposed that this filing will become effective (check appropriate space): immediately upon filing pursuant to paragraph (b) of Rule 485 - --- X on May 1, 2002, pursuant to paragraph (b) of Rule 485 - --- 60 days after filing pursuant to paragraph (a) of Rule 485 - --- on _________, pursuant to paragraph (a) of Rule 485 - --- PROSPECTUS - -------------------------------- MAY 1, 2002 WRL FREEDOM EQUITY PROTECTOR(R) issued through WRL Series Life Account by Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 1-800-851-9777 (727) 299-1800 AN INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY 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. CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 12 OF THIS PROSPECTUS. An investment in this Policy is not a bank deposit. The Policy is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. If you already own a life insurance policy, it may not be to your advantage to buy additional insurance or to replace your policy with the Policy described in this prospectus. And it also may not be to your advantage to borrow money to purchase this Policy or to take withdrawals from another Policy you own to make premium payments under this Policy. Prospectuses for the portfolios of: AEGON/Transamerica Series Fund, Inc. and Fidelity Variable Insurance Products Fund (VIP) must accompany this prospectus. Certain portfolios may not be available in all states. Please read these documents before investing and save them for future reference. This Policy is not available in the State of New York. TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Glossary.................................................... 1 Policy Summary.............................................. 4 The Policy in General............................. 4 Premiums.......................................... 4 Deductions from premium before we place it in a subaccount and/or the fixed account............... 5 Investment Options................................ 5 Cash Value........................................ 6 Transfers......................................... 6 Charges and Deductions............................ 7 Portfolio Annual Expense Table.................... 8 Loans............................................. 9 Death Benefit..................................... 10 Cash Withdrawals and Surrenders................... 10 Illustrations..................................... 11 Compensation...................................... 11 Inquiries......................................... 11 Risk Summary................................................ 12 Western Reserve and the Fixed Account....................... 14 Western Reserve................................... 14 The Fixed Account................................. 15 The Separate Account and the Portfolios..................... 15 The Separate Account.............................. 15 The Funds......................................... 16 Addition, Deletion, or Substitution of Investments....................................... 21 Your Right to Vote Portfolio Shares............... 22 The Policy.................................................. 23 Purchasing a Policy............................... 23 Tax-Free "Section 1035" Exchanges................. 23 Underwriting Standards............................ 23 When Insurance Coverage Takes Effect.............. 24 Ownership Rights.................................. 25 Canceling a Policy................................ 27 Premiums.................................................... 27 Premium Flexibility............................... 27 Planned Periodic Payments......................... 27 Minimum Monthly Guarantee Premium................. 28 No Lapse Period................................... 28 Premium Limitations............................... 28 Making Premium Payments........................... 29 Allocating Premiums............................... 29 Policy Values............................................... 30 Cash Value........................................ 30 Net Surrender Value............................... 30 Subaccount Value.................................. 31 Subaccount Unit Value............................. 31 Fixed Account Value............................... 32
i Transfers................................................... 32 General........................................... 32 Fixed Account Transfers........................... 34 Conversion Rights................................. 35 Dollar Cost Averaging............................. 35 Asset Rebalancing Program......................... 36 Third Party Asset Allocation Services............. 37 Charges and Deductions...................................... 37 Premium Charges................................... 38 Monthly Deduction................................. 38 Mortality and Expense Risk Charge................. 40 Surrender Charge.................................. 40 Transfer Charge................................... 43 Cash Withdrawal Charge............................ 43 Taxes............................................. 43 Portfolio Expenses................................ 43 Group or Sponsored Policies....................... 44 Associate Policies................................ 44 WRL Protector Plus Program(SM).................... 45 Death Benefit............................................... 45 Death Benefit Proceeds............................ 45 Death Benefit..................................... 46 Effect of Cash Withdrawals on the Death Benefit... 47 Choosing Death Benefit Options.................... 47 Changing the Death Benefit Option................. 48 Changing the Specified Amount..................... 48 Payment Options................................... 49 Surrenders and Cash Withdrawals............................. 49 Surrenders........................................ 49 Cash Withdrawals.................................. 49 Loans....................................................... 50 General........................................... 50 Interest Rate Charged............................. 51 Loan Reserve Interest Rate Credited............... 52 Effect of Policy Loans............................ 52 Policy Lapse and Reinstatement.............................. 53 Lapse............................................. 53 No Lapse Period................................... 53 Reinstatement..................................... 54 Federal Income Tax Considerations........................... 54 Tax Status of the Policy.......................... 54 Tax Treatment of Policy Benefits.................. 55 Special Rules for 403(b) Arrangements............. 58 Other Policy Information.................................... 58 Our Right to Contest the Policy................... 58 Suicide Exclusion................................. 58 Misstatement of Age or Gender..................... 59 Modifying the Policy.............................. 59 Benefits at Maturity.............................. 59 Payments We Make.................................. 60
ii Settlement Options................................ 60 Reports to Owners................................. 61 Records........................................... 62 Policy Termination................................ 62 Supplemental Benefits (Riders).............................. 62 Children's Insurance Rider........................ 62 Accidental Death Benefit Rider.................... 62 Other Insured Rider............................... 63 Disability Waiver Rider........................... 63 Disability Waiver and Income Rider................ 64 Primary Insured Rider ("PIR") and Primary Insured Rider Plus ("PIR Plus")............................ 64 Terminal Illness Accelerated Death Benefit Rider.............................................. 65 IMSA........................................................ 66 Performance Data............................................ 66 Rates of Return................................... 66 Other Performance Data in Advertising Sales Literature......................................... 69 Western Reserve's Published Ratings............... 69 Additional Information...................................... 70 Sale of the Policies.............................. 70 Legal Matters..................................... 71 Legal Proceedings................................. 71 Variations in Policy Provisions................... 71 Personalized Illustrations of Policy Benefits..... 71 Experts........................................... 71 Financial Statements.............................. 72 Additional Information about Western Reserve...... 72 Western Reserve's Directors and Officers.......... 73 Additional Information about the Separate Account............................................ 77 Appendix A -- Wealth Indices of Investments in the U.S. Capital Market............................................ 78 Index to Financial Statements............................... 80 WRL Series Life Account........................... 81 Western Reserve Life Assurance Co. of Ohio........ 122
iii GLOSSARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- accounts The options to which you can allocate your money. The accounts include the fixed account and the subaccounts in the separate account. ------------------------------------------------------------ attained age The issue age of the person insured, plus the number of completed years since the Policy date. ------------------------------------------------------------ beneficiary(ies) The person or persons you select to receive the death benefit from this Policy. You can name a beneficiary and contingent beneficiaries. ------------------------------------------------------------ cash value The sum of your Policy's value in the subaccounts and the fixed account. If there is a Policy loan outstanding, the cash value includes any amounts held in our fixed account to secure the Policy loan. ------------------------------------------------------------ death benefit proceeds The amount we will pay to the beneficiary on the insured's death. We will reduce the death benefit proceeds by the amount of any outstanding loan amount and any due and unpaid monthly deductions. We will increase the death benefit proceeds by any interest you paid in advance on the loan for the period between the date of death and the next Policy anniversary. ------------------------------------------------------------ fixed account An option to which you may allocate premiums and cash value. We guarantee that any amounts you allocate to the fixed account will earn interest at a declared rate. New Jersey residents: The fixed account is NOT available to you. ------------------------------------------------------------ free-look period The period during which you may return the Policy and receive a refund as described in this prospectus. The length of the free-look period varies by state. The free-look period is listed in the Policy. ------------------------------------------------------------ funds Investment companies which are registered with the U.S. Securities and Exchange Commission. The Policy allows you to invest in the portfolios of the funds through our subaccounts. We reserve the right to add other registered investment companies to the Policy in the future. ------------------------------------------------------------ guideline premium The level annual premium payment you must pay so that we can provide the benefits you selected through the maturity date. The amount of the payment is based on particular facts relating to the insured and certain assumptions allowed by law. The guideline premium is shown on your Policy schedule page. ------------------------------------------------------------ in force While coverage under the Policy is active and the insured's life remains insured. ------------------------------------------------------------ initial premium The amount you must pay before insurance coverage begins under this Policy. The initial premium is shown on the schedule page of your Policy. ------------------------------------------------------------ insured The person whose life is insured by this Policy. ------------------------------------------------------------ issue age The insured's age on his or her birthday nearest to the Policy date. ------------------------------------------------------------ lapse When life insurance coverage ends because you do not have enough cash value in the Policy to pay the monthly deduction, the surrender charge and any outstanding loan amount, and you have not made a sufficient payment by the end of a grace period. ------------------------------------------------------------ loan amount The total amount of all outstanding Policy loans, including both principal and interest due. ------------------------------------------------------------
1 loan reserve A part of the fixed account to which amounts are transferred as collateral for Policy loans. ------------------------------------------------------------ maturity date The Policy anniversary nearest the insured's 95th birthday if the insured is living and the Policy is still in force. It is the date when life insurance coverage under this Policy ends. You may continue coverage, at your option, under the Policy's extended maturity date benefit provision. ------------------------------------------------------------ minimum monthly The amount shown on your Policy schedule page that we use guarantee premium during the no lapse period to determine whether a grace period will begin. We make this determination whenever your net surrender value is not enough to meet monthly deductions. If you pay your minimum monthly guarantee premium each month during the no lapse period, your Policy will not lapse, so long as you do not take a loan, increase the specified amount or add a rider. ------------------------------------------------------------ Monthiversary This is the day of each month when we determine Policy charges and deduct them from cash value. It is the same date each month as the Policy date. If there is no valuation date that coincides with the Policy date in a calendar month, the Monthiversary is the next valuation date. ------------------------------------------------------------ monthly deduction The monthly Policy charge, plus the monthly cost of insurance, plus the monthly charge for any riders added to your Policy. ------------------------------------------------------------ net premium The part of your premium that we allocate to the fixed account or the subaccounts. The net premium is equal to the premium you paid minus the premium expense charges and the premium collection charge. ------------------------------------------------------------ net surrender value The amount we will pay you if you surrender the Policy while it is in force. The net surrender value on the date you surrender is equal to: the cash value, minus any surrender charge, minus any outstanding loan amount, plus any interest you paid in advance on the loan for the period between the date of surrender and the next Policy anniversary. ------------------------------------------------------------ no lapse date For a Policy issued to any insured ages 0-60, the no lapse date is either the anniversary on which the insured's attained age is 65 or the tenth Policy anniversary, whichever is earlier. For a Policy issued to an insured ages 61-75, the no lapse date is the fifth Policy anniversary. The no lapse date is specified in your Policy. ------------------------------------------------------------ no lapse period The period of time between the Policy date and the no lapse date during which the Policy will not lapse if certain conditions are met. ------------------------------------------------------------ office Our administrative office and mailing address is P.O. Box 5068, Clearwater, Florida 33758-5068. Our street address is 570 Carillon Parkway, St. Petersburg, Florida 33716. Our phone number is 1-800-851-9777, extension 6539. Our hours are Monday-Friday from 8:00 a.m.-8:00 p.m. Eastern time. ------------------------------------------------------------ planned periodic A premium payment you make in a level amount at a fixed premium interval over a specified period of time. ------------------------------------------------------------ Policy date The date when our underwriting process is complete, full life insurance coverage goes into effect, we begin to make the monthly deductions, and your initial net premium is allocated to the WRL Transamerica Money Market subaccount. The Policy date is shown on the schedule page of your Policy. We measure Policy months, years, and anniversaries from the Policy date. ------------------------------------------------------------
2 portfolio One of the separate investment portfolios of a fund. ------------------------------------------------------------ premiums All payments you make under the Policy other than loan repayments. ------------------------------------------------------------ record date The date we record your Policy on our books as an in force Policy, and we allocate your cash value from the WRL Transamerica Money Market subaccount to the accounts that you elected on your application. ------------------------------------------------------------ separate account The WRL Series Life Account. It is a separate investment account that is divided into subaccounts. We established the separate account to receive and invest net premiums under the Policy and other variable life insurance policies we issue. ------------------------------------------------------------ specified amount The minimum death benefit we will pay under the Policy provided the Policy is in force. It is the amount shown on the Policy's schedule page, unless you increase or decrease the specified amount. In addition, we will reduce the specified amount by the dollar amount of any cash withdrawal if you choose the Option A (level) death benefit. ------------------------------------------------------------ subaccount A subdivision of the separate account that invests exclusively in shares of one investment portfolio of a fund. ------------------------------------------------------------ surrender charge If, during the first 15 Policy years, you fully surrender the Policy, we will deduct a surrender charge from the cash value. We will deduct an additional surrender charge for 15 years following an increase in the specified amount. ------------------------------------------------------------ termination When the insured's life is no longer insured under the Policy. ------------------------------------------------------------ valuation date Each day the New York Stock Exchange is open for trading. Western Reserve is open for business whenever the New York Stock Exchange is open. ------------------------------------------------------------ valuation period The period of time over which we determine the change in the value of the subaccounts. Each valuation period begins at the close of normal trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time on each valuation date) and ends at the close of normal trading of the New York Stock Exchange on the next valuation date. ------------------------------------------------------------ we, us, our (Western Reserve) Western Reserve Life Assurance Co. of Ohio. ------------------------------------------------------------ written notice The written notice you must sign and send us to request or exercise your rights as owner under the Policy. To be complete, it must: (1) be in a form we accept, (2) contain the information and documentation that we determine we need to take the action you request, and (3) be received at our office. ------------------------------------------------------------ you, your (owner or policyowner) The person entitled to exercise all rights as owner under the Policy.
3 POLICY SUMMARY WRL FREEDOM EQUITY PROTECTOR(R) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This summary provides only a brief overview of the more important features of the Policy. More detailed information about the Policy appears later in this prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS CAREFULLY. THE POLICY IN GENERAL The WRL Freedom Equity Protector(R) is an individual flexible premium variable life insurance policy. The Policy is designed to be long-term in nature in order to provide significant life insurance benefits for you. However, purchasing this Policy involves certain risks. (See Risk Summary p. 12.) You should consider the Policy in conjunction with other insurance you own. THE POLICY IS NOT SUITABLE AS A SHORT-TERM SAVINGS VEHICLE. A few of the Policy features listed below are not available in all states, may vary depending upon when your Policy was issued and may not be suitable for your particular situation. Certain states place restrictions on access to the fixed account and on other Policy features. Please consult your agent and refer to your Policy for details. PREMIUMS -- You select a payment plan but are not required to pay premiums according to the plan. You can vary the frequency and amount, within limits, and can skip premium payments. -- Unplanned premiums may be made, within limits. -- Premium payments must be at least $50. -- You increase your risk of lapse if you do not regularly pay premiums at least as large as the current minimum monthly guarantee premium. -- Until the no lapse date shown on your Policy schedule page, we guarantee that your Policy will not lapse, so long as on any Monthiversary you do NOT: -- increase the specified amount, or -- add a rider. AND you must: -- pay total premiums (MINUS any cash withdrawals and MINUS any outstanding loan amount) that equal or exceed the sum of the minimum monthly guarantee premiums in effect for each month from the Policy date up to and including the current month. -- The minimum monthly guarantee premium is shown on your Policy schedule page. -- Under certain circumstances, extra premiums may be required to prevent lapse. -- Once we deliver your Policy, the FREE-LOOK PERIOD begins. You may return the Policy during this period and receive a refund. 4 DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR THE FIXED ACCOUNT -- For the first ten Policy years: 6.0% premium expense charge. -- After the tenth year: 2.5% premium expense charge. -- A premium collection charge of $2.00 from each premium payment. INVESTMENT OPTIONS Subaccounts. You may direct the money in your Policy to any of the subaccounts of the WRL Series Life Account, a separate account. Each subaccount invests exclusively in one investment portfolio of a fund. THE MONEY YOU PLACE IN THE SUBACCOUNTS IS NOT GUARANTEED. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE, DEPENDING ON INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO. DURING EXTENDED PERIODS OF LOW INTEREST RATES, THE YIELDS OF MONEY MARKET SUBACCOUNTS MAY BECOME EXTREMELY LOW AND POSSIBLY NEGATIVE. YOU COULD LOSE SOME OR ALL OF YOUR MONEY. The portfolios available to you are: AEGON/TRANSAMERICA SERIES FUND, INC. [ ] Munder Net50 [ ] Van Kampen Emerging Growth [ ] T. Rowe Price Small Cap [ ] PBHG Mid Cap Growth (formerly Pilgrim Baxter Mid Cap Growth) [ ] Alger Aggressive Growth [ ] Third Avenue Value [ ] Value Line Aggressive Growth [ ] American Century International (formerly GE International Equity) [ ] Janus Global* [ ] Gabelli Global Growth [ ] Great Companies -- Global(2) [ ] Great Companies -- Technology(SM) [ ] Janus Growth [ ] LKCM Capital Growth [ ] Goldman Sachs Growth [ ] GE U.S. Equity [ ] Great Companies -- America(SM)** [ ] Salomon All Cap [ ] Transamerica Convertible Securities [ ] PIMCO Total Return [ ] Transamerica Equity (formerly Growth Portfolio of the Transamerica Variable Insurance Fund, Inc.) [ ] Transamerica Growth Opportunities (formerly Small Company Portfolio of Transamerica Variable Insurance Fund, Inc.) [ ] Dreyfus Mid Cap [ ] PBHG/NWQ Value Select (formerly NWQ Value Equity) [ ] T. Rowe Price Dividend Growth [ ] Transamerica Value Balanced*** (formerly Dean Asset Allocation) [ ] LKCM Strategic Total Return [ ] Clarion Real Estate Securities (formerly J.P. Morgan Real Estate Securities) [ ] Federated Growth & Income [ ] Janus Balanced [ ] AEGON Bond [ ] Transamerica Money Market (formerly J.P. Morgan Money Market) [ ] Conservative Asset Allocation [ ] Moderate Asset Allocation [ ] Moderately Aggressive Asset Allocation [ ] Aggressive Asset Allocation
*This portfolio is only available to policyowners who purchased the Policy before September 1, 2000. **As of April 26, 2002, the C.A.S.E. Growth portfolio merged into the Great Companies -- America(SM) portfolio. ***As of April 26, 2002, the AEGON Balanced portfolio merged into the Transamerica Value Balanced portfolio. 5 FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP) -- SERVICE CLASS 2 [ ] Fidelity VIP Equity-Income Portfolio [ ] Fidelity VIP Contrafund(R) Portfolio [ ] Fidelity VIP Growth Opportunities Portfolio Fixed Account. You may also direct the money in your Policy to the fixed account. Money you place in the fixed account is guaranteed, and will earn interest at a current interest rate declared from time to time. The annual interest rate will equal at least 4.0%. The fixed account is NOT available to residents of New Jersey. CASH VALUE -- Cash value equals the sum of your Policy's value in the subaccounts and the fixed account. If there is a loan outstanding, the cash value includes any amounts held in our fixed account to secure the Policy loan. -- Cash value varies from day to day, depending on the investment experience of the subaccounts you choose, the interest credited to the fixed account, the charges deducted and any other Policy transactions (such as additional premium payments, transfers, withdrawals, and Policy loans). -- Cash value is the starting point for calculating important values under the Policy, such as net surrender value and the death benefit. -- There is no guaranteed minimum cash value. The Policy may lapse if you do not have sufficient cash value in the Policy to pay the monthly deductions, the surrender charge and/or any outstanding loan amount (including interest you owe on any Policy loan(s)). -- The Policy will not lapse during the no lapse period so long as you: + do not increase the specified amount; OR + do not add any riders; AND + have paid sufficient premiums. TRANSFERS -- You can transfer cash value among the subaccounts and the fixed account. We charge a $10 transfer processing fee for each transfer after the first 12 transfers in a Policy year. -- You may make transfers in writing, by telephone or by fax. -- Policy loans reduce the amount of cash value available for transfers. -- Dollar cost averaging and asset rebalancing programs are available. -- You may make one transfer per Policy year from the fixed account, and we must receive your request to transfer from the fixed account within 30 days after a Policy anniversary unless you select dollar cost averaging from the fixed account. Depending on when your Policy was issued, the amount of your transfer may be limited to the greater of: + 25% of your value in the fixed account (currently we allow up to 50% of your value, but the 50% limit is not guaranteed); OR + the amount you transferred from the fixed account in the preceding Policy year. 6 CHARGES AND DEDUCTIONS -- PREMIUM EXPENSE CHARGE: We deduct 6.0% from each premium payment during the first ten Policy years. After the tenth year we reduce the charge to 2.5%. -- PREMIUM COLLECTION CHARGE: We deduct $2.00 from each premium payment to compensate us for billing and collection costs. -- MONTHLY POLICY CHARGE: We deduct $5.00 from your cash value each month. -- COST OF INSURANCE CHARGES: Deducted monthly from your cash value. Your charges vary each month with the insured's attained age, gender, the specified amount, the death benefit option you choose, and the investment results of the portfolios in which you invest. -- MORTALITY AND EXPENSE RISK CHARGE: Deducted daily from each subaccount at an annual rate of 0.90% of your average daily net assets of each subaccount. -- SURRENDER CHARGE: Deducted when a full surrender occurs during the first 15 Policy years. One portion is a deferred issue charge equal to $5.00 per thousand of initial specified amount. The other is calculated by multiplying total premiums paid up to the guideline premium by 26.5%, and any premium paid above the guideline premium by smaller percentages that vary by issue age and gender. The surrender charge is equal to the deferred issue charge of $5.00 per thousand of initial specified amount plus 26.5% multiplied by the total premiums paid up to the guideline premium shown in your Policy, plus a percentage which varies from 4.2% at younger issue ages and declines to 2.0% at older issue ages, multiplied by the total premiums paid in excess of the guideline premium. This sum is then multiplied by the surrender charge percentages which range from 100% for the first ten Policy years and declines to zero at the end of the 15th Policy year. If you increase the specified amount, we deduct an additional surrender charge upon surrender during the 15 years following the increase. See Charges and Deductions -- Surrender Charge p. 40. We reduce the total surrender charge at the rate of 20% per year beginning in Policy year 11, until it reaches zero at the end of the 15th Policy year. THIS CHARGE MAY BE SIGNIFICANT. You may have no net surrender value if you surrender your Policy in the first few Policy years. -- TRANSFER FEE: We deduct $10 for each transfer in excess of 12 per Policy year. -- RIDER CHARGES: We deduct charges each month for the optional insurance benefits (riders) you select. Each rider will have its own charge. -- CASH WITHDRAWAL FEE: We deduct a processing fee for cash withdrawals equal to the lesser of $25 or 2% of the withdrawal. -- PORTFOLIO EXPENSES: The portfolios deduct management fees and expenses from the amounts you have invested in the portfolios. You pay these fees and expenses indirectly. Some portfolios also deduct 12b-1 fees from portfolio assets. These fees and expenses currently range from 0.39% to 1.50% annually, depending on the portfolio. See Portfolio Annual Expense Table p. 8. See also the fund prospectuses. 7 PORTFOLIO ANNUAL EXPENSE TABLE This table shows the fees and expenses charged by each portfolio. More detail concerning each portfolio's fees and expenses is contained in the fund prospectuses. ANNUAL PORTFOLIO OPERATING EXPENSES(1) (As a percentage of average portfolio assets)
OTHER EXPENSES (AFTER FEE GROSS WAIVER AND TOTAL PORTFOLIO FEES AND EXPENSES NET TOTAL MANAGEMENT EXPENSE RULE 12B-1 ANNUAL WAIVED OR PORTFOLIO PORTFOLIO FEES REIMBURSEMENT) FEES EXPENSES REIMBURSED EXPENSES AEGON/TRANSAMERICA SERIES FUND, INC.(2) Munder Net50 0.90% 0.10% N/A 1.72% 0.72% 1.00% Van Kampen Emerging Growth 0.80% 0.12% N/A 0.92% N/A 0.92% T. Rowe Price Small Cap 0.75% 0.25% N/A 1.05% 0.05% 1.00% PBHG Mid Cap Growth 0.87% 0.13% N/A 1.08% 0.08% 1.00% Alger Aggressive Growth 0.80% 0.17% N/A 0.97% N/A 0.97% Third Avenue Value 0.80% 0.12% N/A 0.92% N/A 0.92% Value Line Aggressive Growth 0.80% 0.20% N/A 1.56% 0.56% 1.00% American Century International 1.00% 0.50% N/A 1.63% 0.13% 1.50% Janus Global(7) 0.80% 0.15% N/A 0.95% N/A 0.95% Gabelli Global Growth 1.00% 0.20% N/A 1.28% 0.08% 1.20% Great Companies -- Global(2) 0.80% 0.20% N/A 1.59% 0.59% 1.00% Great Companies -- Technology(SM) 0.80% 0.19% N/A 0.99% N/A 0.99% Janus Growth 0.80% 0.09% N/A 0.89% N/A 0.89% LKCM Capital Growth 0.80% 0.20% N/A 3.18% 2.18% 1.00% Goldman Sachs Growth 0.90% 0.10% N/A 1.21% 0.21% 1.00% GE U.S. Equity 0.80% 0.14% N/A 0.94% N/A 0.94% Great Companies -- America(SM)(8) 0.80% 0.09% N/A 0.89% N/A 0.89% Salomon All Cap 0.85% 0.15% N/A 1.00% N/A 1.00% Dreyfus Mid Cap 0.85% 0.15% N/A 1.34% 0.34% 1.00% PBHG/NWQ Value Select 0.80% 0.14% N/A 0.94% N/A 0.94% T. Rowe Price Dividend Growth 0.90% 0.10% N/A 1.18% 0.18% 1.00% Transamerica Value Balanced(9) 0.75% 0.11% N/A 0.86% N/A 0.86% LKCM Strategic Total Return 0.80% 0.09% N/A 0.89% N/A 0.89% Clarion Real Estate Securities 0.80% 0.20% N/A 1.13% 0.13% 1.00% Federated Growth & Income 0.75% 0.11% N/A 0.86% N/A 0.86% Janus Balanced 0.90% 0.50% N/A 1.40% N/A 1.40% AEGON Bond 0.45% 0.10% N/A 0.55% N/A 0.55% Transamerica Money Market(10) 0.35% 0.04% N/A 0.39% N/A 0.39% Conservative Asset Allocation(3)(6) 0.10% 1.26% N/A 1.36% N/A 1.36% Moderate Asset Allocation(3)(6) 0.10% 1.25% N/A 1.35% N/A 1.35% Moderately Aggressive Asset Allocation(3)(6) 0.10% 1.23% N/A 1.33% N/A 1.33% Aggressive Asset Allocation(3)(6) 0.10% 1.22% N/A 1.32% N/A 1.32% Transamerica Convertible Securities(3) 0.80% 0.50% N/A 1.30% N/A 1.30% PIMCO Total Return(3) 0.70% 0.50% N/A 1.20% N/A 1.20% Transamerica Equity(3) 0.75% 0.10% N/A 0.91% 0.06% 0.85% Transamerica Growth Opportunities(3) 0.85% 0.35% N/A 5.89% 4.69% 1.20% FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP) -- SERVICE CLASS 2(5) VIP Equity-Income Portfolio 0.48% 0.11% 0.25%(4) 0.84% N/A 0.84% VIP Contrafund(R) Portfolio 0.58% 0.11% 0.25%(4) 0.94% N/A 0.94% VIP Growth Opportunities Portfolio 0.58% 0.12% 0.25%(4) 0.95% N/A 0.95%
8 (1)The fee table information relating to the portfolios was provided to Western Reserve by the funds. Western Reserve has not independently verified such information. (2)Effective January 1, 1997, the Board of the AEGON/Transamerica Series Fund, Inc. ("Series Fund") authorized the Series Fund to charge each portfolio of the Series Fund an annual Rule 12b-1 fee of up to 0.15% of each portfolio's average daily net assets. However, the Series Fund will not deduct the fee from any portfolio before April 30, 2003. You will receive advance written notice if a Rule 12b-1 fee is to be deducted. See the Series Fund prospectus for more details. (3)Because this portfolio did not commence operations until May 1, 2002, the percentages set forth as "Other Expenses" and "Total Annual Expenses" are annualized. (4)The 12b-1 fee deducted for the Fidelity Variable Insurance Products Funds (VIP) (the "Fidelity VIP Funds") covers certain shareholder support services provided by companies selling variable contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed against the Fidelity VIP Funds shares held for the Policies will be remitted to AFSG, the principal underwriter for the Policies. (5)Total Portfolio Annual Expenses for Service Class 2 shares were lower than those shown in the Fee Table because a portion of the brokerage commissions that the Fidelity VIP Funds paid was used to reduce each Fund's expenses. In addition, through arrangements with each Fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of each Fund's custodian expenses. See the accompanying Fidelity VIP Funds prospectuses. Actual expenses were: VIP Equity-Income Portfolio -- 0.83%; VIP Contrafund(R) Portfolio -- 0.90%; and VIP Growth Opportunities Portfolio -- 0.93%. (6)This portfolio is a "fund of funds" that invests in other Series Fund portfolios. The Series Fund prospectus provides specific information on the fees and expenses of this portfolio. This portfolio has its own set of operating expenses, as does each of the underlying Series Fund portfolios in which it invests. The range of the average weighted expense ratio for this portfolio, including such indirect expenses of the underlying Series Fund portfolios, is expected to be 0.64% to 1.75% for the Moderate Asset Allocation, Moderately Aggressive Asset Allocation and Aggressive Asset Allocation portfolios. The range for the Conservative Asset Allocation portfolio is expected to be 0.64% to 1.65%. A range is provided since the allocation of assets to various underlying Series Fund portfolios will fluctuate. Over time, the cost of investment in an asset allocation "fund of funds" portfolio will increase the cost of your investment and may cost you more than investing in a Series Fund portfolio without asset allocation. (7)Effective September 1, 2000, this portfolio was no longer available for investment to new policyowners. (8)As of April 26, 2002, the C.A.S.E. Growth portfolio merged into the Great Companies -- America(SM) portfolio. (9)As of April 26, 2002, the AEGON Balanced portfolio merged into the Transamerica Value Balanced portfolio. (10)Effective May 1, 2002, the management fee was reduced to 0.35%. The purpose of the preceding table is to help you understand the various costs and expenses that you will bear directly and indirectly. The table reflects charges and expenses of the portfolios of the funds for the fiscal year ended December 31, 2001 (except as noted in the footnotes). Expenses of the funds may be higher or lower in the future. For more information on the portfolio expenses described in this table, see the fund prospectuses which accompany this prospectus. LOANS -- After the first Policy year (as long as your Policy is in force), you may take a loan against the Policy up to 90% of the cash value, less any surrender charge and any already outstanding loan amount. -- We may permit a loan prior to the first anniversary for Policies issued pursuant to 1035 Exchanges. -- The minimum loan amount is generally $500. -- You may request a loan either by calling us at, or by writing or faxing us written instructions to, our office. -- We currently charge 5.2% interest annually. You will be charged the interest in advance each year on any outstanding loan amount. -- To secure the loan, we transfer a portion of your cash value to a loan reserve account. The amount we transfer is equal to the loan plus interest in advance until the next Policy anniversary. The loan reserve account is part of the fixed account. You will earn at least 4.0% interest on amounts in the loan reserve account. -- Federal income taxes and a penalty tax may apply to loans you take against the Policy. -- There are risks involved in taking a Policy loan. See Risk Summary p. 12. 9 DEATH BENEFIT -- You must choose one of two death benefit options. We offer the following: -- Option A is the greater of: + the current specified amount, or + a specified percentage, multiplied by the Policy's cash value on the date of the insured's death. -- Option B is the greater of: + the current specified amount, plus the Policy's cash value on the date of the insured's death, or + a specified percentage, multiplied by the Policy's cash value on the date of the insured's death. -- So long as the Policy does not lapse, the minimum death benefit we pay under any option will be the current specified amount. -- The minimum specified amount for a Policy for issue ages 0-45 is $50,000. It declines to $25,000 for issue ages 46-75. We will state the minimum specified amount in your Policy. You cannot decrease the specified amount below this minimum. -- We will reduce the death benefit proceeds by the amount of any outstanding Policy loan, and any due and unpaid charges. -- We will increase the death benefit proceeds by any additional insurance benefits you add by rider, and any interest you paid in advance on any loan for the period between the date of death and the next Policy anniversary. -- After the first Policy year, you may increase the specified amount once each Policy year before your attained age 75. -- After the third Policy year, you may either increase or decrease the specified amount once each Policy year. A decrease in specified amount cannot reduce your specified amount below the minimum specified amount as shown in your Policy. -- After the third Policy year, you may change the death benefit option. A change in your death benefit option cannot reduce your specified amount below the minimum specified amount shown in your Policy. -- Under current tax law, the death benefit should be income tax free to the beneficiary. -- The death benefit is available in a lump sum or a variety of payout options. CASH WITHDRAWALS AND SURRENDERS -- You may take one withdrawal of cash value per Policy year after the first Policy year. -- The amount of the withdrawal must be: + at least $500; and + no more than 10% of the net surrender value. -- We will deduct a processing fee equal to $25 or 2% of the amount you withdraw (whichever is less) from the withdrawal, and we will pay you the balance. -- There is no surrender charge assessed when you take a cash withdrawal. -- A cash withdrawal will reduce the death benefit by at least the amount of the withdrawal. -- If you choose death benefit Option A, we will reduce the current specified amount by the dollar amount of the withdrawal. -- Federal income taxes and a penalty tax may apply to cash withdrawals and surrenders. 10 -- You may fully surrender the Policy at any time before the insured's death or the maturity date. You will receive the net surrender value (cash value, MINUS any surrender charge, MINUS any outstanding loan amount, PLUS any interest you paid in advance on the loan for the period between the surrender date and the next Policy anniversary). A surrender charge will apply during the first 15 Policy years. An additional surrender charge will also apply if you surrender your Policy 15 years after any increase in specified amount. ILLUSTRATIONS -- Illustrations of death benefits, cash value and net surrender value used in connection with the purchase of a Policy are based on hypothetical rates of return. These rates are not guaranteed. They are illustrative only and should not be considered representative of past or future performance. -- Actual returns will fluctuate over time and likely will be both positive and negative. The actual values under the policy could be significantly different from those shown even if actual returns averaged 0%, 6% and 12%, but fluctuated over and under those averages throughout the years shown. Depending on the timing and degree of fluctuation, the actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the policy unless the owner pays more than the stated premium. -- We have filed an example of an illustration based on hypothetical rates of return as an exhibit to the registration statement to this prospectus. COMPENSATION -- We will pay sales commissions to our life insurance agents who are registered representatives of broker-dealers. Other payments may be made for other services related to sale of the Policies. For a discussion of these arrangements, see Sale of the Policies. INQUIRIES If you need additional information, please contact our office at: Western Reserve Life P.O. Box 5068 Clearwater, Florida 33758-5068 1-800-851-9777, extension 6539 Facsimile: 727-299-1648 (Our hours are Monday-Friday 8:00 a.m.-8:00 p.m. Eastern time) www.westernreserve.com 11 RISK SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT If you invest your cash value in one or more subaccounts, RISK you will be subject to the risk that investment performance could be unfavorable and that the cash value of your Policy would decrease. YOU COULD LOSE EVERYTHING YOU INVEST, AND YOUR POLICY COULD LAPSE. If you select the fixed account, your cash value in the fixed account is credited with a declared rate of interest, but you assume a risk that the rate may decrease, although it will never be lower than a guaranteed minimum annual effective rate of 4.0%. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- RISK OF LAPSE If your Policy fails to meet certain conditions, we will notify you that the Policy has entered a 61-day grace period and will lapse unless you make a sufficient payment during the grace period. Your Policy contains a no lapse period. Your Policy will not lapse before the no lapse date stated in your Policy as long as you pay your minimum monthly guarantee premium as shown in your Policy AND you do NOT add any riders and you do not increase the specified amount after the Policy date. If you do not pay the premiums and if you add any riders or increase the specified amount after the Policy date, you will automatically lose the no lapse guarantee and you will increase the risk that your Policy will lapse. In addition, if you take a withdrawal or a Policy loan, you will increase the risk of losing the no lapse guarantee. We deduct the total amount of your withdrawals and any outstanding loans from your premiums paid when we determine whether the sum of your minimum monthly guarantee premiums are high enough to keep the no lapse period in effect. You will lessen the risk of Policy lapse if you keep the no lapse period in effect. During the first 3 Policy years, before you take a cash withdrawal, loan, increase the specified amount or increase or add a rider, you should consider carefully the effect it will have on the no lapse guarantee. After the no lapse period, your Policy may lapse if loans, withdrawals, the monthly deduction of insurance charges, and insufficient investment returns reduce the net surrender value to zero. The Policy will enter a grace period if on any Monthiversary the net surrender value (that is, the cash value, minus the surrender charge, and minus any outstanding loans) is not enough to pay the monthly deduction due. A Policy lapse may have adverse tax consequences. See Federal Income Tax Considerations, p. 54 and Policy Lapse and Reinstatement, p. 53. You may reinstate this Policy within five years after it has lapsed (and prior to the maturity date), if the insured meets the insurability requirements and you pay the amount we require. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- TAX RISKS (INCOME TAX We expect that the Policy will generally be deemed a life AND MEC) insurance contract under federal tax law, so that the death benefit paid to the beneficiary will not be subject to federal income tax. There is less certainty in this regard with respect to Policies issued on a substandard basis.
12 Depending on the total amount of premiums you pay, the Policy may be treated as a modified endowment contract ("MEC") under federal tax laws. A Protector Plus Program(SM) Policy (discussed on page 45) will in most instances be treated as a MEC. If a Policy is treated as a MEC, partial withdrawals, surrenders and loans will be taxable as ordinary income to the extent there are earnings in the Policy. In addition, a 10% penalty tax may be imposed on partial withdrawals, surrenders and loans taken before you reach age 59 1/2. If a Policy is not treated as a MEC, partial surrenders and withdrawals will not be subject to tax to the extent of your investment in the Policy. Amounts in excess of your investment in the Policy, while subject to tax as ordinary income, will not be subject to a 10% penalty tax. You should consult a qualified tax advisor for assistance in all tax matters involving your Policy. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- LIMITS ON CASH The Policy permits you to take only one partial cash WITHDRAWALS withdrawal per Policy year, after the first Policy year has been completed. The amount you may withdraw is limited to 10% of the net surrender value. A cash withdrawal will reduce cash value, so it will increase the risk that the Policy will lapse. A cash withdrawal may also increase the risk that the no lapse period will not remain in effect. A cash withdrawal will reduce the death benefit. If you select death benefit Option A, a cash withdrawal will permanently reduce the specified amount of the Policy by the amount of the withdrawal. If death benefit Option B is in effect when you make a withdrawal, the death benefit will be reduced by the amount the cash value was reduced. In some circumstances, a withdrawal may reduce the death benefit by more than the dollar amount of the withdrawal. Federal income taxes and a penalty tax may apply to partial withdrawals and surrenders. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- LOAN RISKS A Policy loan, whether or not repaid, will affect cash value over time because we subtract the amount of the loan from the subaccounts and the fixed account and place that amount in the loan reserve as collateral. We then credit a fixed interest rate of not less than 4.0% to the loan collateral. We currently credit interest at 4.75% annually, but we are not obligated to do so in the future. As a result, the loan collateral does not participate in the investment results of the subaccounts and may not continue to receive the current interest rates credited. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the subaccounts and the interest rates credited to the fixed account, the effect could be favorable or unfavorable. We also charge interest on Policy loans at a rate of 5.2% to be paid in advance. Interest is added to the amount of the loan to be repaid. (The above loan interest rates may vary depending on when and where your Policy was issued. See Loans p. 50.) A Policy loan affects the death benefit because a loan reduces the death benefit proceeds by the amount of the outstanding loan.
13 A Policy loan could make it more likely that a Policy would lapse. A Policy loan will increase the risk that the no lapse period will end. There is also a risk if the loan reduces your net surrender value to too low an amount and investment experience is unfavorable, while the no lapse period is no longer in effect, that the Policy will lapse. Adverse tax consequences would result. If a loan from a Policy is outstanding when the Policy is canceled or lapses, or if a loan is taken out and the Policy is a MEC, then the amount of the outstanding indebtedness will be taxed as if it were a distribution from the Policy. See Federal Income Tax Considerations p. 54. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- EFFECTS OF SURRENDER THE SURRENDER CHARGE UNDER THIS POLICY IS SIGNIFICANT, CHARGE ESPECIALLY IN THE EARLY POLICY YEARS. IT IS LIKELY YOU WILL RECEIVE NO NET SURRENDER VALUE IF YOU SURRENDER YOUR POLICY IN THE FIRST FEW POLICY YEARS. You should purchase this Policy only if you have the financial ability to keep it in force at the initial specified amount for a substantial period of time. Even if you do not ask to surrender your Policy, the surrender charge plays a role in determining whether your Policy will lapse. Each month we will use the cash value (reduced by the surrender charge) (and reduced by outstanding loans) to measure whether your Policy will remain in force or will enter a grace period. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- COMPARISON Like fixed benefit life insurance, the Policy offers a death WITH OTHER benefit and can provide a cash value, loan privileges and a INSURANCE POLICIES value on surrender. However, the Policy differs from a fixed benefit policy because it allows you to place your premiums in investment subaccounts. The amount and duration of life insurance protection and of the Policy's cash value will vary with the investment performance of the amounts you place in the subaccounts. In addition, the cash value and net surrender value will always vary with the investment results of your selected subaccounts. As you consider purchasing this Policy, keep in mind that it may not be to your advantage to replace existing insurance with the Policy. - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
WESTERN RESERVE AND THE FIXED ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WESTERN RESERVE Western Reserve Life Assurance Co. of Ohio is the insurance company issuing the Policy. Western Reserve was incorporated under Ohio law on October 1, 1957. We have established the separate account to support the investment options under this Policy and under other variable life insurance policies we issue. Our general account supports the fixed account under the Policy. Western Reserve intends to sell this Policy in all states (except New York), Puerto Rico, Guam and the District of Columbia. 14 THE FIXED ACCOUNT The fixed account is part of Western Reserve's general account. We use general account assets to support our insurance and annuity obligations other than those funded by separate accounts. Subject to applicable law, Western Reserve has sole discretion over investment of the fixed account's assets. Western Reserve bears the full investment risk for all amounts contributed to the fixed account. Western Reserve guarantees that the amounts allocated to the fixed account will be credited interest daily at a net effective interest rate of at least 4.0%. We will determine any interest rate credited in excess of the guaranteed rate at our sole discretion. We have no specific formula for determining interest rates. Money you place in the fixed account will earn interest compounded daily at a current interest rate in effect at the time of your allocation. We may declare current interest rates from time to time. We may declare more than one interest rate for different money based upon the date of allocation or transfer to the fixed account. When we declare a higher current interest rate on amounts allocated to the fixed account, we guarantee the higher rate on those amounts for at least one year (the "guarantee period") unless those amounts are transferred to the loan reserve. At the end of the guarantee period we may declare a new current interest rate on those amounts and any accrued interest thereon. We will guarantee this new current interest rate for another guarantee period. We credit interest greater than 4.0% during any guarantee period at our sole discretion. You bear the risk that interest we credit will not exceed 4.0%. We allocate amounts from the fixed account for cash withdrawals, transfers to the subaccounts, or monthly deduction charges on a last in, first out basis ("LIFO") for the purpose of crediting interest. New Jersey residents: The fixed account is NOT available to you. You may not direct or transfer any premiums or cash value to the fixed account. The fixed account is used solely for Policy loans. THE FIXED ACCOUNT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. THE SEPARATE ACCOUNT AND THE PORTFOLIOS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE SEPARATE ACCOUNT The separate account is divided into subaccounts, each of which invests in shares of a specific portfolio of a fund. These subaccounts buy and sell portfolio shares at net asset value without any sales charge. Any dividends and distributions from a portfolio are reinvested at net asset value in shares of that portfolio. Income, gains, and losses credited to, or charged against, a subaccount of the separate account reflect the subaccount's own investment experience and not the investment experience of our other assets. The separate account's assets may not be used to pay any of our liabilities 15 other than those arising from the Policies. If the separate account's assets exceed the required reserves and other liabilities, we may transfer the excess to our general account. The separate account may include other subaccounts that are not available under the Policies and are not discussed in this prospectus. We may substitute another subaccount, portfolio or insurance company separate account under the Policies if, in our judgment, investment in a subaccount or portfolio would no longer be possible or becomes inappropriate to the purposes of the Policies, or if investment in another subaccount or insurance company separate account is in the best interest of owners. No substitution shall take place without notice to owners and prior approval of the Securities and Exchange Commission ("SEC") and insurance company regulators, to the extent required by the Investment Company Act of 1940, as amended (the "1940 Act") and applicable law. THE FUNDS The separate account invests in shares of the portfolios. Each portfolio is an investment division of a fund, which is an open-end management investment company registered with the SEC. Such registration does not involve supervision of the management or investment practices or policies of the portfolios by the SEC. Each portfolio's assets are held separate from the assets of the other portfolios, and each portfolio has investment objectives and policies that are different from those of the other portfolios. Thus, each portfolio operates as a separate investment fund, and the income or losses of one portfolio has no effect on the investment performance of any other portfolio. Pending any prior approval by a state insurance regulatory authority, certain subaccounts and corresponding portfolios may not be available to residents of some states. Each portfolio's investment objective(s) and policies are summarized below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). Certain portfolios may have investment objectives and policies similar to other portfolios that are managed by the same investment adviser or sub-adviser. The investment results of the portfolios, however, may be higher or lower than those of such other portfolios. We do not guarantee or make any representation that the investment results of the portfolios will be comparable to any other portfolio, even those with the same investment adviser or manager. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING A DESCRIPTION OF RISKS, IN THE FUND PROSPECTUSES. YOU SHOULD READ THE FUND PROSPECTUSES CAREFULLY. 16
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- MUNDER NET50 + Munder Capital Management + Seeks long-term capital appreciation. VAN KAMPEN EMERGING GROWTH + Van Kampen Asset Management Inc. + Seeks capital appreciation by investing primarily in common stocks of small and medium-sized companies. T. ROWE PRICE SMALL CAP + T. Rowe Price Associates, Inc. + Seeks long-term growth of capital by investing primarily in common stocks of small growth companies. PBHG MID CAP GROWTH + Pilgrim Baxter & Associates, Ltd. + Seeks capital appreciation. ALGER AGGRESSIVE GROWTH + Fred Alger Management, Inc. + Seeks long-term capital appreciation. THIRD AVENUE VALUE + EQSF Advisers, Inc. + Seeks long-term capital appreciation. VALUE LINE AGGRESSIVE GROWTH + Value Line, Inc. + Seeks to realize capital growth. AMERICAN CENTURY INTERNATIONAL + American Century Investment Management + Seeks capital growth. Inc. JANUS GLOBAL + Janus Capital Management LLC + Seeks long-term growth of capital in a manner consistent with the preservation of capital. GABELLI GLOBAL GROWTH + Gabelli Asset Management Company + Seeks to provide investors with appreciation of capital. Current income is a secondary objective. GREAT COMPANIES -- + Great Companies, L.L.C. + Seeks long-term growth of capital in a GLOBAL(2) manner consistent with preservation of capital. GREAT COMPANIES -- + Great Companies, L.L.C. + Seeks long-term growth of capital. TECHNOLOGY(SM)
17
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- JANUS GROWTH + Janus Capital Management LLC + Seeks growth of capital. LKCM CAPITAL GROWTH + Luther King Capital Management + Seeks long-term growth of capital Corporation through a disciplined investment approach focusing on companies with superior growth prospects. GOLDMAN SACHS GROWTH + Goldman Sachs Asset Management + Seeks long-term growth of capital. GE U.S. EQUITY + GE Asset Management Incorporated + Seeks long-term growth of capital. GREAT COMPANIES -- + Great Companies, L.L.C. + Seeks long-term growth of capital. AMERICA(SM) SALOMON ALL CAP + Salomon Brothers Asset Management Inc + Seeks capital appreciation. VIP CONTRAFUND(R) PORTFOLIO + Fidelity Management & Research Company + Seeks long-term capital appreciation by investing primarily in a broad variety of common stocks, using both growth-oriented and contrarian disciplines. DREYFUS MID CAP + The Dreyfus Corporation + Seeks total investment returns (including capital appreciation and income), which consistently outperform the S&P 400 Mid Cap Index. PBHG/NWQ VALUE SELECT + NWQ Investment Management Company, Inc. + Seeks to achieve maximum, consistent and Pilgrim Baxter & Associates, Ltd.* total return with minimum risk to principal. VIP EQUITY-INCOME PORTFOLIO + Fidelity Management & Research Company + Seeks reasonable income by investing primarily in income-producing equity securities. VIP GROWTH OPPORTUNITIES PORTFOLIO + Fidelity Management & Research Company + Seeks capital growth by investing in a wide range of common domestic and foreign stocks, and securities convertible into common stocks. * Effective May 1, 2002, this portfolio will be co-subadvised by Pilgrim Baxter & Associates, Ltd.
18
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- T. ROWE PRICE DIVIDEND GROWTH + T. Rowe Price Associates, Inc. + Seeks to provide an increasing level of dividend income, long-term capital appreciation and reasonable current income through investments primarily in dividend paying stocks. TRANSAMERICA VALUE BALANCED + Transamerica Investment Management, LLC + Seeks preservation of capital and competitive investment returns. LKCM STRATEGIC TOTAL RETURN + Luther King Capital Management + Seeks to provide current income, Corporation long-term growth of income and capital appreciation. CLARION REAL ESTATE SECURITIES + Clarion CRA Securities, LP** + Seeks long-term total return from investments primarily in equity securities of real estate companies. Total return will consist of realized and unrealized capital gains and losses plus income. FEDERATED GROWTH & INCOME + Federated Investment Counseling + Seeks total return by investing in securities that have defensive characteristics. JANUS BALANCED + Janus Capital Management LLC + Seeks long-term capital growth, consistent with preservation of capital and balanced by current income. AEGON BOND + Banc One Investment Advisors Corp.*** + Seeks the highest possible current income within the confines of the primary goal of insuring the protection of capital. TRANSAMERICA MONEY MARKET + Transamerica Investment Management, + Seeks to provide maximum current income LLC** consistent with preservation of principal and maintenance of liquidity. ** Prior to May 1, 2002 this portfolio was sub-advised by J.P. Morgan Investment Management Inc. *** Prior to May 1, 2002, this portfolio was sub-advised by AEGON USA Investment Management, Inc.
19
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE - --------- ---------------------- -------------------- CONSERVATIVE ASSET ALLOCATION**** + AEGON/Transamerica Fund Advisers, Inc. + Seeks current income and preservation of capital. MODERATE ASSET ALLOCATION**** + AEGON/Transamerica Fund Advisers, Inc. + Seeks capital appreciation. MODERATELY AGGRESSIVE ASSET + AEGON/Transamerica Fund Advisers, Inc. + Seeks capital appreciation. ALLOCATION**** AGGRESSIVE ASSET ALLOCATION**** + AEGON/Transamerica Fund Advisers, Inc. + Seeks capital appreciation and current income. TRANSAMERICA CONVERTIBLE + Transamerica Investment Management, LLC + Seeks maximum total return through a SECURITIES combination of current income and capital appreciation. PIMCO TOTAL RETURN + Pacific Investment Management Company, + Seeks maximum total return consistent LLC with preservation of capital and prudent investment management. TRANSAMERICA EQUITY + Transamerica Investment Management, LLC + Seeks to maximize long-term growth. TRANSAMERICA GROWTH OPPORTUNITIES + Transamerica Investment Management, LLC + Seeks to maximize long-term growth. **** Each asset allocation portfolio invests in a combination of underlying Series Fund portfolios.
AEGON/Transamerica Fund Advisers, Inc. ("AEGON/Transamerica Advisers"), located at 570 Carillon Parkway, St. Petersburg, Florida 33716, a wholly-owned subsidiary of Western Reserve, serves as investment adviser to the Series Fund and manages the Series Fund in accordance with policies and guidelines established by the Series Fund's Board of Directors. For certain portfolios, AEGON/Transamerica Advisers has engaged investment sub-advisers to provide portfolio management services. AEGON/Transamerica Advisers and each investment sub-adviser are registered investment advisers under the Investment Advisers Act of 1940, as amended. See the Series Fund prospectus for more information regarding AEGON/Transamerica Advisers and the investment sub-advisers. 20 Fidelity Management & Research Company ("FMR") located at 82 Devonshire Street, Boston, Massachusetts 02109, serves as investment adviser to the Fidelity VIP Funds and manages the Fidelity VIP Funds in accordance with policies and guidelines established by the Fidelity VIP Funds' Board of Trustees. For certain portfolios, FMR has engaged investment sub-advisers to provide portfolio management services with regard to foreign investments. FMR and each sub-adviser are registered investment advisers under the Investment Advisers Act of 1940, as amended. See the Fidelity VIP Funds prospectuses for more information regarding FMR and the investment sub-advisers. Morningstar Associates, LLC ("Morningstar"), located at 225 West Wacker Drive, Chicago, Illinois 60606, serves as a "consultant" to AEGON/Transamerica Advisers for investment model creation and maintenance to the Conservative Asset Allocation, Moderate Asset Allocation, Moderately Aggressive Asset Allocation and Aggressive Asset Allocation portfolios of the Series Fund. Morningstar will be paid an annual fee for its services. See the Series Fund prospectus for more information regarding Morningstar. In addition to the separate account, shares of the portfolios are also sold to other separate accounts that we (or our affiliates) establish to support variable annuity contracts and variable life insurance policies. It is possible that, in the future, it may become disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the portfolios simultaneously. Neither we nor the funds currently foresee any such disadvantages, either to variable life insurance policyowners or to variable annuity contract owners. However, each fund's Board of Directors/Trustees will monitor events in order to identify any material conflicts between the interests of such variable life insurance policyowners and variable annuity contract owners, and will determine what action, if any, it should take. Such action could include the sale of portfolio shares by one or more of the separate accounts, which could have adverse consequences. Material conflicts could result from, for example, (1) changes in state insurance laws, (2) changes in federal income tax laws, or (3) differences in voting instructions between those given by variable life insurance policyowners and those given by variable annuity contract owners. If a fund's Board of Directors/Trustees were to conclude that separate funds should be established for variable life insurance and variable annuity separate accounts, Western Reserve will bear the attendant expenses, but variable life insurance policyowners and variable annuity contract owners would no longer have the economies of scale resulting from a larger combined fund. ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS We do not guarantee that each portfolio will always be available for investment through the Policy. We reserve the right, subject to compliance with applicable law, to add new portfolios, close existing portfolios, or substitute portfolio shares that are held by any subaccount for shares of a different portfolio. New or substitute portfolios may have different fees and expenses and their availability may be limited to certain classes of purchasers. We will only add, delete or substitute shares of another portfolio of a fund (or of another open-end, registered investment company) if the shares of a portfolio are no longer available for investment, or if in our judgement further investment in any portfolio would become 21 inappropriate in view of the purposes of the separate account. We will not add, delete or substitute any shares attributable to your interest in a subaccount without notice to you and prior approval of the SEC, to the extent required by the 1940 Act or other applicable law. We may also decide to purchase for the separate account securities from other portfolios. We reserve the right to transfer separate account assets to another separate account that we determine to be associated with the class of contracts to which the Policy belongs. We also reserve the right to establish additional subaccounts of the separate account, each of which would invest in a new portfolio of a fund, or in shares of another investment company, with specified investment objectives. We may establish new subaccounts when, in our sole discretion, marketing, tax or investment conditions warrant. We will make any new subaccounts available to existing owners on a basis we determine. We may also eliminate one or more subaccounts for the same reasons as stated above. In the event of any such substitution or change, we may make such changes in this and other policies as may be necessary or appropriate to reflect such substitution or change. If we deem it to be in the best interests of persons having voting rights under the Policies, and when permitted by law, the separate account may be (1) operated as a management company under the 1940 Act, (2) deregistered under the 1940 Act in the event such registration is no longer required, (3) managed under the direction of a committee, or (4) combined with one or more other separate accounts, or subaccounts. YOUR RIGHT TO VOTE PORTFOLIO SHARES Even though we are the legal owner of the portfolio shares held in the subaccounts, and have the right to vote on all matters submitted to shareholders of the portfolios, we will vote our shares only as policyowners instruct, so long as such action is required by law. See Tax Status of the Policy p. 54. Before a vote of a portfolio's shareholders occurs, you will receive voting materials from us. We will ask you to instruct us on how to vote and to return your proxy to us in a timely manner. You will have the right to instruct us on the number of portfolio shares that corresponds to the amount of cash value you have in that portfolio (as of a date set by the portfolio). If we do not receive voting instructions on time from some policyowners, we will vote those shares in the same proportion as the timely voting instructions we receive. Should federal securities laws, regulations and interpretations change, we may elect to vote portfolio shares in our own right. If required by state insurance officials, or if permitted under federal regulation, we may disregard certain owner voting instructions. If we ever disregard voting instructions, we will send you a summary in the next annual report to policyowners advising you of the action and the reasons we took such action. 22 THE POLICY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PURCHASING A POLICY To purchase a Policy, you must submit a completed application and an initial premium to us through any licensed life insurance agent who is also a registered representative of a broker-dealer having a selling agreement with AFSG Securities Corporation, the principal underwriter for the Policy. You select the specified amount of insurance coverage for your Policy within the following guidelines. Our current minimum specified amount for a Policy for issue ages 0-45 is generally $50,000. It declines to $25,000 for issue ages 46-75. We will generally only issue a Policy to you if you provide sufficient evidence that the insured meets our insurability standards. Your application is subject to our underwriting rules, and we may reject any application for any reason permitted by law. We will not issue a Policy to you if the insured is over age 75. The insured must be insurable and acceptable to us under our underwriting rules on the later of: -- the date of your application; or -- the date the insured completes all of the medical tests and examinations that we require. TAX-FREE "SECTION 1035" EXCHANGES You can generally exchange one life insurance policy for another in a "tax-free exchange" under Section 1035 of the Internal Revenue Code. Before making an exchange, you should compare both life insurance policies carefully. Remember that if you exchange another life insurance policy for the one described in this prospectus, you might have to pay a surrender charge on your old policy, there will be a new surrender charge period for this Policy, other charges may be higher (or lower) and the benefits may be different. If the exchange does not qualify for Section 1035 treatment, you may also have to pay federal income tax on the exchange. You should not exchange another life insurance policy for this one unless you determine, after knowing all the facts, that the exchange is in your best interest and not just better for the person selling you the Policy (that person will generally earn a commission if you buy this Policy through an exchange or otherwise). UNDERWRITING STANDARDS This Policy uses mortality tables that distinguish between men and women. As a result, the Policy pays different benefits to men and women of the same age. Montana prohibits our use of actuarial tables that distinguish between males and females to determine premiums and policy benefits for policies issued on the lives of its residents. Therefore, we will base the premiums and benefits in Policies that we issue in Montana, to insure residents of that state, on actuarial tables that do not differentiate on the basis of gender. 23 Your cost of insurance charge will depend on the insured's rate class. We currently place insureds into the following rate classes: -- ultimate select, non-tobacco use; -- select, non-tobacco use; -- ultimate standard, tobacco use; and -- standard, tobacco use. We also place insureds in various sub-standard rate classes, which involve a higher mortality risk and higher charges. We generally charge higher rates for insureds who use tobacco. We charge lower cost of insurance rates for insureds who are in an "ultimate class." An ultimate class is only available if our underwriting guidelines require you to take a blood test because of the specified amount you have chosen. WHEN INSURANCE COVERAGE TAKES EFFECT Insurance coverage under the Policy will take effect only if the insured(s) is alive and in the same condition of health as described in the application when the Policy is delivered to the owner, and if the initial premium required under the Policy as issued is paid. Conditional Insurance Coverage. If you pay the full initial premium listed in the conditional receipt attached to the application, and we deliver the conditional receipt to you, the insured will have conditional insurance coverage under the terms of the conditional receipt. Because we do not accept initial premiums in advance for Policies with a specified amount in excess of $1,000,000, we do not offer conditional insurance coverage for Policies issued with a specified amount of $1,000,001 or higher. Conditional insurance coverage is void if the check or draft you gave us to pay the initial premium is not honored when we first present it for payment. THE AMOUNT OF CONDITIONAL INSURANCE -- the specified amount applied for; or COVERAGE IS THE LESSER OF: -- $300,000 reduced by all amounts payable under all life insurance applications that the insured has pending with us. -- the date of your application; or CONDITIONAL LIFE INSURANCE COVERAGE -- the date the insured completes all of the medical BEGINS ON THE tests and examinations that we require; or LATER OF: -- the date of issue, if any, requested in the application. -- the date we determine the insured has satisfied CONDITIONAL LIFE INSURANCE COVERAGE our underwriting requirements and the insurance applied TERMINATES AUTOMATICALLY ON THE for takes effect (the Policy date); or EARLIEST OF: -- 60 days from the date the application was completed; or -- the date we determine that any person proposed for insurance in the application is not insurable according to our rules, limits and standards for the plan, amount and rate class shown in the application; or
24 -- the date we modify the plan, amount, riders and/or the premium rate class shown in the application, or any supplemental agreements; or -- the date we mail notice of the ending of coverage and we refund the first premium to the applicant at the address shown on the application. -- the conditional receipt will be void: SPECIAL LIMITATIONS OF THE + if not signed by an authorized agent of Western CONDITIONAL RECEIPT: Reserve; or + in the event the application contains any fraud or material misrepresentation; or + if, on the date of the conditional receipt, the proposed insured is under 15 days of age or over 75 years of age. -- the conditional receipt does not provide benefits for disability and accidental death benefits. -- the conditional receipt does not provide benefits if any proposed insured commits suicide. In this case, Western Reserve's liability will be limited to return of the first premium paid with the application.
Full Insurance Coverage and Allocation of Initial Premium. Once we determine that the insured meets our underwriting requirements and you have paid the initial premium, full insurance coverage will begin and we will begin to take the monthly deductions from your net premium. This date is the Policy date. On the Policy date, we will allocate your initial net premium, minus monthly deductions, to the WRL Transamerica Money Market subaccount. On the record date, which is the date we record your Policy on our books as an in force Policy, we will allocate your cash value from the WRL Transamerica Money Market subaccount to the accounts you elect on your application. On any day we credit net premiums or transfer cash value to a subaccount, we will convert the dollar amount of the net premium (or transfer) into subaccount units at the unit value for that subaccount, determined at the end of the day on which we receive the premium or transaction request at our office. We will credit amounts to the subaccounts only on a valuation date, that is, on a date the New York Stock Exchange ("NYSE") is open for trading. See Policy Values p. 30. OWNERSHIP RIGHTS The Policy belongs to the owner named in the application. The owner may exercise all of the rights and options described in the Policy. The owner is the insured unless the application specifies a different person as the insured. If the owner dies before the insured and no contingent owner is named, then ownership of the Policy will pass to the owner's estate. The owner may exercise certain rights described below. 25 CHANGING THE OWNER -- Change the owner by providing written notice to us at our office at any time while the insured is alive and the Policy is in force. -- Change is effective as of the date that the written notice is received at our office. -- Changing the owner does not automatically change the beneficiary. -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- Changing the owner may have tax consequences. You should consult a tax advisor before changing the owner. -- We are not liable for payments we made before we received the written notice at our office. -- The owner designates the beneficiary (the person CHOOSING THE BENEFICIARY to receive the death benefit when the insured dies) in the application. -- If the owner designates more than one beneficiary, then each beneficiary shares equally in any death benefit proceeds unless the beneficiary designation states otherwise. -- If both the beneficiary and contingent beneficiary die before the insured, then the death benefit will be paid to the owner or the owner's estate upon the insured's death. -- If the beneficiary dies before the insured, then any contingent beneficiary becomes the beneficiary. -- The owner changes the beneficiary by providing CHANGING THE BENEFICIARY written notice to us at our office. -- Change is effective as of the date the owner signs the written notice. -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- We are not liable for any payments we made before we received the written notice at our office. -- The owner may assign Policy rights while the ASSIGNING THE POLICY insured is alive. -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- The owner retains any ownership rights that are not assigned. -- Assignee may not change the owner or the beneficiary, and may not elect or change an optional method of payment. Any amount payable to the assignee will be paid in a lump sum. -- Claims under any assignment are subject to proof of interest and the extent of the assignment.
26 -- We are not: + bound by any assignment unless we receive a written notice of the assignment; + responsible for the validity of any assignment; + liable for any payment we made before we received written notice of the assignment; or + bound by any assignment which results in adverse tax consequences to the owner, insured(s) or beneficiary(ies). -- Assigning the Policy may have tax consequences. You should consult a tax advisor before assigning the Policy.
CANCELING A POLICY You may cancel a Policy for a refund during the "free-look period" by returning it to our office, to one of our branch offices or to the agent who sold you the Policy. The free-look period expires 10 days after you receive the Policy. In some states you may have more than 10 days. If you decide to cancel the Policy during the free-look period, we will treat the Policy as if it had never been issued. We will pay the refund within seven days after we receive the returned Policy at our office. The amount of the refund will be: -- any charges and taxes we deduct from your premiums; PLUS -- any monthly deductions or other charges we deducted from amounts you allocated to the subaccounts and the fixed account; PLUS -- your cash value in the subaccounts and the fixed account on the date we (or our agent) receive the returned Policy at our office. Some states may require us to refund all of the premiums you paid for the Policy. PREMIUMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREMIUM FLEXIBILITY You generally have flexibility to determine the frequency and the amount of the premiums you pay. Unlike conventional insurance policies, you do not have to pay your premiums according to a rigid and inflexible premium schedule. Before we issue the Policy to you, we may require you to pay a premium at least equal to a minimum monthly guarantee premium set forth in your Policy. Thereafter (subject to the limitations described below), you may make unscheduled premium payments at any time and in any amount over $50. Under some circumstances, you may be required to pay extra premiums to prevent a lapse. Your minimum monthly guarantee premium may change if you request a change in your Policy. If this happens, we will notify you of the new minimum monthly guarantee premium. PLANNED PERIODIC PAYMENTS You will determine a planned periodic payment schedule which allows you to pay level premiums at fixed intervals over a specified period of time. You are not required to pay premiums according to this schedule. You may change the amount, frequency, and the time 27 period over which you make your planned periodic payments. Please be sure to notify us or your agent/registered representative of any address changes so that we may be able to keep your current address on record. Even if you make your planned periodic payments on schedule, your Policy may still lapse. The duration of your Policy depends on the Policy's net surrender value. If the net surrender value is not high enough to pay the monthly deduction when due (and your no lapse period has expired) then your Policy will lapse (unless you make the payment we specify during the 61-day grace period). See Policy Lapse and Reinstatement p. 53. MINIMUM MONTHLY GUARANTEE PREMIUM The full initial premium is the only premium you are required to pay under the Policy. However, you greatly increase your risk of lapse if you do not regularly pay premiums at least as large as the minimum monthly guarantee premium. Until the no lapse date shown on your Policy schedule page, we guarantee that your Policy will not lapse, so long as on any Monthiversary you have paid total premiums (MINUS any cash withdrawals and MINUS any outstanding loan amount) that equal or exceed the sum of the minimum monthly guarantee premiums for each specific month from the Policy date up to and including the current month. If you take a cash withdrawal or a loan, you may need to pay additional premiums in order to keep the no lapse guarantee in place. The initial minimum monthly guarantee premium is shown on your Policy's schedule page. AFTER THE NO LAPSE PERIOD ENDS, PAYING THE MINIMUM MONTHLY GUARANTEE PREMIUM EACH MONTH WILL NOT NECESSARILY KEEP YOUR POLICY IN FORCE. YOU MAY NEED TO PAY ADDITIONAL PREMIUMS TO KEEP THE POLICY IN FORCE. NO LAPSE PERIOD Until the no lapse date shown on your Policy schedule page, your Policy will remain in force and no grace period will begin, even if your net surrender value is too low to pay the monthly deduction, so long as: -- you have not increased the specified amount; OR -- you have not added any riders; AND -- the total amount of the premiums you paid (MINUS any cash withdrawals and MINUS any outstanding loan amount) equal or exceed: + the minimum monthly guarantee premium stated in your Policy, MULTIPLIED BY + the number of months from the Policy date up to and including the current month. PREMIUM LIMITATIONS Premium payments must be at least $50 ($1,000 if by wire). We may return premiums less than $50. We will not allow you to make any premium payments that would cause the 28 total amount of the premiums you pay to exceed the current maximum premium limitations which qualify the Policy as life insurance according to federal tax laws. This maximum is set forth in your Policy. If you make a payment that would cause your total premiums to be greater than the maximum premium limitations, we will return the excess portion of the premium payment. We will not permit you to make additional premium payments until they are allowed by the maximum premium limitations. In addition, we reserve the right to refund a premium if the premium would increase the death benefit by more than the amount of the premium. MAKING PREMIUM PAYMENTS We will consider any payments you make to be premium payments, unless you clearly mark them as loan repayments. We will deduct certain charges from your premium payments (see Premium Charges p. 38). We will accept premium payments by wire transfer. If you wish to make payments by wire transfer, you should instruct your bank to wire federal funds as follows: All First Bank of Baltimore ABA #: 052000113 For credit to: Western Reserve Life Account #: 89539639 Policyowner's Name: Policy Number: Attention: General Accounting Tax-Free Exchanges ("1035 Exchanges") (see Tax-Free "Section 1035" Exchanges p. 23). We will accept part or all of your initial premium money from one or more contracts insuring the same insured that qualify for tax-free exchanges under Section 1035 of the Internal Revenue Code. If you contemplate such an exchange, you should consult a competent tax advisor to learn the potential tax effects of such a transaction. Subject to our underwriting requirements, we will permit you to make one additional cash payment within three business days of our receipt of the proceeds from the 1035 Exchange before we determine your Policy's specified amount. ALLOCATING PREMIUMS You must instruct us on how to allocate your net premium among the subaccounts and the fixed account. (New Jersey residents: The fixed account is NOT available to you. You may not direct or transfer any money to the fixed account.) You must follow these guidelines: -- allocation percentages must be in whole numbers; -- if you select dollar cost averaging, you must have at least $10,000 in each subaccount from which we will make transfers and you must transfer at least a total of $1,000 ($500 for New Jersey residents) monthly; and -- if you select asset rebalancing, the cash value of your Policy, if an existing Policy, or your minimum initial premium, if a new Policy, must be at least $10,000. 29 You may change the allocation instructions for additional premium payments without charge at any time by writing us or calling us at 1-800-851-9777, extension 6539 Monday-Friday 8:00 a.m.-8:00 p.m. Eastern time. The change will be effective at the end of the valuation date on which we receive the change. Upon instructions from you, the registered representative/agent of record for your Policy may also change your allocation instructions for you. The minimum amount you can allocate to a particular subaccount is 10% of a net premium payment. We reserve the right to limit the number of premium allocation changes to once per Policy year. Whenever you direct money into a subaccount, we will credit your Policy with the number of units for that subaccount that can be bought for the dollar payment. We price each subaccount unit on each valuation date using the unit value determined at the closing of the regular business session of the NYSE (usually at 4:00 p.m. Eastern time). We will credit amounts to the subaccounts only on a valuation date, that is, on a date the NYSE is open for trading. See Policy Values below. Your cash value will vary with the investment experience of the subaccounts in which you invest. YOU BEAR THE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS. You should periodically review how your cash value is allocated among the subaccounts and the fixed account because market conditions and your overall financial objectives may change. POLICY VALUES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CASH VALUE -- Varies from day to day, depending on the investment experience of the subaccounts you choose, the interest credited to the fixed account, the charges deducted and any other Policy transactions (such as additional premium payments, transfers, withdrawals and Policy loans). -- Serves as the starting point for calculating values under a Policy. -- Equals the sum of all values in each subaccount and the fixed account. -- Is determined on the Policy date and on each valuation date. -- Has no guaranteed minimum amount and may be more or less than premiums paid. -- Includes any amounts held in the fixed account to secure any outstanding Policy loan. NET SURRENDER VALUE The net surrender value is the amount we pay when you surrender your Policy. We determine the net surrender value at the end of the valuation period when we receive your written surrender request at our office. 30 NET SURRENDER VALUE ON ANY VALUATION -- the cash value as of such date; MINUS DATE EQUALS: -- any surrender charge as of such date; MINUS -- any outstanding Policy loan amount; PLUS -- any interest you paid in advance on the loan(s) for the period between the date of the surrender and the next Policy anniversary.
SUBACCOUNT VALUE Each subaccount's value is the cash value in that subaccount. At the end of any valuation period, the subaccount's value is equal to the number of units that the Policy has in the subaccount, multiplied by the unit value of that subaccount. THE NUMBER OF UNITS IN ANY -- the initial units purchased at unit value on the SUBACCOUNT ON ANY VALUATION DATE record date; PLUS EQUALS: -- units purchased with additional net premium(s); PLUS -- units purchased via transfers from another subaccount or the fixed account; MINUS -- units redeemed to pay for monthly deductions; MINUS -- units redeemed to pay for cash withdrawals; MINUS -- units redeemed as part of a transfer to another subaccount or the fixed account.
Every time you allocate, transfer or withdraw money to or from a subaccount, we convert that dollar amount into units. We determine the number of units we credit to, or subtract from, your Policy by dividing the dollar amount of the allocation, transfer or cash withdrawal by the unit value for that subaccount next determined at the end of the valuation period on which the premium, transfer request or withdrawal request is received at our office. SUBACCOUNT UNIT VALUE The value (or price) of each subaccount unit will reflect the investment performance of the portfolio in which the subaccount invests. Unit values will vary among subaccounts. The unit value of each subaccount was originally established at $10 per unit. The unit value will increase or decrease from one valuation period to the next. THE UNIT VALUE OF ANY SUBACCOUNT AT -- the total value of the portfolio shares held in THE END OF A VALUATION PERIOD IS the subaccount, determined by multiplying the number of CALCULATED AS: portfolio shares owned by the subaccount times the portfolio's net asset value per share determined at the end of the valuation period; MINUS -- a deduction for the mortality and expense risk charge; MINUS -- the accrued amount of reserve for any taxes or other economic burden resulting from applying tax laws that we determine to be properly attributable to the subaccount; AND THE RESULT DIVIDED BY -- the number of outstanding units in the subaccount.
31 The portfolio in which any subaccount invests will determine its net asset value per share once daily, as of the close of the regular business session of the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each valuation period. FIXED ACCOUNT VALUE On the record date, the fixed account value is equal to the cash value allocated to the fixed account from the WRL Transamerica Money Market subaccount. THE FIXED ACCOUNT VALUE AT THE END OF -- the sum of net premium(s) allocated to the fixed ANY VALUATION PERIOD IS EQUAL TO: account; PLUS -- any amounts transferred from a subaccount to the fixed account; PLUS -- total interest credited to the fixed account; MINUS -- amounts charged to pay for monthly deductions; MINUS -- amounts withdrawn or surrendered from the fixed account; MINUS -- amounts transferred from the fixed account to a subaccount.
New Jersey residents: The fixed account value at the end of any valuation period is equal to: -- any amounts transferred from a subaccount to the fixed account to establish a loan reserve; PLUS -- total interest credited to the fixed account. TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL You or your agent/registered representative of record may make transfers among the subaccounts or from the subaccounts to the fixed account. We determine the amount you have available for transfers at the end of the valuation period when we receive your transfer request at our office. We may at any time, discontinue transfer privileges, modify our procedures, or limit the number of transfers we permit. The following features apply to transfers under the Policy: ++ You may make one transfer from the fixed account in a Policy year (unless you choose dollar cost averaging from the fixed account). ++ You may request transfers in writing (in a form we accept), by fax or by telephone to our office. ++ There is no minimum amount that must be transferred. ++ There is no minimum amount that must remain in a subaccount after a transfer. ++ We deduct a $10 charge from the amount transferred for each transfer in excess of 12 transfers in a Policy year. ++ We consider all transfers made in any one day to be a single transfer. 32 ++ Transfers resulting from loans, conversion rights, reallocation of cash value immediately after the record date, and transfers from the fixed account are NOT treated as transfers for the purpose of the transfer charge. ++ Transfers under dollar cost averaging and asset rebalancing are treated as transfers for purposes of the transfer charge. Some investors try to profit from various strategies known as market timing; for example, switching money into mutual funds when they expect prices to rise and taking money out when they expect prices to fall, or switching from one portfolio to another and then back out again after a short period of time. As money is shifted in and out, a fund incurs expenses for buying and selling securities. These costs are borne by all fund shareholders, including the long-term investors who do not generate the costs. This is why all portfolios have adopted special policies to discourage short-term trading. Specifically, each portfolio reserves the right to reject any transfer request that it regards as disruptive to efficient portfolio management. A transfer request could be rejected because of the timing of the investment or because of a history of excessive transfers by the owner. The Policy you are purchasing was not designed for professional market timing organizations or other persons that use programmed, large, or frequent transfers. The use of such transfers may be disruptive to the underlying portfolio and increase transaction costs. We reserve the right to reject any premium payment or transfer request from any person if, in our judgment, the payment or transfer or series of transfers would have a negative impact on a portfolio's operations or if a portfolio would reject our purchase order. We may impose other restrictions on transfers or even prohibit them for any owner who, in our view, has abused, or appears likely to abuse, the transfer privilege. THE PORTFOLIOS DO NOT PERMIT MARKET TIMING. DO NOT INVEST WITH US IF YOU ARE A MARKET TIMER. WHEN WE IDENTIFY YOU AS A MARKET TIMER, WE WILL IMMEDIATELY NOTIFY YOUR AGENT WHO WILL THEN NOTIFY YOU THAT ANY ADDITIONAL REQUESTS FOR TRANSFERS WILL BE SUBJECT TO CERTAIN RESTRICTIONS, INCLUDING THE LOSS OF ELECTRONIC AND TELEPHONE TRANSFER PRIVILEGES. Your Policy, as applied for and issued, will automatically receive telephone transfer privileges unless you provide other instructions. The telephone transfer privileges allow you to give authority to the registered representative or agent of record for your Policy to make telephone transfers and to change the allocation of future payments among the subaccounts and the fixed account on your behalf according to your instructions. To make a telephone transfer, you may call us at 1-800-851-9777, extension 6539 Monday-Friday 8:00 a.m.-8:00 p.m. Eastern time or fax your instructions to 727-299-1648. Please note the following regarding telephone or fax transfers: + We will employ reasonable procedures to confirm that telephone instructions are genuine. + If we follow these procedures, we are not liable for any loss, damage, cost or expense from complying with telephone instructions we reasonably believe to be authentic. You bear the risk of any such loss. + If we do not employ reasonable confirmation procedures, we may be liable for losses due to unauthorized or fraudulent instructions. 33 + Such procedures may include requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of transactions to owners, and/or tape recording telephone instructions received from owners. + We may also require written confirmation of your order. + If you do not want the ability to make telephone transfers, you should notify us in writing. + Telephone or fax orders must be received at our office before 4:00 p.m. Eastern time to assure same-day pricing of the transaction. + WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS IF FAXED TO A NUMBER OTHER THAN 727-299-1648. + We will not be responsible for any transmittal problems when you fax us your order unless you report it to us within five business days and send us proof of your fax transmittal. + We may discontinue this option at any time. We cannot guarantee that telephone and faxed transactions will always be available. For example, our offices may be closed during severe weather emergencies or there may be interruptions in telephone or fax service beyond our control. If the volume of calls is unusually high, we might not have someone immediately available to receive your order. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. Online transactions may not always be possible. Telephone and computer systems, whether yours, your Internet service provider's, your agent's, or WRL's can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of your request. If you are experiencing problems, you should make your request or inquiry in writing. You should protect your personal identification number (PIN) because self-service options will be available to your agent of record and to anyone who provides your PIN. We will not be able to verify that the person using your PIN and providing instructions online is you or one authorized by you. We will process any transfer order we receive at our office before the NYSE closes (usually 4:00 p.m. Eastern time) using the subaccount unit value determined at the end of that session of the NYSE. If we receive the transfer order after the NYSE closes, we will process the order using the subaccount unit value determined at the close of the next regular business session of the NYSE. FIXED ACCOUNT TRANSFERS You may make one transfer per Policy year from the fixed account unless you select dollar cost averaging from the fixed account. We reserve the right to require that you make the transfer request in writing. We must receive the transfer request no later than 30 days after a Policy anniversary. We will make the transfer at the end of the valuation date on which we receive the written request. Depending on when your Policy was issued,* the maximum amount you may transfer is limited to the greater of: + 25% of the amount in the fixed account (currently we allow up to 50% of your value, but the 50% limit is not guaranteed); or 34 + the amount you transferred from the fixed account in the immediately prior Policy year. * If your Policy was issued before September 1, 1994, there is no limit on the amount that you can transfer from the fixed account. If your Policy was issued on or after September 1, 1994 (in all states that approved this change), you are subject to the transfer limitation set forth above. New Jersey residents: The fixed account is NOT available to you. You may not direct or transfer any money to the fixed account. CONVERSION RIGHTS If, within 24 months of your Policy date, you transfer all of your subaccount values to the fixed account, then we will not charge you a transfer fee, even if applicable. You must make your request in writing to our office. DOLLAR COST AVERAGING Dollar cost averaging is an investment strategy designed to reduce the average purchase price per unit. The strategy spreads the allocation of your premium into the subaccounts over a period of time. This potentially allows you to reduce the risk of investing most of your premium into the subaccounts at a time when prices are high. The success of this strategy is not assured and depends on market trends. You should consider carefully your financial ability to continue the program over a long enough period of time to purchase units when their value is low as well as when it is high. We make no guarantee that dollar cost averaging will result in a profit or protect you against a loss. Under dollar cost averaging, we automatically transfer a set dollar amount from the WRL Transamerica Money Market subaccount, the WRL AEGON Bond subaccount, the fixed account, or any combination of these to a subaccount that you choose. We will make the transfers monthly as of the end of the valuation date. We will make the first transfer in the month after we receive your request at our office, provided that we receive the form by the 25th day of the month. TO START DOLLAR COST AVERAGING: + you must submit a completed form to us at our office requesting dollar cost averaging; + you must have at least $10,000 in each account from which we will make transfers; + your total transfers each month under dollar cost averaging must be at least $1,000 ($500 for New Jersey residents); and + each month, you may not transfer more than one-tenth of the amount that was in your fixed account at the beginning of dollar cost averaging.
35 You may request dollar cost averaging at any time. There is no charge for dollar cost averaging. However, each transfer under dollar cost averaging counts towards your 12 free transfers each year. DOLLAR COST AVERAGING WILL TERMINATE + we receive your request to cancel your IF: participation; + the value in the accounts from which we make the transfers is depleted; + you elect to participate in the asset rebalancing program; OR + you elect to participate in any asset allocation services provided by a third party.
We may modify, suspend, or discontinue dollar cost averaging at any time. ASSET REBALANCING PROGRAM We also offer an asset rebalancing program under which you may transfer amounts periodically to maintain a particular percentage allocation among the subaccounts you have selected. Cash value allocated to each subaccount will grow or decline in value at different rates. The asset rebalancing program automatically reallocates the cash value in the subaccounts at the end of each period to match your Policy's currently effective premium allocation schedule. Cash value in the fixed account and the dollar cost averaging program is not available for this program. This program does not guarantee gains. A subaccount may still have losses. You may elect asset rebalancing to occur on each quarterly, semi-annual or annual anniversary of the Policy date. Once we receive the asset rebalancing request form at our office, we will effect the initial rebalancing of cash value on the next such anniversary, in accordance with the Policy's current premium allocation schedule. You may modify your allocations quarterly. We will credit the amounts transferred at the unit value next determined on the dates the transfers are made. If a day on which rebalancing would ordinarily occur falls on a day on which the NYSE is closed, rebalancing will occur on the next day the NYSE is open. TO START ASSET REBALANCING: + you must submit a completed asset rebalancing request form to us at our office before the maturity date; and + you must have a minimum cash value of $10,000 or make a $10,000 initial premium payment.
There is no charge for the asset rebalancing program. However, each reallocation we make under the program counts towards your 12 free transfers each year. ASSET REBALANCING WILL CEASE IF: + you elect to participate in the dollar cost averaging program; + we receive your request to discontinue participation at our office;
36 + you make ANY transfer to or from any subaccount other than under a scheduled rebalancing; or + you elect to participate in any asset allocation services provided by a third party.
You may start and stop participation in the asset rebalancing program at any time; but we may restrict your right to re-enter the program to once each Policy year. If you wish to resume the asset rebalancing program, you must complete a new request form. We may modify, suspend, or discontinue the asset rebalancing program at any time. THIRD PARTY ASSET ALLOCATION SERVICES We may provide administrative or other support services to independent third parties you authorize to conduct transfers on your behalf, or who provide recommendations as to how your subaccount values should be allocated. This includes, but is not limited to, transferring subaccount values among subaccounts in accordance with various investment allocation strategies that these third parties employ. These independent third parties may or may not be appointed Western Reserve agents for the sale of Policies. WESTERN RESERVE DOES NOT ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH WESTERN RESERVE FOR THE SALE OF POLICIES. WESTERN RESERVE THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve does not currently charge you any additional fees for providing these support services. Western Reserve reserves the right to discontinue providing administrative and support services to owners utilizing independent third parties who provide investment allocation and transfer recommendations. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This section describes the charges and deductions that we make under the Policy in consideration for: (1) the services and benefits we provide; (2) the costs and expenses we incur; and (3) the risks we assume. The fees and charges deducted under the Policy may result in a profit to us. SERVICES AND BENEFITS WE PROVIDE -- the death benefit, cash withdrawal and loan UNDER THE POLICY: benefits; -- investment options, including premium allocations; -- administration of elective options; and -- the distribution of reports to owners.
COSTS AND EXPENSES WE INCUR: -- costs associated with processing and underwriting applications; -- expenses of issuing and administering the Policy (including any Policy riders);
37 -- overhead and other expenses for providing services and benefits and sales and marketing expenses including compensation paid in connection with the sale of the Policies; and -- other costs of doing business, such as collecting premiums, maintaining records, processing claims, effecting transactions, and paying federal, state and local premium and other taxes and fees.
RISKS WE ASSUME: -- that the charges we may deduct may be insufficient to meet our actual claims because insureds die sooner than we estimate; and -- that the costs of providing the services and benefits under the Policies may exceed the charges we are allowed to deduct.
Some or all of the charges we deduct are used to pay the aggregate Policy costs and expenses we incur in providing the services and benefits under the Policy and assuming the risks associated with the Policy. PREMIUM CHARGES Before we allocate the net premium payments you make, we will deduct the following charges. PREMIUM EXPENSE CHARGE -- This charge equals: + 6.0% of premiums during the first ten Policy years; and + 2.5% of premiums thereafter. -- Some or all of the premium expense charges we deduct are used to pay the aggregate Policy costs and expenses we incur, including distribution costs and/or state premium taxes. Although state premium tax rates imposed on us vary from state to state, the premium expense charge deducted will not vary with the state of residence of the policyowner.
PREMIUM COLLECTION CHARGE -- This charge equals $2.00 per premium payment. -- This charge compensates us for premium billing and collection costs. -- We will not increase this charge.
MONTHLY DEDUCTION We take a monthly deduction from the net surrender value on the Policy date and on each Monthiversary. We deduct this charge from each subaccount and the fixed account in accordance with the current premium allocation instructions. If the value of any account is insufficient to pay that account's portion of the monthly deduction, we will take the monthly deduction on a pro rata basis from all accounts (i.e., in the same proportion that the value in each subaccount and the fixed account bears to the total cash value on the Monthiversary). 38 Because portions of the monthly deduction (such as cost of insurance) can vary monthly, the monthly deduction will also vary. THE MONTHLY DEDUCTION IS -- the monthly Policy charge; PLUS EQUAL TO: -- the monthly cost of insurance charge for the Policy; PLUS -- the monthly charge for any benefits provided by riders attached to the Policy. MONTHLY POLICY CHARGE: -- This charge equals $5.00 each Policy month. -- We may waive this charge at issue on additional policies (not on the original Policy) purchased naming the same owner and insured. -- This charge compensates us for administrative expenses such as recordkeeping, processing death benefit claims and Policy changes, and overhead costs. -- We will not increase this charge. COST OF INSURANCE CHARGE: -- We deduct this charge each month. It varies each month and is equal to: + the death benefit on the Monthiversary; DIVIDED BY + 1.0032737 (this factor reduces the net amount at risk, for purposes of computing the cost of insurance, by taking into account assumed monthly earnings at an annual rate of 4%); MINUS + the cash value on the Monthiversary; MULTIPLIED BY + the monthly cost of insurance rate for the Policy. OPTIONAL INSURANCE RIDERS: -- The monthly deduction will include charges for any optional insurance benefits you add to your Policy by rider (see Supplemental Benefits (Riders) p. 62).
We base the cost of insurance rates on the insured's attained age, gender, and rate class, and the length of time that the Policy has been in force. The actual monthly cost of insurance rates are primarily based on our expectations as to future mortality experience and expenses. The rates will never be greater than the guaranteed amount stated in your Policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality Tables and the insured's attained age, gender and rate class. For standard rate classes, these guaranteed rates will never be greater than the rates in the C.S.O. tables. We may also guarantee a rate for a specific period of time (e.g., one year). For a listing of rate classes, see Underwriting Standards p. 23. We may issue certain Policies on a simplified or expedited basis. The cost of insurance rates for Policies we issue on this basis will be no higher than the guaranteed rates for select, non-tobacco use or standard, tobacco use categories. However, these rates may be higher or lower than current rates charged under otherwise identical Policies that are using standard underwriting criteria. 39 MORTALITY AND EXPENSE RISK CHARGE We deduct a daily charge from your cash value in each subaccount to compensate us for aggregate Policy expenses and mortality and expense costs we assume. This charge is equal to: -- your Policy's cash value in each subaccount MULTIPLIED BY -- the daily pro rata portion of the annual mortality and expense risk charge rate of 0.90% (this annual rate is equal to 0.90% of the average daily net assets of each subaccount). The mortality risk is that an insured will live for a shorter time than we project. The expense risk is that the expenses that we incur will exceed the administrative charge limits we set in the Policy. If this charge does not cover our actual costs, we absorb the loss. Conversely, if the charge more than covers actual costs, the excess is added to our surplus. We expect to profit from this charge. We may use any profits to cover distribution costs. SURRENDER CHARGE If you surrender your Policy completely during the first 15 years, we deduct a surrender charge from your cash value and pay the remaining cash value (less any outstanding loan amounts) to you. If you increase the specified amount, we deduct an additional surrender charge for the 15 years following the increase. There is no surrender charge if you wait until the 15th Policy anniversary to surrender your Policy (assuming the specified amount has not been increased). The payment you receive is called the net surrender value. The formula we use reduces the surrender charge at older ages in compliance with state laws. THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CALCULATE THIS CHARGE CAREFULLY BEFORE YOU CONSIDER A SURRENDER. Under some circumstances the level of the surrender charge might result in no net surrender value available if you surrender your Policy in the first few Policy years. This will depend on a number of factors, but is more likely if: -- you pay premiums equal to or not much higher than the minimum monthly guarantee premium shown in your Policy; and/or -- investment performance is too low. THE SURRENDER CHARGE IS EQUAL TO: -- the DEFERRED ISSUE CHARGE; plus the DEFERRED SALES CHARGE; multiplied by -- the SURRENDER CHARGE PERCENTAGE.
The DEFERRED ISSUE CHARGE is $5.00 MULTIPLIED BY each $1,000 of the initial specified amount stated in your Policy and any later increase in specified amount in effect at the time of surrender. This charge helps us recover the underwriting, processing and start-up expenses that we incur in connection with the Policy and the separate account, as well as other aggregate Policy expenses. 40 The DEFERRED SALES CHARGE equals: -- 26.5% MULTIPLIED BY the total premiums paid up to the guideline premium shown in your Policy; PLUS -- a percentage, which varies depending on the insured's issue age and gender (see table below), MULTIPLIED BY the total premiums paid in excess of the guideline premium ("excess premium charge"). ISSUE AGE RANGE - ----------------- MALE AND EXCESS PREMIUM UNISEX* FEMALE CHARGE 0-55 0-62 4.2% 56-63 63-69 3.7% 64-68 70-74 3.1% 69-73 75 2.5% 74-75 2.0%
* The reference to "unisex" is included for purposes of states which prohibit the use of actuarial tables that distinguish between males and females to determine premiums and policy benefits for policies issued on the lives of their residents. The deferred sales charge helps us recover distribution expenses that we incur in connection with the Policy, including agent sales commissions and printing and advertising costs. The proceeds of this charge may not be sufficient to cover these expenses. To the extent they are not, Western Reserve will cover the shortfall from its general account assets, which may include profits from the mortality and expense risk charge under the Policy. To determine the surrender charge, we apply the SURRENDER CHARGE PERCENTAGE to the sum of the DEFERRED ISSUE CHARGE and the DEFERRED SALES CHARGE. In Policy years 1-10 this percentage is 100% for male insureds at issue ages 0-65 and female insureds at issue ages 0-70 and then declines at the rate of 20% per year until reaching zero at the end of the 15th Policy year. Percentages for the WRL Protector Plus Program(SM) are different than those shown below. SURRENDER CHARGE PERCENTAGES MALES ISSUE AGES 0-65 FEMALES ISSUE AGES 0-70 SURRENDER CHARGE PERCENTAGE END OF POLICY YEAR* PERCENTAGE At Issue 100% 1-10 100% 11 80% 12 60% 13 40% 14 20% 15 0% 16+ 0%
* The percentage on any date other than a Policy anniversary will be determined proportionately using the percentage at the end of the Policy year prior to surrender and the percentage at the end of the Policy year of surrender. 41 For insureds with older issue ages, the surrender charge percentage is less than 100% at the end of the 10th Policy year and then declines to 0% at the end of the 15th Policy year. Therefore, the surrender charge will be less if you surrender the Policy during the 11th through the 15th Policy year. There is no surrender charge if the Policy is surrendered after the 15th Policy year unless you increase the specified amount. See Additional Surrender Charge on Increases in Specified Amount p. 43. -- SURRENDER CHARGE EXAMPLE 1: Assume a male insured purchases the Policy at issue age 35 for $100,000 of specified amount, paying the guideline premium of $1,007, and an additional premium amount of $493 in excess of the guideline premium, for a total premium of $1,500 per year for four years ($6,000 total for four years), and then surrenders the Policy. The surrender charge would be calculated as follows: (a) DEFERRED ISSUE CHARGE: [100 (LOGO) $5.00] ($5.00/$1,000 of initial specified amount) = $500.00 (b) DEFERRED SALES CHARGE: (1) 26.5% of guideline premium paid [26.5% (LOGO) $1,007], and = $266.86 (2) 4.2% of premiums paid in excess of guideline premium [4.2% (LOGO) $4,993] = $209.71 (c) APPLICABLE SURRENDER CHARGE [(a)$500.00 + (b)($266.86 + $209.71)] (LOGO) 100% = 100% SURRENDER CHARGE = [$500.00 + $476.57] (LOGO) 100% = $976.57 =======
-- SURRENDER CHARGE EXAMPLE 2: Assume the same facts as in Example 1, including continued premium payments of $1,500 per year EXCEPT the owner surrenders the Policy on the 14th Policy anniversary: (a) DEFERRED ISSUE CHARGE: [100 (LOGO) $5.00] = $500.00 (b) DEFERRED SALES CHARGE: (1) [26.5% (LOGO) $1,007], and = $266.86 (2) [4.2% (LOGO) $19,993] = $839.71 (c) APPLICABLE SURRENDER CHARGE [(a)$500.00 + (b)($266.86 + $839.71)] (LOGO) 20% = 20% SURRENDER CHARGE = [$500.00 + $1,106.57] (LOGO) 20% = $321.31 =======
42 Additional Surrender Charge on Increases in Specified Amount. If you increase the specified amount and you surrender your Policy, we will deduct an additional surrender charge for the 15 Policy years following each increase. This charge is equal to: -- $5.00 MULTIPLIED BY each $1,000 of the specified amount increase; MULTIPLIED BY -- the applicable surrender charge shown in your Policy, with Policy years commencing on the date of each increase. The surrender charge helps us recover distribution expenses that we incur in connection with the Policy, including agent sales commissions and printing and advertising costs. TRANSFER CHARGE -- We currently allow you to make 12 transfers each year free from charge. -- We charge $10 for each additional transfer. -- For purposes of assessing the transfer charge, all transfers made in one day, regardless of the number of subaccounts affected by the transfer, is considered a single transfer. -- We deduct the transfer charge from the amount being transferred. -- Transfers due to loans, exercise of conversion rights, or from the fixed account do not count as transfers for the purpose of assessing this charge. -- Transfers under dollar cost averaging and asset rebalancing are transfers for purposes of this charge. -- We will not increase this charge. CASH WITHDRAWAL CHARGE -- When you make a cash withdrawal, we charge a processing fee of $25 or 2% of the amount you withdraw, whichever is less. -- We deduct this amount from the withdrawal, and we pay you the balance. -- We will not increase this charge. TAXES We currently do not make any deductions for taxes from the separate account. We may do so in the future if such taxes are imposed by federal or state agencies. PORTFOLIO EXPENSES The portfolios deduct management fees and expenses from the amounts you have invested in the portfolios. You pay these fees and expenses indirectly. Some portfolios also deduct 12b-1 fees from portfolio assets. These fees and expenses currently range from 0.39% to 1.50%. See the Portfolio Annual Expense Table on p. 8 in this prospectus and the fund prospectuses. Our affiliate, AFSG, the principal underwriter for the Policies, will receive the 12b-1 fees deducted from portfolio assets for providing shareholder support services to the portfolios. We and our affiliates, including the principal underwriter for the Policies, may receive compensation from the investment advisers, administrators, and/or distributors (and an affiliate thereof) of the portfolios in connection with administrative or other services and cost savings experienced by the investment advisers, administrators or distributors. It is anticipated that 43 such compensation will be based on assets of the particular portfolios attributable to the Contract and may be significant. Some advisers, administrators, distributors or portfolios may pay us (and our affiliates) more than others. GROUP OR SPONSORED POLICIES We issue a different Policy for group or sponsored arrangements ("Group/Sponsored Policies"). Under Group/Sponsored Policies, a trustee or employer purchases individual policies covering a group of individuals on a group basis (e.g., section 401 employer-sponsored benefit plans and deferred compensation plans). A sponsored arrangement is where an employer permits a group solicitation of Policies to its employees or an association permits a group solicitation of Policies to its members. We have certain criteria to issue Group/Sponsored Policies. Generally, a group or sponsored arrangement must be a specific size and must have been in operation for a number of years. We may reduce certain charges, such as premium expense charges, surrender charge, limits on minimum premium and minimum specified amount, or monthly Policy charge, for these Policies. In some cases, we currently waive the monthly Policy charge and reduce the surrender charge. The amount of the reduction and the criteria for Group/Sponsored Policies will reflect the reduced sales effort resulting from these sales. Groups or sponsored arrangements which have been set up solely to purchase Group/Sponsored Policies or which have been in existence for less than six months will not qualify. Group/Sponsored Policies may not be available in all states. Group/Sponsored Policies may be subject to special tax rules and consequences and other legal restrictions (see Federal Income Tax Considerations p. 54). Insurance policies where the benefits vary based on gender may not be used to fund certain employer-sponsored benefit plans and fringe benefit programs. Employers should consult tax attorneys before proposing to offer Group/Sponsored Policies. ASSOCIATE POLICIES We offer an Associate Policy to certain employees, field associates, directors and their relatives. An Associate Policy may have reduced or waived premium expense charges, surrender charges, cost of insurance rates, limits on minimum premium and minimum specified amount, or monthly Policy charge. The Associate Policy is available to: -- our current and retired directors, officers, full-time employees and registered representatives, and those of our affiliates; current and retired directors, officers, full-time employees and registered representatives of AFSG and any broker-dealer with which they have a sales agreement; -- any trust, pension, profit-sharing or other employee benefit plan of the foregoing persons or entities; -- current and retired directors, officers, and full-time employees of the AEGON/Transamerica Series Fund, Inc., the IDEX Mutual Funds, and any investment adviser or sub-adviser thereto; and -- any family member of the above. We may modify or terminate this arrangement. Associate Policies may not be available in all states. 44 WRL PROTECTOR PLUS PROGRAM(SM) A WRL Protector Plus Program(SM) Policy differs from a standard Policy in the following ways: -- the initial premium must be at least $10,000, and at least 90% of the maximum allowable premium; -- our administrative and distribution expenses are lower, so we do not assess any premium expense charges; -- the underwriting process is shorter and simpler; -- the cost of insurance charges may be different; -- most WRL Protector Plus Program(SM) Policies will be treated as modified endowment contracts (see Federal Income Tax Considerations p. 54); and -- for Policies issued on and after May 1, 1996, the surrender charge percentage applies for a shorter time (see below). SURRENDER CHARGE PERCENTAGE END OF POLICY YEAR* PERCENTAGE At Issue 100% 1-5 100% 6 80% 7 60% 8 40% 9 0
* The percentage on any date other than a Policy anniversary will be determined proportionately using the percentage at the end of the Policy year prior to surrender and the percentage at the end of the Policy year of surrender. The minimum possible specified amount at issue is the amount that a $10,000 premium will purchase based on the insured's age, gender and rate class, and certain federal tax law guidelines. For a larger premium there will be a larger minimum specified amount. The maximum specified amount depends on the size of the initial premium payment, and is approximately 111% of the lowest possible specified amount for that premium. Due to federal tax laws, the amount of additional premium payments you make may be limited. There are no planned periodic premiums. DEATH BENEFIT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEATH BENEFIT PROCEEDS As long as the Policy is in force, we will pay the death benefit proceeds on an individual Policy once we receive at our office satisfactory proof of the insured's death. We may require return of the Policy. We will pay the death benefit proceeds to the primary beneficiary(ies), if living, or a contingent beneficiary. If each beneficiary dies before the insured and there is no contingent beneficiary, we will pay the death benefit proceeds to the owner or the owner's estate. We will pay the death benefit proceeds in a lump sum or under a payment option. See Payment Options p. 49. 45 DEATH BENEFIT PROCEEDS -- the death benefit (described below); MINUS EQUAL: -- any monthly deductions due during the grace period (if applicable); MINUS -- any outstanding Policy loan amount; PLUS -- any additional insurance in force provided by rider; PLUS -- any interest you paid in advance on the loan(s) for the period between the date of death and the next Policy anniversary.
We may further adjust the amount of the death benefit proceeds if we contest the Policy or if you misstate the insured's age or gender. See Our Right to Contest the Policy p. 58; and Misstatement of Age or Gender p. 59. DEATH BENEFIT The Policy provides a death benefit. The death benefit is determined at the end of the valuation period in which the insured dies. You must select one of the two death benefit options we offer in your application. No matter which death benefit option you choose, we guarantee that, so long as the Policy does not lapse, the death benefit will never be less than the specified amount on the date of the insured's death. DEATH BENEFIT OPTION A -- the current specified amount; OR EQUALS THE GREATER OF: -- a specified percentage called the "limitation percentage," MULTIPLIED BY + the cash value on the insured's date of death.
Under Option A, your death benefit remains level unless the limitation percentage multiplied by the cash value is greater than the specified amount; then the death benefit will vary as the cash value varies. The limitation percentage is the minimum percentage of cash value we must pay as the death benefit under federal tax requirements. It is based on the attained age of the insured at the beginning of each Policy year. The following table indicates the limitation percentages for different ages: ATTAINED AGE LIMITATION PERCENTAGE 40 and under 250% 41 to 45 250% of cash value minus 7% for each age over age 40 46 to 50 215% of cash value minus 6% for each age over age 45 51 to 55 185% of cash value minus 7% for each age over age 50 56 to 60 150% of cash value minus 4% for each age over age 55 61 to 65 130% of cash value minus 2% for each age over age 60 66 to 70 120% of cash value minus 1% for each age over age 65 71 to 75 115% of cash value minus 2% for each age over age 70 76 to 90 105% 91 to 95 105% of cash value minus 1% for each age over age 90 96 and older 100%
If the federal tax code requires us to determine the death benefit by reference to these limitation percentages, the Policy is described as "in the corridor." An increase in the cash 46 value will increase our risk, and we will increase the cost of insurance we deduct from the cash value. Option A Illustration. Assume that the insured's attained age is under 40 and there are no outstanding loans and no withdrawals have been taken. Under Option A, a Policy with a $50,000 specified amount will generally pay $50,000 in death benefits. However, because the death benefit must be equal to or be greater than 250% of cash value, any time the cash value of the Policy exceeds $20,000, the death benefit will exceed the $50,000 specified amount. Each additional dollar added to the cash value above $20,000 will increase the death benefit by $2.50. Similarly, so long as the cash value exceeds $20,000, each dollar taken out of the cash value will reduce the death benefit by $2.50. If at any time the cash value multiplied by the limitation percentage is less than the specified amount, the death benefit will equal the specified amount of the Policy reduced by the dollar value of any cash withdrawals. DEATH BENEFIT OPTION B -- the current specified amount; PLUS EQUALS THE GREATER OF: + the cash value on the insured's date of death; OR -- the limitation percentage, MULTIPLIED BY + the cash value on the insured's date of death.
Under Option B, the death benefit always varies as the cash value varies. Option B Illustration. Assume that the insured's attained age is under 40 and there are no outstanding loans. Under Option B, a Policy with a specified amount of $50,000 will generally pay a death benefit of $50,000 plus cash value. Thus, a Policy with a cash value of $10,000 will have a death benefit of $60,000 ($50,000 + $10,000). The death benefit, however, must be at least 250% of cash value. As a result, if the cash value of the Policy exceeds $33,333, the death benefit will be greater than the specified amount plus cash value. Each additional dollar of cash value above $33,333 will increase the death benefit by $2.50. Similarly, any time cash value exceeds $33,333, each dollar taken out of cash value will reduce the death benefit by $2.50. If at any time, cash value multiplied by the limitation percentage is less than the specified amount plus the cash value, then the death benefit will be the specified amount plus the cash value of the Policy. EFFECT OF CASH WITHDRAWALS ON THE DEATH BENEFIT If you choose Option A, a cash withdrawal will reduce the specified amount by an amount equal to the amount of the cash withdrawal. Regardless of the death benefit option you choose, a cash withdrawal will reduce the death benefit by at least the amount of the withdrawal. CHOOSING DEATH BENEFIT OPTIONS You must choose one death benefit option on your application. This is an important decision. The death benefit option you choose will have an impact on the dollar value of the death benefit, on your cash value and on the amount of cost of insurance charges you pay. 47 You may find Option A more suitable for you if your goal is to increase your cash value through positive investment experience. You may find Option B more suitable if your goal is to increase your total death benefit. CHANGING THE DEATH BENEFIT OPTION After the third Policy year, you may change your death benefit option once each Policy year. -- You must send your written request to our office. -- The effective date of the change will be the Monthiversary on or following the date when we receive your request for a change at our office. -- You may not make a change that would decrease the specified amount below the minimum specified amount stated in your Policy. -- There is no charge for changing your death benefit option. -- There may be adverse federal tax consequences. You should consult your tax advisor before changing your Policy's death benefit option. If you change your death benefit option from Option B to Option A, we will make the specified amount after the change equal to the specified amount prior to the change, plus your Policy's cash value on the effective date of the change. If you change your death benefit option from Option A to Option B, we will make the specified amount after the change equal to the specified amount prior to the change, minus the cash value on the effective date of the change. We will notify you of the new specified amount. CHANGING THE SPECIFIED AMOUNT You may increase or decrease the specified amount, subject to certain conditions. We may limit changes to once each Policy year. A change in specified amount may affect your cost of insurance charge and you may have adverse federal income tax consequences. You should consult your tax advisor before changing your Policy's specified amount. CONDITIONS FOR INCREASING THE -- You may increase the specified amount if: SPECIFIED AMOUNT: + your Policy has been in force for one year; and + the insured is under age 75. -- You must make your request in writing. -- We will require additional evidence of insurability. -- The increase in specified amount must be at least $10,000. -- An increase in specified amount will take effect on the Monthiversary on or after we have approved your request. -- We reserve the right to decline your request. -- You do not need to send an additional premium but you must have sufficient net surrender value to cover the next monthly deduction after the increase becomes effective. -- If you surrender the Policy, we will charge you an additional surrender charge on any increase in specified amount for 15 years after each increase. -- IF YOU INCREASE THE SPECIFIED AMOUNT BUT YOU HAVE NOT PAID SUFFICIENT PREMIUMS TO COVER MONTHLY DEDUCTIONS, YOUR POLICY WILL LAPSE.
48 CONDITIONS FOR DECREASING THE -- You must send your written request to our office. SPECIFIED AMOUNT: -- Your Policy must be in force for three years. -- You may not decrease your specified amount lower than the minimum specified amount stated in your Policy. -- You may not decrease your specified amount if it would disqualify your Policy as life insurance under the Internal Revenue Code. -- We may limit the amount of the decrease to no more than 20% of the specified amount. -- A decrease in specified amount will take effect on the Monthiversary on or after we receive your written request.
PAYMENT OPTIONS There are several ways of receiving proceeds under the death benefit and surrender provisions of the Policy, other than in a lump sum. See Settlement Options p. 60 for information concerning these settlement options. SURRENDERS AND CASH WITHDRAWALS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SURRENDERS You must make a written request containing an original signature to surrender your Policy for its net surrender value as calculated at the end of the valuation date on which we receive your request at our office. The insured must be alive and the Policy must be in force when you make your written request. A surrender is effective as of the date when we receive your written request. The signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. You will incur a surrender charge if you surrender the Policy during the first 15 Policy years and an additional surrender charge for 15 years following each increase in the specified amount (see Charges and Deductions -- Surrender Charge p. 40). Once you surrender your Policy, all coverage and other benefits under it cease and cannot be reinstated. We will normally pay you the net surrender value in a lump sum within seven days or under a settlement option. A surrender may have tax consequences. See Federal Income Tax Considerations p. 54. CASH WITHDRAWALS After the first Policy year, you may request a cash withdrawal of a portion of your cash value subject to certain conditions. 49 CASH WITHDRAWAL -- You must make your cash withdrawal request to us CONDITIONS: in writing and must contain an original signature. -- Signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington. -- We allow only one cash withdrawal per Policy year. -- We may limit the amount you can withdraw to at least $500, and to no more than 10% of the net surrender value. -- You may not take a cash withdrawal if it will reduce the specified amount below the minimum specified amount set forth in the Policy. -- You may specify the subaccount(s) and the fixed account from which to make the withdrawal. If you do not specify an account, we will take the withdrawal from each account in accordance with your current premium allocation instructions. -- We generally will pay a cash withdrawal request within seven days following the valuation date we receive the request at our office. -- We will deduct a processing fee equal to $25 or 2% of the amount you withdraw, whichever is less. We deduct this amount from the withdrawal, and we pay you the balance. -- You may not take a cash withdrawal that would disqualify your Policy as life insurance under the Internal Revenue Code. -- A cash withdrawal may have tax consequences (see Federal Income Tax Considerations p. 54).
A cash withdrawal will reduce the cash value by the amount of the cash withdrawal, and will reduce the death benefit by at least the amount of the cash withdrawal. When death benefit Option A is in effect, a cash withdrawal will reduce the specified amount by an amount equal to the amount of the cash withdrawal. When we incur extraordinary expenses, such as overnight mail expenses or wire service fees, for expediting delivery of your partial withdrawal or complete surrender payment, we will deduct that charge from the payment. We charge $20 for an overnight delivery ($30 for Saturday delivery) and $25 for wire service. LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL After the first Policy year (as long as the Policy is in force), you may borrow money from us using the Policy as the only security for the loan. We may permit a loan prior to the first anniversary for Policies issued pursuant to 1035 Exchanges. A loan that is taken from, or secured by, a Policy may have tax consequences. See Federal Income Tax Considerations p. 54. 50 POLICY LOANS ARE SUBJECT TO -- we may require you to borrow at least $500; CERTAIN CONDITIONS: -- the maximum amount you may borrow is 90% of the cash value, less any surrender charge and any outstanding loan amount; and -- signature of the owner's spouse is required if the owner is a resident of: California, Nevada or Washington.
When you take a loan, we will withdraw an amount equal to the requested loan plus interest in advance until the next Policy anniversary from each of the subaccounts and the fixed account based on your current premium allocation instructions (unless you specify otherwise). We will transfer that amount to the loan reserve. The loan reserve is the portion of the fixed account used as collateral for a Policy loan. We normally pay the amount of the loan within seven days after we receive a proper loan request at our office. We may postpone payment of loans under certain conditions. See Payments We Make p. 60. You may request a loan by telephone by calling us at 1-800-851-9777, extension 6539 Monday-Friday 8:00 a.m.-8:00 p.m. Eastern time. If the loan amount you request exceeds $50,000 or if the address of record has been changed within the past 10 days, we may reject your request. If you do not want the ability to request a loan by telephone, you should notify us in writing at our office. You will be required to provide certain information for identification purposes when you request a loan by telephone. We may ask you to provide us with written confirmation of your request. We will not be liable for processing any loan request if we believe the request is genuine. You may also fax your loan request to us at 727-299-1667. We will not be responsible for any transmittal problems when you fax your request unless you report it to us within five business days and send us proof of your fax transmittal. You can repay a loan at any time while the Policy is in force. WE WILL CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY TO BE PREMIUM PAYMENTS UNLESS THE PAYMENTS ARE CLEARLY SPECIFIED AS LOAN REPAYMENTS. At each Policy anniversary, we will compare the amount of the outstanding loan to the amount in the loan reserve. We will also make this comparison any time you repay all or part of the loan, or make a request to borrow an additional amount. At each such time, if the amount of the outstanding loan exceeds the amount in the loan reserve, we will withdraw the difference from the subaccounts and the fixed account and transfer it to the loan reserve, in the same manner as when a loan is made. If the amount in the loan reserve exceeds the amount of the outstanding loan, we will withdraw the difference from the loan reserve and transfer it to the subaccounts and the fixed account in the same manner as current premiums are allocated. No charge will be imposed for these transfers, and these transfers are not treated as transfers in calculating the transfer charge. We reserve the right to require a transfer to the fixed account if the loans were originally transferred from the fixed account. INTEREST RATE CHARGED For Policies issued on or after May 1, 1994,* we will charge you an annual interest rate on a Policy loan that is equal to 5.2% and is payable annually in advance. Loan interest that is 51 unpaid when due will be added to the amount of the loan on each Policy anniversary and will bear interest at the same rate. * For Policies issued before May 1, 1994, we charge you an annual interest rate of 7.4%. For the following states, the annual interest rate on a Policy loan is 7.4% for all Policies issued before, and 5.2% for all Policies issued on or after, the dates indicated: Idaho -- May 24, 1994; Montana -- May 20, 1994; Rhode Island -- May 19, 1994; Oregon -- June 27, 1994; Minnesota -- December 28, 1994; Vermont -- February 21, 1996; Puerto Rico -- April 18, 1997; New Jersey -- April 13, 1995; District of Columbia -- November 23, 1998; and Guam -- February 11, 1998. LOAN RESERVE INTEREST RATE CREDITED We will credit the amount in the loan reserve with interest at an effective annual rate of at least 4.0%. We may credit a higher rate, but we are not obligated to do so. -- We currently credit interest at an effective annual rate of 4.75%* on amounts you borrow during the first ten Policy years. -- After the tenth Policy year, on all amounts that you have borrowed, we currently credit interest to part of the cash value in excess of the premiums paid less withdrawals at an interest rate equal to the interest rate we charge on the total loan. The remaining portion, equal to the cost basis, is currently credited 4.75%*. * For Policies issued on or after May 1, 1994. For Policies issued before that date, we credit interest at the following annual effective rates: 6.0% for Policies issued before May 1, 1988; and 6.75% for Policies issued on or after May 1, 1988 but before May 1, 1994. EFFECT OF POLICY LOANS A Policy loan reduces the death benefit proceeds and net surrender value by the amount of any outstanding loan. Repaying the loan causes the death benefit proceeds and net surrender value to increase by the amount of the repayment. As long as a loan is outstanding, we hold an amount equal to the loan plus interest charged in advance until the next Policy anniversary in the loan reserve. This amount is not affected by the separate account's investment performance and may not be credited with the interest rates accruing on the fixed account. Amounts transferred from the separate account to the loan reserve will affect the value in the separate account because we credit such amounts with an interest rate declared by us rather than a rate of return reflecting the investment results of the separate account. There are risks involved in taking a Policy loan, including the potential for a Policy to lapse if projected earnings, taking into account outstanding loans, are not achieved. A Policy loan may also have possible adverse tax consequences. You should consult a tax advisor before taking out a Policy loan (see Federal Income Tax Considerations p. 54). We will notify you (and any assignee of record) if the sum of your loans plus any interest you owe on the loans is more than the net surrender value. If you do not submit a sufficient payment within 61 days from the date of the notice, your Policy may lapse. 52 POLICY LAPSE AND REINSTATEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LAPSE Your Policy may not necessarily lapse (terminate without value) if you fail to make a planned periodic payment. However, even if you make all your planned periodic payments, there is no guarantee that your Policy will not lapse. This Policy provides a no lapse period. See below. Once your no lapse period ends, your Policy may lapse (terminate without value) if the net surrender value on any Monthiversary is less than the monthly deductions due on that day. Such lapse might occur if unfavorable investment experience, loans and cash withdrawals cause a decrease in the net surrender value, or if you have not paid sufficient premiums as discussed below to offset the monthly deductions. If the net surrender value is not enough to pay the monthly deductions, we will mail a notice to your last known address and any assignee of record. The notice will specify the minimum payment you must pay and the final date by which we must receive the payment to prevent a lapse. We generally require that you make the payment within 61 days after the date of the notice. This 61-day period is called the GRACE PERIOD. If we do not receive the specified minimum payment by the end of the grace period, all coverage under the Policy will terminate without value. NO LAPSE PERIOD This Policy provides a no lapse period. As long as you keep the no lapse period in effect, your Policy will not lapse and no grace period will begin. Even if your net surrender value is not enough to pay your monthly deduction, the Policy will not lapse so long as the no lapse period is in effect. The no lapse period will not extend beyond the no lapse date stated in your Policy. Each month we determine whether the no lapse period is still in effect. NO LAPSE DATE -- For a Policy issued to any insured ages 0-55, the no lapse date is ten years. -- For a Policy issued to an insured ages 56-75, the no lapse date is the fifth Policy anniversary. -- The no lapse date is specified in your Policy. EARLY TERMINATION OF THE NO LAPSE -- The no lapse period coverage will end immediately PERIOD if you: + increase the specified amount; + add any riders; or + do not pay sufficient minimum monthly guarantee premiums. -- You must pay total premiums (minus withdrawals and outstanding loan amounts,) that equal at least: + your minimum monthly guarantee premium (shown in your Policy), MULTIPLIED BY + the number of months since the Policy date (including the current month).
You will lessen the risk of Policy lapse if you keep the no lapse period in effect. Before you take a cash withdrawal or a loan, increase the specified amount or add a rider, you should 53 consider carefully the effect it will have on the no lapse period guarantee. See Minimum Monthly Guarantee Premium p. 28. If you increase the specified amount or add a rider after the Policy date, your no lapse period will end immediately. If increasing the specified amount or adding a rider would cause your Policy to lapse, we will notify you that the grace period has started. New Jersey residents: If the grace period begins during the first three Policy years, the payment necessary to keep the Policy in force is the lesser of the amount necessary to (1) satisfy the minimum monthly guarantee premium; or (2) increase the net surrender value to cover the monthly deduction due. REINSTATEMENT We will reinstate a lapsed Policy if within five years after the lapse (and prior to the maturity date). To reinstate the Policy you must: -- submit a written application for reinstatement; -- provide evidence of insurability satisfactory to us; -- make a minimum premium payment sufficient to provide a net premium that is large enough to cover: + three monthly deductions; and + any surrender charge calculated from the Policy date to the date of reinstatement. (Although we do not currently assess this charge, we reserve the right to do so in the future.) We will not reinstate any indebtedness. The cash value of the loan reserve on the reinstatement date will be zero. Your net surrender value on the reinstatement date will equal the net premiums you pay at reinstatement, MINUS one monthly deduction and any surrender charge. The reinstatement date for your Policy will be the Monthiversary on or following the day we approve your application for reinstatement. We may decline a request for reinstatement. FEDERAL INCOME TAX CONSIDERATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summarizes some of the basic federal income tax considerations associated with a Policy and does not purport to be complete or to cover all situations. This discussion is not intended as tax advice. Please consult counsel or other qualified tax advisors for more complete information. We base this discussion on our understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service (the "IRS"). Federal income tax laws and the current interpretations by the IRS may change. TAX STATUS OF THE POLICY A Policy must satisfy certain requirements set forth in the Internal Revenue Code (the "Code") in order to qualify as a life insurance policy for federal income tax purposes and to receive the tax treatment normally accorded life insurance policies under federal tax law. Guidance as to how these requirements are to be applied is limited. Nevertheless, we believe that a Policy issued on the basis of a standard rate class should generally satisfy the applicable 54 Code requirements. Because of the absence of pertinent interpretations of the Code requirements, there is, however, less certainty about the application of such requirements to a Policy issued on a substandard basis. If it is subsequently determined that a Policy does not satisfy the applicable requirements, we may take appropriate steps to bring the Policy into compliance with such requirements and we reserve the right to restrict Policy transactions in order to do so. In certain circumstances, owners of variable life insurance policies have been considered for federal income tax purposes to be the owners of the assets of the separate account supporting their policies due to their ability to exercise investment control over those assets. Where this is the case, the policyowners have been currently taxed on income and gains attributable to the separate account assets. There is little guidance in this area, and some features of the Policies, such as your flexibility to allocate premiums and cash values, have not been explicitly addressed in published rulings. While we believe that the Policy does not give you investment control over separate account assets, we reserve the right to modify the Policy as necessary to prevent you from being treated as the owner of the separate account assets supporting the Policy. In addition, the Code requires that the investments of the separate account be "adequately diversified" in order to treat the Policy as a life insurance policy for federal income tax purposes. We intend that the separate account, through the portfolios, will satisfy these diversification requirements. The following discussion assumes that the Policy will qualify as a life insurance policy for federal income tax purposes. TAX TREATMENT OF POLICY BENEFITS In General. We believe that the death benefit under a Policy should be excludable from the beneficiary's gross income. Federal, state and local transfer, estate and other tax consequences of ownership or receipt of Policy proceeds depend on your circumstances and the beneficiary's circumstances. A tax advisor should be consulted on these consequences. Generally, you will not be deemed to be in constructive receipt of the cash value until there is a distribution. When distributions from a Policy occur, or when loans are taken out from or secured by a Policy (e.g., by assignment), the tax consequences depend on whether the Policy is classified as a "Modified Endowment Contract" ("MEC"). Modified Endowment Contracts. Under the Code, certain life insurance policies are classified as MECs and receive less favorable tax treatment than other life insurance policies. The rules are too complex to summarize here, but generally depend on the amount of premiums paid during the first seven Policy years. Certain changes in the Policy after it is issued could also cause the Policy to be classified as a MEC. Due to the Policy's flexibility, each Policy's circumstances will determine whether the Policy is classified as a MEC. Among other things, a reduction in benefits could cause a Policy to become a MEC. A WRL Protector Plus Program(SM) Policy (discussed on p. 45) will in most instances be treated as a MEC, however. If you do not want your Policy to be classified as a MEC, you should consult a tax advisor to determine the circumstances, if any, under which your Policy would or would not be classified as a MEC. 55 Upon issue of your Policy, we will notify you as to whether or not your Policy is classified as a MEC based on the initial premium we receive. If your Policy is not a MEC at issue, then you will also be notified of the maximum amount of additional premiums you can pay without causing your Policy to be classified as a MEC. If a payment would cause your Policy to become a MEC, you and your agent will be notified immediately. At that time, you will need to notify us if you want to continue your Policy as a MEC. If you notify us that you do not want to continue your Policy as a MEC, we will refund the amount of the excess premium that caused the Policy to become a MEC as of the date we receive the notice. Distributions (other than Death Benefits) from MECs. Policies classified as MECs are subject to the following tax rules: -- All distributions other than death benefits from a MEC, including distributions upon surrender and cash withdrawals, will be treated first as distributions of gain taxable as ordinary income. They will be treated as tax-free recovery of the owner's investment in the Policy only after all gain has been distributed. Your investment in the Policy is generally your total premium payments. When a distribution is taken from the Policy, your investment in the Policy is reduced by the amount of the distribution that is tax-free. -- Loans taken from or secured by (e.g., by assignment) such a Policy are treated as distributions and taxed accordingly. -- A 10% additional federal income tax is imposed on the amount included in income except where the distribution or loan is made when you have attained age 59 1/2 or are disabled, or where the distribution is part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and the beneficiary. -- If a Policy becomes a MEC, distributions that occur during the Policy year will be taxed as distributions from a MEC. In addition, distributions from a Policy within two years before it becomes a MEC will be taxed in this manner. This means that a distribution from a Policy that is not a MEC at the time when the distribution is made could later become taxable as a distribution from a MEC. Distributions (other than Death Benefits) from Policies that are not MECs. Distributions from a Policy that is not a MEC are generally treated first as a recovery of your investment in the Policy, and as taxable income after the recovery of all investment in the Policy. However, certain distributions which must be made in order to enable the Policy to continue to qualify as a life insurance policy for federal income tax purposes if Policy benefits are reduced during the first 15 Policy years may be treated in whole or in part as ordinary income subject to tax. Loans from or secured by a Policy that is not a MEC are generally not treated as distributions. Instead, such loans are treated as indebtedness. However, the tax consequences associated with Policy loans that are outstanding after the first 10 Policy years are less clear and a tax advisor should be consulted about such loans. Finally, distributions from or loans from or secured by a Policy that is not a MEC are not subject to the 10% additional tax. 56 Multiple Policies. All MECs that we issue (or that our affiliates issue) to the same owner during any calendar year are treated as one MEC for purposes of determining the amount includable in the owner's income when a taxable distribution occurs. Withholding. To the extent that Policy distributions are taxable, they are generally subject to withholding for the recipient's federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. Investment in the Policy. Your investment in the Policy is generally the sum of the premium payments you made. When a distribution from the Policy occurs, your investment in the Policy is reduced by the amount of the distribution that is tax-free. Policy Loans. If a loan from a Policy is outstanding when the Policy is canceled or lapses, or if a loan is taken out and the Policy is a MEC, then the amount of the outstanding indebtedness will be taxed as if it were a distribution. Deductibility of Policy Loan Interest. In general, interest you pay on a loan from a Policy will not be deductible. Before taking out a Policy loan, you should consult a tax advisor as to the tax consequences. Business Uses of the Policy. The Policy may be used in various arrangements, including nonqualified deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans and business uses of the Policy may vary depending on the particular facts and circumstances of each individual arrangement and business uses of the Policy. Therefore, if you are contemplating using the Policy in any arrangement the value of which depends in part on its tax consequences, you should be sure to consult a tax advisor as to tax attributes of the arrangement. In recent years, moreover, Congress has adopted new rules relating to life insurance owned by businesses and the IRS has recently issued new guidelines on split-dollar arrangements. Any business contemplating the purchase of a new Policy or a change in an existing Policy should consult a tax advisor. Alternative Minimum Tax. There also may be an indirect tax upon the income in the Policy or the proceeds of a Policy under the federal corporate alternative minimum tax, if the policyowner is subject to that tax. Terminal Illness Accelerated Death Benefit Rider. We believe that the single-sum payment we make under this rider should be fully excludable from the gross income of the beneficiary, except in certain business contexts. You should consult a tax advisor about the consequences of adding this rider to your Policy, or requesting a single-sum payment. Other Tax Considerations. The transfer of the Policy or designation of a beneficiary may have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate, and generation-skipping transfer taxes. The individual situation of each owner or beneficiary will determine the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how ownership or receipt of Policy proceeds will be treated for purposes of federal, state and local estate, inheritance, generation-skipping and other taxes. Possible Tax Law Changes. Although the likelihood of legislative changes is uncertain, there is always a possibility that the tax treatment of the Policies could change by legislation 57 or otherwise. You should consult a tax advisor with respect to legal developments and their effect on the Policy. SPECIAL RULES FOR 403(B) ARRANGEMENTS If this Policy is purchased by public school systems and certain tax-exempt organizations for their employees, then the federal, state and estate tax consequences could differ from those stated in the prospectus. A competent tax advisor should be consulted in connection with such purchase. Certain restrictions apply. The Policy must be purchased in connection with a tax-sheltered annuity described in section 403(b) of the Code. Premiums, distributions, and other transactions in connection with the Policy must be administered in coordination with the section 403(b) annuity. The amount of life insurance that may be purchased on behalf of a participant in a 403(b) plan is limited. The current cost of insurance for the net amount at risk is treated under the Code as a "current fringe benefit" and must be included annually in the plan participant's gross income. This cost (generally referred to as the "P.S. 58" cost) is reported to the participant annually. If the plan participant dies while covered by the 403(b) plan and the Policy proceeds are paid to the participant's beneficiary, then the excess of the death benefit over the cash value will generally not be taxable. However, the cash value will generally be taxable to the extent it exceeds the participant's cost basis in the Policy. Policies owned under these types of plans may be subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), which may impose additional requirements of Policy loans and other Policy provisions. Plan loans must also satisfy tax requirements in order to be treated as non-taxable. Plan loan requirements and provisions may differ from the Policy loan provisions stated in the prospectus. You should consult a qualified advisor regarding ERISA. OTHER POLICY INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OUR RIGHT TO CONTEST THE POLICY In issuing this Policy, we rely on all statements made by or for the insured in the application or in a supplemental application. Therefore, if you make any material misrepresentation of a fact in the application (or any supplemental application), then we may contest the Policy's validity or may resist a claim under the Policy. In the absence of fraud, we cannot bring any legal action to contest the validity of the Policy after the Policy has been in force during the insured's lifetime for two years from the Policy date, or if reinstated, for two years from the date of reinstatement. SUICIDE EXCLUSION If the insured commits suicide, while sane or insane, within two years of the Policy date (or two years from the reinstatement date; if the Policy lapses and is reinstated), the Policy 58 will terminate and our liability is limited to an amount equal to the premiums paid, less any outstanding loans, and less any cash withdrawals. We will pay this amount to the beneficiary in one sum. MISSTATEMENT OF AGE OR GENDER If the age or gender of the insured was stated incorrectly in the application or any supplemental application, then the death benefit will be adjusted based on what the cost of insurance charge for the most recent monthly deduction would have purchased based on the insured's correct age and gender. MODIFYING THE POLICY Only our President or Secretary may modify this Policy or waive any of our rights or requirements under this Policy. Any modification or waiver must be in writing. No agent may bind us by making any promise not contained in this Policy. If we modify the Policy, we will provide you notice and we will make appropriate endorsements to the Policy. BENEFITS AT MATURITY If the insured is living and the Policy is in force, the Policy will mature on the Policy anniversary nearest the insured's 95th birthday. This is the maturity date. On the maturity date we will pay you the net surrender value of your Policy. If your Policy was issued before May 1, 1999, and you send a written request to our office, we may extend the maturity date if your Policy is still in force on the maturity date and there are no adverse tax consequences in doing so. You must submit a written request for the extension to our office between 90 and 180 days prior to the maturity date. We must agree to the extension. If your Policy was issued after May 1, 1999, and you send a written request to our office, we will extend the maturity date if your Policy is still in force on the maturity date. Any riders in force on the scheduled maturity date will terminate on that date and will not be extended. Interest on any outstanding Policy loans will continue to accrue during the period for which the maturity date is extended. You must submit a written request for the extension to our office between 90 and 180 days prior to the maturity date and elect one of the following: 1. If you had previously selected death benefit Option B, we will change the death benefit to Option A. On each valuation date, we will adjust the specified amount to equal the cash value, and the limitation percentage will be 100%. We will not permit you to make additional premium payments unless it is required to prevent the Policy from lapsing. We will waive all future monthly deductions; or 2. We will automatically extend the maturity date until the next Policy anniversary. You must submit a written request to our office, between 90 and 180 days before each subsequent Policy anniversary, stating that you wish to extend the maturity date for another Policy year. All benefits and charges will continue as set forth in your Policy. We will adjust the annual cost of insurance rates using the then current cost of insurance rates. 59 If you choose 2 above, you may change your election to 1 above at any time. However, if you choose 1 above, then you may not change your election to 2 above. The tax consequences of extending the maturity date beyond the 100th birthday of the insured are uncertain. You should consult a tax advisor as to those consequences. PAYMENTS WE MAKE We usually pay the amounts of any surrender, cash withdrawal, death benefit proceeds, or settlement options within seven business days after we receive all applicable written notices and/or due proofs of death at our office. However, we can postpone such payments if: -- the NYSE is closed, other than customary weekend and holiday closing, or trading on the NYSE is restricted as determined by the SEC; OR -- the SEC permits, by an order, the postponement for the protection of policyowners; OR -- the SEC determines that an emergency exists that would make the disposal of securities held in the separate account or the determination of their value not reasonably practicable. If you have submitted a recent check or draft, we have the right to defer payment of surrenders, cash withdrawals, death benefit proceeds, or payments under a settlement option until such check or draft has been honored. We also reserve the right to defer payment of transfers, cash withdrawals, death benefit proceeds, or surrenders from the fixed account for up to six months. If mandated under applicable law, we may be required to reject a premium payment and/or block a policyowner's account and thereby refuse to pay any request for transfers, withdrawals, surrenders, loans or death benefits until instructions are received from the appropriate regulators. SETTLEMENT OPTIONS If you surrender the Policy, you may elect to receive the net surrender value in either a lump sum or as a series of regular income payments under one of the three settlement options described below. In either event, life insurance coverage ends. Also, when the insured dies, the beneficiary may apply the lump sum death benefit proceeds to one of the same settlement options. If the regular payment under a settlement option would be less than $20, we will instead pay the proceeds in one lump sum. We may make other settlement options available in the future. Once we begin making payments under a settlement option, you or the beneficiary will no longer have any value in the subaccounts or the fixed account. Instead, the only entitlement will be the amount of the regular payment for the period selected under the terms of the settlement option chosen. Depending upon the circumstances, the effective date of a settlement option is the surrender date or the insured's date of death. 60 Under any settlement option, the dollar amount of each payment will depend on four things: -- the amount of the surrender on the surrender date or death benefit proceeds on the insured's date of death; -- the interest rate we credit on those amounts (we guarantee a minimum annual interest rate of 4.0%); -- the mortality tables we use; and -- the specific payment option(s) you choose. OPTION 1 -- EQUAL MONTHLY -- We will pay the proceeds, plus interest, in equal INSTALLMENTS FOR A FIXED PERIOD monthly installments for a fixed period of your choice, but not longer than 360 months. -- We will stop making payments once we have made all the payments for the period selected. At your or the beneficiary's direction, we will make OPTION 2 -- EQUAL MONTHLY equal monthly installments: INSTALLMENTS FOR LIFE (LIFE INCOME) -- only for the life of the payee, at the end of which payments will end; or -- for the longer of the payee's life, or for 5 or 10 years if the payee dies before the end of the first 5 or 10 years of payments (you may select either a 5 or 10 year payment period); or -- for the longer of the payee's life, or until the total amount of all payments we have made equals the proceeds that were applied to the settlement option. -- We will make equal monthly payments during the OPTION 3 -- EQUAL MONTHLY joint lifetime of two persons, first to a chosen payee, INSTALLMENTS FOR THE LIFE OF THE and then to a co-payee, if living, upon the death PAYEE AND THEN TO A DESIGNATED of the payee. SURVIVOR (JOINT AND SURVIVOR) -- Payments to the co-payee, if living, upon the payee's death will equal either: + the full amount made to the payee before the payee's death; or + two-thirds of the amount paid to the payee before the payee's death. -- All payments will cease upon the death of the co-payee.
REPORTS TO OWNERS At least once each year, or more often as required by law, we will mail to policyowners at their last known address a report showing the following information as of the end of the report period: ++ the current cash value ++ any activity since the last ++ the current net surrender report value ++ projected values ++ the current death benefit ++ investment experience of ++ any outstanding loans each subaccount ++ any other information required by law
61 You may request additional copies of reports, but we may charge a fee for such additional copies. In addition, we will send written confirmations of any premium payments and other financial transactions you request including: changes in specified amount, changes in death benefit option, transfers, partial withdrawals, increases in loan amount, loan interest payments, loan repayments, lapses and reinstatements. We also will send copies of the annual and semi-annual report to shareholders for each portfolio in which you are indirectly invested. RECORDS We will maintain all records relating to the separate account and the fixed account. POLICY TERMINATION Your Policy will terminate on the earliest of: -- the maturity date; -- the end of the grace period; or -- the date the insured dies; -- the date the Policy is surrendered.
SUPPLEMENTAL BENEFITS (RIDERS) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following supplemental benefits (riders) are available and may be added to a Policy. Monthly charges for these riders are deducted from cash value as part of the monthly deduction. The riders available with the Policies provide fixed benefits that do not vary with the investment experience of the separate account. For purposes of the riders, the primary insured is the person insured under the Policy, and the face amount is the level term insurance amount we pay at death. These riders may not be available in all states. Adding these supplemental benefits to an existing Policy or canceling them may have tax consequences and you should consult a tax advisor before doing so. CHILDREN'S INSURANCE RIDER This rider provides a face amount on the primary insured's children. Our current minimum face amount for this rider for issue ages 0-18 is $2,000. The maximum face amount is $10,000. At the age of 25 or upon the death of the primary insured, whichever happens first, this rider may be converted to a new policy with a maximum face amount of up to five times the face amount of the rider. We will pay a death benefit once we receive proof at our office that the insured child died while both the rider and coverage were in force for that child. If the primary insured dies while the rider is in force, we will terminate the rider 31 days after the death, and we will offer a separate life insurance policy to each insured child. ACCIDENTAL DEATH BENEFIT RIDER Our current minimum face amount for this rider for issue ages 15-59 is $10,000. The maximum face amount available for this rider is $150,000 (up to 150% of specified amount). 62 Subject to certain limitations, we will pay a face amount if the primary insured's death results solely from accidental bodily injury where: -- the death is caused by external, violent, and accidental means; -- the death occurs within 90 days of the accident; and -- the death occurs while the rider is in force. The rider will terminate on the earliest of: -- the Policy anniversary nearest the primary insured's 70th birthday; -- the date the Policy terminates; or -- the Monthiversary when the rider terminates at the owner's request. OTHER INSURED RIDER This rider insures the spouse or life partner and/or dependent children of the primary insured. We will pay the rider's face amount when we receive proof at our office of the other insured's death. On any Monthiversary while the rider is in force, you may convert it to a new policy on the other insured's life (without evidence of insurability). CONDITIONS TO CONVERT THE RIDER: -- your request must be in writing and sent to our office; -- the rider has not reached the anniversary nearest to the other insured's 80th birthday; -- the new policy is any permanent insurance policy that we currently offer; -- subject to the minimum specified amount required for the new policy, the amount of the insurance under the new policy will equal the face amount in force under the rider as long as it meets the minimum face amount requirements of the original Policy; and -- we will base your premium on the other insured's rate class under the rider. TERMINATION OF THE RIDER: The rider will terminate on the earliest of: -- the maturity date of the Policy; -- the anniversary nearest to the other insured's 100th birthday; -- the date the Policy terminates for any reason except for death of the primary insured; -- 31 days after the death of the primary insured; -- the date of conversion of this rider; or -- the Monthiversary on which the rider is terminated on written request by the owner.
DISABILITY WAIVER RIDER Subject to certain conditions, we will waive the Policy's monthly deductions while you are disabled. This rider may be purchased if your issue age is 15-55 years of age. We must receive proof that: -- you are totally disabled; -- the rider was in force when you became disabled; 63 -- you became disabled before the anniversary nearest your 60th birthday; and -- you are continuously disabled for at least six months. We will not waive any deduction which becomes due more than one year before we receive written notice of your claim. DISABILITY WAIVER AND INCOME RIDER This rider has the same benefits as the Disability Waiver Rider, but adds a monthly income benefit for up to 120 months. This rider may be purchased if your issue age is 15-55 years of age. The minimum income amount for this rider is $10. The maximum income amount is the lesser of 0.2% of your specified amount or $300 per month. PRIMARY INSURED RIDER ("PIR") AND PRIMARY INSURED RIDER PLUS ("PIR PLUS") Under the PIR and the PIR Plus, we provide term insurance coverage on a different basis from the coverage in your Policy. FEATURES OF PIR AND PIR PLUS: -- the rider increases the Policy's death benefit by the rider's face amount; -- the PIR may be purchased from issue ages 0-70; -- the PIR Plus may be purchased from issue ages 18-70; -- the PIR terminates when the insured turns 90, and the PIR Plus terminates when the insured turns 85; -- the minimum purchase amount for the PIR and PIR Plus is $25,000. There is no maximum purchase amount; -- we do not assess any additional surrender charge for PIR and PIR Plus; -- generally PIR and PIR Plus coverage costs less than the insurance coverage under the Policy, but has no cash value; -- you may cancel or reduce your rider coverage without decreasing your Policy's specified amount; and -- you may generally decrease your specified amount without reducing your rider coverage. CONDITIONS TO CONVERT THE RIDER: -- your request must be in writing and sent to our office; -- the rider has not reached the anniversary nearest to the primary insured's 70th birthday; -- the new policy is any permanent insurance policy that we currently offer; -- subject to the minimum specified amount required for the new policy, the amount of the insurance under the new policy will equal the specified amount in force under the rider as long as it meets the minimum specified amount requirements of a Base Policy; and -- we will base your premium on the primary insured's rate class under the rider.
It may cost you less to reduce your PIR or PIR Plus coverage than to decrease your Policy's specified amount, because we do not deduct a surrender charge in connection with your PIR or PIR Plus. It may cost you more to keep a higher specified amount, because the 64 specified amount may have a cost of insurance that is higher than the cost of the same amount of coverage under your PIR or PIR Plus. You should consult your registered representative to determine if you would benefit from PIR or PIR Plus. We may discontinue offering PIR or PIR Plus at any time. We may also modify the terms of these riders for new policies. TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER This rider allows us to pay all or a portion of the death benefit once we receive satisfactory proof at our office that the insured is ill and has a life expectancy of one year or less. A doctor must certify the insured's life expectancy. We will pay a "single-sum benefit" equal to: -- the death benefit on the date we pay the single-sum benefit; MULTIPLIED BY -- the election percentage of the death benefit you elect to receive; DIVIDED BY -- 1 + i ("i" equals the current yield on 90-day Treasury bills or the Policy loan interest rate, whichever is greater); MINUS -- any indebtedness at the time we pay the single-sum benefit, multiplied by the election percentage. The maximum terminal illness death benefit used to determine the single-sum benefit as defined above is equal to: -- the death benefit available under the Policy once we receive satisfactory proof that the insured is ill; PLUS -- the benefit available under any PIR or PIR Plus in force. -- a single-sum benefit may not be greater than $500,000. The election percentage is a percentage that you select. It may not be greater than 100% of your Policy's death benefit under the rider. We will not pay a benefit under the rider if the insured's terminal condition results from self-inflicted injuries which occur during the period specified in your Policy's suicide provision. The rider terminates at the earliest of: -- the date the Policy terminates; -- the date a settlement option takes effect; -- the date we pay a single-sum benefit; or -- the date you terminate the rider. We do not charge for this rider. This rider may not be available in all states, or its terms may vary depending on a state's insurance law requirements. The tax consequences of adding this rider to an existing Policy or requesting payment under the rider are uncertain and you should consult a tax advisor before doing so. 65 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, long-term care insurance and annuity products. Through its Principles and Code of Ethical Market Conduct, IMSA encourages its member companies to develop and implement policies and procedures to promote sound market practices. 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. You may find more information about IMSA and its ethical standards at www.imsaethics.org in the "Consumer" section or by contacting IMSA at 202-624-2121. PERFORMANCE DATA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATES OF RETURN The average rates of return in Table 1 reflect each subaccount's actual investment performance. The Table shows the historical investment experience of the subaccounts based on the subaccounts' historical investment experience. We do not show performance for subaccounts in operation for less than six months. This information does not represent or project future investment performance. Some portfolios began operation before their corresponding subaccount. For these portfolios, we have included in Table 2 below adjusted portfolio performance from the portfolio's inception date. The adjusted portfolio performance is designed to show the performance that would have resulted if the subaccount had been in operation during the time the portfolio was in operation. The numbers reflect the annual mortality and expense risk charge, investment management fees and direct fund expenses. These rates of return do not reflect other charges that are deducted under the Policy or from the separate account (such as the premium expense charge, monthly deduction or the surrender charge). IF THESE CHARGES WERE DEDUCTED, PERFORMANCE WOULD BE SIGNIFICANTLY LOWER. These rates of return are not estimates, projections or guarantees of future performance. We also show below comparable figures for the unmanaged Standard & Poor's Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market performance. The S&P 500 does not reflect any deduction for the expenses of operating and managing an investment portfolio. 66 TABLE 1 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 2001
10 YEARS SUBACCOUNT OR INCEPTION SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE - ---------- ------ ------- ------- --------- ---------- WRL Van Kampen Emerging Growth............. (33.83)% 5.50% 13.98% 16.15% 03/01/93 WRL T. Rowe Price Small Cap................ (10.52)% N/A N/A (0.03)% 07/01/99 WRL PBHG Mid Cap Growth.................... (36.50)% N/A N/A (5.81)% 07/01/99 WRL Alger Aggressive Growth................ (17.20)% (1.91)% 11.36% 12.47% 03/01/94 WRL Third Avenue Value..................... 5.22% 17.44% N/A 10.60% 01/02/98 WRL Value Line Aggressive Growth........... (11.21)% N/A N/A (12.72)% 05/01/00 WRL American Century International......... (24.12)% (7.50)% N/A (1.17)% 01/02/97 WRL Janus Global(1)........................ (23.53)% 1.94% 9.94% 14.24% 03/01/94 WRL Great Companies -- Technology(SM)...... (37.51)% N/A N/A (40.66)% 05/01/00 WRL Janus Growth+.......................... (28.85)% (7.45)% 8.52% 9.31% 10/02/86 WRL Goldman Sachs Growth................... (14.86)% N/A N/A (5.14)% 07/01/99 WRL GE U.S. Equity......................... (9.69)% 1.37% N/A 9.82% 01/02/97 WRL Great Companies -- America(SM(4)....... (12.98)% N/A N/A (0.95)% 05/01/00 WRL Salomon All Cap........................ 1.18% N/A N/A 10.01% 07/01/99 WRL Dreyfus Mid Cap........................ (4.80)% N/A N/A 2.96% 07/01/99 WRL PBHG/NWQ Value Select.................. (2.68)% 5.92% 6.80% 8.20% 05/01/96 WRL T. Rowe Price Dividend Growth.......... (5.02)% N/A N/A (2.00)% 07/01/99 WRL Transamerica Value Balanced(5)......... 1.54% 3.32% 6.47% 9.16% 01/03/95 WRL LKCM Strategic Total Return............ (3.06)% 0.88% 6.14% 8.79% 03/01/93 WRL Clarion Real Estate Securities......... 10.06% 10.47% N/A 3.63% 05/01/98 WRL Federated Growth & Income.............. 14.67% 11.59% 11.88% 11.09% 03/01/94 WRL AEGON Bond+............................ 7.11% 4.22% 5.82% 5.81% 10/02/86 WRL Transamerica Money Market(2)+.......... 3.05% 3.98% 4.11% 3.52% 10/02/86 WRL Gabelli Global Growth.................. (10.92)% N/A N/A (14.78)% 09/01/00 WRL Great Companies -- Global(2)........... (17.58)% N/A N/A (23.36)% 09/01/00 WRL LKCM Capital Growth(3)................. N/A N/A N/A (35.70)% 02/05/01 WRL Munder Net50........................... (26.09)% N/A N/A (8.62)% 07/01/99 VIP Equity-Income Portfolio................ (6.07)% N/A N/A (1.93)% 05/01/00 VIP Contrafund(R) Portfolio................ (13.25)% N/A N/A (11.60)% 05/01/00 VIP Growth Opportunities Portfolio......... (15.40)% N/A N/A (17.56)% 05/01/00 S&P 500+................................... (11.89)% (1.03)% 10.70% 12.94% 10/02/86
+ Shows ten year performance. (1)Effective September 1, 2000, this subaccount was no longer available to new investors. (2)The current yield, which is for the seven day period ended 12/31/01, more closely reflects the current earnings of the subaccount than the total return. An investment in this subaccount is not insured or guaranteed by the FDIC. While this subaccount's investment in shares of the underlying portfolio seeks to preserve its value at $1.00 per share, it is possible to lose money by investing in this subaccount. (3)Not annualized. (4)As of April 26, 2002, the C.A.S.E. Growth portfolio merged into the Great Companies -- America(sm) portfolio. (5)As of April 26, 2002, the AEGON Balanced portfolio merged into the Transamerica Value Balanced portfolio. Because WRL Janus Balanced, WRL Conservative Asset Allocation, WRL Moderate Asset Allocation, WRL Moderately Aggressive Asset Allocation, WRL Aggressive Asset Allocation, WRL Transamerica Convertible Securities, WRL PIMCO Total Return, WRL Transamerica Equity and WRL Transamerica Growth Opportunities subaccounts commenced operations on May 1, 2002, the above Table does not reflect rates of return for these subaccounts. 67 TABLE 2 ADJUSTED HISTORICAL PORTFOLIO AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 2001
10 YEARS PORTFOLIO OR INCEPTION PORTFOLIO 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE - --------- ------ ------- ------- --------- --------- Van Kampen Emerging Growth................... (33.83)% 5.50% 13.98% 16.12% 03/01/93 T. Rowe Price Small Cap...................... (10.52)% N/A N/A 4.26% 05/03/99 PBHG Mid Cap Growth.......................... (36.50)% N/A N/A (1.78)% 05/03/99 Alger Aggressive Growth...................... (17.20)% (1.91)% 11.36% 12.47% 03/01/94 Third Avenue Value........................... 5.22% 17.44% N/A 10.60% 01/02/98 Value Line Aggressive Growth................. (11.21)% N/A N/A (12.72)% 05/01/00 American Century International............... (24.12)% 7.50% N/A (1.17)% 01/02/97 Janus Global(3).............................. (23.53)% 1.94% 9.94% 14.24% 12/03/92 Great Companies -- Technology(SM)............ (37.51)% N/A N/A (40.66)% 05/01/00 Janus Growth+................................ (28.85)% (7.45)% 8.52% 9.31% 10/02/86 Goldman Sachs Growth......................... (14.86)% N/A N/A (3.63)% 05/03/99 GE U.S. Equity............................... (9.69)% 1.37% N/A 9.82% 01/02/97 Great Companies -- America(SM)(4)............ (12.98)% N/A N/A (0.95)% 05/01/00 Salomon All Cap.............................. 1.18% N/A N/A 12.32% 05/03/99 Dreyfus Mid Cap.............................. (4.80)% N/A N/A 4.87% 05/03/99 PBHG/NWQ Value Select........................ (2.68)% 5.92% 6.80% 8.20% 05/01/96 T. Rowe Price Dividend Growth................ (5.02)% N/A N/A (1.84)% 05/03/99 Transamerica Value Balanced(5)............... 1.55% 3.32% 6.47% 9.16% 01/03/95 LKCM Strategic Total Return.................. (3.06)% 0.88% 6.14% 8.79% 03/01/93 Clarion Real Estate Securities............... 10.06% 10.47% N/A 3.63% 05/01/98 Federated Growth & Income.................... 14.67% 11.59% 11.88% 11.09% 03/01/94 AEGON Bond+.................................. 7.11% 4.22% 5.82% 5.81% 10/02/86 Transamerica Money Market(1)+................ 3.06% 3.98% 4.11% 3.52% 10/02/86 Gabelli Global Growth........................ (10.92)% N/A N/A (14.78)% 09/01/00 Great Companies -- Global(2)................. (17.58)% N/A N/A (23.36)% 09/01/00 LKCM Capital Growth.......................... (39.54)% N/A N/A (30.36)% 12/01/00 Munder Net50................................. (26.09)% N/A N/A (29.22)% 05/03/99 Transamerica Equity+(6)...................... (18.37)% (0.08)% 15.51% 19.21% 02/26/69 Transamerica Growth Opportunities(2)(7)...... N/A N/A N/A 10.79% 05/02/01 VIP Equity-Income Portfolio+................. (6.07)% 1.95% 8.25% 12.50% 10/09/86 VIP Contrafund(R) Portfolio.................. (13.25)% (0.49)% 9.30% 14.60% 01/03/95 VIP Growth Opportunities Portfolio........... (15.40)% (10.54)% 2.61% 8.34% 01/03/95 S&P 500+..................................... (11.89)% (1.03)% 10.70% 12.94% 10/02/86
+ Shows ten year performance. (1)The current yield, which is for the seven day period ended 12/31/01, more closely reflects the current earnings of the subaccount than the total return. An investment in this subaccount is not insured or guaranteed by the FDIC. While this subaccount's investment in shares of the underlying portfolio seeks to preserve its value at $1.00 per share, it is possible to lose money by investing in this subaccount. (2)Not annualized. (3)Effective September 1, 2000, this portfolio was no longer available to new investors. (4)As of April 26, 2002, the C.A.S.E. Growth portfolio merged into the Great Companies -- America(SM) portfolio. (5)As of April 26, 2002, the AEGON Balanced portfolio merged into the Transamerica Value Balanced portfolio. (6)The historical financial information for periods prior to May 1, 2002 has been derived from the financial history of the predecessor portfolio, Growth Portfolio of Transamerica Variable Insurance Fund, Inc. (7)The historical financial information for periods prior to May 1, 2002 has been derived from the financial history of the predecessor portfolio, Small Company Portfolio of Transamerica Variable Insurance Fund, Inc. 68 Because Janus Balanced, Conservative Asset Allocation, Moderate Asset Allocation, Moderately Aggressive Asset Allocation, Aggressive Asset Allocation, Transamerica Convertible Securities and PIMCO Total Return portfolios commenced operations on May 1, 2002, the above Table does not reflect rates of return for these portfolios. The annualized yield for the WRL Transamerica Money Market subaccount for the seven days ended December 31, 2001 was 1.01%. Additional information regarding the investment performance of the portfolios appears in the fund prospectuses, which accompany this prospectus. OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE We may compare each subaccount's performance to the performance of: -- other variable life issuers in general; -- variable life insurance policies which invest in mutual funds with similar investment objectives and policies, as reported by Lipper Analytical Services, Inc. ("Lipper") and Morningstar, Inc. ("Morningstar"); and other services, companies, individuals, or industry or financial publications (e.g., Forbes, Money, The Wall Street Journal, Business Week, Barron's, Kiplinger's Personal Finance, and Fortune); + Lipper and Morningstar rank variable annuity contracts and variable life policies. Their performance analysis ranks such policies and contracts on the basis of total return, and assumes reinvestment of distributions; but it does not show sales charges, redemption fees or certain expense deductions at the separate account level. -- the Standard & Poor's Index of 500 Common Stocks, or other widely recognized indices; + unmanaged indices may assume the reinvestment of dividends, but usually do not reflect deductions for the expenses of operating or managing an investment portfolio; or -- other types of investments, such as: + certificates of deposit; + savings accounts and U.S. Treasuries; + certain interest rate and inflation indices (e.g., the Consumer Price Index); or + indices measuring the performance of a defined group of securities recognized by investors as representing a particular segment of the securities markets (e.g., Donoghue Money Market Institutional Average, Lehman Brothers Corporate Bond Index, or Lehman Brothers Government Bond Index). WESTERN RESERVE'S PUBLISHED RATINGS We may publish in advertisements, sales literature, or reports we send to you the ratings and other information that an independent ratings organization assigns to us. These 69 organizations include: A.M. Best Company, Moody's Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Fitch Ratings. These ratings are opinions regarding an operating insurance company's financial capacity to meet the obligations of its insurance policies in accordance with their terms. These ratings do not apply to the separate account, the subaccounts, the funds or their portfolios, or to their performance. ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SALE OF THE POLICIES The Policy will be sold by individuals who are licensed as our life insurance agents and who are also registered representatives of broker-dealers having written sales agreements for the Policy with AFSG Securities Corporation ("AFSG"), the principal underwriter of the Policy. AFSG, an affiliate of Western Reserve, is located at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AFSG is registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer, and is a member of the National Association of Securities Dealers, Inc. ("NASD"). AFSG was organized on March 12, 1986 under the laws of the State of Pennsylvania. The Principal Underwriting Agreement between AFSG and Western Reserve on behalf of the separate account went into effect May 1, 1999. More information about AFSG is available at http://www.nasdr.com or by calling 1-800-289-9999. The sales commission payable to Western Reserve agents or other registered representatives may vary with the sales agreement, but it is not expected to be greater than: -- 65% of all premiums you make during the first Policy year, PLUS -- 2.50% of all premiums you make during Policy years 2 through 10. We will pay an additional sales commission of up to 0.50% of the Policy's cash value on the fifth Policy anniversary and each anniversary thereafter where the cash value (minus amounts attributable to loans) equals at least $10,000. In addition, certain production, persistency and managerial bonuses may be paid. To the extent permitted by NASD rules, promotional incentives or payments may also be provided to broker-dealers based on sales volumes, the assumption of wholesaling functions or other sales-related criteria. Payments may also be made for other services that do not directly involve the sale of the Policies. These services may include the recruitment and training of personnel, production of promotional literatures, and similar services. We intend to recoup commissions and other sales expenses through: the premium expense charge, the surrender charge, the cost of insurance charge, the mortality and expense risk charge, and earnings on amounts allocated under the Policies to the fixed account and the loan account. Commissions paid on sales of the Policies, including other sales incentives, are not directly charged to Policyowners. AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Funds shares held for the Policies as compensation for providing certain shareholder support services. AFSG will also receive an additional fee based on the value of shares of the Fidelity VIP Funds held for the Policies as compensation for providing certain recordkeeping services. 70 LEGAL MATTERS Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on certain matters relating to the federal securities laws. All matters of Ohio law pertaining to the Policy have been passed upon by John K. Carter, Vice President and Counsel of Western Reserve. LEGAL PROCEEDINGS Western Reserve, like other life insurance companies, is involved in lawsuits, including class action lawsuits. In some lawsuits involving 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, at the present time, it appears that there are no pending or threatened lawsuits that are likely to have a material adverse impact on the separate account, on AFSG's ability to perform under its principal underwriting agreement, or on Western Reserves's ability to meet its obligations under the Policy. VARIATIONS IN POLICY PROVISIONS Certain provisions of the Policy may vary from the descriptions in this prospectus, depending on when and where the Policy was issued, in order to comply with different state laws. These variations may include restrictions on use of the fixed account and different interest rates charged and credited on Policy loans. Please refer to your Policy, since any variations will be included in your Policy or in riders or endorsements attached to your Policy. PERSONALIZED ILLUSTRATIONS OF POLICY BENEFITS In order to help you understand how your Policy values would vary over time under different sets of assumptions, we will provide you with certain personalized illustrations upon request. These will be based on the age and insurance risk characteristics of the insured persons under your Policy and such factors as the face amount, death benefit option, premium payment amounts, and rates of return (within limits) that you request. We have filed an example of such an illustration as an exhibit to the registration statement filed with the SEC. The illustrations also will reflect the average portfolio expenses for 2001. You may request illustrations that reflect the expenses of the portfolios in which you intend to invest. EXPERTS The financial statements of WRL Series Life Account at December 31, 2001 and for each of the two years in the period ended December 31, 2001, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The statutory-basis financial statements and schedules of Western Reserve at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. 71 Actuarial matters included in this prospectus have been examined by Alan Yaeger, Executive Vice President, Actuary and Chief Financial Officer of Western Reserve, as stated in the opinion filed as an exhibit to the registration statement. FINANCIAL STATEMENTS Western Reserve's financial statements and schedules appear on the following pages. These financial statements and schedules should be distinguished from the separate account's financial statements and you should consider these financial statements and schedules only as bearing upon Western Reserve's ability to meet our obligations under the Policies. You should not consider our financial statements and schedules as bearing upon the investment performance of the assets held in the separate account. Western Reserve's financial statements and schedules at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001, have been prepared on the basis of statutory accounting principles rather than accounting principles generally accepted in the United States. ADDITIONAL INFORMATION ABOUT WESTERN RESERVE Western Reserve is a stock life insurance company that is wholly-owned by First AUSA Life Insurance Company, which, in turn, is wholly-owned indirectly by AEGON USA, Inc. Western Reserve's office is located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202 and the mailing address is P.O. Box 5068, Clearwater, Florida 33758-5068. Western Reserve was incorporated in 1957 under the laws of Ohio and is subject to regulation by the Insurance Department of the State of Ohio, as well as by the insurance departments of all other states and jurisdictions in which it does business. Western Reserve is licensed to sell insurance in all states (except New York), Puerto Rico, Guam, and in the District of Columbia. Western Reserve submits annual statements on its operations and finances to insurance officials in all states and jurisdictions in which it does business. The Policy described in this prospectus has been filed with, and where required, approved by, insurance officials in those jurisdictions in which it is sold. 72 WESTERN RESERVE'S DIRECTORS AND OFFICERS We are governed by a board of directors. The following table sets forth the name, address and principal occupation during the past five years of each of our directors. BOARD OF DIRECTORS**
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- John R. Kenney Chairman of the Board CEO (7/93 - 12/01), President 570 Carillon Parkway (12/92 - 12/99), Director 7/93 St. Petersburg, Florida 33716 -present) of WRL; Chairman of the Board (3/93 - present), President (3/93 - 6/00) of Series Fund; Chairman of the Board (1990 - present) of IDEX Funds; Chairman of the Board (9/96 - present), President (9/97 - 1/02) of ATFA; Chairman of the Board (9/96 - 1/02), President (9/97 - 1/02) of ATSI; Chairman of the Board, Director and Co-CEO (3/00 - present) of Great Cos. - ------------------------------------------------------------------------------------------------- Jerome C. Vahl Director and President Director and President (12/99 - 570 Carillon Parkway present), Executive VP (6/98 - St. Petersburg, Florida 33716 12/99), VP (12/95 - 6/98), Assistant VP (1994 - 1995) of WRL; Executive VP (9/00 - present) of Series Fund and IDEX Funds; Director (3/00 - present) of Great Cos., Director (11/99 - 1/02) of ATSI and ATFA; VP (12/01 - present) of AEGON USA, Inc. - ------------------------------------------------------------------------------------------------- Jack E. Zimmerman Director Trustee, (1987 - present) of 507 St. Michel Circle IDEX Funds; retired from Martin Kettering, Ohio 45429 Marietta (1993). - ------------------------------------------------------------------------------------------------- James R. Walker Director Self-employed public accountant 3320 Office Park Dr. (1996 - present); Partner (1990 Dayton, Ohio 45439 -1995) of Walker-Davis C.P.A.'s, Dayton, Ohio.
**Western Reserve = WRL AEGON/Transamerica Series Fund, Inc. = Series Fund IDEX Mutual Funds = IDEX Funds AEGON/Transamerica Fund Advisers, Inc. = ATFA AEGON/Transamerica Fund Services, Inc. = ATSI Great Companies, L.L.C. = Great Cos. 73 The following table gives the name, address and principal occupation during the past five years of the principal officers of Western Reserve (other than officers listed above as directors). PRINCIPAL OFFICERS**
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- Michael W. Kirby Chief Executive Officer CEO (12/01 - present) of WRL; 4333 Edgewood Rd., NE President (2001 - present) of Cedar Rapids, Iowa 52499 Life Investors Insurance Company of America and Individual Division of AEGON; Executive VP (1999 - 2001), National VP (1996 - 1999), VP (1995 - 1996), Regional Director (1990 - 1995), and Twin Career Agent (1988 - 1989) of Life Investors. - ------------------------------------------------------------------------------------------------- Alan M. Yaeger* Executive Vice President, Executive VP (1993 - present) Actuary and Chief of Series Fund; Director (9/96 Financial Officer -1/02) of ATFA; Director (9/96 -1/02) of ATSI. - ------------------------------------------------------------------------------------------------- Herb T. Collins* Executive Vice President Executive VP (1996 - present), Chief Administrative Officer (1996 - 7/00) of WRL; VP, Administration (1986 - 1996) of Monumental Life Insurance Company. - ------------------------------------------------------------------------------------------------- William H. Geiger* Senior Vice President, Senior VP, Secretary, Corporate Secretary, Corporate Counsel Counsel, and Group VP -- and Group Vice Compliance (1998 - present); President -- Compliance Senior VP, Secretary, General Counsel and Group VP -- Compliance (1996 - 1998), Senior VP, Secretary, and General Counsel (1990 - 1996) of WRL; Group VP -- Compliance and Corporate Counsel (1996 - present) of AUSA Life Insurance Company, Inc., Bankers United Life Assurance Company, Life Investors Insurance Company of America, Monumental Life Insurance Company and Transamerica Life Insurance Company.***
74
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- Allan J. Hamilton* Vice President, Treasurer VP and Controller (8/87 - And Controller present) Treasurer (2/97 - present) of WRL; Treasurer and Chief Financial Officer (2/97 - 12/01) of Series Fund; VP and Controller (3/99 - 12/01), Treasurer (12/01 - present) of ATFA; VP and Treasurer (1/02 - present) of ATFS. - ------------------------------------------------------------------------------------------------- Terry L. Garvin* Senior Vice President and Chief Senior VP and Chief Marketing Marketing Officer Officer (9/00 - present), VP and Chief Marketing Officer (12/95 - 9/00) of WRL. - ------------------------------------------------------------------------------------------------- Carolyn M. Johnson* Senior Vice President and Senior VP and Chief Operations Chief Operations Officer Officer (9/00 - present), VP (3/98 - 9/00) of WRL; VP (8/98 -present) of Life Investors Insurance Company of America; VP (6/98 - present) of Peoples Benefit Life Insurance Company; VP (11/97 - present) of Transamerica Life Insurance Company (formerly, PFL Life Insurance Company); VP (2/00 - present) of Transamerica Occidental Life Insurance Company; (2/00 - present) of Transamerica Life Insurance and Annuity Company; VP (12/97 - present), Responsible Officer for Illustration Regulation, (9/99 - 11/00) of Monumental Life Insurance Company.
75
- ------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------- Thomas R. Moriarty* Senior Vice President VP (6/93 - 12/99) of WRL; Director, President and CEO (11/99 - present) of AEGON Asset Management Services, Inc.; Executive VP, Treasurer and Principal Financial Officer (9/00 - present) of IDEX Funds; Executive VP, Treasurer and Principal Financial Officer (12/01 - present) of ATSF; VP (6/99 - present) of AFSG Securities Corporation; Chairman of the Board, CEO and President (7/99 - present), Senior VP (6/91 - 7/99) of InterSecurities, Inc.; Executive VP (1/02 - present) of ATFA and ATFS. - ------------------------------------------------------------------------------------------------- Thomas E. Pierpan* Senior Vice President, General Senior VP and General Counsel Counsel and Assistant Secretary (12/99 - present), VP (12/93 - 12/99), Counsel (4/95 - 1/97), Associate General Counsel (1/97 -12/99), Assistant VP (11/92 - 12/93) of WRL; VP (3/95 - present), Assistant Secretary (3/95 - 12/97 and 12/99 - present), Associate General Counsel and Secretary (12/97 - 12/99) of Series Fund. - ------------------------------------------------------------------------------------------------- Tim Stonehocker* Senior Vice President Senior VP, WMA Business Unit (2000 - present); President (1997 - 2000) of Academy Life Insurance Company; VP (1997 - present) of Life Investors Insurance Company of America; VP (1997 - present) of Bankers United Life Assurance Company; VP (1997 - present) of Transamerica Life Insurance Company (formerly, PFL Life Insurance Company, Inc.)
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202. ** Western Reserve = WRL AEGON/Transamerica Series Fund, Inc. = Series Fund IDEX Mutual Funds = IDEX Funds AEGON/Transamerica Fund Advisers, Inc. = ATFA AEGON/Transamerica Fund Services, Inc. = ATSI Great Companies, L.L.C. = Great Cos. ***Transamerica Life Insurance Company previously was known as PFL Life Insurance Company. Each of the companies listed for the position held by Mr. Geiger from 1996 to the present is a subsidiary of AEGON USA, Inc. Western Reserve holds the assets of the separate account physically segregated and apart from the general account. Western Reserve maintains records of all purchases and sales 76 of portfolio shares by each of the subaccounts. A blanket bond was issued to AEGON USA, Inc. ("AEGON USA") in the aggregate amount of $12 million, covering all of the employees of AEGON USA and its affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. providing fidelity coverage, covers the activities of registered representatives of AFSG to a limit of $10 million. ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT Western Reserve established the separate account as a separate investment account under Ohio law in 1985. We own the assets in the separate account and are obligated to pay all benefits under the Policies. The separate account is used to support other life insurance policies of Western Reserve, as well as for other purposes permitted by law. The separate account is registered with the SEC as a unit investment trust under the 1940 Act and qualifies as a "separate account" within the meaning of the federal securities laws. 77 APPENDIX A WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKET - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The information below graphically depicts the growth of $1.00 invested in large company stocks, small company stocks, long-term government bonds, Treasury bills, and hypothetical asset returning the inflation rate over the period from the end of 1925 to the end of 2001. All results assume reinvestment of dividends on stocks or coupons on bonds and no taxes. Transaction costs are not included, except in the small stock index starting in 1982. Each of the cumulative index values is initialized at $1.00 at year-end 1925. The graph illustrates that large company stocks and small company stocks have the best performance over the entire 76-year period: investments of $1.00 in these assets would have grown to $2,279.13 and $7,860.05, respectively, by year-end 2001. This higher growth was achieved by investments involving substantial risk. In contrast, long-term government bonds (with an approximate 20-year maturity), which exposed the holder to much less risk, grew to only $50.66. The lowest-risk strategy over the past 76 years (for those with short-term time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended to track inflation, the resulting real (inflation-adjusted) returns were near zero for the entire 1925 - 2001 period. 78 ANNUAL RETURN GRAPH COMPOUND ANNUAL RATES OF RETURN BY DECADE
1920S* 1930S 1940S 1950S 1960S 1970S 1980S 1990S 2000S** 1992-01 ------ ----- ----- ----- ----- ----- ----- ----- ------- ------- Large Company........ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 18.2% -10.5% 12.9% Small Company........ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.1 8.8 15.6 Long-Term Corp....... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 8.3 11.8 8.1 Long-Term Govt....... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 9.0 12.2 8.7 Inter-Term Govt...... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 7.2 10.1 6.7 Treasury Bills....... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9 4.9 4.6 Inflation............ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 2.9 2.5 2.5
* Based on the period 1926-1929. ** Based on the period 2000-2001. Used with permission. (C)2002 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from copyrighted works of Roger G. Ibbotson and Rex Sinquefield.] 79 INDEX TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WRL SERIES LIFE ACCOUNT: Report of Independent Auditors, dated January 31, 2002 Statements of Assets and Liabilities at December 31, 2001 Statements of Operations for the year ended December 31, 2001 Statements of Changes in Net Assets for the years ended December 31, 2001 and 2000 Notes to the Financial Statements WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Report of Independent Auditors, dated February 15, 2002 Statutory-Basis Balance Sheets at December 31, 2001 and 2000 Statutory-Basis Statements of Operations for the years ended December 31, 2001, 2000 and 1999 Statutory-Basis Statements of Changes in Capital and Surplus for the years ended December 31, 2001, 2000 and 1999 Statutory-Basis Statements of Cash Flow for the years ended December 31, 2001, 2000 and 1999 Notes to Financial Statements -- Statutory-Basis Statutory-Basis Financial Statement Schedules WRL 00011-5/02 80 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Policy Owners of the WRL Series Life Account Western Reserve Life Assurance Company of Ohio We have audited the accompanying statements of assets and liabilities of each of the subaccounts constituting the WRL Series Life Account (the "Separate Account," a separate account of Western Reserve Life Assurance Co. of Ohio) as of December 31, 2001, and the related statements of operations and changes in net assets for the periods indicated thereon. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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. Our procedures included confirmation of mutual fund shares owned as of December 31, 2001, by correspondence with the mutual fund's transfer agent. 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 provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the respective subaccounts constituting the WRL Series Life Account at December 31, 2001, and the results of their operations and changes in net assets for the periods indicated thereon, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Des Moines, Iowa January 31, 2002 81 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2001 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL LKCM J.P. MORGAN AEGON JANUS JANUS STRATEGIC MONEY MARKET BOND GROWTH GLOBAL TOTAL RETURN SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 82,155 3,797 21,422 17,130 6,605 ======== ======== =========== ========= ======== Cost..................................... $ 82,155 $ 43,884 $ 1,041,848 $ 423,082 $ 98,671 ======== ======== =========== ========= ======== Investment, at net asset value............. $ 82,155 $ 45,408 $ 699,423 $ 313,827 $ 95,309 Dividend receivable........................ 13 0 0 0 0 Transfers receivable from depositor........ 249 0 240 85 22 -------- -------- ----------- --------- -------- Total assets............................. 82,417 45,408 699,663 313,912 95,331 -------- -------- ----------- --------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 0 699 0 0 0 -------- -------- ----------- --------- -------- Total liabilities........................ 0 699 0 0 0 -------- -------- ----------- --------- -------- Net assets............................... $ 82,417 $ 44,709 $ 699,663 $ 313,912 $ 95,331 ======== ======== =========== ========= ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 82,417 $ 44,709 $ 699,663 $ 313,912 $ 95,331 Depositor's equity......................... 0 0 0 0 0 -------- -------- ----------- --------- -------- Net assets applicable to units outstanding............................ $ 82,417 $ 44,709 $ 699,663 $ 313,912 $ 95,331 ======== ======== =========== ========= ======== Policy owners' units....................... 4,349 1,725 9,583 12,912 4,517 Depositor's units.......................... 0 0 0 0 0 -------- -------- ----------- --------- -------- Units outstanding........................ 4,349 1,725 9,583 12,912 4,517 ======== ======== =========== ========= ======== Accumulation unit value.................. $ 18.95 $ 25.91 $ 73.01 $ 24.31 $ 21.10 ======== ======== =========== ========= ========
See accompanying notes. 82 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2001 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL VAN WRL WRL WRL KAMPEN ALGER WRL FEDERATED TRANSAMERICA EMERGING AGGRESSIVE AEGON GROWTH & VALUE GROWTH GROWTH BALANCED INCOME BALANCED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 19,892 15,214 1,733 3,770 3,152 ========= ========= ======== ======== ======== Cost..................................... $ 635,383 $ 328,586 $ 21,763 $ 50,591 $ 42,809 ========= ========= ======== ======== ======== Investment, at net asset value............. $ 386,700 $ 248,600 $ 22,030 $ 57,600 $ 41,892 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 203 152 31 231 42 --------- --------- -------- -------- -------- Total assets............................. 386,903 248,752 22,061 57,831 41,934 --------- --------- -------- -------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 0 0 0 0 0 --------- --------- -------- -------- -------- Total liabilities........................ 0 0 0 0 0 --------- --------- -------- -------- -------- Net assets............................... $ 386,903 $ 248,752 $ 22,061 $ 57,831 $ 41,934 ========= ========= ======== ======== ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 386,903 $ 248,752 $ 22,061 $ 57,831 $ 41,934 Depositor's equity......................... 0 0 0 0 0 --------- --------- -------- -------- -------- Net assets applicable to units outstanding............................ $ 386,903 $ 248,752 $ 22,061 $ 57,831 $ 41,934 ========= ========= ======== ======== ======== Policy owners' units....................... 10,305 9,881 1,426 2,531 2,270 Depositor's units.......................... 0 0 0 0 0 --------- --------- -------- -------- -------- Units outstanding........................ 10,305 9,881 1,426 2,531 2,270 ========= ========= ======== ======== ======== Accumulation unit value.................. $ 37.54 $ 25.17 $ 15.47 $ 22.85 $ 18.47 ========= ========= ======== ======== ========
See accompanying notes. 83 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2001 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL THIRD C.A.S.E. NWQ INTERNATIONAL GE AVENUE GROWTH VALUE EQUITY EQUITY U.S. EQUITY VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 2,780 2,333 1,045 2,292 2,361 ======== ======== ======== ======== ======== Cost..................................... $ 34,310 $ 32,071 $ 11,685 $ 34,389 $ 32,340 ======== ======== ======== ======== ======== Investment, at net asset value............. $ 17,845 $ 32,877 $ 7,992 $ 30,992 $ 34,281 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 2 13 191 28 64 -------- -------- -------- -------- -------- Total assets............................. 17,847 32,890 8,183 31,020 34,345 -------- -------- -------- -------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 0 0 0 0 0 -------- -------- -------- -------- -------- Total liabilities........................ 0 0 0 0 0 -------- -------- -------- -------- -------- Net assets............................... $ 17,847 $ 32,890 $ 8,183 $ 31,020 $ 34,345 ======== ======== ======== ======== ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 17,847 $ 32,890 $ 8,183 $ 31,020 $ 34,345 Depositor's equity......................... 0 0 0 0 0 -------- -------- -------- -------- -------- Net assets applicable to units outstanding............................ $ 17,847 $ 32,890 $ 8,183 $ 31,020 $ 34,345 ======== ======== ======== ======== ======== Policy owners' units....................... 1,963 2,103 868 1,942 2,296 Depositor's units.......................... 0 0 0 0 0 -------- -------- -------- -------- -------- Units outstanding........................ 1,963 2,103 868 1,942 2,296 ======== ======== ======== ======== ======== Accumulation unit value.................. $ 9.09 $ 15.64 $ 9.43 $ 15.97 $ 14.96 ======== ======== ======== ======== ========
See accompanying notes. 84 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2001 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL J.P. MORGAN GOLDMAN WRL T. ROWE T. ROWE REAL ESTATE SACHS MUNDER PRICE PRICE SECURITIES GROWTH NET50 DIVIDEND GROWTH SMALL CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 702 411 346 353 620 ======= ======= ======= ======= ======= Cost..................................... $ 7,588 $ 3,744 $ 3,354 $ 3,370 $ 6,760 ======= ======= ======= ======= ======= Investment, at net asset value............. $ 7,865 $ 3,737 $ 2,792 $ 3,416 $ 6,803 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 34 13 12 3 29 ------- ------- ------- ------- ------- Total assets............................. 7,899 3,750 2,804 3,419 6,832 ------- ------- ------- ------- ------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 0 0 0 0 0 ------- ------- ------- ------- ------- Total liabilities........................ 0 0 0 0 0 ------- ------- ------- ------- ------- Net assets............................... $ 7,899 $ 3,750 $ 2,804 $ 3,419 $ 6,832 ======= ======= ======= ======= ======= NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 7,899 $ 3,750 $ 2,804 $ 3,419 $ 6,832 Depositor's equity......................... 0 0 0 0 0 ------- ------- ------- ------- ------- Net assets applicable to units outstanding............................ $ 7,899 $ 3,750 $ 2,804 $ 3,419 $ 6,832 ======= ======= ======= ======= ======= Policy owners' units....................... 693 428 351 361 684 Depositor's units.......................... 0 0 0 0 0 ------- ------- ------- ------- ------- Units outstanding........................ 693 428 351 361 684 ======= ======= ======= ======= ======= Accumulation unit value.................. $ 11.40 $ 8.76 $ 7.98 $ 9.48 $ 9.99 ======= ======= ======= ======= =======
See accompanying notes. 85 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2001 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL GREAT SALOMON PILGRIM BAXTER DREYFUS VALUE LINE COMPANIES - ALL CAP MID CAP GROWTH MID CAP AGGRESSIVE GROWTH AMERICA(SM) SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 2,331 3,401 471 158 1,665 ======== ======== ======= ======= ======== Cost..................................... $ 30,727 $ 56,960 $ 5,313 $ 1,396 $ 16,913 ======== ======== ======= ======= ======== Investment, at net asset value............. $ 30,447 $ 32,817 $ 5,315 $ 1,281 $ 16,583 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 79 50 10 2 24 -------- -------- ------- ------- -------- Total assets............................. 30,526 32,867 5,325 1,283 16,607 -------- -------- ------- ------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 0 0 0 0 0 -------- -------- ------- ------- -------- Total liabilities........................ 0 0 0 0 0 -------- -------- ------- ------- -------- Net assets............................... $ 30,526 $ 32,867 $ 5,325 $ 1,283 $ 16,607 ======== ======== ======= ======= ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 30,526 $ 32,867 $ 5,325 $ 1,124 $ 16,410 Depositor's equity......................... 0 0 0 159 197 -------- -------- ------- ------- -------- Net assets applicable to units outstanding............................ $ 30,526 $ 32,867 $ 5,325 $ 1,283 $ 16,607 ======== ======== ======= ======= ======== Policy owners' units....................... 2,405 3,818 493 141 1,667 Depositor's units.......................... 0 0 0 20 20 -------- -------- ------- ------- -------- Units outstanding........................ 2,405 3,818 493 161 1,687 ======== ======== ======= ======= ======== Accumulation unit value.................. $ 12.70 $ 8.61 $ 10.81 $ 7.97 $ 9.84 ======== ======== ======= ======= ========
See accompanying notes. 86 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2001 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL GREAT GREAT GABELLI LKCM COMPANIES - COMPANIES - GLOBAL CAPITAL TECHNOLOGY(SM) GLOBAL(2) GROWTH GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 1,443 314 923 172 ======= ======= ======= ======= Cost..................................... $ 7,899 $ 2,260 $ 7,916 $ 1,122 ======= ======= ======= ======= Investment, at net asset value............. $ 6,135 $ 2,229 $ 7,537 $ 1,155 Dividend receivable........................ 0 0 0 0 Transfers receivable from depositor........ 12 9 53 2 ------- ------- ------- ------- Total assets............................. 6,147 2,238 7,590 1,157 ------- ------- ------- ------- LIABILITIES: Accrued expenses........................... 0 0 0 0 Transfers payable to depositor............. 0 0 0 0 ------- ------- ------- ------- Total liabilities........................ 0 0 0 0 ------- ------- ------- ------- Net assets............................... $ 6,147 $ 2,238 $ 7,590 $ 1,157 ======= ======= ======= ======= NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 6,063 $ 2,220 $ 7,570 $ 1,141 Depositor's equity......................... 84 18 20 16 ------- ------- ------- ------- Net assets applicable to units outstanding............................ $ 6,147 $ 2,238 $ 7,590 $ 1,157 ======= ======= ======= ======= Policy owners' units....................... 1,448 316 936 177 Depositor's units.......................... 20 3 3 3 ------- ------- ------- ------- Units outstanding........................ 1,468 319 939 180 ======= ======= ======= ======= Accumulation unit value.................. $ 4.19 $ 7.02 $ 8.08 $ 6.43 ======= ======= ======= =======
See accompanying notes. 87 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2001 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
FIDELITY VIP III GROWTH FIDELITY VIP II FIDELITY VIP OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 92 167 183 ======= ======= ======= Cost..................................... $ 1,415 $ 3,367 $ 4,159 ======= ======= ======= Investment, at net asset value............. $ 1,388 $ 3,331 $ 4,136 Dividend receivable........................ 0 0 0 Transfers receivable from depositor........ 9 4 25 ------- ------- ------- Total assets............................. 1,397 3,335 4,161 ------- ------- ------- LIABILITIES: Accrued expenses........................... 0 0 0 Transfers payable to depositor............. 0 0 0 ------- ------- ------- Total liabilities........................ 0 0 0 ------- ------- ------- Net assets............................... $ 1,397 $ 3,335 $ 4,161 ======= ======= ======= NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 1,379 $ 3,315 $ 4,161 Depositor's equity......................... 18 20 0 ------- ------- ------- Net assets applicable to units outstanding............................ $ 1,397 $ 3,335 $ 4,161 ======= ======= ======= Policy owners' units....................... 190 407 401 Depositor's units.......................... 3 3 2 ------- ------- ------- Units outstanding........................ 193 410 403 ======= ======= ======= Accumulation unit value.................. $ 7.25 $ 8.14 $ 10.32 ======= ======= =======
See accompanying notes. 88 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL LKCM J.P. MORGAN AEGON JANUS JANUS STRATEGIC MONEY MARKET BOND GROWTH GLOBAL TOTAL RETURN SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 2,561 $ 235 $ 0 $ 3,099 $ 437 ---------- --------- ---------- ---------- -------- EXPENSES: Mortality and expense risk.............. 621 323 6,861 3,064 850 ---------- --------- ---------- ---------- -------- Net investment income (loss).......... 1,940 (88) (6,861) 35 (413) ---------- --------- ---------- ---------- -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. 0 46 37,427 5,742 1,444 Realized gain distributions............. 0 0 27,203 20 510 Change in unrealized appreciation (depreciation)........................ 0 2,228 (339,361) (103,306) (4,616) ---------- --------- ---------- ---------- -------- Net gain (loss) on investment securities.......................... 0 2,274 (274,731) (97,544) (2,662) ---------- --------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from operations....................... $ 1,940 $ 2,186 $ (281,592) $ (97,509) $ (3,075) ========== ========= ========== ========== ========
WRL WRL WRL WRL VAN KAMPEN ALGER WRL FEDERATED TRANSAMERICA EMERGING AGGRESSIVE AEGON GROWTH & VALUE GROWTH GROWTH BALANCED INCOME BALANCED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 339 $ 0 $ 95 $ 783 $ 572 ---------- --------- ---------- ---------- -------- EXPENSES: Mortality and expense risk.............. 3,933 2,225 193 379 355 ---------- --------- ---------- ---------- -------- Net investment income (loss).......... (3,594) (2,225) (98) 404 217 ---------- --------- ---------- ---------- -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. (247,426) 4,373 288 378 81 Realized gain distributions............. 7,210 27 0 16 3 Change in unrealized appreciation (depreciation)........................ 44,394 (52,170) (994) 4,603 7 ---------- --------- ---------- ---------- -------- Net gain (loss) on investment securities.......................... (195,822) (47,770) (706) 4,997 91 ---------- --------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from operations....................... $ (199,416) $ (49,995) $ (804) $ 5,401 $ 308 ========== ========= ========== ========== ========
See accompanying notes. 89 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL THIRD C.A.S.E. NWQ INTERNATIONAL GE AVENUE GROWTH VALUE EQUITY EQUITY U.S. EQUITY VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 2,324 $ 45 $ 263 $ 54 $ 31 -------- ------ -------- -------- ------- EXPENSES: Mortality and expense risk.............. 193 279 71 269 233 -------- ------ -------- -------- ------- Net investment income (loss).......... 2,131 (234) 192 (215) (202) -------- ------ -------- -------- ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. (1,711) 74 (507) 96 477 Realized gain distributions............. 33 2 24 239 45 Change in unrealized appreciation (depreciation)........................ (8,077) (769) (1,952) (3,268) 874 -------- ------ -------- -------- ------- Net gain (loss) on investment securities.......................... (9,755) (693) (2,435) (2,933) 1,396 -------- ------ -------- -------- ------- Net increase (decrease) in net assets resulting from operations....................... $ (7,624) $ (927) $ (2,243) $ (3,148) $ 1,194 ======== ====== ======== ======== =======
WRL WRL WRL WRL J.P. MORGAN GOLDMAN WRL T. ROWE T. ROWE REAL ESTATE SACHS MUNDER PRICE PRICE SECURITIES GROWTH NET50 DIVIDEND GROWTH SMALL CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 141 $ 18 $ 13 $ 0 $ 0 -------- ------ -------- -------- ------- EXPENSES: Mortality and expense risk.............. 45 20 20 19 35 -------- ------ -------- -------- ------- Net investment income (loss).......... 96 (2) (7) (19) (35) -------- ------ -------- -------- ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. 131 (385) (330) 16 (674) Realized gain distributions............. 0 2 0 9 0 Change in unrealized appreciation (depreciation)........................ 177 99 (532) (44) 399 -------- ------ -------- -------- ------- Net gain (loss) on investment securities.......................... 308 (284) (862) (19) (275) -------- ------ -------- -------- ------- Net increase (decrease) in net assets resulting from operations....................... $ 404 $ (286) $ (869) $ (38) $ (310) ======== ====== ======== ======== =======
See accompanying notes. 90 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL PILGRIM BAXTER WRL VALUE LINE GREAT SALOMON MID CAP DREYFUS AGGRESSIVE COMPANIES - ALL CAP GROWTH MID CAP GROWTH AMERICA(SM) SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 379 $ 0 $ 49 $ 0 $ 40 -------- --------- ------ ------ -------- EXPENSES: Mortality and expense risk.............. 190 288 32 9 105 -------- --------- ------ ------ -------- Net investment income (loss).......... 189 (288) 17 (9) (65) -------- --------- ------ ------ -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. (130) (8,685) (172) (166) (51) Realized gain distributions............. 10 0 6 0 0 Change in unrealized appreciation (depreciation)........................ (356) (7,067) 24 68 (1,032) -------- --------- ------ ------ -------- Net gain (loss) on investment securities.......................... (476) (15,752) (142) (98) (1,083) -------- --------- ------ ------ -------- Net increase (decrease) in net assets resulting from operations....................... $ (287) $ (16,040) $ (125) $ (107) $ (1,148) ======== ========= ====== ====== ========
WRL WRL WRL WRL GREAT GREAT GABELLI LKCM COMPANIES- COMPANIES- GLOBAL CAPITAL TECHNOLOGY(SM) GLOBAL(2) GROWTH GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(1) INVESTMENT INCOME: Dividend income......................... $ 0 $ 0 $ 6 $ 2 -------- --------- ------ ----- EXPENSES: Mortality and expense risk.............. 34 11 40 2 -------- --------- ------ ----- Net investment income (loss).......... (34) (11) (34) 0 -------- --------- ------ ----- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. (1,355) (63) (53) (40) Realized gain distributions............. 0 0 0 0 Change in unrealized appreciation (depreciation)........................ (459) (16) (346) 33 -------- --------- ------ ----- Net gain (loss) on investment securities.......................... (1,814) (79) (399) (7) -------- --------- ------ ----- Net increase (decrease) in net assets resulting from operations....................... $ (1,848) $ (90) $ (433) $ (7) ======== ========= ====== =====
See accompanying notes. 91 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (ALL AMOUNTS IN THOUSANDS)
FIDELITY VIP III FIDELITY VIP GROWTH FIDELITY VIP II EQUITY - OPPORTUNITIES CONTRAFUND(R) INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 2 $ 9 $ 13 ------ ------ ----- EXPENSES: Mortality and expense risk.............. 8 18 21 ------ ------ ----- Net investment income (loss).......... (6) (9) (8) ------ ------ ----- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. (161) (191) (67) Realized gain distributions............. 0 34 37 Change in unrealized appreciation (depreciation)........................ 43 11 (36) ------ ------ ----- Net gain (loss) on investment securities.......................... (118) (146) (66) ------ ------ ----- Net increase (decrease) in net assets resulting from operations....................... $ (124) $ (155) $ (74) ====== ====== =====
See accompanying notes. 92 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL J.P. MORGAN AEGON JANUS MONEY MARKET BOND GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------- ------------------- ------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- ------------------- ------------------------ 2001 2000 2001 2000 2001 2000 --------- --------- -------- -------- ---------- ----------- OPERATIONS: Net investment income (loss)..................... $ 1,940 $ 2,389 $ (88) $ 1,147 $ (6,861) $ 152,896 Net gain (loss) on investment securities......... 0 0 2,274 1,222 (274,731) (555,143) --------- --------- -------- -------- ---------- ----------- Net increase (decrease) in net assets resulting from operations................................ 1,940 2,389 2,186 2,369 (281,592) (402,247) --------- --------- -------- -------- ---------- ----------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 31,666 12,540 21,257 897 126,273 168,047 --------- --------- -------- -------- ---------- ----------- Less cost of units redeemed: Administrative charges......................... 4,916 3,274 3,034 2,341 71,004 69,288 Policy loans................................... 2,096 1,672 586 1,361 10,816 44,968 Surrender benefits............................. 4,288 5,687 977 735 22,233 38,262 Death benefits................................. 168 87 72 23 1,980 6,224 --------- --------- -------- -------- ---------- ----------- 11,468 10,720 4,669 4,460 106,033 158,742 --------- --------- -------- -------- ---------- ----------- Increase (decrease) in net assets from capital unit transactions............................ 20,198 1,820 16,588 (3,563) 20,240 9,305 --------- --------- -------- -------- ---------- ----------- Net increase (decrease) in net assets.......... 22,138 4,209 18,774 (1,194) (261,352) (392,942) Depositor's equity contribution (net redemption).................................... 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 60,279 56,070 25,935 27,129 961,015 1,353,957 --------- --------- -------- -------- ---------- ----------- End of year...................................... $ 82,417 $ 60,279 $ 44,709 $ 25,935 $ 699,663 $ 961,015 ========= ========= ======== ======== ========== =========== UNIT ACTIVITY: Units outstanding - beginning of year............ 3,278 3,206 1,072 1,232 9,366 9,293 Units issued..................................... 27,105 50,376 1,365 427 4,247 2,459 Units redeemed................................... (26,034) (50,304) (712) (587) (4,030) (2,386) --------- --------- -------- -------- ---------- ----------- Units outstanding - end of year.................. 4,349 3,278 1,725 1,072 9,583 9,366 ========= ========= ======== ======== ========== ===========
See accompanying notes. 93 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL LKCM WRL JANUS STRATEGIC VAN KAMPEN GLOBAL TOTAL RETURN EMERGING GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------- -------------------- ----------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------- -------------------- ----------------------- 2001 2000 2001 2000 2001 2000 --------- ---------- -------- --------- ---------- ---------- OPERATIONS: Net investment income (loss)..................... $ 35 $ 98,726 $ (413) $ 7,415 $ (3,594) $ 168,610 Net gain (loss) on investment securities......... (97,544) (191,334) (2,662) (12,297) (195,822) (261,688) --------- ---------- -------- --------- ---------- ---------- Net increase (decrease) in net assets resulting from operations................................ (97,509) (92,608) (3,075) (4,882) (199,416) (93,078) --------- ---------- -------- --------- ---------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 47,977 112,253 12,375 10,776 64,879 145,357 --------- ---------- -------- --------- ---------- ---------- Less cost of units redeemed: Administrative charges......................... 31,569 31,746 8,111 7,939 38,288 35,247 Policy loans................................... 4,476 15,396 1,157 2,710 6,127 22,735 Surrender benefits............................. 10,117 12,985 2,908 2,844 13,487 20,687 Death benefits................................. 503 907 259 600 860 1,538 --------- ---------- -------- --------- ---------- ---------- 46,665 61,034 12,435 14,093 58,762 80,207 --------- ---------- -------- --------- ---------- ---------- Increase (decrease) in net assets from capital unit transactions............................ 1,312 51,219 (60) (3,317) 6,117 65,150 --------- ---------- -------- --------- ---------- ---------- Net increase (decrease) in net assets.......... (96,197) (41,389) (3,135) (8,199) (193,299) (27,928) Depositor's equity contribution (net redemption).................................... 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 410,109 451,498 98,466 106,665 580,202 608,130 --------- ---------- -------- --------- ---------- ---------- End of year...................................... $ 313,912 $ 410,109 $ 95,331 $ 98,466 $ 386,903 $ 580,202 ========= ========== ======== ========= ========== ========== UNIT ACTIVITY: Units outstanding - beginning of year............ 12,899 11,605 4,523 4,674 10,226 9,357 Units issued..................................... 3,942 4,570 1,239 1,327 7,855 11,606 Units redeemed................................... (3,929) (3,276) (1,245) (1,478) (7,776) (10,737) --------- ---------- -------- --------- ---------- ---------- Units outstanding - end of year.................. 12,912 12,899 4,517 4,523 10,305 10,226 ========= ========== ======== ========= ========== ==========
See accompanying notes. 94 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL ALGER AEGON FEDERATED AGGRESSIVE GROWTH BALANCED GROWTH & INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------- ------------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------- ------------------- ------------------- 2001 2000 2001 2000 2001 2000 --------- ---------- -------- -------- -------- -------- OPERATIONS: Net investment income (loss)..................... $ (2,225) $ 41,268 $ (98) $ 215 $ 404 $ 1,001 Net gain (loss) on investment securities......... (47,770) (168,747) (706) 742 4,997 4,230 --------- ---------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations...................... (49,995) (127,479) (804) 957 5,401 5,231 --------- ---------- -------- -------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 57,462 103,588 5,617 4,955 31,343 7,863 --------- ---------- -------- -------- -------- -------- Less cost of units redeemed: Administrative charges......................... 28,461 26,734 2,390 2,124 3,816 2,328 Policy loans................................... 3,294 12,341 351 442 422 628 Surrender benefits............................. 6,759 10,374 924 559 1,499 534 Death benefits................................. 373 666 39 18 59 110 --------- ---------- -------- -------- -------- -------- 38,887 50,115 3,704 3,143 5,796 3,600 --------- ---------- -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions............... 18,575 53,473 1,913 1,812 25,547 4,263 --------- ---------- -------- -------- -------- -------- Net increase (decrease) in net assets.......... (31,420) (74,006) 1,109 2,769 30,948 9,494 Depositor's equity contribution (net redemption)............................... 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 280,172 354,178 20,952 18,183 26,883 17,389 --------- ---------- -------- -------- -------- -------- End of year...................................... $ 248,752 $ 280,172 $ 22,061 $ 20,952 $ 57,831 $ 26,883 ========= ========== ======== ======== ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year............ 9,215 7,928 1,303 1,186 1,349 1,117 Units issued..................................... 4,796 3,925 623 569 2,283 996 Units redeemed................................... (4,130) (2,638) (500) (452) (1,101) (764) --------- ---------- -------- -------- -------- -------- Units outstanding - end of year.................. 9,881 9,215 1,426 1,303 2,531 1,349 ========= ========== ======== ======== ======== ========
See accompanying notes. 95 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL TRANSAMERICA C.A.S.E. NWQ VALUE BALANCED GROWTH VALUE EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------- -------------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------- -------------------- ------------------- 2001 2000 2001 2000 2001 2000 -------- -------- -------- --------- -------- -------- OPERATIONS: Net investment income (loss)..................... $ 217 $ 2,290 $ 2,131 $ 4,321 $ (234) $ 412 Net gain (loss) on investment securities......... 91 2,493 (9,755) (10,421) (693) 2,965 -------- -------- -------- --------- -------- -------- Net increase (decrease) in net assets resulting from operations................................ 308 4,783 (7,624) (6,100) (927) 3,377 -------- -------- -------- --------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 13,027 1,235 7,132 5,488 8,780 2,652 -------- -------- -------- --------- -------- -------- Less cost of units redeemed: Administrative charges......................... 3,491 3,204 2,835 2,868 2,649 2,467 Policy loans................................... 671 785 405 767 294 596 Surrender benefits............................. 1,257 1,058 734 885 882 660 Death benefits................................. 195 75 31 33 26 96 -------- -------- -------- --------- -------- -------- 5,614 5,122 4,005 4,553 3,851 3,819 -------- -------- -------- --------- -------- -------- Increase (decrease) in net assets from capital unit transactions............................ 7,413 (3,887) 3,127 935 4,929 (1,167) -------- -------- -------- --------- -------- -------- Net increase (decrease) in net assets.......... 7,721 896 (4,497) (5,165) 4,002 2,210 Depositor's equity contribution (net redemption).................................... 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 34,213 33,317 22,344 27,509 28,888 26,678 -------- -------- -------- --------- -------- -------- End of year...................................... $ 41,934 $ 34,213 $ 17,847 $ 22,344 $ 32,890 $ 28,888 ======== ======== ======== ========= ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year............ 1,881 2,128 1,713 1,657 1,797 1,895 Units issued..................................... 1,125 729 1,204 1,014 1,040 907 Units redeemed................................... (736) (976) (954) (958) (734) (1,005) -------- -------- -------- --------- -------- -------- Units outstanding - end of year.................. 2,270 1,881 1,963 1,713 2,103 1,797 ======== ======== ======== ========= ======== ========
See accompanying notes. 96 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL GE THIRD AVENUE INTERNATIONAL EQUITY U.S. EQUITY VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------- ------------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- ------------------- ------------------- 2001 2000 2001 2000 2001 2000 --------- --------- -------- -------- -------- -------- OPERATIONS: Net investment income (loss)..................... $ 192 $ 1,124 $ (215) $ 1,071 $ (202) $ 426 Net gain (loss) on investment securities......... (2,435) (2,405) (2,933) (1,646) 1,396 1,699 -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations................................ (2,243) (1,281) (3,148) (575) 1,194 2,125 -------- -------- -------- -------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 3,756 3,155 8,860 7,853 19,475 12,970 -------- -------- -------- -------- -------- -------- Less cost of units redeemed: Administrative charges......................... 1,003 663 3,049 2,712 2,064 560 Policy loans................................... 76 150 319 440 289 894 Surrender benefits............................. 189 125 998 744 698 306 Death benefits................................. 6 5 97 27 8 11 -------- -------- -------- -------- -------- -------- 1,274 943 4,463 3,923 3,059 1,771 -------- -------- -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions............................ 2,482 2,212 4,397 3,930 16,416 11,199 -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets.......... 239 931 1,249 3,355 17,610 13,324 Depositor's equity contribution (net redemption).................................... 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 7,944 7,013 29,771 26,416 16,735 3,411 -------- -------- -------- -------- -------- -------- End of year...................................... $ 8,183 $ 7,944 $ 31,020 $ 29,771 $ 34,345 $ 16,735 ======== ======== ======== ======== ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year............ 639 475 1,683 1,468 1,177 322 Units issued..................................... 647 474 1,000 1,064 2,223 1,432 Units redeemed................................... (418) (310) (741) (849) (1,104) (577) -------- -------- -------- -------- -------- -------- Units outstanding - end of year.................. 868 639 1,942 1,683 2,296 1,177 ======== ======== ======== ======== ======== ========
See accompanying notes. 97 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL J.P. MORGAN WRL WRL REAL ESTATE GOLDMAN SACHS MUNDER SECURITIES GROWTH NET50 SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- --------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------- ----------------- --------------- 2001 2000 2001 2000 2001 2000 ------- ------- ------- ------- ------- ----- OPERATIONS: Net investment income (loss)..................... $ 96 $ 17 $ (2) $ 7 $ (7) $ 11 Net gain (loss) on investment securities......... 308 345 (284) (156) (862) (27) ------- ------- ------- ------- ------- ----- Net increase (decrease) in net assets resulting from operations................................ 404 362 (286) (149) (869) (16) ------- ------- ------- ------- ------- ----- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 5,874 2,080 2,717 1,002 3,046 622 ------- ------- ------- ------- ------- ----- Less cost of units redeemed: Administrative charges......................... 545 86 273 123 187 52 Policy loans................................... 179 60 4 44 17 7 Surrender benefits............................. 131 36 22 8 31 2 Death benefits................................. 0 0 9 0 0 0 ------- ------- ------- ------- ------- ----- 855 182 308 175 235 61 ------- ------- ------- ------- ------- ----- Increase (decrease) in net assets from capital unit transactions............................ 5,019 1,898 2,409 827 2,811 561 ------- ------- ------- ------- ------- ----- Net increase (decrease) in net assets.......... 5,423 2,260 2,123 678 1,942 545 Depositor's equity contribution (net redemption).................................... 0 (411) 0 (28) 0 (27) NET ASSETS: Beginning of year................................ 2,476 627 1,627 977 862 344 ------- ------- ------- ------- ------- ----- End of year...................................... $ 7,899 $ 2,476 $ 3,750 $ 1,627 $ 2,804 $ 862 ======= ======= ======= ======= ======= ===== UNIT ACTIVITY: Units outstanding - beginning of year............ 239 78 158 87 80 31 Units issued..................................... 945 816 552 161 453 80 Units redeemed................................... (491) (655) (282) (90) (182) (31) ------- ------- ------- ------- ------- ----- Units outstanding - end of year.................. 693 239 428 158 351 80 ======= ======= ======= ======= ======= =====
See accompanying notes. 98 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL T. ROWE PRICE T. ROWE PRICE SALOMON DIVIDEND GROWTH SMALL CAP ALL CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- ----------------- ------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------- ----------------- ------------------ 2001 2000 2001 2000 2001 2000 ------- ----- ------- ------- -------- ------- OPERATIONS: Net investment income (loss)..................... $ (19) $ (4) $ (35) $ 5 $ 189 $ 57 Net gain (loss) on investment securities......... (19) 87 (275) (412) (476) 161 ------- ----- ------- ------- -------- ------- Net increase (decrease) in net assets resulting from operations................................ (38) 83 (310) (407) (287) 218 ------- ----- ------- ------- -------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 2,751 516 5,178 2,291 26,248 7,892 ------- ----- ------- ------- -------- ------- Less cost of units redeemed: Administrative charges......................... 224 83 462 167 2,370 257 Policy loans................................... 3 7 27 27 402 76 Surrender benefits............................. 51 2 113 15 646 58 Death benefits................................. 1 0 2 0 89 0 ------- ----- ------- ------- -------- ------- 279 92 604 209 3,507 391 ------- ----- ------- ------- -------- ------- Increase (decrease) in net assets from capital unit transactions............................ 2,472 424 4,574 2,082 22,741 7,501 ------- ----- ------- ------- -------- ------- Net increase (decrease) in net assets.......... 2,434 507 4,264 1,675 22,454 7,719 Depositor's equity contribution (net redemption).................................... 0 (23) 0 (32) 0 (30) NET ASSETS: Beginning of year................................ 985 501 2,568 925 8,072 383 ------- ----- ------- ------- -------- ------- End of year...................................... $ 3,419 $ 985 $ 6,832 $ 2,568 $ 30,526 $ 8,072 ======= ===== ======= ======= ======== ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 99 55 230 75 643 36 Units issued..................................... 484 132 898 301 2,831 836 Units redeemed................................... (222) (88) (444) (146) (1,069) (229) ------- ----- ------- ------- -------- ------- Units outstanding - end of year.................. 361 99 684 230 2,405 643 ======= ===== ======= ======= ======== =======
See accompanying notes. 99 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL PILGRIM BAXTER DREYFUS VALUE LINE MID CAP GROWTH MID CAP AGGRESSIVE GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------- ----------------- ----------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- ----------------- ----------------- 2001 2000 2001 2000 2001 2000(1) --------- --------- ------- ------- ------- ------- OPERATIONS: Net investment income (loss)..................... $ (288) $ 81 $ 17 $ 20 $ (9) $ (4) Net gain (loss) on investment securities......... (15,752) (16,860) (142) 40 (98) (185) --------- --------- ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ (16,040) (16,779) (125) 60 (107) (189) --------- --------- ------- ------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 15,784 55,513 4,160 1,562 434 1,091 --------- --------- ------- ------- ------- ------- Less cost of units redeemed: Administrative charges......................... 5,547 2,546 404 96 66 19 Policy loans................................... 417 1,156 29 21 30 16 Surrender benefits............................. 530 323 85 4 5 0 Death benefits................................. 85 72 3 0 10 0 --------- --------- ------- ------- ------- ------- 6,579 4,097 521 121 111 35 --------- --------- ------- ------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 9,205 51,416 3,639 1,441 323 1,056 --------- --------- ------- ------- ------- ------- Net increase (decrease) in net assets.......... (6,835) 34,637 3,514 1,501 216 867 Depositor's equity contribution (net redemption).................................... 0 0 0 (27) 0 200 NET ASSETS: Beginning of year................................ 39,702 5,065 1,811 337 1,067 0 --------- --------- ------- ------- ------- ------- End of year...................................... $ 32,867 $ 39,702 $ 5,325 $ 1,811 $ 1,283 $ 1,067 ========= ========= ======= ======= ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 2,929 317 159 33 119 0 Units issued..................................... 3,589 4,015 636 311 155 132 Units redeemed................................... (2,700) (1,403) (302) (185) (113) (13) --------- --------- ------- ------- ------- ------- Units outstanding - end of year.................. 3,818 2,929 493 159 161 119 ========= ========= ======= ======= ======= =======
See accompanying notes. 100 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL GREAT GREAT GREAT COMPANIES - COMPANIES - COMPANIES - AMERICA(SM) TECHNOLOGY(SM) GLOBAL(2) SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------ ------------------- ----------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------ ------------------- ----------------- 2001 2000(1) 2001 2000(1) 2001 2000(1) -------- ------- -------- -------- ------- ------- OPERATIONS: Net investment income (loss)..................... $ (65) $ (28) $ (34) $ (13) $ (11) $ (1) Net gain (loss) on investment securities......... (1,083) 715 (1,814) (1,437) (79) (16) -------- ------- -------- -------- ------- ----- Net increase (decrease) in net assets resulting from operations................................ (1,148) 687 (1,848) (1,450) (90) (17) -------- ------- -------- -------- ------- ----- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 10,837 8,008 5,801 4,240 2,057 494 -------- ------- -------- -------- ------- ----- Less cost of units redeemed: Administrative charges......................... 1,180 177 508 80 176 7 Policy loans................................... 106 110 36 53 12 1 Surrender benefits............................. 151 117 43 69 35 0 Death benefits................................. 136 0 7 0 0 0 -------- ------- -------- -------- ------- ----- 1,573 404 594 202 223 8 -------- ------- -------- -------- ------- ----- Increase (decrease) in net assets from capital unit transactions............................ 9,264 7,604 5,207 4,038 1,834 486 -------- ------- -------- -------- ------- ----- Net increase (decrease) in net assets.......... 8,116 8,291 3,359 2,588 1,744 469 Depositor's equity contribution (net redemption).................................... 0 200 0 200 0 25 NET ASSETS: Beginning of year................................ 8,491 0 2,788 0 494 0 -------- ------- -------- -------- ------- ----- End of year...................................... $ 16,607 $ 8,491 $ 6,147 $ 2,788 $ 2,238 $ 494 ======== ======= ======== ======== ======= ===== UNIT ACTIVITY: Units outstanding - beginning of year............ 751 0 416 0 58 0 Units issued..................................... 1,591 878 1,793 557 434 63 Units redeemed................................... (655) (127) (741) (141) (173) (5) -------- ------- -------- -------- ------- ----- Units outstanding - end of year.................. 1,687 751 1,468 416 319 58 ======== ======= ======== ======== ======= =====
See accompanying notes. 101 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL GABELLI LKCM GLOBAL GROWTH CAPITAL GROWTH SUBACCOUNT SUBACCOUNT ----------------- -------------- DECEMBER 31, DECEMBER 31, ----------------- -------------- 2001 2000(1) 2001(1) ------- ------- -------------- OPERATIONS: Net investment income (loss)..................... $ (34) $ (1) $ 0 Net gain (loss) on investment securities......... (399) (34) (7) ------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ (433) (35) (7) ------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 8,042 1,014 1,164 ------- ------- ------- Less cost of units redeemed: Administrative charges......................... 837 33 21 Policy loans................................... 18 0 3 Surrender benefits............................. 66 0 1 Death benefits................................. 69 0 0 ------- ------- ------- 990 33 25 ------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 7,052 981 1,139 ------- ------- ------- Net increase (decrease) in net assets.......... 6,619 946 1,132 Depositor's equity contribution (net redemption).................................... 0 25 25 NET ASSETS: Beginning of year................................ 971 0 0 ------- ------- ------- End of year...................................... $ 7,590 $ 971 $ 1,157 ======= ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 107 0 0 Units issued..................................... 1,191 123 211 Units redeemed................................... (359) (16) (31) ------- ------- ------- Units outstanding - end of year.................. 939 107 180 ======= ======= =======
See accompanying notes. 102 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
FIDELITY VIP III GROWTH FIDELITY VIP II FIDELITY VIP OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- ----------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------- ----------------- ----------------- 2001 2000(1) 2001 2000(1) 2001 2000(1) ------- ------- ------- ------- ------- ------- OPERATIONS: Net investment income (loss)..................... $ (6) $ (2) $ (9) $ (3) $ (8) $ (1) Net gain (loss) on investment securities......... (118) (73) (146) (48) (66) 17 ------- ------ ------- ------- ------- ------ Net increase (decrease) in net assets resulting from operations................................ (124) (75) (155) (51) (74) 16 ------- ------ ------- ------- ------- ------ CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 1,100 633 2,727 1,085 4,211 276 ------- ------ ------- ------- ------- ------ Less cost of units redeemed: Administrative charges......................... 117 14 249 23 225 8 Policy loans................................... 9 5 0 5 0 2 Surrender benefits............................. 15 2 18 1 31 0 Death benefits................................. 0 0 0 0 0 0 ------- ------ ------- ------- ------- ------ 141 21 267 29 256 10 ------- ------ ------- ------- ------- ------ Increase (decrease) in net assets from capital unit transactions............................ 959 612 2,460 1,056 3,955 266 ------- ------ ------- ------- ------- ------ Net increase (decrease) in net assets.......... 835 537 2,305 1,005 3,881 282 Depositor's equity contribution (net redemption).................................... 0 25 0 25 (27) 25 NET ASSETS: Beginning of year................................ 562 0 1,030 0 307 0 ------- ------ ------- ------- ------- ------ End of year...................................... $ 1,397 $ 562 $ 3,335 $ 1,030 $ 4,161 $ 307 ======= ====== ======= ======= ======= ====== UNIT ACTIVITY: Units outstanding - beginning of year............ 66 0 110 0 28 0 Units issued..................................... 242 76 504 124 571 39 Units redeemed................................... (115) (10) (204) (14) (196) (11) ------- ------ ------- ------- ------- ------ Units outstanding - end of year.................. 193 66 410 110 403 28 ======= ====== ======= ======= ======= ======
See accompanying notes. 103 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS AT DECEMBER 31, 2001 NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The WRL Series Life Account (the "Life Account"), was established as a variable life insurance separate account of Western Reserve Life Assurance Co. of Ohio ("WRL", or the "depositor") and is registered as a unit investment trust under the Investment Company Act of 1940, as amended. The Life Account contains thirty-two investment options referred to as subaccounts. Each subaccount invests exclusively in a corresponding Portfolio (the "Portfolio") of a Series Fund, which collectively is referred to as the "Fund". The WRL Series Life Account contains four funds (collectively referred to as the "Funds"). Each fund is a registered management investment company under the Investment Company Act of 1940, as amended. SUBACCOUNT INVESTMENT BY FUND: - ------------------------------- AEGON/TRANSAMERICA SERIES FUND, INC. (FORMERLY WRL SERIES FUND, INC.) J.P. Morgan Money Market AEGON Bond Janus Growth Janus Global LKCM Strategic Total Return Van Kampen Emerging Growth Alger Aggressive Growth AEGON Balanced Federated Growth & Income Transamerica Value Balanced C.A.S.E. Growth NWQ Value Equity International Equity GE U.S. Equity Third Avenue Value J.P. Morgan Real Estate Securities Goldman Sachs Growth Munder Net50 T. Rowe Price Dividend Growth T. Rowe Price Small Cap Salomon All Cap Pilgrim Baxter Mid Cap Growth Dreyfus Mid Cap Value Line Aggressive Growth Great Companies - America(SM) Great Companies - Technology(SM) Great Companies - Global(2) Gabelli Global Growth LKCM Capital Growth VARIABLE INSURANCE PRODUCTS FUND III (VIP III) Fidelity VIP III Growth Opportunities Portfolio - Service Class 2 (Referred to as "Fidelity VIP III Growth Opportunities") VARIABLE INSURANCE PRODUCTS FUND II (VIP II) Fidelity VIP II Contrafund(R) Portfolio - Service Class 2 (Referred to as "Fidelity VIP II Contrafund(R)") VARIABLE INSURANCE PRODUCTS FUND (VIP) Fidelity VIP Equity-Income Portfolio - Service Class 2 (Referred to as "Fidelity VIP Equity-Income") The following portfolio names have changed:
PORTFOLIO FORMERLY - --------- -------- J.P. Morgan Money Market WRL J.P. Morgan Money Market AEGON Bond WRL AEGON Bond Janus Growth WRL Janus Growth Janus Global WRL Janus Global LKCM Strategic Total Return WRL LKCM Strategic Total Return Van Kampen Emerging Growth WRL VKAM Emerging Growth Alger Aggressive Growth WRL Alger Aggressive Growth AEGON Balanced WRL AEGON Balanced Federated Growth & Income WRL Federated Growth & Income Transamerica Value Balanced WRL Dean Asset Allocation C.A.S.E. Growth WRL C.A.S.E. Growth NWQ Value Equity WRL NWQ Value Equity International Equity WRL GE International Equity GE U.S. Equity WRL GE U.S. Equity Third Avenue Value WRL Third Avenue Value J.P. Morgan Real Estate WRL J.P. Morgan Real Estate Securities Securities Goldman Sachs Growth WRL Goldman Sachs Growth Munder Net50 WRL Goldman Sachs Small Cap T. Rowe Price Dividend WRL T. Rowe Price Dividend Growth Growth T. Rowe Price Small Cap WRL T. Rowe Price Small Cap Salomon All Cap WRL Salomon All Cap Pilgrim Baxter Mid Cap WRL Pilgrim Baxter Mid Cap Growth Growth Dreyfus Mid Cap WRL Dreyfus Mid Cap Value Line Aggressive Growth WRL Value Line Aggressive Growth
104 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 1 -- (CONTINUED)
PORTFOLIO FORMERLY - --------- -------- Great WRL Great Companies - Companies - America(SM) America(SM) Great Companies - WRL Great Companies - Technology(SM) Technology(SM) Great Companies - Global(2) WRL Great Companies - Global(2) Gabelli Global Growth WRL Gabelli Global Growth LKCM Capital Growth WRL LKCM Capital Growth
Effective May 1, 2001, Munder Capital Management replaced Goldman Sachs Asset Management as sub-adviser to the Munder Net50 portfolio. At a special shareholder meeting held on May 29, 2001, the investment restrictions, strategy and investment objective were also changed. See the Prospectus and the Statement of Additional Information for a description of the portfolio's investment objective. The AEGON/Transamerica Series Fund, Inc. has entered into annually renewable investment advisory agreements for each Portfolio with AEGON/Transamerica Fund Advisers, Inc. ("AEGON/Transamerica Advisers", formerly WRL Investment Management, Inc.) as investment adviser. Costs incurred in connection with the advisory services rendered by AEGON/ Transamerica Advisers are paid by each Portfolio. AEGON/ Transamerica Advisers 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 AEGON/Transamerica Advisers. The other three Funds have entered into participation agreements for each Portfolio with WRL. Each period reported on reflects a full twelve month period except as follows:
SUBACCOUNT INCEPTION DATE - ---------- -------------- WRL International Equity 01/02/1997 WRL GE U.S. Equity 01/02/1997 WRL Third Avenue Value 01/02/1998 WRL J.P. Morgan Real Estate Securities 05/01/1998 WRL Goldman Sachs Growth 07/01/1999 WRL Munder Net50 07/01/1999 WRL T. Rowe Price Dividend Growth 07/01/1999 WRL T. Rowe Price Small Cap 07/01/1999 WRL Salomon All Cap 07/01/1999
SUBACCOUNT INCEPTION DATE - ---------- -------------- WRL Pilgrim Baxter Mid Cap Growth 07/01/1999 WRL Dreyfus Mid Cap 07/01/1999 WRL Value Line Aggressive Growth 05/01/2000 WRL Great Companies - America(SM) 05/01/2000 WRL Great Companies - Technology(SM) 05/01/2000 WRL Great Companies - Global(2) 09/01/2000 WRL Gabelli - Global Growth 09/01/2000 WRL LKCM Capital Growth 02/05/2001 Fidelity VIP III Growth Opportunities 05/01/2000 Fidelity VIP II Contrafund(R) 05/01/2000 Fidelity VIP Equity-Income 05/01/2000
Effective September 1, 2000, the WRL Janus Global Portfolio is not available for investment to new policyowners. The Portfolio remains open to the policyowners who purchased the Policy before September 1, 2000. On February 5, 2001, WRL made initial contributions totaling $25,000 to the Life Account. The respective amounts of the contributions and units received are as follows:
SUBACCOUNT CONTRIBUTION UNITS - ---------- ------------ ----- WRL LKCM Capital Growth $ 25,000 2,500
The Life Account holds assets to support the benefits under certain flexible premium variable universal life insurance policies (the "Policies") issued by WRL. The Life Account's equity transactions are accounted for using the appropriate effective date at the corresponding accumulation unit value. The following significant accounting policies, which are in conformity with accounting principles generally accepted in the United States, have been consistently applied in the preparation of the Life Account Financial Statements. The preparation of the Financial Statements required management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS Investments in the Funds' shares are valued at the closing net asset value ("NAV") per share of the underlying Portfolio which value their investment securities at fair value, as determined by the Funds. 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. 105 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 1 -- (CONTINUED) The cost of investments sold is determined on a first-in, first-out basis. B. FEDERAL INCOME TAXES The operations of the Life Account are a part of and are taxed with the total operations of WRL, which is taxed as a life insurance company under the Internal Revenue Code. Under the Internal Revenue Code law, the investment income of the Life Account, including realized and unrealized capital gains, is not taxable to WRL as long as the earnings are credited under the Policies. Accordingly, no provision for Federal income taxes has been made. NOTE 2 -- EXPENSES AND RELATED PARTY TRANSACTIONS Charges are assessed by WRL in connection with the issuance and administration of the Policies. A. POLICY CHARGES Under some forms of the Policies, a sales charge and premium taxes are deducted by WRL prior to allocation of policy owner payments to the subaccounts. Contingent surrender charges may also apply. Under all forms of the Policy, monthly charges against policy cash values are made to compensate WRL for costs of insurance provided. B. LIFE ACCOUNT CHARGES A daily charge equal to an annual rate of 0.90% of average daily net assets is assessed to compensate WRL for assumption of mortality and expense risks for administrative services in connection with issuance and administration of the Policies. This charge (not assessed at the individual contract level) effectively reduces the value of a unit outstanding during the year. C. RELATED PARTY TRANSACTIONS AEGON/Transamerica Advisers is the investment adviser for the AEGON/Transamerica Series Fund, Inc. ("Fund"). The Fund has entered into annually renewable investment advisory agreements for each Portfolio. The agreements provide for an advisory fee at the following annual rate to AEGON/ Transamerica Advisers as a percentage of the average daily net assets of the portfolio.
PORTFOLIO ADVISORY FEE - --------- ------------ J.P. Morgan Money Market 0.40 % AEGON Bond 0.45 % Janus Growth 0.80 % Janus Global 0.80 % LKCM Strategic Total Return 0.80 % Van Kampen Emerging Growth 0.80 % Alger Aggressive Growth 0.80 % AEGON Balanced 0.80 % Federated Growth & Income 0.75 % Transamerica Value Balanced 0.75 % C.A.S.E. Growth 0.80 % NWQ Value Equity 0.80 % International Equity 1.00 % GE U.S. Equity 0.80 % Third Avenue Value 0.80 % J.P. Morgan Real Estate Securities 0.80 % Goldman Sachs Growth(1) 0.90 % Munder Net50 0.90 % T. Rowe Price Dividend Growth(1) 0.90 % T. Rowe Price Small Cap 0.75 % Salomon All Cap(1) 0.90 % Pilgrim Baxter Mid Cap Growth(1) 0.90 % Dreyfus Mid Cap(2) 0.85 % Value Line Aggressive Growth 0.80 % Great Companies - America(SM) 0.80 % Great Companies - Technology(SM) 0.80 % Great Companies - Global(2) 0.80 % Gabelli Global Growth(3) 1.00 % LKCM Capital Growth 0.80 %
- --------------- (1)AEGON/Transamerica Advisers receives compensation for its services at 0.90 % for the first $ 100 million of the portfolio's average daily net assets; and 0.80 % for the portfolio's average daily net assets above $ 100 million. (2)AEGON/Transamerica Advisers receives compensation for its services at 0.85 % for the first $ 100 million of the portfolio's average daily net assets; and 0.80 % for the portfolio's average daily net assets above $ 100 million. (3)AEGON/Transamerica Advisers receives compensation for its services at 1.00% of the first $500 million of the portfolio's average daily net assets; 0.90% of assets over $500 million up to $1 billion; and 0.80% of assets in excess of $1 billion. On August 24, 2001, AEGON/Transamerica Advisers entered into a interim sub-advisory agreement with Transamerica Investment Management, LLC ("Transamerica") to provide investment services to the Transamerica Value Balanced portfolio and compensate Transamerica as described in the Fund's Statement of Additional Information. In a Special Meeting held on December 14, 2001, shareholders approved a new sub-advisory agreement between AEGON/Transamerica Advisers and 106 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 2 -- (CONTINUED) Transamerica. Transamerica is an indirect wholly owned subsidiary of AEGON NV. AEGON/Transamerica Fund Services, Inc. ("AEGON/ Transamerica Services" formerly WRL Investment Services, Inc.) provides the Fund with administrative and transfer agency services. AEGON/Transamerica Advisers and AEGON/ Transamerica Services are wholly owned subsidiaries of WRL. WRL is an indirect wholly owned subsidiary of AEGON NV, a Netherlands corporation. NOTE 3 -- DIVIDEND DISTRIBUTIONS Dividends are not declared by the Life Account, since the increase in the value of the underlying investment in the Fund is reflected daily in the accumulation unit value used to calculate the equity value within the Life Account. Consequently, a dividend distribution by the underlying Fund does not change either the accumulation unit value or equity values within the Life Account. NOTE 4 -- SECURITIES TRANSACTIONS Securities transactions for the year ended December 31, 2001 are as follows (in thousands):
PURCHASES PROCEEDS OF FROM SALES SUBACCOUNT SECURITIES OF SECURITIES - ---------- ---------- ------------- WRL J.P. Morgan Money Market $ 374,839 $ 352,829 WRL AEGON Bond 22,544 5,318 WRL Janus Growth 166,541 126,357 WRL Janus Global 26,507 25,272 WRL LKCM Strategic Total Return 6,424 6,426 WRL Van Kampen Emerging Growth 239,931 230,309
PURCHASES PROCEEDS OF FROM SALES SUBACCOUNT SECURITIES OF SECURITIES - ---------- ---------- ------------- WRL Alger Aggressive Growth $ 49,314 $ 32,985 WRL AEGON Balanced 4,051 2,265 WRL Federated Growth & Income 29,454 3,704 WRL Transamerica Value Balanced 10,813 3,312 WRL C.A.S.E. Growth 8,667 3,370 WRL NWQ Value Equity 7,942 3,233 WRL International Equity 4,005 1,496 WRL GE U.S. Equity 7,537 3,107 WRL Third Avenue Value 20,105 3,678 WRL J.P. Morgan Real Estate Securities 7,355 2,262 WRL Goldman Sachs Growth 3,841 1,418 WRL Munder Net50 3,654 831 WRL T. Rowe Price Dividend Growth 3,642 1,183 WRL T. Rowe Price Small Cap 6,562 2,025 WRL Salomon All Cap 25,028 2,176 WRL Pilgrim Baxter Mid Cap Growth 16,772 7,780 WRL Dreyfus Mid Cap 4,949 1,296 WRL Value Line Aggressive Growth 866 554 WRL Great Companies - America(SM) 11,085 1,905 WRL Great Companies - Technology(SM) 6,460 1,295 WRL Great Companies - Global(2) 2,341 523 WRL Gabelli Global Growth 7,348 372 WRL LKCM Capital Growth 1,325 163 Fidelity VIP III Growth Opportunities 1,431 487 Fidelity VIP II Contrafund(R) 3,186 705 Fidelity VIP Equity-Income 4,895 963
107 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT ----------------------------------------------------- DECEMBER 31, ----------------------------------------------------- 2001 2000 1999 1998 1997 --------- -------- -------- -------- -------- Accumulation unit value, beginning of year.................. $ 18.39 $ 17.49 $ 16.83 $ 16.13 $ 15.45 --------- -------- -------- -------- -------- Income from operations: Net investment income (loss)............................ 0.56 0.90 0.66 0.70 0.68 Net realized and unrealized gain (loss) on investment... 0.00 0.00 0.00 0.00 0.00 --------- -------- -------- -------- -------- Net income (loss) from operations..................... 0.56 0.90 0.66 0.70 0.68 --------- -------- -------- -------- -------- Accumulation unit value, end of year........................ $ 18.95 $ 18.39 $ 17.49 $ 16.83 $ 16.13 ========= ======== ======== ======== ======== Total return................................................ 3.05 % 5.17 % 3.92 % 4.36 % 4.37 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 82,417 $ 60,279 $ 56,070 $ 24,576 $ 16,440 Ratio of net investment income (loss) to average net assets.................................................. 2.80 % 5.05 % 3.87 % 4.24 % 4.28 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL AEGON BOND SUBACCOUNT ----------------------------------------------------- DECEMBER 31, ----------------------------------------------------- 2001 2000 1999 1998 1997 --------- -------- -------- -------- -------- Accumulation unit value, beginning of year.................. $ 24.19 $ 22.01 $ 22.89 $ 21.12 $ 19.53 --------- -------- -------- -------- -------- Income from operations: Net investment income (loss)............................ (0.06) 1.04 1.13 1.01 1.01 Net realized and unrealized gain (loss) on investment... 1.78 1.14 (2.01) 0.76 0.58 --------- -------- -------- -------- -------- Net income (loss) from operations..................... 1.72 2.18 (0.88) 1.77 1.59 --------- -------- -------- -------- -------- Accumulation unit value, end of year........................ $ 25.91 $ 24.19 $ 22.01 $ 22.89 $ 21.12 ========= ======== ======== ======== ======== Total return................................................ 7.11 % 9.90 % (3.81)% 8.34 % 8.18 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 44,709 $ 25,935 $ 27,129 $ 24,934 $ 17,657 Ratio of net investment income (loss) to average net assets.................................................. (0.24)% 4.58 % 5.10 % 4.58 % 5.06 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
108 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL JANUS GROWTH SUBACCOUNT ------------------------------------------------------------- DECEMBER 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ----------- --------- --------- Accumulation unit value, beginning of year............. $ 102.61 $ 145.70 $ 92.07 $ 56.48 $ 48.48 ---------- ---------- ----------- --------- --------- Income from operations: Net investment income (loss)....................... (0.73) 16.41 25.03 0.13 5.83 Net realized and unrealized gain (loss) on investment....................................... (28.87) (59.50) 28.60 35.46 2.17 ---------- ---------- ----------- --------- --------- Net income (loss) from operations................ (29.60) (43.09) 53.63 35.59 8.00 ---------- ---------- ----------- --------- --------- Accumulation unit value, end of year................... $ 73.01 $ 102.61 $ 145.70 $ 92.07 $ 56.48 ========== ========== =========== ========= ========= Total return........................................... (28.85)% (29.58)% 58.25 % 63.01 % 16.50 % Ratios and supplemental data: Net assets at end of year (in thousands)............. $ 699,663 $ 961,015 $ 1,353,957 $ 798,027 $ 450,271 Ratio of net investment income (loss) to average net assets............................................. (0.90)% 11.75 % 22.67 % 0.19 % 10.84 % Ratio of expenses to average net assets.............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL JANUS GLOBAL SUBACCOUNT ------------------------------------------------------------- DECEMBER 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ----------- --------- --------- Accumulation unit value, beginning of year............. $ 31.79 $ 38.91 $ 22.94 $ 17.80 $ 15.13 ---------- ---------- ----------- --------- --------- Income from operations: Net investment income (loss)....................... 0.00 7.93 2.44 0.82 2.30 Net realized and unrealized gain (loss) on investment....................................... (7.48) (15.05) 13.53 4.32 0.37 ---------- ---------- ----------- --------- --------- Net income (loss) from operations................ (7.48) (7.12) 15.97 5.14 2.67 ---------- ---------- ----------- --------- --------- Accumulation unit value, end of year................... $ 24.31 $ 31.79 $ 38.91 $ 22.94 $ 17.80 ========== ========== =========== ========= ========= Total return........................................... (23.53)% (18.28)% 69.58 % 28.86 % 17.69 % Ratios and supplemental data: Net assets at end of year (in thousands)............. $ 313,912 $ 410,109 $ 451,498 $ 233,256 $ 145,017 Ratio of net investment income (loss) to average net assets............................................. 0.01 % 20.55 % 9.07 % 3.92 % 13.39 % Ratio of expenses to average net assets.............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
109 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT ------------------------------------------------------------ DECEMBER 31, ------------------------------------------------------------ 2001 2000 1999 1998 1997 ---------- ---------- ---------- --------- --------- Accumulation unit value, beginning of year............. $ 21.77 $ 22.82 $ 20.55 $ 18.91 $ 15.66 ---------- ---------- ---------- --------- --------- Income from operations: Net investment income (loss)....................... (0.09) 1.63 1.68 0.71 1.56 Net realized and unrealized gain (loss) on investment....................................... (0.58) (2.68) 0.59 0.93 1.69 ---------- ---------- ---------- --------- --------- Net income (loss) from operations................ (0.67) (1.05) 2.27 1.64 3.25 ---------- ---------- ---------- --------- --------- Accumulation unit value, end of year................... $ 21.10 $ 21.77 $ 22.82 $ 20.55 $ 18.91 ========== ========== ========== ========= ========= Total return........................................... (3.06)% (4.62)% 11.07 % 8.66 % 20.77 % Ratios and supplemental data: Net assets at end of year (in thousands)............. $ 95,331 $ 98,466 $ 106,665 $ 98,926 $ 80,753 Ratio of net investment income (loss) to average net assets............................................. (0.44)% 7.43 % 7.93 % 3.67 % 8.89 % Ratio of expenses to average net assets.............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL VAN KAMPEN EMERGING GROWTH SUBACCOUNT ------------------------------------------------------------ DECEMBER 31, ------------------------------------------------------------ 2001 2000 1999 1998 1997 ---------- ---------- ---------- --------- --------- Accumulation unit value, beginning of year............. $ 56.74 $ 64.99 $ 31.96 $ 23.48 $ 19.51 ---------- ---------- ---------- --------- --------- Income from operations: Net investment income (loss)....................... (0.35) 16.83 9.32 0.91 2.20 Net realized and unrealized gain (loss) on investment....................................... (18.85) (25.08) 23.71 7.57 1.77 ---------- ---------- ---------- --------- --------- Net income (loss) from operations................ (19.20) (8.25) 33.03 8.48 3.97 ---------- ---------- ---------- --------- --------- Accumulation unit value, end of year................... $ 37.54 $ 56.74 $ 64.99 $ 31.96 $ 23.48 ========== ========== ========== ========= ========= Total return........................................... (33.83)% (12.70)% 103.33 % 36.11 % 20.37 % Ratios and supplemental data: Net assets at end of year (in thousands)............. $ 386,903 $ 580,202 $ 608,130 $ 262,665 $ 164,702 Ratio of net investment income (loss) to average net assets............................................. (0.82)% 23.62 % 23.19 % 3.44 % 10.18 % Ratio of expenses to average net assets.............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
110 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT ---------------------------------------------------------------- DECEMBER 31, ---------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, beginning of year......... $ 30.40 $ 44.67 $ 26.67 $ 18.10 $ 14.70 ----------- ----------- ---------- ---------- ---------- Income from operations: Net investment income (loss)................... (0.23) 4.76 4.90 1.33 1.75 Net realized and unrealized gain (loss) on investment................................... (5.00) (19.03) 13.10 7.24 1.65 ----------- ----------- ---------- ---------- ---------- Net income (loss) from operations............ (5.23) (14.27) 18.00 8.57 3.40 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, end of year............... $ 25.17 $ 30.40 $ 44.67 $ 26.67 $ 18.10 =========== =========== ========== ========== ========== Total return....................................... (17.20)% (31.94)% 67.52 % 47.36 % 23.14 % Ratios and supplemental data: Net assets at end of year (in thousands)......... $ 248,752 $ 280,172 $ 354,178 $ 177,857 $ 94,652 Ratio of net investment income (loss) to average net assets..................................... (0.90)% 11.65 % 15.54 % 6.20 % 10.26 % Ratio of expenses to average net assets.......... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL AEGON BALANCED SUBACCOUNT ---------------------------------------------------------------- DECEMBER 31, ---------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, beginning of year......... $ 16.08 $ 15.33 $ 15.02 $ 14.17 $ 12.21 ----------- ----------- ---------- ---------- ---------- Income from operations: Net investment income (loss)................... (0.07) 0.17 0.19 0.25 1.55 Net realized and unrealized gain (loss) on investment................................... (0.54) 0.58 0.12 0.60 0.41 ----------- ----------- ---------- ---------- ---------- Net income (loss) from operations............ (0.61) 0.75 0.31 0.85 1.96 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, end of year............... $ 15.47 $ 16.08 $ 15.33 $ 15.02 $ 14.17 =========== =========== ========== ========== ========== Total return....................................... (3.80)% 4.88 % 2.11 % 5.98 % 16.06 % Ratios and supplemental data: Net assets at end of year (in thousands)......... $ 22,061 $ 20,952 $ 18,183 $ 14,864 $ 10,716 Ratio of net investment income (loss) to average net assets..................................... (0.46)% 1.10 % 1.26 % 1.76 % 11.62 % Ratio of expenses to average net assets.......... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
111 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL FEDERATED GROWTH & INCOME SUBACCOUNT -------------------------------------------------------- DECEMBER 31, -------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- -------- --------- Accumulation unit value, beginning of year.................. $ 19.93 $ 15.57 $ 16.44 $ 16.09 $ 13.03 --------- --------- --------- -------- --------- Income from operations: Net investment income (loss)............................ 0.21 0.85 1.05 0.77 2.61 Net realized and unrealized gain (loss) on investment... 2.71 3.51 (1.92) (0.42) 0.45 --------- --------- --------- -------- --------- Net income (loss) from operations..................... 2.92 4.36 (0.87) 0.35 3.06 --------- --------- --------- -------- --------- Accumulation unit value, end of year........................ $ 22.85 $ 19.93 $ 15.57 $ 16.44 $ 16.09 ========= ========= ========= ======== ========= Total return................................................ 14.67 % 28.01 % (5.31)% 2.13 % 23.54 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 57,831 $ 26,883 $ 17,389 $ 16,047 $ 9,063 Ratio of net investment income (loss) to average net assets.................................................. 0.95 % 5.00 % 6.51 % 4.83 % 18.50 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL TRANSAMERICA VALUE BALANCED SUBACCOUNT -------------------------------------------------------- DECEMBER 31, -------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- -------- --------- Accumulation unit value, beginning of year.................. $ 18.19 $ 15.66 $ 16.74 $ 15.60 $ 13.50 --------- --------- --------- -------- --------- Income from operations: Net investment income (loss)............................ 0.10 1.20 0.41 1.58 1.20 Net realized and unrealized gain (loss) on investment... 0.18 1.33 (1.49) (0.44) 0.90 --------- --------- --------- -------- --------- Net income (loss) from operations..................... 0.28 2.53 (1.08) 1.14 2.10 --------- --------- --------- -------- --------- Accumulation unit value, end of year........................ $ 18.47 $ 18.19 $ 15.66 $ 16.74 $ 15.60 ========= ========= ========= ======== ========= Total return................................................ 1.54 % 16.16 % (6.48)% 7.36 % 15.55 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 41,934 $ 34,213 $ 33,317 $ 39,904 $ 29,123 Ratio of net investment income (loss) to average net assets.................................................. 0.55 % 7.33 % 2.50 % 9.69 % 8.14 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
112 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL C.A.S.E. GROWTH SUBACCOUNT ----------------------------------------------------------- DECEMBER 31, ----------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 13.04 $ 16.60 $ 12.51 $ 12.32 $ 10.81 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... 1.14 2.56 1.52 1.24 1.51 Net realized and unrealized gain (loss) on investment...................................... (5.09) (6.12) 2.57 (1.05) 0.00 ---------- ---------- --------- --------- --------- Net income (loss) from operations............... (3.95) (3.56) 4.09 0.19 1.51 ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 9.09 $ 13.04 $ 16.60 $ 12.51 $ 12.32 ========== ========== ========= ========= ========= Total return.......................................... (30.31)% (21.42)% 32.65 % 1.56 % 14.00 % Ratios and supplemental data: Net assets at end of year (in thousands)............ $ 17,847 $ 22,344 $ 27,509 $ 17,730 $ 11,946 Ratio of net investment income (loss) to average net assets............................................ 9.90 % 16.28 % 10.16 % 10.21 % 12.65 % Ratio of expenses to average net assets............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL NWQ VALUE EQUITY SUBACCOUNT ----------------------------------------------------------- DECEMBER 31, ----------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 16.07 $ 14.08 $ 13.16 $ 13.94 $ 11.25 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... (0.12) 0.23 0.20 0.95 0.14 Net realized and unrealized gain (loss) on investment...................................... (0.31) 1.76 0.72 (1.73) 2.55 ---------- ---------- --------- --------- --------- Net income (loss) from operations............... (0.43) 1.99 0.92 (0.78) 2.69 ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 15.64 $ 16.07 $ 14.08 $ 13.16 $ 13.94 ========== ========== ========= ========= ========= Total return.......................................... (2.68)% 14.17 % 6.98 % (5.63)% 23.93 % Ratios and supplemental data: Net assets at end of year (in thousands)............ $ 32,890 $ 28,888 $ 26,678 $ 26,083 $ 26,714 Ratio of net investment income (loss) to average net assets............................................ (0.75)% 1.58 % 1.42 % 6.84 % 1.05 % Ratio of expenses to average net assets............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
113 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL INTERNATIONAL EQUITY SUBACCOUNT ----------------------------------------------------------- DECEMBER 31, ----------------------------------------------------------- 2001 2000 1999 1998 1997(1) ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 12.43 $ 14.76 $ 11.92 $ 10.65 $ 10.00 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... 0.25 2.00 0.62 (0.09) (0.03) Net realized and unrealized gain (loss) on investment...................................... (3.25) (4.33) 2.22 1.36 0.68 ---------- ---------- --------- --------- --------- Net income (loss) from operations............... (3.00) (2.33) 2.84 1.27 0.65 ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 9.43 $ 12.43 $ 14.76 $ 11.92 $ 10.65 ========== ========== ========= ========= ========= Total return.......................................... (24.12)% (15.75)% 23.84 % 11.84 % 6.54 % Ratios and supplemental data: Net assets at end of year (in thousands)............ $ 8,183 $ 7,944 $ 7,013 $ 5,827 $ 2,289 Ratio of net investment income (loss) to average net assets............................................ 2.40 % 15.54 % 5.09 % (0.81)% (0.28)% Ratio of expenses to average net assets............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL GE U.S. EQUITY SUBACCOUNT ----------------------------------------------------------- DECEMBER 31, ----------------------------------------------------------- 2001 2000 1999 1998 1997(1) ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 17.69 $ 17.99 $ 15.33 $ 12.59 $ 10.00 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... (0.12) 0.68 1.38 0.73 0.99 Net realized and unrealized gain (loss) on investment...................................... (1.60) (0.98) 1.28 2.01 1.60 ---------- ---------- --------- --------- --------- Net income (loss) from operations............... (1.72) (0.30) 2.66 2.74 2.59 ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 15.97 $ 17.69 $ 17.99 $ 15.33 $ 12.59 ========== ========== ========= ========= ========= Total return.......................................... (9.69)% (1.67)% 17.35 % 21.78 % 25.89 % Ratios and supplemental data: Net assets at end of year (in thousands)............ $ 31,020 $ 29,771 $ 26,416 $ 14,084 $ 3,258 Ratio of net investment income (loss) to average net assets............................................ (0.72)% 3.81 % 8.27 % 5.30 % 8.28 % Ratio of expenses to average net assets............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
114 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL THIRD AVENUE VALUE SUBACCOUNT ---------------------------------------------- DECEMBER 31, ---------------------------------------------- 2001 2000 1999 1998(1) --------- --------- --------- ---------- Accumulation unit value, beginning of year.................. $ 14.22 $ 10.59 $ 9.23 $ 10.00 --------- --------- --------- ---------- Income from operations: Net investment income (loss)............................ (0.11) 0.60 0.19 (0.05) Net realized and unrealized gain (loss) on investment......................................... 0.85 3.03 1.17 (0.72) --------- --------- --------- ---------- Net income (loss) from operations..................... 0.74 3.63 1.36 (0.77) --------- --------- --------- ---------- Accumulation unit value, end of year........................ $ 14.96 $ 14.22 $ 10.59 $ 9.23 ========= ========= ========= ========== Total return................................................ 5.22 % 34.26 % 14.68 % (7.67)% Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 34,345 $ 16,735 $ 3,411 $ 2,807 Ratio of net investment income (loss) to average net assets...................................... (0.78)% 4.53 % 1.98 % (0.52)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
WRL J.P. MORGAN REAL ESTATE SECURITIES SUBACCOUNT ---------------------------------------------- DECEMBER 31, ---------------------------------------------- 2001 2000 1999 1998(1) --------- --------- --------- ---------- Accumulation unit value, beginning of year.................. $ 10.36 $ 8.06 $ 8.46 $ 10.00 --------- --------- --------- ---------- Income from operations: Net investment income (loss)............................ 0.21 0.10 0.07 (0.05) Net realized and unrealized gain (loss) on investment......................................... 0.83 2.20 (0.47) (1.49) --------- --------- --------- ---------- Net income (loss) from operations..................... 1.04 2.30 (0.40) (1.54) --------- --------- --------- ---------- Accumulation unit value, end of year........................ $ 11.40 $ 10.36 $ 8.06 $ 8.46 ========= ========= ========= ========== Total return................................................ 10.06 % 28.46 % (4.63)% (15.44)% Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 7,899 $ 2,476 $ 627 $ 709 Ratio of net investment income (loss) to average net assets...................................... 1.92 % 1.07 % 0.95 % (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
115 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL GOLDMAN SACHS GROWTH SUBACCOUNT ---------------------------------- DECEMBER 31, ---------------------------------- 2001 2000 1999(1) ---------- --------- --------- Accumulation unit value, beginning of year.................. $ 10.29 $ 11.29 $ 10.00 ---------- --------- --------- Income from operations: Net investment income (loss)............................ (0.01) 0.06 (0.05) Net realized and unrealized gain (loss) on investment......................................... (1.52) (1.06) 1.34 ---------- --------- --------- Net income (loss) from operations..................... (1.53) (1.00) 1.29 ---------- --------- --------- Accumulation unit value, end of year........................ $ 8.76 $ 10.29 $ 11.29 ========== ========= ========= Total return................................................ (14.86)% (8.84)% 12.91 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 3,750 $ 1,627 $ 977 Ratio of net investment income (loss) to average net assets...................................... (0.08)% 0.59 % (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
WRL MUNDER NET50 SUBACCOUNT ---------------------------------- DECEMBER 31, ---------------------------------- 2001 2000 1999(1) ---------- --------- --------- Accumulation unit value, beginning of year.................. $ 10.80 $ 10.92 $ 10.00 ---------- --------- --------- Income from operations: Net investment income (loss)............................ (0.03) 0.22 0.76 Net realized and unrealized gain (loss) on investment......................................... (2.79) (0.34) 0.16 ---------- --------- --------- Net income (loss) from operations..................... (2.82) (0.12) 0.92 ---------- --------- --------- Accumulation unit value, end of year........................ $ 7.98 $ 10.80 $ 10.92 ========== ========= ========= Total return................................................ (26.09)% (1.15)% 9.23 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 2,804 $ 862 $ 344 Ratio of net investment income (loss) to average net assets...................................... (0.29)% 2.00 % 15.66 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
116 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL T. ROWE PRICE DIVIDEND GROWTH SUBACCOUNT ---------------------------------- DECEMBER 31, ---------------------------------- 2001 2000 1999(1) ---------- --------- --------- Accumulation unit value, beginning of year.................. $ 9.98 $ 9.16 $ 10.00 ---------- --------- --------- Income from operations: Net investment income (loss)............................ (0.08) (0.04) (0.04) Net realized and unrealized gain (loss) on investment... (0.42) 0.86 (0.80) ---------- --------- --------- Net income (loss) from operations..................... (0.50) 0.82 (0.84) ---------- --------- --------- Accumulation unit value, end of year........................ $ 9.48 $ 9.98 $ 9.16 ========== ========= ========= Total return................................................ (5.02)% 8.89 % (8.37)% Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 3,419 $ 985 $ 501 Ratio of net investment income (loss) to average net assets.................................................. (0.90)% (0.42)% (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
WRL T. ROWE PRICE SMALL CAP SUBACCOUNT ---------------------------------- DECEMBER 31, ---------------------------------- 2001 2000 1999(1) ---------- --------- --------- Accumulation unit value, beginning of year.................. $ 11.17 $ 12.31 $ 10.00 ---------- --------- --------- Income from operations: Net investment income (loss)............................ (0.09) 0.04 0.41 Net realized and unrealized gain (loss) on investment... (1.09) (1.18) 1.90 ---------- --------- --------- Net income (loss) from operations..................... (1.18) (1.14) 2.31 ---------- --------- --------- Accumulation unit value, end of year........................ $ 9.99 $ 11.17 $ 12.31 ========== ========= ========= Total return................................................ (10.52)% (9.27)% 23.09 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 6,832 $ 2,568 $ 925 Ratio of net investment income (loss) to average net assets.................................................. (0.90)% 0.29 % 8.13 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
117 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL SALOMON ALL CAP SUBACCOUNT ----------------------------------- DECEMBER 31, ----------------------------------- 2001 2000 1999(1) ---------- ---------- --------- Accumulation unit value, beginning of year.................. $ 12.55 $ 10.70 $ 10.00 ---------- ---------- --------- Income from operations: Net investment income (loss)............................ 0.11 0.23 0.40 Net realized and unrealized gain (loss) on investment... 0.04 1.62 0.30 ---------- ---------- --------- Net income (loss) from operations..................... 0.15 1.85 0.70 ---------- ---------- --------- Accumulation unit value, end of year........................ $ 12.70 $ 12.55 $ 10.70 ========== ========== ========= Total return................................................ 1.18 % 17.24 % 7.02 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 30,526 $ 8,072 $ 383 Ratio of net investment income (loss) to average net assets.................................................. 0.89 % 1.91 % 8.07 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
WRL PILGRIM BAXTER MID CAP GROWTH SUBACCOUNT ----------------------------------- DECEMBER 31, ----------------------------------- 2001 2000 1999(1) ---------- ---------- --------- Accumulation unit value, beginning of year.................. $ 13.56 $ 15.98 $ 10.00 ---------- ---------- --------- Income from operations: Net investment income (loss)............................ (0.09) 0.04 0.04 Net realized and unrealized gain (loss) on investment... (4.86) (2.46) 5.94 ---------- ---------- --------- Net income (loss) from operations..................... (4.95) (2.42) 5.98 ---------- ---------- --------- Accumulation unit value, end of year........................ $ 8.61 $ 13.56 $ 15.98 ========== ========== ========= Total return................................................ (36.50)% (15.16)% 59.78 % Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 32,867 $ 39,702 $ 5,065 Ratio of net investment income (loss) to average net assets.................................................. (0.90)% 0.25 % 0.62 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
118 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL WRL DREYFUS VALUE LINE MID CAP AGGRESSIVE GROWTH SUBACCOUNT SUBACCOUNT ---------------------------------- ----------------------- DECEMBER 31, DECEMBER 31, ---------------------------------- ----------------------- 2001 2000 1999(1) 2001 2000(1) ---------- --------- --------- ---------- ---------- Accumulation unit value, beginning of year........... $ 11.35 $ 10.14 $ 10.00 $ 8.98 $ 10.00 ---------- --------- --------- ---------- ---------- Income from operations: Net investment income (loss)..................... 0.05 0.23 (0.04) (0.07) (0.06) Net realized and unrealized gain (loss) on investment..................................... (0.59) 0.98 0.18 (0.94) (0.96) ---------- --------- --------- ---------- ---------- Net income (loss) from operations.............. (0.54) 1.21 0.14 (1.01) (1.02) ---------- --------- --------- ---------- ---------- Accumulation unit value, end of year................. $ 10.81 $ 11.35 $ 10.14 $ 7.97 $ 8.98 ========== ========= ========= ========== ========== Total return......................................... (4.80)% 11.91 % 1.44 % (11.21)% (10.24)% Ratios and supplemental data: Net assets at end of year (in thousands)........... $ 5,325 $ 1,811 $ 337 $ 1,283 $ 1,067 Ratio of net investment income (loss) to average net assets....................................... 0.44 % 2.02 % (0.90)% (0.90)% (0.90)% Ratio of expenses to average net assets............ 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL WRL GREAT COMPANIES- GREAT COMPANIES- AMERICA(SM) TECHNOLOGY(SM) SUBACCOUNT SUBACCOUNT ---------------------- ----------------------- DECEMBER 31, DECEMBER 31, ---------------------- ----------------------- 2001 2000(1) 2001 2000(1) ---------- --------- ---------- ---------- Accumulation unit value, beginning of year........... $ 11.31 $ 10.00 $ 6.70 $ 10.00 ---------- --------- ---------- ---------- Income from operations: Net investment income (loss)..................... (0.05) (0.06) (0.04) (0.05) Net realized and unrealized gain (loss) on investment..................................... (1.42) 1.37 (2.47) (3.25) ---------- --------- ---------- ---------- Net income (loss) from operations.............. (1.47) 1.31 (2.51) (3.30) ---------- --------- ---------- ---------- Accumulation unit value, end of year................. $ 9.84 $ 11.31 $ 4.19 $ 6.70 ========== ========= ========== ========== Total return......................................... (12.98)% 13.12 % (37.51)% (33.01)% Ratios and supplemental data: Net assets at end of year (in thousands)........... $ 16,607 $ 8,491 $ 6,147 $ 2,788 Ratio of net investment income (loss) to average net assets....................................... (0.56)% (0.90)% (0.90)% (0.90)% Ratio of expenses to average net assets............ 0.90 % 0.90 % 0.90 % 0.90 %
119 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL WRL GREAT COMPANIES- GABELLI GLOBAL(2) GLOBAL GROWTH SUBACCOUNT SUBACCOUNT ----------------------------- ------------------------ DECEMBER 31, DECEMBER 31, ----------------------------- ------------------------ 2001 2000(1) 2001 2000(1) -------------- ---------- ---------- --------- Accumulation unit value, beginning of year.............. $ 8.52 $ 10.00 $ 9.07 $ 10.00 ---------- ---------- ---------- --------- Income from operations: Net investment income (loss)........................ (0.06) (0.03) (0.06) (0.03) Net realized and unrealized gain (loss) on investment........................................ (1.44) (1.45) (0.93) (0.90) ---------- ---------- ---------- --------- Net income (loss) from operations................. (1.50) (1.48) (0.99) (0.93) ---------- ---------- ---------- --------- Accumulation unit value, end of year.................... $ 7.02 $ 8.52 $ 8.08 $ 9.07 ========== ========== ========== ========= Total return............................................ (17.58)% (14.84)% (10.92)% (9.27)% Ratios and supplemental data: Net assets at end of year (in thousands).............. $ 2,238 $ 494 $ 7,590 $ 971 Ratio of net investment income (loss) to average net assets.............................................. (0.90)% (0.90)% (0.75)% (0.90)% Ratio of expenses to average net assets............... 0.90 % 0.90 % 0.90 % 0.90 %
WRL LKCM CAPITAL GROWTH SUBACCOUNT -------------- DECEMBER 31, -------------- 2001(1) -------------- Accumulation unit value, beginning of year.............. $ 10.00 ---------- Income from operations: Net investment income (loss)........................ (0.00) Net realized and unrealized gain (loss) on investment........................................ (3.57) ---------- Net income (loss) from operations................. (3.57) ---------- Accumulation unit value, end of year.................... $ 6.43 ========== Total return............................................ (35.70)% Ratios and supplemental data: Net assets at end of year (in thousands).............. $ 1,157 Ratio of net investment income (loss) to average net assets.............................................. (0.07)% Ratio of expenses to average net assets............... 0.90 %
120 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2001 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
FIDELITY VIP III FIDELITY VIP II GROWTH OPPORTUNITIES CONTRAFUND(R) SUBACCOUNT SUBACCOUNT ------------------------- ------------------------ DECEMBER 31, DECEMBER 31, ------------------------- ------------------------ 2001 2000(1) 2001 2000(1) ---------- ---------- ---------- --------- Accumulation unit value, beginning of year................. $ 8.56 $ 10.00 $ 9.38 $ 10.00 ---------- ---------- ---------- --------- Income from operations: Net investment income (loss)........................... (0.05) (0.06) (0.04) (0.06) Net realized and unrealized gain (loss) on investment........................................... (1.26) (1.38) (1.20) (0.56) ---------- ---------- ---------- --------- Net income (loss) from operations.................... (1.31) (1.44) (1.24) (0.62) ---------- ---------- ---------- --------- Accumulation unit value, end of year....................... $ 7.25 $ 8.56 $ 8.14 $ 9.38 ========== ========== ========== ========= Total return............................................... (15.40)% (14.36)% (13.25)% (6.16)% Ratios and supplemental data: Net assets at end of year (in thousands)................. $ 1,397 $ 562 $ 3,335 $ 1,030 Ratio of net investment income (loss) to average net assets................................................. (0.65)% (0.90)% (0.45)% (0.90)% Ratio of expenses to average net assets.................. 0.90 % 0.90 % 0.90 % 0.90 %
FIDELITY VIP EQUITY-INCOME SUBACCOUNT ------------------------- DECEMBER 31, ------------------------- 2001 2000(1) ---------- ---------- Accumulation unit value, beginning of year................. $ 10.99 $ 10.00 ---------- ---------- Income from operations: Net investment income (loss)........................... (0.04) (0.06) Net realized and unrealized gain (loss) on investment........................................... (0.63) 1.05 ---------- ---------- Net income (loss) from operations.................... (0.67) 0.99 ---------- ---------- Accumulation unit value, end of year....................... $ 10.32 $ 10.99 ========== ========== Total return............................................... (6.07)% 9.91 % Ratios and supplemental data: Net assets at end of year (in thousands)................. $ 4,161 $ 307 Ratio of net investment income (loss) to average net assets................................................. (0.35)% (0.90)% Ratio of expenses to average net assets.................. 0.90 % 0.90 %
Per unit information has been computed using average units outstanding throughout each period. Total return is not annualized for periods of less than one year. The ratio of net investment income (loss) to average net assets is annualized for periods of less than one year. The expense ratio considers only the expenses borne directly by the separate account and excludes expenses incurred directly by the underlying funds. 121 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 (an indirect wholly-owned subsidiary of AEGON N.V.) as of December 31, 2001 and 2000, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flow for each of the three years in the period ended December 31, 2001. 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 conducted our audits in accordance with auditing standards generally accepted in the United States. 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 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 accounting principles generally accepted in the United States. The variances between such practices and accounting principles generally accepted in the United States also are 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 accounting principles generally accepted in the United States, the financial position of Western Reserve Life Assurance Co. of Ohio at December 31, 2001 and 2000, or the results of its operations or its cash flow for each of the three years in the period ended December 31, 2001. However, in our opinion, 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, 2001 and 2000, and the results of its operations and its cash flow for each of the three years in the period ended December 31, 2001, 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 0110-0237837 122 in relation to the basic statutory-basis financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2 to the financial statements, in 2001 Western Reserve Life Assurance Co. of Ohio changed various accounting policies to be in accordance with the revised NAIC Accounting Practices and Procedures Manual, as adopted by the Insurance Department of the State of Ohio. As discussed in Note 8 to the financial statements, in 2001 Western Reserve Life Assurance Co. of Ohio changed the method used to value universal life and variable universal life policies. /s/ ERNST & YOUNG LLP Des Moines, Iowa February 15, 2002 0110-0237837 123 Western Reserve Life Assurance Co. of Ohio Balance Sheets -- Statutory Basis (Dollars in Thousands, Except per Share Amounts)
DECEMBER 31 2001 2000 --------------------------- ADMITTED ASSETS Cash and invested assets: Cash and short-term investments $ 141,080 $ 25,465 Bonds 78,489 92,652 Common stocks: Affiliated entities (cost: 2001 -- $543 and 2000 -- $243) 5,903 4,164 Other (cost: 2001 and 2000 -- $302) 472 352 Mortgage loans on real estate 13,821 14,041 Home office properties 43,520 33,571 Investment properties -- 10,808 Policy loans 285,178 284,335 Other invested assets 19,558 10,091 --------------------------- Total cash and invested assets 588,021 475,479 Net deferred income taxes 8,444 -- Federal and foreign income taxes recoverable -- 22,547 Premiums deferred and uncollected 1,237 908 Accrued investment income 1,463 1,475 Cash surrender value of life insurance policies 52,254 49,787 Other assets 7,563 5,905 Separate account assets 8,093,342 10,190,653 --------------------------- Total admitted assets $8,752,324 $10,746,754 ===========================
See accompanying notes. 0110-0237837 124
DECEMBER 31 2001 2000 --------------------------- LIABILITIES AND CAPITAL AND SURPLUS Liabilities: Aggregate reserves for policies and contracts: Life $ 399,187 $ 400,695 Annuity 336,587 288,370 Policy and contract claim reserves 14,358 13,474 Liability for deposit-type contracts 15,754 9,909 Other policyholders' funds 60 38 Remittances and items not allocated 14,493 21,192 Federal and foreign income taxes payable 26,150 -- Transfers to separate account due or accrued (493,930) (480,404) Asset valuation reserve 4,299 4,726 Interest maintenance reserve 4,861 5,934 Short-term note payable to affiliate -- 71,400 Payable to affiliate 645 17,406 Other liabilities 92,231 62,528 Separate account liabilities 8,089,904 10,185,342 --------------------------- Total liabilities 8,504,599 10,600,610 Capital and surplus: Common stock, $1.00 par value, 3,000,000 shares authorized and 2,500,000 shares issued and outstanding 2,500 2,500 Paid-in surplus 150,107 120,107 Unassigned surplus 95,118 23,537 --------------------------- Total capital and surplus 247,725 146,144 --------------------------- Total liabilities and capital and surplus $8,752,324 $10,746,754 ===========================
See accompanying notes. 0110-0237837 125 Western Reserve Life Assurance Co. of Ohio Statements of Operations -- Statutory Basis (Dollars in Thousands)
YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------------------ Revenues: Premiums and other considerations, net of reinsurance: Life $ 653,398 $ 741,937 $ 584,729 Annuity 625,117 1,554,430 1,104,525 Net investment income 44,424 47,867 39,589 Amortization of interest maintenance reserve 1,440 1,656 1,751 Commissions and expense allowances on reinsurance ceded (10,789) 1,648 4,178 Income from fees associated with investment management, administration and contract guarantees for separate accounts 108,673 149,086 104,775 Other income 16,386 58,531 44,366 ------------------------------------------ 1,438,649 2,555,155 1,883,913 Benefits and expenses: Benefits paid or provided for: Life 56,155 58,813 35,591 Surrender benefits 800,264 888,060 689,535 Other benefits 57,032 47,855 32,201 Increase (decrease) in aggregate reserves for policies and contracts: Life 10,100 98,557 70,542 Annuity 48,217 (9,665) 3,446 Other - 67 (121) ------------------------------------------ 971,768 1,083,687 831,194 Insurance expenses: Commissions 176,023 316,337 246,334 General insurance expenses 110,808 120,798 112,536 Taxes, licenses and fees 18,714 23,193 19,019 Net transfers to separate accounts 216,797 1,068,213 625,598 Other expenses 556 36 - ------------------------------------------ 522,898 1,528,577 1,003,487 ------------------------------------------ 1,494,666 2,612,264 1,834,681 ------------------------------------------ Gain (loss) from operations before federal income tax expense (benefit) and net realized capital gains (losses) on investments (56,017) (57,109) 49,232 Federal income tax expense (benefit) 3,500 (17,470) 11,816 ------------------------------------------ Gain (loss) from operations before net realized capital gains (losses) on investments (59,517) (39,639) 37,416 Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to interest maintenance reserve) 100 (856) (716) ------------------------------------------ Net income (loss) $ (59,417) $ (40,495) $ 36,700 ==========================================
See accompanying notes. 0110-0237837 126 Western Reserve Life Assurance Co. of Ohio Statements of Changes in Capital and Surplus -- Statutory Basis (Dollars in Thousands)
TOTAL COMMON PAID-IN UNASSIGNED CAPITAL AND STOCK SURPLUS SURPLUS SURPLUS ----------------------------------------------------- Balance at January 1, 1999 $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 Net loss -- -- (40,495) (40,495) Change in net unrealized capital gains -- -- 1,571 1,571 Change in non-admitted assets -- -- (1,359) (1,359) Change in asset valuation reserve -- -- (917) (917) Change in surplus in separate accounts -- -- (314) (314) Settlement of prior period tax returns -- -- 30 30 Tax benefits on stock options exercised -- -- 2,712 2,712 ----------------------------------------------------- Balance at December 31, 2000 2,500 120,107 23,537 146,144 Net loss -- -- (59,417) (59,417) Capital contribution -- 30,000 -- 30,000 Cumulative effect of change in accounting principles 12,312 12,312 Change in valuation basis -- -- 11,609 11,609 Change in net deferred income tax asset -- -- (11,733) (11,733) Surplus effect of reinsurance transaction -- -- 11,851 11,851 Change in net unrealized capital gains -- -- (1,281) (1,281) Change in non-admitted assets -- -- 9,076 9,076 Change in asset valuation reserve -- -- 427 427 Change in surplus in separate accounts -- -- 97,374 97,374 Tax benefits on stock options exercised -- -- 1,363 1,363 ----------------------------------------------------- Balance at December 31, 2001 $2,500 $150,107 $ 95,118 $247,725 =====================================================
See accompanying notes. 0110-0237837 127 Western Reserve Life Assurance Co. of Ohio Statements of Cash Flow -- Statutory Basis (Dollars in Thousands)
YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------------------ OPERATING ACTIVITIES Premiums and other considerations, net of reinsurance $1,295,480 $2,356,441 $1,738,870 Net investment income received 45,355 51,583 44,235 Life and accident and health claims paid (55,303) (55,030) (35,872) Surrender benefits and other fund withdrawals paid (800,321) (888,060) (689,535) Other benefits paid to policyholders (56,598) (43,721) (32,642) Commissions, other expenses and other taxes (315,087) (456,874) (382,372) Net transfers to separate accounts (27,317) (935,755) (628,762) Federal income taxes received (paid) 46,560 (8,236) (9,637) ------------------------------------------ Net cash provided by operating activities 132,769 20,348 4,285 INVESTING ACTIVITIES Proceeds from investments sold, matured or repaid: Bonds 29,163 45,079 114,177 Mortgage loans on real estate 282 227 212 Other (170) 345 18 ------------------------------------------ 29,275 45,651 114,407 Cost of investments acquired: Bonds (14,445) (18,005) (49,279) Common stocks (300) -- -- Mortgage loans on real estate -- (5,003) (1) Investment properties (13) (108) (286) Policy loans (843) (101,360) (69,993) Other invested assets (12,394) (11,203) -- Other -- -- (855) ------------------------------------------ (27,995) (135,679) (120,414) ------------------------------------------ Net cash provided by (used in) investing activities 1,280 (90,028) (6,007) FINANCING AND MISCELLANEOUS ACTIVITIES Other cash provided: Capital and surplus paid in 30,000 -- -- Borrowed money (71,400) 54,300 (27,100) Deposits and deposit-type contract funds and other liabilities without life or disability contingencies 23,298 -- -- Other sources 45,631 27,815 12,580 ------------------------------------------ 27,529 82,115 (14,520)
0110-0237837 128 Western Reserve Life Assurance Co. of Ohio Statements of Cash Flow -- Statutory Basis--(Continued) (Dollars in Thousands)
YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------------------ FINANCING AND MISCELLANEOUS ACTIVITIES--(CONTINUED) Other cash applied: Withdrawals on deposit-type contract funds and other liabilities without life or disability contingencies $ 17,990 $ -- $ -- Other applications 27,973 10,902 33,634 ------------------------------------------ 45,963 10,902 33,634 ------------------------------------------ Net cash provided by (used in) financing activities (18,434) 71,213 (48,154) ------------------------------------------ Increase (decrease) in cash and short-term investments 115,615 1,533 (49,876) Cash and short-term investments at beginning of year 25,465 23,932 73,808 ------------------------------------------ Cash and short-term investments at end of year $ 141,080 $ 25,465 $ 23,932 ==========================================
See accompanying notes. 0110-0237837 129 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis (Dollars in Thousands) 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 an indirect, 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 are done through an affiliated marketing organization. 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, which practices differ from accounting principles generally accepted in the United States (GAAP). The more significant variances from GAAP are: Investments: Investments in bonds and mandatory redeemable preferred stocks are reported at amortized cost or market value based on their National Association of Insurance Commissioners (NAIC) rating; for GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost, and the remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in 0110-0237837 130 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) operations for those designated as trading and as a separate component of shareholder's equity for those designated as available-for-sale. All single class and multi-class mortgage-backed/asset-backed securities (e.g., CMOs) are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium of such securities using either the retrospective or prospective methods. If it is determined that a decline in fair value is other than temporary, the cost basis of the security is written down to the undiscounted estimated future cash flows. Prior to April 1, 2001 under GAAP, changes in prepayment assumptions were accounted for in the same manner. Effective April 1, 2001 for GAAP purposes, all securities, purchased or retained, that represent beneficial interests in securitized assets (e.g., CMO, CBO, CDO, CLO, MBS and ABS securities), other than high credit quality securities, are adjusted using the prospective method when there is a change in estimated future cash flows. If it is determined that a decline in fair value is other than temporary, the cost basis of the security is written down to the discounted fair value. If high credit quality securities are adjusted, the retrospective method is used. Investment properties are reported net of related obligations rather than on a gross basis. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset as under GAAP, and investment income and operating expenses include rent for the Company's occupancy of those properties. Changes between depreciated cost and admitted asset investment amounts are credited or charged directly to unassigned surplus rather than to income as would be required under GAAP. Valuation allowances, if necessary, are established for mortgage loans based on the difference between the net value of the collateral, determined as the fair value of the collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Prior to January 1, 2001, valuation allowances were based on the difference between the unpaid loan balance and the estimated fair value of the underlying real estate. Under GAAP, such allowances are based on the present value of expected future cash flows discounted at the loan's effective interest rate or, if foreclosure is probable, on the estimated fair value of the collateral. 0110-0237837 131 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) The initial valuation allowance and subsequent changes in the allowance for mortgage loans as a result of a temporary impairment are charged or credited directly to unassigned surplus, rather than being included as a component of earnings as would be required under GAAP. Valuation Reserves: Under a formula prescribed by the NAIC, the Company defers the portion of realized capital 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 bond or mortgage loan. That net deferral is reported as the "interest maintenance reserve" (IMR) in the accompanying balance sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the IMR. Under GAAP, realized capital gains and losses would be reported in the income statement on a pretax basis in the period that the assets giving rise to the gains or losses are sold. The "asset valuation reserve" (AVR) provides a valuation allowance for invested assets. The AVR is determined by an NAIC prescribed formula with changes reflected directly in unassigned surplus; AVR is not recognized for GAAP. Subsidiaries: The accounts and operations of the Company's subsidiaries are not consolidated with the accounts and operations of the Company as would be required under GAAP. Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under GAAP, acquisition costs related to traditional life insurance and certain long-duration accident and health insurance, to the extent recoverable from future policy revenues, would be deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves; for universal life insurance and investment products, to the extent recoverable from future gross profits, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins. Nonadmitted Assets: Certain assets designated as "nonadmitted" are excluded from the accompanying balance sheets and are charged directly to unassigned surplus. Under GAAP, such assets are included in the balance sheets. 0110-0237837 132 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Universal Life and Annuity Policies: Subsequent to January 1, 2001, revenues for universal life and annuity policies with mortality or morbidity risk, except for guaranteed interest and group annuity contracts, consist of the entire premium received and benefits incurred represent the total of death benefits paid and the change in policy reserves. Premiums received for annuity policies without mortality or morbidity risk and for guaranteed interest and group annuity contracts are recorded using deposit accounting, and credited directly to an appropriate policy reserve account, without recognizing premium income. Prior to January 1, 2001, all revenues for universal life and annuity policies consist of the entire premium received and benefits incurred represent the total of death benefits paid and the change in policy reserves. Under GAAP, premiums received in excess of policy charges would not be recognized as premium revenue and benefits would represent the excess of benefits paid over the policy account value and interest credited to the account values. Benefit Reserves: Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under GAAP. Reinsurance: A liability for reinsurance balances would be provided for unsecured policy reserves ceded to reinsurers not authorized to assume such business. Changes to those amounts are credited or charged directly to unassigned surplus. Under GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings. Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as would be required under GAAP. Commissions allowed by reinsurers on business ceded are reported as income when received rather than being deferred and amortized with deferred policy acquisition costs as required under GAAP. Deferred Income Taxes: Effective January 1, 2001, deferred tax assets are limited to 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse by the end of the subsequent calendar year, plus 2) the lesser of the remaining gross deferred tax assets expected to be realized within one year of the balance 0110-0237837 133 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) sheet date or 10% of capital and surplus excluding any net deferred tax assets, EDP equipment and operating software and any net positive goodwill, plus 3) the amount of remaining gross deferred tax assets that can be offset against existing gross deferred tax liabilities. The remaining deferred tax assets are nonadmitted. Deferred taxes do not include amounts for state taxes. Prior to January 1, 2001, deferred federal income taxes were not provided for differences between the financial statement amounts and tax bases of assets and liabilities. Under GAAP, states taxes are included in the computation of deferred taxes, a deferred tax asset is recorded for the amount of gross deferred tax assets expected to be realized in future years, and a valuation allowance is established for deferred tax assets not expected to be realizable. Statements of Cash Flow: Cash, cash equivalents, and short-term investments in the statements of cash flow represent cash balances and investments with initial maturities of one year of less. Under GAAP, the corresponding caption of cash and cash equivalents include cash balances and investments with initial maturities of three months or less. The effects of these variances have not been determined by the Company, but are presumed to be material. 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. Common stocks of the Company's wholly owned affiliates are recorded at the GAAP basis 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 invested assets consist principally of investments in various joint ventures and are recorded at equity in underlying net assets. 0110-0237837 134 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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 2001, 2000, and 1999, net realized capital gains (losses) of $367, $(276), and $(67), respectively, were credited to the IMR rather than being immediately recognized in the statements of operations. Amortization of these net gains aggregated $1,440, $1,656, and $1,751 for the years ended December 31, 2001, 2000, and 1999, 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, 2001, 2000, and 1999, with respect to such practices. PREMIUMS AND ANNUITY CONSIDERATIONS Life and accident and health premiums are recognized as revenue when due. Subsequent to January 1, 2001, premiums for annuity policies with mortality and morbidity risk, except for guaranteed interest and group annuity contracts, are also recognized as revenue when due. Premiums received for annuity policies without mortality or morbidity risk and for guaranteed interest and group annuity contracts are recorded using deposit accounting. Prior to January 1, 2001, life, annuity, accident, and health premiums were recognized as revenue when due. 0110-0237837 135 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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. Tabular interest, tabular less actual reserves released, and tabular cost have been determined by formula. Tabular interest on funds not involving life contingencies has also been determined by formula. 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 4.00 to 11.25 percent and mortality rates, where appropriate, from a variety of tables. REINSURANCE Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting policies for the original policies issued and the terms of the reinsurance contracts. 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 0110-0237837 136 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available. SEPARATE ACCOUNTS Assets held in trust for purchases of variable universal life and variable annuity contracts and the Company's corresponding obligation to the contract owners are shown separately in the balance sheets. The assets in the separate accounts are valued at market. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the policyholders and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The separate accounts do not have any minimum guarantees and the investment risks associated with market value changes are borne entirely by the policyholders. The Company received variable contract premiums of $1,208,884, $2,336,299, and $1,675,642 in 2001, 2000, and 1999, 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 contract holders have no claim against the assets of the general account. STOCK OPTION PLAN AEGON N.V. sponsors a stock option plan that includes eligible employees of the Company. Pursuant to the plan, the option price at the date of grant is equal to the market value of the stock. Under statutory accounting principles, the Company does not record any expense related to this plan. However, the Company is allowed to record a deduction in the consolidated tax return filed by the Company and certain affiliates. The tax benefit of this deduction has been credited directly to surplus. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 and 1999 financial statements to conform to the 2001 presentation. 0110-0237837 137 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 2. ACCOUNTING CHANGES The Company prepares its statutory financial statements in conformity with accounting practices prescribed or permitted by the State of Ohio. Effective January 1, 2001, the State of Ohio required that insurance companies domiciled in the State of Ohio prepare their statutory-basis financial statements in accordance with the NAIC Accounting Practices and Procedures Manual subject to any deviations prescribed or permitted by the State of Ohio insurance commissioner. Accounting changes adopted to conform to the provisions of the NAIC Accounting Practices and Procedures Manual are reported as changes in accounting principles. The cumulative effect of changes in accounting principles is reported as an adjustment to unassigned surplus in the period of the change in accounting principle. The cumulative effect is the difference between the amount of capital and surplus at the beginning of the year and the amount of capital and surplus that would have been reported at that date if the new accounting principles had been applied retroactively for all prior periods. As a result of these changes, the Company reported a change in accounting principle, as an adjustment that increased capital and surplus, of $12,312 as of January 1, 2001. This amount included the establishment of deferred tax assets of $12,696, offset by the release of mortgage loan origination fees of $25 and the establishment of a vacation accrual of $359. 3. 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 sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement of Financial Accounting Standards No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements and allows companies to forego the disclosures when those estimates can only be made at excessive cost. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. 0110-0237837 138 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 3. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED) 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 sheets for these instruments approximate their fair values. Investment Securities: Fair values for bonds are based on quoted market prices, where available. For bonds 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 common stocks of unaffiliated entities are based on quoted market prices. Mortgage Loans on Real Estate and Policy Loans: The fair values for mortgage loans on real estate 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. Separate Account Assets: The fair value of separate account assets are based on quoted market prices. 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. Short-Term Note Payable to Affiliate: The carrying amounts reported in the statutory-basis balance sheets for these instruments approximate their fair values. Separate Account Annuity Liabilities: Separate account annuity liabilities approximate the market value of the separate account assets less a provision for the present value of future profits related to the underlying contracts. Fair values for the Company's insurance contracts other than investment contracts (including separate account universal life liabilities) 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. 0110-0237837 139 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 3. 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:
DECEMBER 31 2001 2000 -------------------------- ---------------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------------------------------------------------------ ADMITTED ASSETS Cash and short-term investments $ 141,080 $ 141,080 $ 25,465 $ 25,465 Bonds 78,489 80,722 92,652 93,766 Common stocks, other than affiliates 472 472 352 352 Mortgage loans on real estate 13,821 14,263 14,041 14,422 Policy loans 285,178 285,178 284,335 284,335 Separate account assets 8,093,342 8,093,342 10,190,653 10,190,653 LIABILITIES Investment contract liabilities 352,341 347,665 298,279 291,457 Short-term note payable to affiliate -- -- 71,400 71,400 Separate account annuity liabilities 5,792,373 5,709,486 7,305,380 7,142,011
4. INVESTMENTS The carrying amount and estimated fair value of investments in bonds are as follows:
GROSS GROSS ESTIMATED CARRYING UNREALIZED UNREALIZED FAIR AMOUNT GAINS LOSSES VALUE ------------------------------------------------------- DECEMBER 31, 2001 Bonds: United States Government and agencies $ 4,363 $ 173 $ -- $ 4,536 State, municipal and other government 1,480 135 -- 1,615 Public utilities 12,048 306 -- 12,354 Industrial and miscellaneous 39,429 2,470 1,358 40,541 Mortgage and other asset-backed securities 21,169 507 -- 21,676 ------------------------------------------------------- Total bonds $78,489 $3,591 $1,358 $80,722 =======================================================
0110-0237837 140 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 4. INVESTMENTS--(CONTINUED)
GROSS GROSS ESTIMATED CARRYING UNREALIZED UNREALIZED FAIR AMOUNT GAINS LOSSES VALUE ------------------------------------------------------- DECEMBER 31, 2000 Bonds: United States Government and agencies $ 4,580 $ 78 $ 15 $ 4,643 State, municipal and other government 1,478 85 -- 1,563 Public utilities 13,061 75 159 12,977 Industrial and miscellaneous 42,482 1,673 811 43,344 Mortgage and other asset-backed securities 31,051 416 228 31,239 ------------------------------------------------------- Total bonds $92,652 $2,327 $1,213 $93,766 =======================================================
The carrying amount and fair value of bonds at December 31, 2001 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.
ESTIMATED CARRYING FAIR AMOUNT VALUE ----------------------- Due in one year or less $ 7,305 $ 7,408 Due one through five years 28,415 29,555 Due five through ten years 15,628 16,649 Due after ten years 5,972 5,434 ----------------------- 57,320 59,046 Mortgage and other asset-backed securities 21,169 21,676 ----------------------- $78,489 $80,722 =======================
0110-0237837 141 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 4. INVESTMENTS--(CONTINUED) A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31 2001 2000 1999 --------------------------------- Interest on bonds $ 7,050 $ 8,540 $12,094 Dividends from common stock of affiliated entities 18,495 26,453 18,555 Interest on mortgage loans 1,130 776 746 Rental income on investment properties 6,903 6,034 5,794 Interest on policy loans 17,746 14,372 9,303 Other investment income (51) 1 414 --------------------------------- Gross investment income 51,273 56,176 46,906 Investment expenses (6,849) (8,309) (7,317) --------------------------------- Net investment income $44,424 $47,867 $39,589 =================================
Proceeds from sales and maturities of debt securities and related gross realized gains and losses were as follows:
YEAR ENDED DECEMBER 31 2001 2000 1999 ---------------------------------- Proceeds $29,163 $45,079 $114,177 ================================== Gross realized gains $ 637 $ 117 $ 1,762 Gross realized losses -- 480 1,709 ---------------------------------- Net realized gains (losses) $ 637 $ (363) $ 53 ==================================
At December 31, 2001, bonds with an aggregate carrying value of $4,094 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. 0110-0237837 142 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 4. INVESTMENTS--(CONTINUED) Realized investment gains (losses) and changes in unrealized gains (losses) for investments are summarized below:
REALIZED ----------------------------- YEAR ENDED DECEMBER 31 2001 2000 1999 ----------------------------- Bonds $ 637 $ (363) $ 53 Other invested assets -- (1,115) 18 ----------------------------- 637 (1,478) 71 Tax benefit (expense) (170) 346 (854) Transfer to interest maintenance reserve (367) 276 67 ----------------------------- Net realized gains (losses) $ 100 $ (856) $(716) =============================
CHANGES IN UNREALIZED ------------------------------- YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------- Other invested assets $(2,926) $ -- $ -- Common stocks 1,559 2,002 1,426 Mortgage loans on real estate 86 (431) (5) ------------------------------- Change in unrealized $(1,281) $1,571 $1,421 ===============================
Gross unrealized gains (losses) on common stocks were as follows:
UNREALIZED ------------------ DECEMBER 31 2001 2000 ------------------ Unrealized gains $5,930 $4,040 Unrealized losses (400) (69) ------------------ Net unrealized gains $5,530 $3,971 ==================
During 2001, the Company did not issue any mortgage loans. During 2000, the Company issued one mortgage loan with a lending rate of 7.97%. The percentage of the loan to the value of the security at the time of origination was 69%. The Company requires all mortgages to carry fire insurance equal to the value of the underlying property. During 2001, 2000, and 1999, no mortgage loans were foreclosed and transferred to real estate. During 2001 and 2000, the Company held a mortgage loan loss reserve in the asset valuation reserve of $135 and $-0-, respectively. 0110-0237837 143 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 5. 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. Premiums earned reflect the following reinsurance ceded amounts for the year ended December 31:
YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------------------ Direct premiums $1,369,720 $2,385,134 $1,748,265 Reinsurance ceded (91,205) (88,767) (59,011) ------------------------------------------ Net premiums earned $1,278,515 $2,296,367 $1,689,254 ==========================================
The Company received reinsurance recoveries in the amount of $12,337, $8,856, and $4,916 during 2001, 2000, and 1999, respectively. At December 31, 2001 and 2000, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $6,065 and $2,337, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2001 and 2000 of $63,758 and $5,128, respectively. During 2001, the Company entered into a reinsurance transaction with Transamerica International Re (Bermuda) Ltd., an affiliate of the Company. Under the terms of this transaction, the Company ceded the obligation for future guaranteed minimum death benefits included in certain of its variable annuity contracts. The difference between the initial premiums ceded of $37,176 and the reserve credit taken of $55,408 was credited directly to unassigned surplus on a net of tax basis. The Company holds collateral in the form of letters of credit of $70,000. 0110-0237837 144 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 6. INCOME TAXES The Company's net deferred tax asset is comprised of the following components:
DECEMBER 31, JANUARY 1, 2001 2001 ---------------------------- Gross deferred income tax assets $162,669 $82,191 Gross deferred income tax liabilities 95,916 3,705 Deferred income tax assets nonadmitted 58,309 65,790 ---------------------------- Net admitted deferred income tax asset $ 8,444 $12,696 ============================
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" (PSA). No federal income taxes have been provided for in the financial statements on income deferred in the PSA ($293 at December 31, 2001). To the extent that dividends are paid from the amount accumulated in the PSA, net earnings would be reduced by the amount of tax required to be paid. Should the entire amount in the PSA account become taxable, the tax thereon computed at the current rates would amount to approximately $103. The main components of deferred tax amounts, as well as the net change for the year ended December 31, 2001, are as follow:
DECEMBER 31, JANUARY 1, NET 2001 2001 CHANGE ----------------------------------------- Deferred income tax assets: sec.807(f) adjustment $ 1,977 $ 2,360 $ (383) Pension expenses 2,422 1,850 572 Tax basis deferred acquisition costs 76,692 69,122 7,570 Reserves 74,569 2,316 72,253 Other 7,009 6,543 466 ---------------------------------------- Total deferred income tax assets $162,669 $82,191 $80,478 ---------------------------------------- ---------------------------------------- Deferred income tax assets -- nonadmitted $ 58,309 $65,790 $(7,481) Deferred income tax liabilities: sec.807(f) adjustment -- liabilities 91,560 427 91,133 Other 4,356 3,278 1,078 ---------------------------------------- Total deferred income tax liabilities $ 95,916 $ 3,705 $92,211 ---------------------------------------- ----------------------------------------
0110-0237837 145 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 6. INCOME TAXES--(CONTINUED) Federal income tax expense (benefit) differs from the amount computed by applying the statutory federal income tax rate to gain from operations before federal income tax expense and net realized capital gains/losses on investments for the following reasons:
DECEMBER 31 2001 2000 1999 ------------------------------------ Income tax expense (benefit) computed at the federal statutory rate (35%) $(19,606) $(19,988) $ 17,231 Deferred acquisition costs -- tax basis 7,570 14,725 11,344 Amortization of IMR (504) (580) (613) Depreciation (6) (426) (727) Dividends received deduction (8,705) (12,805) (10,784) Low income housing credits (1,944) -- -- Prior year under (over) accrual 3,340 560 (3,167) Reinsurance transactions 4,148 -- -- Reserves 19,541 123 (2,272) Other (334) 921 804 ------------------------------------ Federal income tax expense (benefit) $ 3,500 $(17,470) $ 11,816 ====================================
For federal income tax purposes, the Company joins in a consolidated income tax return filing with its parent and other affiliated companies. Under the terms of a tax sharing agreement between the Company and it 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 in 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. In 2000, the Company received $30 in interest from the Internal Revenue Service related to the 1993 tax year. 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. Tax settlements for 2000 and 1999 were credited directly to unassigned surplus. The Company's federal income tax returns have been examined by the Internal Revenue Service and the statute is closed through 1995. An examination is underway for 1996 and 1997. 0110-0237837 146 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 7. 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:
DECEMBER 31 2001 2000 ------------------------ ------------------------ PERCENT 2000 PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL ------------------------------------------------------ Subject to discretionary withdrawal with market value adjustment $ 11,429 0% $ 11,999 0% Subject to discretionary withdrawal at book value less surrender charge 102,240 2 72,456 1 Subject to discretionary withdrawal at market value 5,641,756 93 7,305,182 96 Subject to discretionary withdrawal at book value (minimal or no charges or adjustments) 294,012 5 210,648 3 Not subject to discretionary withdrawal 14,654 0 15,753 0 ------------------------ ------------------------ 6,064,091 100% 7,616,038 100% === === Less reinsurance ceded 60,224 2,145 ---------- ---------- Total policy reserves on annuities and deposit fund liabilities $6,003,867 $7,613,893 ========== ==========
A reconciliation of the amounts transferred to and from the separate accounts is presented below:
YEAR ENDED DECEMBER 31 2001 2000 1999 ------------------------------------------ Transfers as reported in the summary of operations of the separate accounts statement: Transfers to separate accounts $1,208,884 $2,336,299 $1,675,642 Transfers from separate accounts 1,107,157 1,268,865 1,056,207 ------------------------------------------ Net transfers to separate accounts 101,727 1,067,434 619,435 Change in valuation adjustment 98,321 -- -- Other 16,749 779 6,163 ------------------------------------------ Transfers as reported in the summary of operations of the life, accident and health annual statement $ 216,797 $1,068,213 $ 625,598 ==========================================
0110-0237837 147 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 7. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED) At December 31, 2001, the Company had variable annuities with guaranteed living benefits as follows:
SUBJECTED AMOUNT OF BENEFIT AND TYPE OF RISK ACCOUNT VALUE RESERVE HELD - -------------------------------------------------------------------------------------------- Guaranteed Minimum Income Benefit $75,101 $19
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, 2001 and 2000, these assets (which are reported as premiums deferred and uncollected) and the amounts of the related gross premiums and loading, are as follows:
GROSS LOADING NET ------------------------------- DECEMBER 31, 2001 Ordinary direct renewal business $1,439 $407 $1,032 Ordinary new business 200 (5) 205 ------------------------------- $1,639 $402 $1,237 =============================== DECEMBER 31, 2000 Ordinary direct renewal business $ 991 $220 $ 771 Ordinary new business 133 (4) 137 ------------------------------- $1,124 $216 $ 908 ===============================
8. CONVERSION OF VALUATION SYSTEM During 2001, the Company converted to a new reserve valuation system for universal life and variable universal life policies. The new valuation system, which provides for more precise calculations, caused general account reserves to decrease by $11,609 and separate account reserves to decrease by $98,321. These amounts were credited directly to unassigned surplus. The decrease in separate account reserves is included in the change in surplus in separate accounts in the 2001 Statement of Changes in Capital and Surplus. 9. 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 0110-0237837 148 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 9. DIVIDEND RESTRICTIONS--(CONTINUED) may not be paid, without prior regulatory approval, in excess of the greater of (a) 10 percent of statutory surplus as of the preceding December 31, or (b) statutory gain from operations before net realized capital gains 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 2002, without the prior approval of insurance regulatory authorities, is $24,523. 10. CAPITAL AND SURPLUS 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 that do business in the state to have capital stock of at least $2,500. Life/health insurance companies are subject to certain risk-based capital (RBC) requirements as specified by the NAIC. Under those requirements, the amount is to be determined based on the various risk factors related to it. At December 2001, the Company meets the RBC requirements. 11. SALES, TRANSFER, AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES During 2001, the Company sold $17,515 of agent balances without recourse to Money Services, Inc., an affiliated company. The Company did not realize a gain or loss as a result of the sale. 12. 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 $1,634, $1,224, and $1,105 for the years ended December 31, 2001, 2000, and 1999, respectively. The plan is subject to the reporting 0110-0237837 149 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 12. RETIREMENT AND COMPENSATION PLANS--(CONTINUED) 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. Expense related to this plan was $1,100, $930, and $816 for the years ended December 31, 2001, 2000, and 1999, 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. The Company's allocation of expense for these plans for each of the years ended December 31, 2001, 2000, and 1999 was negligible. 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 $233, $108, and $81 for the years ended December 31, 2001, 2000, and 1999, respectively. 0110-0237837 150 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 13. 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 2001, 2000, and 1999, the Company paid $16,904, $19,248, and $16,905, respectively, for such services, which approximates their costs to the affiliates. The Company provides office space, marketing and administrative services to certain affiliates. During 2001, 2000, and 1999, the Company received $6,752, $4,665, and $3,755, respectively, for such services, which approximates their cost. Payable to affiliates and intercompany borrowings bear interest at the thirty-day commercial paper rate. During 2001, 2000, and 1999, the Company paid net interest of $945, $2,262, and $1,997, respectively, to affiliates. The Company received capital contributions of $30,000 from its parent in 2001. At December 31, 2000, the Company had short-term note payables to an affiliate of $71,400. Interest on these notes approximated the thirty-day commercial paper rate at the time of issuance. In prior years, the Company purchased life insurance policies covering the lives of certain employees of the Company from an affiliate. At December 31, 2001 and 2000, the cash surrender value of these policies was $52,254 and $49,787, respectively. 14. 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 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 0110-0237837 151 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory Basis--(Continued) (Dollars in Thousands) 14. COMMITMENTS AND CONTINGENCIES--(CONTINUED) 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 and are not required to be accrued for financial reporting purposes. The Company has established a reserve of $3,425 and $3,438 and an offsetting premium tax benefit of $764 and $777 at December 31, 2001 and 2000, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund expense (credit) was $13, $(9), and $(20) for the years ended December 31, 2001, 2000, and 1999, respectively. 0110-0237837 152 Western Reserve Life Assurance Co. of Ohio Summary of Investments -- Other Than Investments in Related Parties (Dollars in Thousands) December 31, 2001 SCHEDULE I
AMOUNT AT WHICH FAIR SHOWN IN THE TYPE OF INVESTMENT COST(1) VALUE BALANCE SHEET - ---------------------------------------------------------------------------------------------- FIXED MATURITIES Bonds: United States Government and government agencies and authorities $ 4,681 $ 4,868 $ 4,681 States, municipalities, and political subdivisions 3,380 3,620 3,380 Public utilities 12,048 12,354 12,048 All other corporate bonds 58,380 59,880 58,380 ---------------------------------------- Total fixed maturities 78,489 80,722 78,489 EQUITY SECURITIES Common stocks (unaffiliated): Industrial, miscellaneous, and all other 302 472 472 ---------------------------------------- Total equity securities 302 472 472 Mortgage loans on real estate 13,821 13,821 Real estate 43,520 43,520 Policy loans 285,178 285,178 Cash and short-term investments 141,080 141,080 Other invested assets 19,558 19,558 -------- -------- Total investments $581,948 $582,118 ======== ========
(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. 0110-0237837 153 Western Reserve Life Assurance Co. of Ohio Supplementary Insurance Information (Dollars in Thousands) SCHEDULE III
BENEFITS, CLAIMS, FUTURE POLICY POLICY AND NET LOSSES AND OTHER BENEFITS AND CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES* ------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 2001 Individual life $386,965 $14,219 $ 652,626 $14,014 $ 167,912 $216,211 Group life 12,222 135 772 731 1,226 535 Annuity 336,587 4 625,117 29,679 802,630 89,355 ------------------------------------------------------------------------------ $735,774 $14,358 $1,278,515 $44,424 $ 971,768 $306,101 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 2000 Individual life $389,458 $13,349 $ 741,090 $13,430 $ 267,540 $310,243 Group life 11,237 100 847 936 1,413 580 Annuity 259,199 25 1,554,430 33,501 814,734 149,541 ------------------------------------------------------------------------------ $659,894 $13,474 $2,296,367 $47,867 $1,083,687 $460,364 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ 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 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------
*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. 0110-0237837 154 Western Reserve Life Assurance Co. of Ohio Reinsurance (Dollars in Thousands) SCHEDULE IV
ASSUMED PERCENTAGE OF CEDED TO FROM AMOUNT GROSS OTHER OTHER NET ASSUMED AMOUNT COMPANIES COMPANIES AMOUNT TO NET ----------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 Life insurance in force $78,786,575 $17,837,374 $-- $60,949,201 0.0% ======================================================================= Premiums: Individual life $ 684,987 $ 32,361 $-- $ 652,626 0.0% Group life 1,030 258 -- 772 0.0 Annuity 683,703 58,586 -- 625,117 0.0 ----------------------------------------------------------------------- $ 1,369,720 $ 91,205 $-- $ 1,278,515 0.0% ======================================================================= YEAR ENDED DECEMBER 31, 2000 Life insurance in force $76,903,969 $14,753,778 $-- $62,150,191 0.0% ======================================================================= Premiums: Individual life $ 774,550 $ 33,460 $-- $ 741,090 0.0% Group life 1,100 253 -- 847 0.0 Annuity 1,609,484 55,054 -- 1,554,430 0.0 ----------------------------------------------------------------------- $ 2,385,134 $ 88,767 $-- $ 2,296,367 0.0% ======================================================================= YEAR ENDED DECEMBER 31, 1999 Life insurance in force $63,040,741 $11,297,250 $-- $51,743,491 0.0% ======================================================================= Premiums: Individual life $ 604,628 $ 20,972 $-- $ 583,656 0.0% Group life 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% =======================================================================
0110-0237837 155 PART II. OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. REPRESENTATION PURSUANT TO SECTION 26(f)(2)(A) Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby represents that the fees and charges deducted under the WRL Freedom Equity Protector Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Western Reserve. STATEMENT WITH RESPECT TO INDEMNIFICATION Provisions exist under the Ohio General Corporation Law, the Second Amended Articles of Incorporation of Western Reserve and the Amended Code of Regulations of Western Reserve whereby Western Reserve may indemnify certain persons against certain payments incurred by such persons. The following excerpts contain the substance of these provisions. Ohio General Corporation Law SECTION 1701.13 AUTHORITY OF CORPORATION. (E)(1) A corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any of the following: II-1 (a) Any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; (b) Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under divisions (E)(1) and (2) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in divisions (E)(1) and (2) of this section. Such determination shall be made as follows: (a) By a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (b) If the quorum described in division (E)(4)(a) of this section is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years; (c) By the shareholders; (d) By the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under division (E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this section shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under division (E)(2) of this section, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5)(a) Unless at the time of a director's act or omission that is the subject of an action, suit or proceeding referred to in divisions (E)(1) and (2) of this section, the articles or the regulations of a corporation state by specific reference to this division that the provisions of this division do not apply to the corporation and unless the only liability asserted against a director in an action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section is pursuant to section 1701.95 of the Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit, or proceeding shall be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following: (i) Repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation; II-2 (ii) Reasonably cooperate with the corporation concerning the action, suit, or proceeding. (b) Expenses, including attorneys' fees incurred by a director, trustee, officer, employee, or agent in defending any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is entitled to be indemnified by the corporation. (6) The indemnification authorized by this section shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) A corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance on behalf of or for any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. Insurance may be purchased from or maintained with a person in which the corporation has a financial interest. (8) The authority of a corporation to indemnify persons pursuant to divisions (E)(1) and (2) of this section does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions (E)(1) and (2) of this section do not create any obligation to repay or return payments made by the corporation pursuant to divisions (E)(5), (6), or (7). (9) As used in this division, references to "corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, shall stand in the same position under this section with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. Second Amended Articles of Incorporation of Western Reserve ARTICLE EIGHTH EIGHTH: (1) The corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of II-3 any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) The corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in sections (1) and (2) of this article, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under sections (1) and (2) of this article, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in sections (1) and (2) of this article. Such determination shall be made (a) by a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years, or (c) by the shareholders, or (d) by the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under section (4)(a) or by independent legal counsel under section (4)(b) of this article shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under section (2) of this article, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5) Expenses, including attorneys' fees incurred in defending any action, suit, or proceeding referred to in sections (1) and (2) of this article, may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the directors in the specific case upon receipt of a written undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this article. If a majority vote of a quorum of disinterested directors so directs by resolution, said written undertaking need not be submitted to the corporation. Such a determination that a written undertaking need not be submitted to the corporation shall in no way affect the entitlement of indemnification as authorized by this article. (6) The indemnification provided by this article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official II-4 capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (8) As used in this section, references to "the corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise shall stand in the same position under this article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. (9) The foregoing provisions of this article do not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of this corporation. The corporation may indemnify such named fiduciaries of its employee benefit plans against all costs and expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by or imposed upon said named fiduciary in connection with or arising out of any claim, demand, action, suit or proceeding in which the named fiduciary may be made a party by reason of being or having been a named fiduciary, to the same extent it indemnifies an agent of the corporation. To the extent that the corporation does not have the direct legal power to indemnify, the corporation may contract with the named fiduciaries of its employee benefit plans to indemnify them to the same extent as noted above. The corporation may purchase and maintain insurance on behalf of such named fiduciary covering any liability to the same extent that it contracts to indemnify. Amended Code of Regulations of Western Reserve ARTICLE V Indemnification of Directors and Officers Each Director, officer and member of a committee of this Corporation, and any person who may have served at the request of this Corporation as a Director, officer or member of a committee of any other corporation in which this Corporation owns shares of capital stock or of which this Corporation is a creditor (and his heirs, executors and administrators) shall be indemnified by the Corporation against all expenses, costs, judgments, decrees, fines or penalties as provided by, and to the extent allowed by, Article Eighth of the Corporation's Articles of Incorporation, as amended. RULE 484 UNDERTAKING Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of II-5 appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing page The Prospectus, consisting of 159 pages The undertaking to file reports Representation pursuant to Section 26(f)(2)(A) The statement with respect to indemnification The Rule 484 undertaking The signatures Written consent of the following persons: (a) Sutherland Asbill & Brennan LLP (b) Ernst & Young LLP The following exhibits: 1. The following exhibits correspond to those required by paragraph A to the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of the Board of Directors of Western Reserve establishing the Series Account (3) (2) Not Applicable (3) Distribution of Policies: (a) Master Service and Distribution Compliance Agreement (2) (b) Amendment to Master Service and Distribution Compliance Agreement (4) (c) Form of Broker/Dealer Supervisory and Service Agreement (4) (d) Principal Underwriting Agreement (4) (e) First Amendment to Principal Underwriting Agreement (4) (4) Not Applicable (5) (a) Specimen Flexible Premium Variable Life Insurance Policy (3) (b) Terminal Illness Accelerated Death Benefit Rider (Form Nos. ACCDB-10/94, ACCDB-CT-10/94, ACCDBIN-10/94, ACCDB-10/94MN, ACCDBMS-01/95, ACCDBSC-02/95, ACCDBIL-10/94) (3) (c) Endorsement (EL101) (5) (6) (a) Second Amended Articles of Incorporation of Western Reserve (2) (b) Amended Code of Regulations (By-Laws) of Western Reserve (2) (c) Certificate of First Amendment to the Second Amended Articles of Incorporation of Western Reserve (6) (7) Not Applicable (8) (a) Investment Advisory Agreement with the Fund (1) (b) Sub-Advisory Agreements (1) (c) Participation Agreement Among Variable Insurance Products Fund, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (7) (d) Amendment No.1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund (8) (e) Second Amendment dated April 12, 2001 to Participation Agreement - Variable Insurance Products Fund (10) II-6 (f) Participation Agreement Among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (7) (g) Amendment No. 1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund II (8) (h) Second Amendment dated April 12, 2001 to Participation Agreement - Variable Insurance Products Fund II (10) (i) Participation Agreement Among Variable Insurance Products Fund III, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (7) (j) Amendment No. 1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund III (8) (k) Second Amendment dated April 12, 2001 to Participation Agreement - Variable Insurance Products Fund III (10) (9) Not Applicable (10) Form of Application for Flexible Premium Variable Life Insurance Policy (3) (11) Memorandum describing issuance, transfer and redemption procedures (3) (12) Sample Hypothetical Illustrations 2. See Exhibit 1.A. 3. Opinion of Counsel as to the legality of the securities being registered (3) 4. No financial statement will be omitted from the Prospectus pursuant to Instruction 1(b) or (c) of Part I 5. Not Applicable 6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to the securities being registered (3) 7. Consent of Thomas E. Pierpan, Esq. (3) 8. Consent of Sutherland Asbill & Brennan LLP 9. Consent of Ernst & Young LLP 10. Powers of Attorney (9) 11. Power of Attorney Michael W. Kirby (11) - ------------------------- (1) This exhibit was previously filed on Post-Effective Amendment No. 25 to Form N-1A Registration Statement dated October 17, 1997 (File No. 33-507) and is incorporated herein by reference. (2) This exhibit was previously filed on Post-Effective Amendment No. 11 to Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49556) and is incorporated herein by reference. (3) This exhibit was previously filed on Post-Effective Amendment No. 16 to Form S-6 Registration Statement dated April 21, 1998 (File No. 33-31140) and is incorporated herein by reference. (4) This exhibit was previously filed on Post-Effective Amendment No. 4 to Form S-6 Registration Statement dated April 21, 1999 (File No. 333-23359) and is incorporated herein by reference (5) This exhibit was previously filed on Post-Effective Amendment No. 17 to Form S-6 Registration Statement dated April 22, 1999 (File No. 33-31140) and is incorporated herein by reference. (6) This exhibit was previously filed on Post-Effective Amendment No. 5 to Form S-6 Registration Statement dated April 19, 2000 (File No. 333-23359) and is incorporated herein by reference. (7) This exhibit was previously filed on the Initial Registration Statement to Form S-6 dated September 23, 1999 (File No. 333-57681) and is incorporated herein by reference. (8) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form N-4 Registration Statement dated April 10, 2000 (File No. 333-93169) and is incorporated herein by reference. (9) This exhibit was previously filed on Post-Effective Amendment No. 17 to Form S-6 Registration Statement dated October 30, 2001 (File No. 33-69138) and is incorporated herein by reference. (10) This exhibit was previously filed on Post-Effective Amendment No. 16 to Form S-6 Registration Statement dated April 16, 2001 (File No. 33-69138) and is incorporated herein by reference. (11) This exhibit was previously filed on Post-Effective Amendment No. 3 to Form N-4 Registration Statement dated February 19, 2002 (File No. 333-82705) and is incorporated herein by reference. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant, WRL Series Life Account, certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 20 to its Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of St. Petersburg, County of Pinellas, Florida on this 17th day of April, 2002. (SEAL) WRL SERIES LIFE ACCOUNT ---------------------------------- Registrant WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ---------------------------------- Depositor ATTEST: /s/ Priscilla I. Hechler By: /s/ John R. Kenney - ---------------------------- ------------------------------- Priscilla I. Hechler John R. Kenney Assistant Vice President Chairman of the Board and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 20 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature and Title Date ------------------- ---- /s/ John R. Kenney April 17, 2002 - ------------------------------------ John R. Kenney, Chairman of the Board /s/ Michael W. Kirby April 17, 2002 - ------------------------------------ Michael W. Kirby, Chief Executive Officer**/ /s/ Allan J. Hamilton April 17, 2002 - ------------------------------------ Allan J. Hamilton, Vice President, Treasurer and Controller /s/ Alan M. Yaeger April 17, 2002 - ------------------------------------ Alan M. Yaeger, Executive Vice President, Actuary and Chief Financial Officer* /s/ Jerome C. Vahl April 17, 2002 - ------------------------------------ Jerome C. Vahl, Director and President /s/ Jack E. Zimmerman April 17, 2002 - ------------------------------------ Jack E. Zimmerman, Director **/ /s/ James R. Walker April 17, 2002 - ------------------------------------ James R. Walker, Director **/ **/ /s/ Priscilla I. Hechler - ------------------------------------ Signed by: Priscilla I. Hechler as Attorney-in-fact
*Principal Financial Officer EXHIBIT INDEX
EXHIBIT DESCRIPTION NO. OF EXHIBIT - ------- ----------- 1.A. (12) Sample Hypothetical Illustrations 8. Consent of Sutherland Asbill & Brennan LLP 9. Consent of Ernst & Young LLP
EX-99.1 3 g73555ex99-1.txt SAMPLE HYPOTHETICAL ILLUSTRATIONS Exhibit 99.1 Exhibit 1. A. (12) Sample Hypothetical Illustrations HYPOTHETICAL ILLUSTRATIONS The following illustrations show how certain values under a sample Policy would change with different rates of fictional investment performance over an extended period of time. In particular, the illustrations show how the death benefit, cash value, and net surrender value under a Policy issued to an insured of a given age, would change over time if the premiums indicated were paid and the return on the assets in the subaccounts were a uniform gross annual rate (before any expenses) of 0%, 6% or 12%. The tables illustrate Policy values that would result based on assumptions that you pay the premiums indicated, you do not change your specified amount, and you do not take any cash withdrawals or Policy loans. Actual returns will fluctuate over time and likely will be both positive and negative. The actual values under the Policy could be significantly different from those shown even if actual returns averaged 0%, 6% and 12%, but fluctuated over and under those averages throughout the years shown. Depending on the timing and degree of fluctuation, the actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of the Policy unless the owner pays more than the stated premium. We based the first illustration on a Policy for an insured who is a 35 year old male in the non-tobacco use, ultimate select rate class, annual premiums of $2,000, a $165,000 specified amount and death benefit Option A. This illustration also assumes cost of insurance charges based on our current cost of insurance rates. The second illustration is based on the same factors as the first illustration, except that cost of insurance rates are based on the guaranteed cost of insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality Table). The amounts we show for the death benefits, cash values and net surrender values take into account (1) the daily charge for assuming mortality and expense risks assessed against each subaccount. This charge is equivalent to an annual charge of 0.90% of the average net assets of the subaccounts; (2) estimated daily expenses equivalent to an effective average annual expense level of 0.94% of the portfolios' average daily net assets; and (3) all applicable premium expense charges and cash value charges. The 0.94% average portfolio expense level assumes an equal allocation of amounts among the 38 subaccounts (this percentage does not include Janus Global portfolio because this portfolio is no longer available to new investors). We used annualized actual audited expenses incurred during 2001 as shown in the Portfolio Annual Expense Table in the Policy prospectus for the portfolios to calculate the average annual expense level. Taking into account the assumed charges of 1.84%, the gross annual investment return rates of 0%, 6% and 12% are equivalent to net annual investment return rates of -1.84%, 4.16% and 10.16%. During 2001, AEGON/Transamerica Fund Advisers, Inc. ("AEGON/Transamerica Advisers") undertook to pay those normal operating expenses of certain AEGON/Transamerica Series Fund, Inc. ("Series Fund") portfolios that exceeded a certain stated percentage of those portfolios' average daily net assets. AEGON/Transamerica Advisers has undertaken until at least April 30, 2003 to pay expenses to the extent normal operating expenses of certain portfolios of the Series Fund exceed a stated percentage of the portfolio's average daily net assets. For details on these expense limits, the amounts reimbursed by AEGON/Transamerica Advisers during 2001, and the expense ratios without the reimbursements, see the Portfolio Annual Expense Table in the Policy prospectus. WITHOUT THESE WAIVERS AND REIMBURSEMENTS, TOTAL ANNUAL EXPENSES FOR THE PORTFOLIOS WOULD HAVE BEEN GREATER, AND THE ILLUSTRATIONS WOULD HAVE ASSUMED THAT THE ASSETS IN THE PORTFOLIOS WERE SUBJECT TO AN AVERAGE ANNUAL EXPENSE LEVEL OF 1.02%. THE HYPOTHETICAL RETURNS SHOWN IN THE TABLES ARE PROVIDED ONLY TO ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR FUTURE INVESTMENT RATES OF RETURN. Tax charges that may be attributable to the separate account are not reflected because we are not currently making such charges. In order to produce after tax returns of 0%, 6% or 12% if such charges are made in the future, the separate account would have to earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax charges. The "Premium Accumulated at 5%" column of each table shows the amount which would accumulate if you invested an amount equal to the premium to earn interest at 5% per year, compounded annually. We will furnish, upon request, a comparable illustration reflecting the proposed insured's age, gender, risk classification and desired Policy features. FEP WESTERN RESERVE LIFE ASSSUARANCE CO. OF OHIO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 35 Specified Amount $165,000 Ultimate Select Class Annual Premium $2,000 Option Type A Using Current Cost of Insurance Rates
DEATH BENEFIT END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND NET POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF YEAR AT 5% 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.92% (Net) 4.08% (Net) 10.08% (Net) 1 2,100 165,000 165,000 165,000 2 4,305 165,000 165,000 165,000 3 6,620 165,000 165,000 165,000 4 9,051 165,000 165,000 165,000 5 11,604 165,000 165,000 165,000 6 14,284 165,000 165,000 165,000 7 17,098 165,000 165,000 165,000 8 20,053 165,000 165,000 165,000 9 23,156 165,000 165,000 165,000 10 26,414 165,000 165,000 165,000 15 45,315 165,000 165,000 165,000 20 69,439 165,000 165,000 165,000 30 (AGE 65) 139,522 165,000 165,000 341,535 40 (AGE 75) 253,680 165,000 165,000 803,961 50 (AGE 85) 439,631 * 239,468 2,067,851 60 (AGE 95) 742,526 * 359,915 5,119,018
CASH VALUE NET SURRENDER VALUE END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET POLICY ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF YEAR 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.92% (Net) 4.08% (Net) 10.08% (Net) -1.92% (Net) 4.08% (Net) 10.08% (Net) 1 1,533 1,636 1,738 253 356 459 2 3,032 3,334 3,648 1,669 1,970 2,285 3 4,496 5,095 5,744 3,048 3,647 4,296 4 5,926 6,922 8,046 4,394 5,391 6,515 5 7,312 8,808 10,566 5,697 7,193 8,950 6 8,654 10,755 13,323 6,955 9,055 11,623 7 9,950 12,761 16,341 8,167 10,977 14,557 8 11,201 14,831 19,647 9,334 12,963 17,779 9 12,386 16,944 23,249 10,434 14,993 21,298 10 13,515 19,114 27,190 11,479 17,078 25,154 15 18,612 31,230 53,790 18,612 31,230 53,790 20 22,243 45,201 96,654 22,243 45,201 96,654 30 (AGE 65) 26,934 83,196 279,947 26,934 83,196 279,947 40 (AGE 75) 22,649 139,399 751,365 22,649 139,399 751,365 50 (AGE 85) * 228,064 1,969,382 * 228,064 1,969,382 60 (AGE 95) * 356,352 5,068,335 * 356,352 5,068,335
FEP WESTERN RESERVE LIFE ASSSUARANCE CO. OF OHIO FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 35 Specified Amount $165,000 Ultimate Select Class Annual Premium $2,000 Option Type A Using Guaranteed Cost of Insurance Rates
DEATH BENEFIT END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND NET POLICY ACCUMULATED ANNUAL INVESTMENT RETURN OF YEAR AT 5% 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.92% (Net) 4.08% (Net) 10.08% (Net) 1 2,100 165,000 165,000 165,000 2 4,305 165,000 165,000 165,000 3 6,620 165,000 165,000 165,000 4 9,051 165,000 165,000 165,000 5 11,604 165,000 165,000 165,000 6 14,284 165,000 165,000 165,000 7 17,098 165,000 165,000 165,000 8 20,053 165,000 165,000 165,000 9 23,156 165,000 165,000 165,000 10 26,414 165,000 165,000 165,000 15 45,315 165,000 165,000 165,000 20 69,439 165,000 165,000 165,000 30 (AGE 65) 139,522 165,000 165,000 327,215 40 (AGE 75) 253,680 * 165,000 750,730 50 (AGE 85) 439,631 * 165,000 1,872,023 60 (AGE 95) 742,526 * 165,000 4,378,254
CASH VALUE NET SURRENDER VALUE END OF ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET POLICY ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF YEAR 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.92% (Net) 4.08% (Net) 10.08% (Net) -1.92% (Net) 4.08% (Net) 10.08% (Net) 1 1,510 1,612 1,714 231 333 435 2 2,982 3,280 3,591 1,618 1,916 2,228 3 4,410 5,001 5,642 2,962 3,553 4,195 4 5,794 6,776 7,885 4,262 5,245 6,353 5 7,133 8,605 10,335 5,517 6,989 8,720 6 8,425 10,489 13,015 6,726 8,790 11,315 7 9,669 12,426 15,943 7,885 10,643 14,159 8 10,864 14,420 19,146 8,996 12,553 17,278 9 12,007 16,469 22,650 10,056 14,518 20,698 10 13,101 18,576 26,487 11,065 16,541 24,451 15 18,047 30,365 52,431 18,047 30,365 52,431 20 21,222 43,630 94,011 21,222 43,630 94,011 30 (AGE 65) 17,890 73,158 268,209 17,890 73,158 268,209 40 (AGE 75) * 102,243 701,616 * 102,243 701,616 50 (AGE 85) * 121,247 1,782,879 * 121,247 1,782,879 60 (AGE 95) * 62,305 4,334,905 * 62,305 4,334,905
EX-99.2 4 g73555ex99-2.txt CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP Exhibit 99.2 Exhibit 8 Consent of Sutherland Asbill & Brennan LLP S.A.B. letterhead April 19, 2002 Board of Directors Western Reserve Life Assurance Co. of Ohio WRL Series Life Account 570 Carillon Parkway St. Petersburg, Florida 33716 RE: WRL Series Life Account WRL Freedom Equity Protector File No. 33-31140 Gentlemen: We hereby consent to the use of our name under the caption "Legal Matters" in the Prospectus for the WRL Freedom Equity Protector contained in Post-Effective Amendment No. 20 to the Registration Statement on Form S-6 (File No. 33-31140) of the WRL Series Life Account filed by Western Reserve Life Assurance Co. of Ohio with the Securities and Exchange Commission. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Very truly yours, SUTHERLAND ASBILL & BRENNAN LLP By: /s/ Mary Jane Wilson-Bilik ---------------------------------------- Mary Jane Wilson-Bilik EX-99.C1 5 g73555ex99-c1.txt CONSENT OF ERNST & YOUNG LLP Exhibit 99.C1 Exhibit 9 Consent of Ernst & Young LLP CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports (1) dated February 15, 2002, with respect to the statutory-basis financial statements and schedules of Western Reserve Life Assurance Co. of Ohio, and (2) dated January 31, 2002, with respect to the financial statements of the WRL Series Life Account, included in Post-Effective Amendment No. 20 to the Registration Statement (Form S-6 No. 33-31140) and related Prospectus of WRL Series Life Account. ERNST & YOUNG LLP Des Moines, Iowa April 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----