-----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, U7QJ/YLZE6hE0IRwLlGo1w4Q4j4Mpw9edU6MBLpK65wapK/8fTJAf7TzKioDk8mu 7Z36YBcbuPJFKxwPcJ60Fw== 0000950144-03-005542.txt : 20030425 0000950144-03-005542.hdr.sgml : 20030425 20030425160217 ACCESSION NUMBER: 0000950144-03-005542 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20030425 EFFECTIVENESS DATE: 20030425 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: 333-23359 FILM NUMBER: 03664830 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: 03664831 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 g82263e485bpos.txt WRL SERIES LIFE ACCOUNT As filed with the Securities and Exchange Commission on April 25, 2003 Registration No. 333-23359/811-4420 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PRE-EFFECTIVE AMENDMENT NO. ( ) ---- POST-EFFECTIVE AMENDMENT NO. 9 (X) ---- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 12 (X) (Check appropriate box or boxes) WRL SERIES LIFE ACCOUNT (Exact Name of Registrant) WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO (Name of Depositor) 570 Carillon Parkway St. Petersburg, FL 33716 (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code: (727) 299-1800 Thomas E. Pierpan Senior Vice President, Assistant Secretary and General Counsel Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, FL 33716 (Name and Address of Agent for Service) Copy to: Mary Jane Wilson-Bilik, Esq. Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2415 Approximate Date of Proposed Public Offering: May 1, 2003 It is proposed that this filing will become effective (check appropriate box): immediately upon filing pursuant to paragraph (b) - --- X on May 1, 2003 , pursuant to paragraph (b) - --- ------------ 60 days after filing pursuant to paragraph (a)(1) - --- on (date) , pursuant to paragraph (a)(1) - --- ----------- If appropriate, check the following box: X This post-effective amendment designates a new effective date for a - --- previously filed post-effective amendment. PART A INFORMATION REQUIRED IN A PROSPECTUS P R O S P E C T U S MAY 1, 2003 WRL FINANCIAL FREEDOM BUILDER(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 This prospectus describes the WRL Financial Freedom Builder(R), a flexible premium variable life insurance policy (the "Policy"). You can allocate your Policy's cash value to the fixed account (which credits a specified guaranteed interest rate) and/or to the WRL Series Life Account, which invests through its subaccounts in portfolios of the AEGON/Transamerica Series Fund, Inc. - Initial Class (the "Series Fund") and Fidelity Variable Insurance Products Funds (VIP) - Service Class 2 (the "VIP Funds") (collectively, the "funds"). The portfolios of the Series Fund available to you under this Policy are: [ ] Munder Net50 [ ] PBHG Mid Cap Growth [ ] Van Kampen Emerging Growth [ ] T. Rowe Price Equity Income [ ] T. Rowe Price Small Cap [ ] Transamerica Value Balanced [ ] Alger Aggressive Growth [ ] American Century International [ ] Third Avenue Value [ ] Great Companies - Global(2) [ ] LKCM Strategic Total Return [ ] Great Companies - Technology(SM) [ ] Clarion Real Estate Securities [ ] Janus Growth [ ] Federated Growth & Income [ ] Janus Global [ ] AEGON Bond [ ] Janus Balanced [ ] Transamerica Money Market [ ] PIMCO Total Return [ ] Marsico Growth (formerly, Goldman Sachs Growth) [ ] Asset Allocation - Conservative Portfolio [ ] Transamerica Equity (formerly, Conservative Asset Allocation) [ ] GE U.S. Equity [ ] Asset Allocation - Moderate Portfolio (formerly, [ ] Transamerica Growth Opportunities Moderate Asset Allocation) [ ] Great Companies--America(SM) [ ] Asset Allocation - Moderate Growth Portfolio [ ] Transamerica Convertible Securities (formerly, Moderately Aggressive Asset [ ] Salomon All Cap Allocation) [ ] Dreyfus Mid Cap [ ] Asset Allocation - Growth Portfolio (formerly, [ ] PBHG/NWQ Value Select Aggressive Asset Allocation)
The portfolios of the VIP Funds available to you under this Policy are: [ ] VIP Equity-Income Portfolio* [ ] VIP Contrafund (R) Portfolio* [ ] VIP Growth Opportunities Portfolio*
* Effective May 1, 2003, this portfolio is no longer available for sale to new investors. 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 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 the funds 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. 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. 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. TABLE OF CONTENTS Policy Benefits/Risks Summary...................................................................................... 1 Policy Benefits................................................................................................ 1 The Policy in General....................................................................................... 1 Flexible Premiums........................................................................................... 1 Variable Death Benefit...................................................................................... 1 No Lapse Guarantee.......................................................................................... 2 Cash Value.................................................................................................. 2 Transfers................................................................................................... 2 Loans....................................................................................................... 2 Cash Withdrawals and Surrenders............................................................................. 3 Tax Benefits................................................................................................ 3 Policy Risks................................................................................................... 3 Risk of an Increase in Current Fees and Expenses............................................................ 3 Investment Risks............................................................................................ 3 Risk of Lapse............................................................................................... 4 Tax Risks (Income Tax and MEC).............................................................................. 4 Loan Risks.................................................................................................. 4 Portfolio Risks.................................................................................................... 5 Fee Tables......................................................................................................... 5 Range of Expenses for the Portfolios........................................................................ 11 Western Reserve, The Separate Account, the Fixed Account and the Portfolios........................................ 12 Western Reserve............................................................................................. 12 The Separate Account........................................................................................ 12 The Fixed Account........................................................................................... 12 The Portfolios.............................................................................................. 13 Addition, Deletion, or Substitution of Investments.......................................................... 17 Your Right to Vote Portfolio Shares......................................................................... 17 Charges and Deductions............................................................................................. 17 Premium Charges............................................................................................. 18 Monthly Deduction........................................................................................... 18 Mortality and Expense Risk Charge........................................................................... 19 Surrender Charge............................................................................................ 20 Pro Rata Decrease Charge.................................................................................... 21 Transfer Charge............................................................................................. 21 Loan Interest Charge........................................................................................ 22 Change in Net Premium Allocation Charge..................................................................... 22 Cash Withdrawal Charge...................................................................................... 22 Taxes....................................................................................................... 22 Portfolio Expenses.......................................................................................... 22 The Policy......................................................................................................... 22 Ownership Rights............................................................................................ 22 Modifying the Policy........................................................................................ 23 Purchasing a Policy......................................................................................... 23 Tax-Free "Section 1035" Exchanges........................................................................... 23 When Insurance Coverage Takes Effect........................................................................ 24 Policy Features.................................................................................................... 25 Premiums....................................................................................................... 25 Allocating Premiums......................................................................................... 25 Premium Flexibility......................................................................................... 26
This Policy is not available in the State of New York. i Planned Periodic Payments................................................................................... 26 Minimum Monthly Guarantee Premium........................................................................... 26 No Lapse Period............................................................................................. 27 Premium Limitations......................................................................................... 27 Making Premium Payments..................................................................................... 27 Transfers.......................................................................................................... 28 General..................................................................................................... 28 Fixed Account Transfers..................................................................................... 29 Conversion Rights........................................................................................... 30 Dollar Cost Averaging....................................................................................... 30 Asset Rebalancing Program................................................................................... 30 Third Party Asset Allocation Services....................................................................... 31 Policy Values...................................................................................................... 31 Cash Value.................................................................................................. 31 Net Surrender Value......................................................................................... 32 Subaccount Value............................................................................................ 32 Subaccount Unit Value....................................................................................... 32 Fixed Account Value......................................................................................... 33 Death Benefit...................................................................................................... 33 Death Benefit Proceeds...................................................................................... 33 Death Benefit............................................................................................... 34 Effect of Cash Withdrawals on the Death Benefit............................................................. 35 Choosing Death Benefit Options.............................................................................. 36 Changing the Death Benefit Option........................................................................... 36 Decreasing the Specified Amount............................................................................. 36 No Increases in Specified Amount............................................................................ 37 Payment Options............................................................................................. 37 Surrenders and Cash Withdrawals.................................................................................... 37 Surrenders.................................................................................................. 37 Cash Withdrawals............................................................................................ 37 Canceling a Policy.......................................................................................... 38 Loans .......................................................................................................... 38 General..................................................................................................... 38 Interest Rate Charged....................................................................................... 39 Loan Reserve Interest Rate Credited......................................................................... 39 Effect of Policy Loans...................................................................................... 39 Policy Lapse and Reinstatement..................................................................................... 40 Lapse....................................................................................................... 40 No Lapse Period............................................................................................. 40 Reinstatement............................................................................................... 41 Federal Income Tax Considerations.................................................................................. 41 Tax Status of the Policy.................................................................................... 41 Tax Treatment of Policy Benefits............................................................................ 42 Other Policy Information........................................................................................... 44 Benefits at Maturity........................................................................................ 44 Payments We Make............................................................................................ 45 Split Dollar Arrangements................................................................................... 45 Policy Termination.......................................................................................... 46 Supplemental Benefits (Riders)..................................................................................... 46 Children's Insurance Rider.................................................................................. 46 Accidental Death Benefit Rider.............................................................................. 46 Other Insured Rider......................................................................................... 46 Disability Waiver Rider..................................................................................... 47
ii Disability Waiver and Income Rider.......................................................................... 47 Primary Insured Rider ("PIR") and Primary Insured Rider Plus ("PIR Plus")................................... 47 Terminal Illness Accelerated Death Benefit Rider............................................................ 48 Additional Information............................................................................................. 49 Sale of the Policies........................................................................................ 49 Legal Proceedings........................................................................................... 49 Financial Statements........................................................................................ 49 Performance Data................................................................................................... 50 Rates of Return............................................................................................. 50 Table of Contents of the Statement of Additional Information....................................................... 52 Glossary .......................................................................................................... 54 Appendix A - Surrender Charge Per Thousand (Based on the gender and rate class of the insured)..................... 57 Prospectus Back Cover.............................................................................................. 59 Personalized Illustrations of Policy Benefits............................................................... 59 Inquiries................................................................................................... 59
iii POLICY BENEFITS/RISKS SUMMARY WRL FINANCIAL FREEDOM BUILDER(R) This summary describes the Policy's important benefits and risks. More detailed information about the Policy appears later in this prospectus and in the Statement of Additional Information ("SAI"). For your convenience, we have provided a Glossary at the end of this prospectus that defines certain words and phrases used in this prospectus. POLICY BENEFITS THE POLICY IN GENERAL - - The WRL Financial Freedom Builder(R) is an individual flexible premium variable life insurance policy. The Policy gives you the potential for long-term life insurance coverage with the opportunity for tax-deferred cash value accumulation. The Policy's cash value will increase or decrease depending on the investment performance of the subaccounts, the premiums you pay, the fees and charges we deduct, the interest we credit to the fixed account, and the effects of any Policy transactions (such as transfers, loans and partial withdrawals). - - 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. You should purchase the Policy only if you have the financial ability to keep it in force for a substantial period of time. You should consider the Policy in conjunction with other insurance you own. THE POLICY IS NOT SUITABLE AS A SHORT-TERM SAVINGS VEHICLE. There may be adverse consequences should you decide to surrender your Policy early, such as payment of a surrender charge that applies during the first 15 Policy years. - - Fixed Account. You may place money in the fixed account where it earns at least 4% annual interest. We may declare higher rates of interest, but are not obligated to do so. The fixed account is part of our general account. The fixed account is NOT available if your Policy was issued in the State of New Jersey. - - Separate Account. You may direct the money in your Policy to any of the subaccounts of the separate account. Each subaccount invests exclusively in one of the portfolios listed on the cover of this prospectus. Money you place in a subaccount is subject to investment risk and its value will vary each day according to the investment performance of the portfolios in which the subaccounts invest. - - Supplemental Benefits (Riders). Supplemental riders are available under the Policy. We deduct charges for these riders from cash value as part of the monthly deduction. These riders may not be available in all states. FLEXIBLE PREMIUMS - - You select a premium payment plan but the plan is flexible - you are not required to pay premiums according to the plan. You can change 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. 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. VARIABLE DEATH BENEFIT - - If the insured dies while the Policy is in force, we will pay a death benefit to the beneficiary(ies). The amount of the death benefit depends on the specified amount of insurance you select, the death benefit option you chose, and any additional insurance provided by riders you purchase. - - CHOICE AMONG DEATH BENEFIT OPTIONS. You must choose one of three 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 death. 1 - Option C is the greater of: - the amount payable under Option A, or - the current specified amount, multiplied by an age-based "factor," plus the Policy's cash value on the date of the insured's death. We will reduce the death benefit proceeds by any outstanding loan amount 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. - - Under current tax law, the death benefit should generally be U.S. federal income tax free to the beneficiary. Other taxes, such as estate taxes, may apply. - - CHANGE IN DEATH BENEFIT OPTION AND SPECIFIED AMOUNT. After the third Policy year and once each Policy year thereafter, you may make one of the following changes: change the death benefit option or decrease the specified amount. A decrease in specified amount is limited to no more than 20% of the specified amount prior to the decrease. The new specified amount cannot be less than the minimum specified amount as shown in your Policy. NO LAPSE GUARANTEE - - We guarantee that your Policy will not lapse until the no lapse date shown on your Policy schedule page, so long as on any Monthiversary you have paid total premiums (MINUS any cash withdrawals, MINUS any outstanding loan amount, and MINUS any pro rata decrease charge) that equal or exceed the sum of the minimum monthly guarantee premiums in effect for each month since the Policy date up to and including the current month. If you take a cash withdrawal or a loan, or if you decrease your specified amount or if you add, increase or decrease a rider, you may need to pay additional premiums in order to keep the no lapse guarantee in place. CASH VALUE - - 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(s) (including interest you owe on any Policy loan(s)). - - The Policy will not lapse during the no lapse period so long as you have paid sufficient premiums. TRANSFERS - - You can transfer cash value among the subaccounts and the fixed account. You may make transfers in writing, by telephone, by fax or electronically through our website. - - We charge a $25 transfer processing fee for each transfer after the first 12 transfers in a Policy year. - - 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 at our office 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. 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, MINUS any surrender charge and MINUS any 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. - - We currently charge 5.2% interest annually. The interest will be charged 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 loan reserve account is part of the fixed account. We will credit the amount in the loan reserve with interest at an effective annual rate of at least 4.0%. 2 - - After the 10th Policy year, on all amounts you have borrowed, we currently credit interest to the 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%. - - Federal income taxes and a penalty tax may apply to loans you take against the Policy. 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 may be limited to: - 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. - - A cash withdrawal will reduce the death benefit by at least the amount of the withdrawal. We will not impose a pro rata decrease charge when the specified amount is decreased as a result of taking a cash withdrawal. - - You may fully surrender the Policy at any time before the insured's death or the maturity date. Life insurance coverage will end. You will receive the net surrender value (cash value MINUS surrender charge, MINUS any outstanding loan amount, plus any interest paid in advance on the loan for the period between the date of surrender and the next Policy anniversary). The surrender charge will apply during the first 15 Policy years. THE SURRENDER CHARGE MAY BE SIGNIFICANT. You may receive little or no net surrender value if you surrender your Policy in the early Policy years. - - A cash withdrawal will reduce the 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 guarantee will not remain in effect. - - Federal income taxes and a penalty tax may apply to cash withdrawals and surrenders. TAX BENEFITS We intend for the Policy to satisfy the definition of life insurance under the Internal Revenue Code so that the death benefit generally should be excludible from the taxable income of the beneficiary. In addition, if the Policy is a Modified Endowment Contract ("MEC"), you should not be deemed to be in receipt of any taxable gains on cash value until you take a withdrawal, Policy loan, pledge or surrender the Policy, or we pay the maturity benefit. Moreover, transfers between the subaccounts are not taxable transactions. POLICY RISKS RISK OF AN INCREASE IN CURRENT FEES AND EXPENSES Certain fees and expenses currently are assessed at less than their guaranteed maximum levels. In the future, we may increase these current charges up to the guaranteed (that is, maximum) levels. If fees and expenses are increased, you may need to increase the amount and/or frequency of premiums to keep the Policy in force. INVESTMENT RISKS If you invest your Policy's cash value in one or more subaccounts, then you will be subject to the risk that investment performance of the subaccounts will be unfavorable and that the cash value in your Policy will decrease. In addition, we deduct Policy fees and charges from your cash value, which can significantly reduce your cash value. During times of poor investment performance, this deduction will have an even greater impact on your cash value. You could lose everything you invest and your Policy could lapse without value, unless you pay additional premiums. If you allocate premiums to the fixed account, then we credit your fixed account value with a declared rate of interest. You assume the risk that the interest rate on the fixed account may decrease, although it will never be lower than a guaranteed minimum annual effective rate of 4%. 3 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 without value 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 sufficient minimum guarantee premiums. If you do not pay sufficient premiums, you will automatically lose the no lapse guarantee and you will increase the risk that your Policy will lapse. If you take a cash withdrawal or Policy loan, if you decrease the specified amount, or if you add, increase or decrease a rider, you will increase the risk of losing the no lapse guarantee. We deduct the total amount of your withdrawals, any outstanding loan amount and any pro rata decrease charge from your premiums paid when we determine whether your premium payments are high enough to keep the no lapse period in effect. If you change death benefit options, decrease the specified amount, or add or increase a rider, we will increase the amount of your minimum monthly guarantee premium. You will lessen the risk of Policy lapse if you keep the no lapse period in effect during the first three Policy years. Before you take a cash withdrawal, loan, decrease the specified amount or add, increase or decrease 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, cash withdrawals, the monthly deductions, 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 loan amount, plus any interest you paid in advance on the loan between the date of surrender and the next Policy anniversary) is not enough to pay the monthly deduction due. A Policy lapse may have adverse tax consequences. 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 AND MEC) We expect that the Policy will generally be deemed a life insurance contract under federal tax law, and that the death benefit paid to the beneficiary will generally not be subject to federal income tax. Depending on the total amount of premiums you pay, the Policy may be treated as a modified endowment contract ("MEC") under federal tax laws. If a Policy is treated as a MEC, partial withdrawals, surrenders, pledges 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 the taxable portion of cash withdrawals, surrenders, pledges and loans taken before you reach age 59 1/2. If a Policy is not treated as a MEC, partial surrenders, surrenders, pledges 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. 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 at an annual effective rate of 4.0% to the loan collateral. 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 to the unloaned portion of the fixed account. 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. 4 We also currently 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. 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 not remain in effect. There is also a risk that if the loan, insurance charges and unfavorable investment experience reduce your net surrender value and the no lapse period is no longer in effect, then the Policy will lapse. Adverse tax consequences may result. If a loan from a Policy is outstanding when the Policy is surrendered, or lapses, or if a loan is taken out and the Policy is a MEC or becomes a MEC within two years of taking a loan, then the amount of the outstanding indebtedness will be taxed as if it were a withdrawal from the Policy. PORTFOLIO RISKS A comprehensive discussion of the risks of each portfolio may be found in each portfolio's prospectus. Please refer to the prospectuses for the portfolios for more information. There is no assurance that any of the portfolios will achieve its stated investment objective. FEE TABLES The following tables describe the fees and expenses that you will pay when buying, owning and surrendering the Policy. If the amount of a charge depends on the personal characteristics of the insured or the owner, then the fee table lists the minimum and maximum charges we assess under the Policy, and the fees and charges of a typical policyowner with the characteristics set forth below. These charges may not be typical of the charges you will pay. The first table describes the fees and expenses that you will pay when buying the Policy, paying premiums, making cash withdrawals from the Policy, surrendering the Policy, or transferring Policy cash value among the subaccounts and the fixed account.
TRANSACTION FEES - ---------------------------------------------------------------------------------------------------------------------- AMOUNT DEDUCTED CHARGE WHEN CHARGE IS GUARANTEED CURRENT DEDUCTED CHARGE CHARGE - ------------------------------- ------------------------ ------------------------------ ------------------------------ PREMIUM CHARGES: Upon payment of each First 10 Policy years = First 10 Policy years = 6.0% Premium Expense Charge premium 6.0% of each premium of each premium payment; and payment; and 2.5% of 2.5% of premiums in Policy premiums in Policy years 11+ years 11+ Premium Collection Charge $3.00 per premium $3.00 per premium CASH WITHDRAWAL CHARGE(1) Upon withdrawal 2.0% of the amount 2.0% of the amount withdrawn, withdrawn, not to exceed not to exceed $25 $25
- ------------------------------------------- (1) When we incur the expense of expedited delivery of your partial withdrawal or complete surrender payment, we will assess the following charges: $20 for overnight delivery ($30 for Saturday delivery); and $25 for wire service. 5
TRANSACTION FEES - ---------------------------------------------------------------------------------------------------------------------- AMOUNT DEDUCTED CHARGE WHEN CHARGE IS GUARANTEED CURRENT DEDUCTED CHARGE CHARGE - ------------------------------- ------------------------ ------------------------------ ------------------------------ SURRENDER CHARGE(2) Upon full surrender of the Policy during the first 15 Policy years - Minimum Charge $7.68 per $1,000 of $7.68 per $1,000 of specified specified amount during amount during first Policy first Policy year.(3) year.(3) - Maximum Charge $57.00 per $1,000 of $57.00 per $1,000 of specified amount during specified amount during first first Policy year.(4) Policy year.(4) - Charge for a Policy $12.52 per $1,000 of $12.52 per $1,000 of insuring a male, specified amount during specified amount during first issue age 30 in the first Policy year. Policy year. ultimate select non-tobacco use underwriting class TRANSFER CHARGE(5) Upon transfer $25 for each transfer in $25 for each transfer in excess of 12 per Policy year excess of 12 per Policy year CHANGE IN NET PREMIUM Upon change of $25 None ALLOCATION CHARGE allocation instructions for premium payments in excess of one per Policy quarter PRO RATA DECREASE CHARGE Deducted when Equal to the surrender Equal to the surrender charge specified amount is charge (as of the date of (as of the date of the decreased during the the decrease) applicable to decrease) applicable to that first 15 Policy years that portion of the portion of the specified specified amount that is amount that is decreased. decreased.
- ---------- (2) The surrender charge will vary based on the issue age, gender and underwriting class of the insured on the Policy. The surrender charge is calculated as the surrender charge per $1,000 of specified amount multiplied by the surrender charge factor. The surrender charge factor on a Policy where the insured's age on the Policy date is less than 40 will be 1.00 for the first 5 Policy years and then decrease by 0.10 each Policy year until it reaches zero at the end of the 15th Policy year after the Policy date. For a Policy where the age on the Policy date is greater than 39, the surrender charge factor is less than 1.00 at the end of the First Policy year and decreases every year until it reaches zero at the end of the 15th Policy year after the Policy date. The surrender charge shown in the table may not be typical of the charges you will pay. More detailed information about the surrender charges applicable to you is available from your agent. (3) This minimum surrender charge is based on an insured with the following characteristics: female, issue age 4, in the juvenile underwriting class. This minimum charge may also apply to insureds with other characteristics. (4) This maximum surrender charge is based on an insured with the following characteristics: male, issue age 80, in the standard tobacco use underwriting class. This maximum charge may also apply to insureds with other characteristics. (5) The first 12 transfers per Policy year are free. 6 The table below describes the fees and expenses that you will pay periodically during the time that you own the Policy, not including portfolio fees and expenses.
PERIODIC CHARGES OTHER THAN PORTFOLIO OPERATING EXPENSES - ---------------------------------------------------------------------------------------------------------------------- AMOUNT DEDUCTED CHARGE WHEN CHARGE IS GUARANTEED CURRENT DEDUCTED CHARGE CHARGE - ------------------------------- ------------------------ ------------------------------ ------------------------------ MONTHLY POLICY CHARGE Monthly on the Policy $7.50 per month $5.00 per month date and on each Monthiversary COST OF INSURANCE(6) Monthly on the Policy (without Extra Ratings)(7) date and on each Monthiversary until the insured reaches age 95 - Minimum Charge(8) $.06 per $1,000 of net $.06 per $1,000 of net amount amount at risk per month at risk per month - Maximum Charge(9) $24.85 per $1,000 of net $21.12 per $1,000 of net amount at risk per month amount at risk per month - Initial charge for a $.12 per $1,000 of net $.12 per $1,000 of net amount male insured, issue amount at risk per month at risk per month age 30, in the ultimate select non-tobacco use class MORTALITY AND EXPENSE RISK Daily Annual rate of 0.90% of Annual rate of 0.90% for CHARGE daily net assets of each Policy years 1- 15 and 0.75% subaccount in which you are for Policy years 16+ of daily invested net assets of each subaccount in which you are invested LOAN INTEREST SPREAD On Policy 1.49% (effective annual 0.74% (effective annual rate, anniversary(10) rate, after rounding)(11) after rounding)(11)
- ---------- (6) Cost of insurance charges are based on each insured's issue age, gender, underwriting class, specified amount, Policy year, and the net amount at risk. Cost of insurance rates generally will increase each year with the age of the insured. The cost of insurance rates shown in the table may not be representative of the charges you will pay. Your Policy's schedule page will indicate the guaranteed cost of insurance charges applicable to your Policy. You can obtain more detailed information concerning your cost of insurance charges by contacting your agent. (7) We may place insureds in sub-standard underwriting classes with extra ratings that reflect higher mortality risks and that result in higher cost of insurance rates. If the insured possesses additional mortality risks, we may add a surcharge to the cost of insurance rates of up to $83.33 monthly per $1,000 of net amount at risk. (8) This minimum charge is based on an insured with the following characteristics: female, age 10 at issue, juvenile class and in the first Policy year. This minimum charge may also apply to insureds with other characteristics. (9) This maximum charge is based on an insured with the following characteristics: male, age 75 at issue, standard tobacco underwriting class and in the 20th Policy year. This maximum charge may also apply to insureds with other characteristics. (10) While a Policy loan is outstanding, loan interest is payable in advance on each Policy anniversary. If prior to the next Policy anniversary, there is a loan repayment, Policy lapse or surrender, Policy termination, or the insured's death, we will refund the amount of any loan interest we charged in advance for the period between the date of any such occurrence above and the next Policy anniversary. (11) The Loan Interest Spread is the difference between the amount of interest we charge you for a loan and the amount of interest we credit to your loan account. We charge you an annual interest rate on a Policy loan of 5.2% in advance (5.49% effective annual interest rate) on each Policy anniversary. We will also currently credit the amount in the loan reserve with an effective annual interest rate of 4.75% (4.0% minimum guaranteed). 7
PERIODIC CHARGES OTHER THAN PORTFOLIO OPERATING EXPENSES - ---------------------------------------------------------------------------------------------------------------------- AMOUNT DEDUCTED CHARGE WHEN CHARGE IS GUARANTEED CURRENT DEDUCTED CHARGE CHARGE - ------------------------------- ------------------------ ------------------------------ ------------------------------ OPTIONAL RIDER CHARGES: Accidental Death Benefit Monthly on the Policy Rider(12) date and on each Monthiversary until the insured reaches age 70 - Minimum Charge(13) $.10 per $1,000 of rider $.10 per $1,000 of rider face face amount per month amount per month - Maximum Charge(14) $.18 per $1,000 of rider $.18 per $1,000 of rider face face amount per month amount per month - Initial charge for a $.10 per $1,000 of rider $.10 per $1,000 of rider face male insured, issue face amount per month amount per month age 30 Disability Waiver Monthly on the Policy Rider(15) date and on each Monthiversary until the insured reaches age 60 - Minimum Charge(16) $.03 per $1,000 of base $0.03 per $1,000 of base Policy specified amount per Policy specified amount per month month - Maximum Charge(17) $0.39 per $1,000 of base $0.39 per $1,000 of base Policy specified amount per Policy specified amount per month month - Initial charge for a $0.04 per $1,000 of base $0.04 per $1,000 of base male insured, issue Policy specified amount per Policy specified amount per age 30 month month
- ---------- (12) Optional rider cost of insurance charges are based on each insured's attained age, gender and rider face amount. The cost of insurance rates shown in the table may not be representative of the charges you will pay. The rider will indicate the maximum guaranteed rider charges applicable to your Policy. You can obtain more information about this rider by contacting your agent. (13) This minimum charge is based on an insured with the following characteristics: male, age 45 at issue and in the first policy year. This minimum charge may also apply to insureds with other characteristics. (14) This maximum charge is based on an insured with the following characteristics: male, age 50 at issue and in the 20th policy year. This maximum charge may also apply to insureds with other characteristics. (15) Disability Waiver charges are based on the base insured's issue age, gender and face amount. The charges shown are for base Policy only (no riders and benefits). The addition of other riders and benefits would increase these charges. The cost of insurance rates shown in the table may not be representative of the charges you will pay. The rider will indicate the maximum guaranteed rider charges applicable to your Policy. You can obtain more information about these riders by contacting your agent. (16) This minimum charge is based on an insured with the following characteristics: male, age 25 at issue. This minimum charge may also apply to insureds with other characteristics. (17) This maximum charge is based on an insured with the following characteristics: female, age 55 at issue. This maximum charge may also apply to insureds with other characteristics. 8
PERIODIC CHARGES OTHER THAN PORTFOLIO OPERATING EXPENSES - ---------------------------------------------------------------------------------------------------------------------- AMOUNT DEDUCTED CHARGE WHEN CHARGE IS GUARANTEED CURRENT DEDUCTED CHARGE CHARGE - ------------------------------- ------------------------ ------------------------------ ------------------------------ Disability Waiver and Monthly on the Policy Income Rider(18) date and on each Monthiversary until the insured reaches age 60 - Minimum Charge(19) $.20 per $10 monthly rider $.20 per $10 monthly rider units units - Maximum Charge(20) $.86 per $10 monthly rider $.86 per $10 monthly rider units units - Initial charge for a $.23 per $10 monthly rider $.23 per $10 monthly rider male insured, issue units units age 30 Children's Insurance Monthly on the Policy $.60 per $1,000 of rider $.60 per $1,000 of rider face Rider(21) date and on each face amount per month amount per month Monthiversary until the youngest child reaches age 25 Other Insured Rider(22) Monthly on the Policy (without Extra Ratings)(7) date and on each Monthiversary until the insured reaches age 95 - Minimum Charge(8) $.06 per $1,000 of rider $.06 per $1,000 of rider face face amount per month amount per month - Maximum Charge(9) $24.85 per $1,000 of rider $21.12 per $1,000 of rider face amount per month face amount per month
- ---------- (18) The charge for this rider is based on the base insured's issue age, gender and number of units of monthly disability income selected. (19) This minimum charge is based on an insured with the following characteristics: male, age 27 at issue. This minimum charge may also apply to insureds with other characteristics. (20) This maximum charge is based on an insured with the following characteristics: female, age 55 at issue. This maximum charge may also apply to insureds with other characteristics. (21) The charge for this rider is based on the rider face amount and does not vary. (22) Rider cost of insurance charges are based on each insured's issue age, gender, underwriting class, Policy year, and the rider face amount. Cost of insurance rates generally will increase each year with the age of the insured. The cost of insurance rates shown in the table may not be representative of the charges you will pay. The rider will indicate the maximum guaranteed rider charges applicable to your Policy. You can obtain more information about these riders by contacting your agent. 9
PERIODIC CHARGES OTHER THAN PORTFOLIO OPERATING EXPENSES - ---------------------------------------------------------------------------------------------------------------------- AMOUNT DEDUCTED CHARGE WHEN CHARGE IS GUARANTEED CURRENT DEDUCTED CHARGE CHARGE - ------------------------------- ------------------------ ------------------------------ ------------------------------ Other Insured Rider (without Extra Ratings) (CONTINUED) - Initial charge for a male insured, issue $.12 per $1,000 of rider $.12 per $1,000 of rider face age 30, in the face amount per month amount per month ultimate select non-tobacco use class Primary Insured Rider(22) Monthly on the Policy (without Extra Ratings)(7) date and on each Monthiversary until the insured reaches age 90 - Minimum Charge(8) $.06 per $1,000 of rider $.05 per $1,000 of rider face face amount per month amount per month - Maximum Charge(23) $18.46 per $1,000 of rider $14.91 per $1,000 of rider face amount per month face amount per month - Initial charge for a $.12 per $1,000 of rider $.10 per $1,000 of rider face male insured, issue face amount per month amount per month age 30, in the ultimate select non-tobacco use class Primary Insured Plus Rider(22) Monthly on the Policy (without Extra Ratings)(7) date and on each Monthiversary until the insured reaches age 85 - Minimum Charge $.08 per $1,000 of rider $.04 per $1,000 of rider face face amount per month(24) amount per month(25)
- ---------------------- (23) This maximum charge is based on an insured with the following characteristics: male, age 70 at issue standard tobacco underwriting class and in the 20th Policy year. This maximum charge may also apply to insureds with other characteristics. (24) This minimum charge is based on an insured with the following characteristics: female, age 18 at issue, non-tobacco use class and in the first Policy year. This minimum charge may also apply to insureds with other characteristics. (25) This minimum charge is based on an insured with the following characteristics: female, age 29 at issue, ultimate select non-tobacco use class and first Policy year. This minimum charge may also apply to insureds with other characteristics. 10
PERIODIC CHARGES OTHER THAN PORTFOLIO OPERATING EXPENSES - ---------------------------------------------------------------------------------------------------------------------- AMOUNT DEDUCTED CHARGE WHEN CHARGE IS GUARANTEED CURRENT DEDUCTED CHARGE CHARGE - ------------------------------- ------------------------ ----------------------------- ------------------------------- Primary Insured Plus Rider (without Extra Ratings) (CONTINUED) - Maximum Charge $13.54 per $1000 of rider $10.93 per $1000 of rider face amount per month(26) face amount per month(27) - Initial charge for a $.12 per $1000 of rider $.06 per $1000 of rider face male insured, issue face amount per month amount per month age 30, in the ultimate select non-tobacco use class Terminal Illness When rider is exercised Accelerated Death Discount Factor(28) Discount Factor(28) Benefit Rider
RANGE OF EXPENSES FOR THE PORTFOLIOS(12) The next table shows the minimum and maximum total operating expenses charged by the portfolios during the fiscal year ended December 31, 2002. Expenses of the portfolios may be higher or lower in the future. More detail concerning each portfolio's fees and expenses is contained in the prospectus for each portfolio.
Minimum Maximum - ---------------------------------------------------------------------------------------------------- ------------- ------------ TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES (total of all expenses that are deducted from portfolio assets, including management fees, 12b-1 fees, and other expenses) 0.41% 1.78% NET ANNUAL PORTFOLIO OPERATING EXPENSES (total of all expenses that are deducted from portfolio assets, including management fees, 12b-1 fees, and other expenses, after contractual waiver of 0.41% 1.40% fees and expenses)(3)
(1) The portfolio expenses used to prepare this table were provided to Western Reserve by the funds. Western Reserve has not independently verified such information. The expenses shown are those incurred for the year ended December 31, 2002. Current or future expenses may be greater or less than those shown. (2) The table showing the range of expenses for the portfolios takes into account the expenses of several Series Fund asset allocation portfolios that are "funds of funds." A "fund of funds" portfolio typically allocates its assets, within predetermined percentage ranges, among certain other Series Fund portfolios. Each "fund of funds" has its own set of operating expenses, as does each of the portfolios in which it invests. In determining the range of portfolio expenses, Western Reserve took into account the combined actual expenses for each of the "fund of funds" and for the portfolios in which it invests, assuming a constant allocation by each "fund of funds" of its assets among the portfolios identical to its actual allocation at December 31, 2002. (3) The range of Net Annual Portfolio Operating Expenses takes into account contractual arrangements for 8 portfolios that require a portfolio's investment adviser to reimburse or waive portfolio expenses until April 30, 2004. - ---------- (26) This maximum charge is based on an insured with the following characteristics: male, age 75 at issue, standard tobacco use class and in the 10th Policy year. This maximum charge may also apply to insureds with other characteristics. (27) This maximum charge is based on an insured with the following characteristics: male, age 70 at issue, standard tobacco use class and in the 15th Policy year. This maximum charge may also apply to insureds with other characteristics. (28) We do not assess an administrative charge for this rider; however, we do reduce the single sum benefit by a discount factor to compensate us for lost income due to the early payment of the death benefit. 11 WESTERN RESERVE, THE SEPARATE ACCOUNT, THE FIXED ACCOUNT AND THE PORTFOLIOS WESTERN RESERVE Western Reserve Life Assurance Co. of Ohio located at 570 Carillon Parkway, St. Petersburg, Florida 33716 is the insurance company issuing the Policy. We are obligated to pay all benefits under the Policy. THE SEPARATE ACCOUNT The separate account is a separate account of Western Reserve, established under Ohio law. We own the assets in the separate account and we may use assets in the separate account to support other variable life insurance policies we issue. The separate account is registered with the Securities and Exchange Commission ("SEC") as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act"). The separate account is divided into subaccounts, each of which invests in shares of a specific portfolio of a fund. These subaccounts buy and sell portfolio shares at net asset value without any sales charge. Any dividends and distributions from a portfolio are reinvested at net asset value in shares of that portfolio. Income, gains, and losses credited to, or charged against, a subaccount of the separate account reflect the subaccount's own investment experience and not the investment experience of our other assets. The separate account's assets may not be used to pay any of our liabilities other than those arising from the Policies and other variable life insurance policies we issue. If the separate account's assets exceed the required reserves and other liabilities, we may transfer the excess to our general account. CHANGES TO THE SEPARATE ACCOUNT. As permitted by applicable law, we reserve the right to make certain changes to the structure and operation of the separate account, including, among others, the right to: - Remove, combine, or add subaccounts and make the new subaccounts available to you at our discretion; - Substitute shares of another registered open-end management company, which may have different fees and expenses, for shares of a subaccount at our discretion; - Close subaccounts to allocations of new premiums by existing or new Policyowners at any time in our discretion; - Transfer assets supporting the Policies from one subaccount to another or from the separate account to another separate account; - Combine the separate account with other separate accounts, and/or create new separate accounts; - Deregister the separate account under the 1940 Act, or operate the separate account as a management investment company under the 1940 Act, or as any other form permitted by law; and - Modify the provisions of the Policy to reflect changes to the subaccounts and the separate account and to comply with applicable law. Some, but not all, of these future changes may be the result of changes in applicable laws or interpretation of the law. The portfolios, which sell their shares to the subaccounts, may discontinue offering their shares to the subaccounts. We will not make any such changes without receiving any necessary approval of the SEC and applicable state insurance departments. We will notify you of any changes. We reserve the right to make other structural and operational changes affecting the separate account. 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 the investment of the fixed account's assets. Western Reserve bears the full investment risk for all amounts contributed to the fixed account. Western Reserve guarantees that the amounts allocated to the fixed account will be credited 12 interest daily at an annual 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. 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: The fixed account is NOT available to you if your Policy was issued in the State of New Jersey. You may not direct or transfer any premium payments 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 PORTFOLIOS The separate account invests in shares of the portfolios of a fund. 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 loss 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 MAY OBTAIN A FREE COPY OF THE FUND PROSPECTUSES BY CONTACTING US AT 1-800-851-9777 OR VISITING OUR WEBSITE AT WWW.WESTERNRESERVE.COM. YOU SHOULD READ THE FUND PROSPECTUSES CAREFULLY.
PORTFOLIO SUB-ADVISER OR ADVISER AND - --------- INVESTMENT OBJECTIVE -------------------------- MUNDER NET50 MUNDER CAPITAL MANAGEMENT Seeks long-term capital appreciation. VAN KAMPEN EMERGING GROWTH VAN KAMPEN ASSET MANAGEMENT INC. Seeks capital appreciation
13
PORTFOLIO SUB-ADVISER OR ADVISER AND - --------- INVESTMENT OBJECTIVE -------------------------- 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 THIRD AVENUE MANAGEMENT LLC Seeks long-term capital appreciation. AMERICAN CENTURY INTERNATIONAL AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. Seeks capital growth. JANUS GLOBAL JANUS CAPITAL MANAGEMENT LLC Seeks long-term growth of capital in a manner consistent with the preservation of capital. GREAT COMPANIES--GLOBAL(2) GREAT COMPANIES, L.L.C. Seeks long-term growth of capital in a manner consistent with the preservation of capital. GREAT COMPANIES--TECHNOLOGY(SM) GREAT COMPANIES, L.L.C. Seeks long-term growth of capital. JANUS GROWTH JANUS CAPITAL MANAGEMENT LLC Seeks growth of capital. MARSICO GROWTH* BANC OF AMERICA CAPITAL MANAGEMENT, LLC Seeks long-term growth of capital. GE U.S. EQUITY GE ASSET MANAGEMENT INCORPORATED Seeks long-term growth of capital. GREAT COMPANIES--AMERICA(SM) GREAT COMPANIES, L.L.C. Seeks long-term growth of capital. SALOMON ALL CAP SALOMON BROTHERS ASSET MANAGEMENT INC Seeks capital appreciation. DREYFUS MID CAP THE DREYFUS CORPORATION Seeks total investment returns (including capital appreciation and income), which consistently outperform the S&P Mid Cap 400 Index.
14
PORTFOLIO SUB-ADVISER OR ADVISER AND - --------- INVESTMENT OBJECTIVE -------------------- PBHG/NWQ VALUE SELECT NWQ INVESTMENT MANAGEMENT COMPANY, LLC AND PILGRIM BAXTER & ASSOCIATES, LTD. Seeks to achieve maximum, consistent total return with minimum risk to principal. T. ROWE PRICE EQUITY INCOME T. ROWE PRICE ASSOCIATES, INC. Seeks to provide substantial dividend income, as well as long-term growth of capital by primarily investing in the dividend-paying common stocks of established companies. TRANSAMERICA VALUE BALANCED TRANSAMERICA INVESTMENT MANAGEMENT, LLC Seeks preservation of capital and competitive investment returns. LKCM STRATEGIC TOTAL RETURN LUTHER KING CAPITAL MANAGEMENT CORPORATION Seeks preservation of capital and long-term growth. CLARION REAL ESTATE SECURITIES ING CLARION REAL ESTATE SECURITIES 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, LLC Seeks to provide maximum current income consistent with preservation of principal and maintenance of liquidity. ASSET ALLOCATION - CONSERVATIVE PORTFOLIO** AEGON/TRANSAMERICA FUND ADVISERS, INC. Seeks current income and preservation of capital. ASSET ALLOCATION - MODERATE PORTFOLIO** AEGON/TRANSAMERICA FUND ADVISERS, INC. Seeks capital appreciation.
15
PORTFOLIO SUB-ADVISER OR ADVISER AND - --------- INVESTMENT OBJECTIVE -------------------------- ASSET ALLOCATION - MODERATE GROWTH AEGON/TRANSAMERICA FUND ADVISERS, INC. PORTFOLIO** Seeks capital appreciation. ASSET ALLOCATION - GROWTH PORTFOLIO** AEGON/TRANSAMERICA FUND ADVISERS, INC. Seeks capital appreciation and current income. TRANSAMERICA CONVERTIBLE SECURITIES TRANSAMERICA INVESTMENT MANAGEMENT, LLC Seeks maximum total return through a combination of current income and capital appreciation. PIMCO TOTAL RETURN PACIFIC INVESTMENT MANAGEMENT COMPANY, LLC Seeks maximum total return consistent 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. VIP EQUITY-INCOME PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY Seeks reasonable income. VIP CONTRAFUND(R) PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY Seeks long-term capital appreciation. VIP GROWTH OPPORTUNITIES PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY Seeks to provide capital growth.
- ---------- * Prior to November 1, 2002, this portfolio was sub-advised by Goldman Sachs Asset Management. ** 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 prospectuses for more information regarding AEGON/Transamerica Advisers and the investment sub-advisers. Fidelity Management & Research Company ("FMR"), located at 82 Devonshire Street, Boston, Massachusetts 02109, serves as investment adviser to the VIP Funds and manages the VIP Funds in accordance with policies and guidelines established by the 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 VIP Funds prospectuses for more information regarding FMR and the investment sub-advisers. 16 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 Asset Allocation - Conservative Portfolio, Asset Allocation - Moderate Portfolio, Asset Allocation - - Moderate Growth Portfolio and Asset Allocation - Growth Portfolio of the Series Fund. Morningstar will be paid an annual fee for its services. See the Series Fund prospectuses for more information regarding Morningstar. 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 or portfolio classes, close existing portfolios or portfolio classes, 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 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 securities from other portfolios for the separate account. 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. 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. 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. 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 and loan benefits; UNDER THE POLICY: - 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); - 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
17 - 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 the charges we deduct are used to pay 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 $3.00 per premium payment. - We will not increase this charge.
MONTHLY DEDUCTION We take a monthly deduction from the cash 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). 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; PLUS - the pro rata decrease charge (if applicable) incurred as a result of a decrease in the specified amount.
18 MONTHLY POLICY CHARGE: - This charge currently equals $5.00 each Policy month. After the first Policy year, we may increase this charge. - We guarantee this charge will never be more than $7.50 per 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 is used to cover aggregate Policy expenses. COST OF INSURANCE CHARGE: - We deduct this charge each month. It varies each month and is determined as follows: 1. divide the death benefit on the Monthiversary 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 4.0%); 2. subtract the cash value on the Monthiversary; 3. multiply the appropriate 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.
To determine the monthly cost of insurance rates we refer to a schedule of current cost of insurance rates using the insured's attained age, gender, underwriting class, and the length of time that the Policy has been in force. The factors that affect the net amount at risk include investment performance of the portfolios in which you invest, payment of premiums, the fees and charges deducted under the Policy, the death benefit option you chose, as well as any Policy transactions (such as loans, partial withdrawals, transfers, and changes in specified amount). The actual monthly cost of insurance rates are primarily based on our expectations as to future mortality experience and expenses. Monthly cost of insurance rates may be changed by us from time to time. The actual rates we charge will never be greater than the Table of Guaranteed Maximum Life Insurance Rates stated in your Policy. These guaranteed rates are based on the Commissioners 1980 Standard Ordinary Mortality Tobacco and Non-Tobacco Tables ("1980 C.S.O. 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 1980 C.S.O. Tables. We may issue certain Policies on a simplified or expedited basis. Cost of insurance rates for any Policies issued on a simplified or expedited basis would not cause healthy individuals to pay higher cost of insurance rates than they would pay under a substantially similar Policy that we offer using different underwriting criteria. 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%. 19 The annual rate is equal to 0.90% of the average daily net assets of each subaccount. We intend to reduce this charge to 0.75% in the 16th Policy year, but we do not guarantee that we will do so, and we reserve the right to maintain this charge at the 0.90% level after the 15th Policy year. The mortality risk is that the 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 combined with other Policy charges, does not cover our total 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 and other 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 amount) to you. There is no surrender charge if you wait until the end of the 15th Policy anniversary to surrender your Policy. 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 EVALUATE THIS CHARGE CAREFULLY BEFORE YOU CONSIDER A SURRENDER. Under some circumstances the level of surrender charges might result in no net surrender value available if you surrender your Policy in the early 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 SURRENDER CHARGE PER THOUSAND; multiplied by - the number of thousands in the Policy's specified amount as it is stated in the Policy; multiplied by - the SURRENDER CHARGE FACTOR.
The SURRENDER CHARGE PER THOUSAND applies to each $1,000 of specified amount stated in your Policy. It varies with the insured's issue age, gender and rate class. See the surrender charge table found in Appendix A. The SURRENDER CHARGE FACTOR varies with the insured's age and number of years the Policy has been in force. For insureds issue ages 0-39, the surrender charge factor is equal to 1.00 during Policy years 1-5. It decreases by 0.10 each year until the end of the 15th year when it is zero. If you are older than 39 when we issue your Policy, the factor is less than 1.00 at the end of the first Policy year and decreases to zero at the end of the 15th year. In no event are the surrender charge factors any greater than those shown on the table below. We always determine the surrender charge factor from the Policy date to the surrender date, regardless of whether there were any prior lapses and reinstatements. SURRENDER CHARGE FACTORS ISSUE AGES 0-39
END OF YEAR* FACTOR At Issue 1.00 1-5 1.00 6 .90 7 .80 8 .70 9 .60 10 .50 11 .40
20 12 .30 13 .20 14 .10 15 0 16+ 0
* The factor on any date other than a Policy anniversary will be determined proportionately using the factor at the end of the Policy year prior to surrender and the factor at the end of the Policy year of surrender. - - SURRENDER CHARGE EXAMPLE: Assume a male tobacco user purchases the Policy at issue age 30 with a specified amount of $100,000. The Policy is surrendered in Policy year 5. The surrender charge per thousand is $12.52. This is multiplied by the surrender charge factor of 1.00 The surrender charge = the surrender charge per thousand ($12.52) x the number of thousands of initial specified amount (100) x the surrender charge factor (1.0) = $1,252. 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, as well as aggregate Policy expenses. PRO RATA DECREASE CHARGE If you decrease the specified amount during the first 15 Policy years we will deduct a pro rata decrease charge from your cash value. THE PRO RATA DECREASE CHARGE IS EQUAL TO: - the surrender charge per thousand; MULTIPLIED BY - the number of thousands in the specified amount decreased; MULTIPLIED BY - the surrender charge factor applicable at the time of the decrease. (See Appendix B.)
We will not deduct the pro rata decrease charge from the cash value when a specified amount decrease results from: - a change in the death benefit option; or - a cash withdrawal (when you select death benefit Option A). If a pro rata decrease charge is deducted because of a decrease in specified amount, any future decrease charges incurred during the surrender charge period will be based on the reduced specified amount. We will determine the pro rata decrease charge using the above formula, regardless of whether your Policy has lapsed and been reinstated, or you have previously decreased your specified amount. We will not allow a decrease in specified amount if the pro rata decrease charge will cause the Policy to go into a grace period. A decrease in specified amount will generally decrease the insurance protection of the Policy. TRANSFER CHARGE - We currently allow you to make 12 transfers each year free from charge. - We charge $25 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. 21 - 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. LOAN INTEREST CHARGE We charge you an annual interest rate on a Policy loan of 5.2% in advance (5.49% effective annual interest rate, after rounding) on each Policy anniversary. We also currently credit the amount in the loan reserve with an effective annual interest rate of 4.75% (4.0% guaranteed minimum). After offsetting the 4.75% interest we credit, the net cost of loans currently is 0.74% annually, after rounding (1.49% maximum guaranteed, after rounding). After the 10th Policy year, you may receive preferred loan credited rates on an amount equal to the cash value MINUS total premiums paid (less any cash withdrawals) and MINUS any outstanding loan amount including accrued loan interest. The current preferred loan interest rate credited is 5.49% effective annually, after rounding, and is not guaranteed. CHANGE IN NET PREMIUM ALLOCATION CHARGE We currently do not charge you if you change your net premium allocation. However, in the future we may decide to charge you $25 if you make more than one change every three months in your allocation schedule. We will notify you if we decide to impose this charge. CASH WITHDRAWAL CHARGE - After the first Policy year, you may take one cash withdrawal per Policy year. - 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. These fees and expenses reduce the value of your portfolio shares. Some portfolios also deduct 12b-1 fees from portfolio assets. See the fund prospectuses. Our affiliate, AFSG Securities Corporation ("AFSG"), the principal underwriter for the Policies, will receive the 12b-1 fees deducted from portfolio assets for providing shareholder support services to the portfolios. We and our affiliates, including the principal underwriter for the Policies, may receive compensation from the investment advisers, administrators, and/or distributors (and an affiliate thereof) of the portfolios in connection with administrative or other services and cost savings experienced by the investment advisers, administrators or distributors. It is anticipated that such compensation will be based on assets of the particular portfolios attributable to the Policy and may be significant. Some advisers, administrators, distributors or portfolios may pay us (and our affiliates) more than others. THE POLICY 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 22 dies before the insured and no contingent owner is named, then ownership of the Policy will pass to the owner's estate. The principal rights an owner may exercise are: - to designate or change beneficiaries; - to receive amounts payable before the death of the insured; - to assign the Policy (if you assign the Policy, your rights and the rights of anyone who is to receive payment under the Policy are subject to the terms of that assignment); - to change the owner of this Policy; and - to change the specified amount of this Policy. No designation or change in designation of an owner will take effect unless we receive written request thereof. When received, the request will take effect as of the date we receive it, subject to payment or other action taken by us before it was received. MODIFYING THE POLICY Any modifications or waiver of any rights or requirements under the Policy must be in writing and signed by our president or secretary. NO AGENT MAY BIND US BY MAKING ANY PROMISE NOT CONTAINED IN THIS POLICY. Upon notice to you, we may modify the Policy: - to make the Policy or the separate account comply with any law or regulation issued by a governmental agency to which we are subject; or - to assure continued qualification of the Policy under the Internal Revenue Code or other federal or state laws relating to variable life policies; or - to reflect a change in the operation of the separate account; or - to provide additional subaccounts and/or fixed account options. 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, the principal underwriter for the Policy and us. You select the specified amount of insurance coverage for your Policy within the following limits. 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 46-80. 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 80. 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 covering the same insured 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, 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 23 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). WHEN INSURANCE COVERAGE TAKES EFFECT Insurance coverage under the Policy will take effect only if all of the following conditions have been met: (1) the first full premium must be received by the Company; (2) during the lifetime of any proposed insured, the proposed owner must have personally received and accepted the Policy which was applied for and all answers on the application must be true and correct on the date such Policy is received and accepted; and (3) on the date of the later of either (1) or (2) above, all of the statements and answers given in the application must be true and complete, and there must have been no change in the insurability of any proposed insured. 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 in excess of $1,000,000. 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 AGGREGATE AMOUNT OF CONDITIONAL - the amounts applied for under all conditional INSURANCE COVERAGE, IF ANY, IS THE LESSER OF: receipts issued by us; or - $500,000 of life insurance. SUBJECT TO THE CONDITIONS AND LIMITATIONS - the date of application; OF THE CONDITIONAL RECEIPT, CONDITIONAL - the date of the last medical examination, test, INSURANCE UNDER THE TERMS OF THE POLICY and other screenings required by us, if any (the APPLIED FOR MAY BECOME EFFECTIVE AS OF "Effective Date"). Such conditional insurance THE LATER OF: will take effect as of the Effective Date, so long as all of the following requirements are met: 1. Each person proposed to be insured is found to have been insurable as of the Effective Date, exactly as applied for in accordance with our underwriting rules and standards, without any modifications as to plan, amount, or premium rate; 2. As of the Effective Date, all statements and answers given in the application must be true; 3. The payment made with the application must not be less than the full initial premium for the mode of payment chosen in the application and must be received at our office within the lifetime of the proposed insured; 4. All medical examinations, tests, and other screenings required of the proposed insured by us are completed and the results received at our office within 60 days of the date the application was completed; and 5. All parts of the application, any supplemental application, questionnaires, addendum and/or amendment to the application are signed and received at our office. ANY CONDITIONAL LIFE INSURANCE COVERAGE a. 60 days from the date the application was TERMINATES ON THE EARLIEST OF: signed;
24 b. the date we either mail notice to the applicant of the rejection of the application and/or mail a refund of any amounts paid with the application; c. when the insurance applied for goes into effect under the terms of the Policy applied for; or d. the date we offer to provide insurance on terms that differ from the insurance for which you have applied. SPECIAL LIMITATIONS OF THE CONDITIONAL - the conditional receipt is not valid unless: RECEIPT: - all blanks in the conditional receipt are completed; and - the Receipt is signed by an agent or authorized Company representative. OTHER LIMITATIONS: - There is no conditional receipt coverage for riders or any additional benefits, if any, for which you may have applied. - If one or more of the Receipt's conditions have not been met exactly, or if a proposed insured dies by suicide, we will not be liable except to return any payment made with the application. - If we do not approve and accept the application within 60 days of the date you signed the application, the application will be deemed to be rejected by us and there will be no conditional insurance coverage. In that case, Western Reserve's liability will be limited to returning any payment(s) you have made upon return of this Receipt to us.
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 our cash value from the WRL Transamerica Money Market subaccount to the accounts you elect on our 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. POLICY FEATURES PREMIUMS ALLOCATING PREMIUMS You must instruct us on how to allocate your net premium among the subaccounts and the fixed account. The fixed account may not be available in all states to direct or transfer money into. You must follow these guidelines: - allocation percentages must be in whole numbers; - if you select dollar cost averaging, you must have at least $5,000 in each subaccount from which we will make transfers and you must transfer at least a total of $100 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 $5,000. 25 Currently, 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 Monday - Friday 8:30 a.m. - 7:00 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 or to charge $25 for each change in excess of one per Policy year quarter. 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. Premium payments received before the NYSE closes are priced using the unit value determined at the closing of the regular business session of the NYSE (usually at 4:00 p.m. Eastern time). If we receive a premium payment after the NYSE closes, we will process the order using the subaccount value determined at the close of the next regular session of the NYSE. We will credit amounts to the subaccounts only on a valuation date, that is, on a date the NYSE is open for trading. 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. 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 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). 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 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 have paid total premiums (MINUS any cash withdrawals, MINUS any outstanding loan amount, and MINUS any pro rata decrease charge) 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. If you take a cash withdrawal, a loan, or if you decrease your specified amount or if you add, increase or decrease a rider, you may need to pay additional premiums in order to keep the no lapse guarantee in place. 26 The initial minimum monthly guarantee premium is shown on your Policy's schedule page, and depends on a number of factors, including the age, gender, rate class of the insured, and the specified amount requested. We will adjust the minimum monthly guarantee premium if you change death benefit options, decrease the specified amount, or if any of the riders are added, increased or decreased. We will notify you of the new minimum monthly guarantee premium. AFTER THE NO LAPSE PERIOD ENDS, PAYING THE CURRENT 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: - the total amount of the premiums you paid (MINUS any cash withdrawals, MINUS any outstanding loan amount, and MINUS any pro rata decrease charge) equals or exceeds: - the sum of the minimum monthly guarantee premium in effect for each month 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 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. 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"). We will accept part or all of your initial premium 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 receipt at our office of the proceeds from the 1035 Exchange before we finalize your Policy's specified amount. 27 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: |X| You may make one transfer from the fixed account in a Policy year (unless you choose dollar cost averaging from the fixed account). |X| You may request transfers in writing (in a form we accept), by fax, by telephone to our office or electronically through our website (www.westernreserve.com). |X| There is no minimum amount that must be transferred. |X| There is no minimum amount that must remain in a subaccount after a transfer. |X| We deduct a $25 charge from the amount transferred for each transfer in excess of 12 transfers in a Policy year. |X| We consider all transfers made in any one day to be a single transfer. |X| Transfers resulting from loans, conversion rights, reallocation of cash value immediately after the record date, transfers from the fixed account and transfers via the Internet are not treated as transfers for the purpose of the transfer charge. |X| Transfers under dollar cost averaging and asset rebalancing are treated as transfers for purposes of the transfer charge. COSTS AND MARKET TIMING/FREQUENT TRANSFERS. Professional market timing organizations and some Policy owners try to profit from various strategies called market timing; for example, switching money into investment option portfolios when they expect prices to rise and taking money out when they expect prices to fall, or switching from one investment option portfolio to another and then back again after a short period of time. As money is shifted in and out, the underlying mutual fund incurs expenses for buying and selling securities. These costs are borne by all Policy owners, including the long-term Policy owners who do not generate the costs. Frequent transfers may also impede the ability of the portfolio manager of the underlying fund to sustain the stated investment objective of the portfolio. The transfer privilege under the Policy is not intended to serve as a vehicle for short-term or frequent transfers. The Policy does not permit market timing/frequent transfers. As described above, frequent transfers among investment option portfolios disrupt portfolio management in the underlying mutual fund and tend to drive fund expenses higher. We reserve the right to limit or revoke your transfer privileges and/or may not accept future premium payments from you if you engage in frequent transfer activity. We consider eight or more transfers in any three-month period to be frequent transfer activity, although we reserve the right to impose restrictions if there are less frequent transfers. DO NOT INVEST WITH US IF YOU INTEND TO CONDUCT MARKET TIMING/FREQUENT TRANSFER ACTIVITY. IF YOU DO, WE WILL IMMEDIATELY NOTIFY YOU AND YOUR AGENT IN WRITING THAT ANY ADDITIONAL REQUESTS FOR TRANSFERS WILL BE SUBJECT TO CERTAIN RESTRICTIONS, INCLUDING THE PERMANENT LOSS OF ELECTRONIC TRANSFER PRIVILEGES. We consider transfers by telephone, fax, overnight mail or Internet to be "electronic" transfers. We may, at any time, discontinue transfer privileges, modify our procedures, or limit the number of transfers we permit. 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 28 account on your behalf according to your instructions. To make a telephone transfer, you may call us at 1-800-851-9777 Monday - Friday 8:30 a.m. - 7:00 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. - 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 at our office. - 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 Western Reserve'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. 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 - the amount you transferred from the fixed account in the immediately prior Policy year. 29 New Jersey: The fixed account is NOT available to you if your Policy was issued in the State of New Jersey. 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 loss. Under dollar cost averaging, we automatically transfer a set dollar amount from the WRL Transamerica Money Market subaccount, the WRL AEGON Bond subaccount or the fixed account to a subaccount that you choose. We will make the transfers monthly as of the end of the valuation date after the first Monthiversary after the record 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 $5,000 in each account from which we will make transfers; - your total transfers each month under dollar cost averaging must be at least $100; 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.
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 IF: - we receive your request to cancel your 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. 30 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 that 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 $5,000 or make a $5,000 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; - 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 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. 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. 31 - 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. 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(s); 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 SUBACCOUNT - the initial units purchased at unit value on the ON ANY VALUATION DATE EQUALS: record date; PLUS - 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 (including charges); MINUS - units redeemed as part of a transfer to another subaccount or the fixed account; MINUS - units redeemed to pay pro rata decrease charge and transfer charges.
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 cash withdrawal request is received at our office. SUBACCOUNT UNIT VALUE The value (or price) of each subaccount unit will reflect the investment performance of the portfolio in which the subaccount invests. Unit values will vary among subaccounts. The unit value of each subaccount was originally established at $10 per unit. The unit value may increase or decrease from one valuation period to the next. THE UNIT VALUE OF ANY - the total value of the portfolio shares held in the SUBACCOUNT AT THE END OF A subaccount, including the value of any dividends or VALUATION PERIOD IS capital gains distribution declared and reinvested by CALCULATED AS: the portfolio during the valuation period. This value is determined by multiplying the number of portfolio shares owned by the subaccount by the portfolio's net asset value per share determined at the end of the valuation period; MINUS
32 - a charge equal to the daily net assets of the subaccount multiplied by the daily equivalent of the daily 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 before the purchase or redemption of any units on that date.
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) except on customary national holidays on which the NYSE is closed, 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 ANY - the sum of net premium(s) allocated to the fixed 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; MINUS - amounts withdrawn from the fixed account to pay any pro rata decrease charge incurred due to a decrease in specified amount.
New Jersey: For Policies issued in the State of New Jersey, 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. 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 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 to 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. DEATH BENEFIT PROCEEDS EQUAL: - the death benefit (described below); MINUS - any monthly deductions due during the grace period (if applicable); MINUS - any outstanding loan amount; PLUS
33 - 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. 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 three 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 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 that there are no outstanding loans. 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. 34 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 that 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. DEATH BENEFIT OPTION C - death benefit Option A; OR EQUALS THE GREATER OF: - the current specified amount, MULTIPLIED BY - a "factor" equal to the lesser of - 1.0 or - 0.04 TIMES (95 MINUS insured's attained age at death); PLUS - the cash value on the insured's date of death.
Under Option C, the death benefit varies with the cash value and the insured's attained age. Option C - Three Illustrations. 1. Assume that the insured is under age 40 and that there are no outstanding loans. Under Option C, a Policy with a specified amount of $50,000 and with a cash value of $10,000 will have a death benefit of $60,000 ($50,000 x the minimum of (1.0 and (0.04 x (95-40))) + $10,000). So long as the insured is under age 71, this benefit is the same as the Option B benefit. 2. Assume that the insured is attained age 75 and that there are no outstanding loans. Under Option C, a Policy with a specified amount of $50,000 and with a cash value of $12,000 will have a death benefit of $52,000 ($50,000 x the minimum of (1.0 and (0.04 x (95-75))) + $12,000). The death benefit, however, must be at least 105% of cash value as shown in the limitation percentage table above. 3. Assume that the insured is attained age 75 and that there are no outstanding loans. Under Option C, a Policy with a specified amount of $50,000 and with a cash value of $9,000 will have a death benefit equal to the specified amount of $50,000, since the calculation of $50,000 times the minimum of (1.0 and (0.04 x (95-75))) plus $9,000 is less than the specified amount. 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. We will not impose a pro rata decrease charge when the specified amount is decreased as a result of taking a 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. 35 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. If you do not select a death benefit option on your application, we will assume you selected death benefit Option A and will ask you to confirm the selection of Option A in writing or choose one of the other death benefit options. 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. You may find Option C more suitable if your goal is to increase your total death benefit before you reach attained age 70, and to increase your cash value through positive investment experience thereafter. CHANGING THE DEATH BENEFIT OPTION After the third Policy year, you may change your death benefit option once each Policy year if you have not increased or decreased the specified amount that year. We will notify you of the new specified amount. - 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. - You may not make a change that would decrease the specified amount below the minimum specified amount shown on your Policy schedule page. - There may be adverse federal tax consequences. You should consult a tax advisor before changing your Policy's death benefit option. DECREASING THE SPECIFIED AMOUNT After the Policy has been in force for three years, you may decrease the specified amount once each Policy year if you have not changed the death benefit option that year. A decrease in the specified amount will affect your cost of insurance charge and your minimum monthly guarantee premium, and may have adverse federal tax consequences. You should consult a tax advisor before decreasing your Policy's specified amount. CONDITIONS FOR DECREASING - you must send your written request to our office; THE SPECIFIED AMOUNT: - you may not change your death benefit option in the same Policy year that you decrease your specified amount; - you may not decrease your specified amount lower than the minimum specified amount shown on your Policy schedule page; - 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; and - we will assess a pro rata decrease charge against the cash value if you request a decrease in your specified amount within the first 15 Policy years.
36 NO INCREASES IN THE SPECIFIED AMOUNT We do not allow increases in the specified amount. If you want additional insurance, you may purchase a term rider (PIR or PIR Plus) or purchase an additional policy(ies) naming the same owner. We may waive the Policy charge at issue on these additional policies. 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. 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, the Policy must be in force, and it must be before the maturity date when you make your written request. A surrender is effective as of the date when we receive your written request. You will incur a surrender charge if you surrender the Policy during the first 15 Policy years. 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. CASH WITHDRAWALS After the first Policy year, you may request a cash withdrawal of a portion of your cash value subject to certain conditions. CASH WITHDRAWAL CONDITIONS: - You must send your written cash withdrawal request with an original signature to our office. - We only allow 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. - The remaining net surrender value after the cash withdrawal must be at least $500. - 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.
37 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. We will not impose a pro rata decrease charge when the specified amount is decreased as a result of taking a 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. 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. 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. POLICY LOANS ARE SUBJECT TO - we may require you to borrow at least $500; and CERTAIN CONDITIONS: - the maximum amount you may borrow is 90% of the cash value, MINUS any surrender charge and MINUS any outstanding loan amount.
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. You may request a loan by telephone by calling us at 1-800-851-9777 Monday - Friday 8:30 a.m. - 7:00 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 38 may ask you to provide us with written confirmation of your request. We will not be liable for processing a loan request if we believe the request is genuine. You may also fax your loan request to us at 727-299-1667. We will not be responsible for any transmittal problems when you fax your request unless you report it to us within five business days and send us proof of your fax transmittal. You can repay a loan at any time while the Policy is in force. Loan repayments must be sent to our office and will be credited as of the date received. WE WILL CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY TO BE PREMIUM PAYMENTS UNLESS THE PAYMENTS ARE CLEARLY SPECIFIED AS LOAN REPAYMENTS. BECAUSE WE DO NOT APPLY THE PREMIUM EXPENSE CHARGE TO LOAN REPAYMENTS, IT IS VERY IMPORTANT THAT YOU INDICATE CLEARLY IF YOUR PAYMENT IS INTENDED TO REPAY ALL OR PART OF A LOAN. At each Policy anniversary, we will compare the outstanding loan amount 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 outstanding loan amount 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 We will charge you an annual interest rate on a Policy loan that is equal to an effective annual rate of 5.5% that is payable annually in advance. Loan interest that is unpaid when due will be added to the amount of the loan on each Policy anniversary and will bear interest at the same rate. LOAN RESERVE INTEREST RATE CREDITED We will credit the amount in the loan reserve with interest at an effective annual rate of at least 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 the 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 an effective annual rate of 4.75%. EFFECT OF POLICY LOANS A Policy loan reduces the death benefit proceeds and net surrender value by the amount of any outstanding loan amount. 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 does not participate in the separate account's investment performance, may not be credited with the interest rates accruing on any unloaned portion of the fixed account, and therefore can affect the Policy's cash value and death benefit whether or not the loan is repaid. 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. We also charge interest on Policy loans at an effective annual rate of 5.5%. Because interest is added to the amount of the Policy loan to be repaid, the size of the loan will constantly increase unless the Policy loan is repaid. 39 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. We will notify you (and any assignee of record) if the sum of your loan amount plus any interest you owe on the loan 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. 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 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 PERIOD - For a Policy issued to any insured ages 0-60, the no lapse date is either the number of years to attained age 65 or the 20th Policy anniversary, whichever is less. - For a Policy issued to an insured ages 61-80, the no lapse date is the fifth Policy anniversary. - The no lapse date is specified in your Policy. EARLY TERMINATION OF THE NO LAPSE PERIOD - The no lapse period coverage will end immediately if you do not pay sufficient minimum monthly guarantee premiums. - You must pay total premiums (minus withdrawals, outstanding loan amounts, and any pro rata decrease charge) that equal at least: - the sum of the minimum monthly guarantee premiums in effect for each month from the Policy date up to and 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 or decrease the specified amount or add, increase or decrease a rider you should consider carefully the effect it will have on the no lapse period guarantee. 40 In addition, if you change death benefit options, decrease the specified amount, or add, increase or decrease a rider, we will adjust the minimum monthly guarantee premium. See Minimum Monthly Guarantee Premium for a discussion of how the minimum monthly guarantee premium is calculated and can change. REINSTATEMENT We will reinstate a lapsed Policy within five years after the lapse (and prior to the maturity date). To reinstate the Policy you must: - submit a written application for reinstatement to our office; - 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. 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 this Policy should generally satisfy the applicable Code requirements. It is also uncertain whether death benefits under policies where the maturity date has been extended will be excludible from the beneficiary's gross income and whether policy cash value will be deemed to be distributed to you on the original maturity date. Such a deemed distribution may be taxable. 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. We believe that the Policy does not give you investment control over separate account assets. 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. 41 TAX TREATMENT OF POLICY BENEFITS In General. We believe that the death benefit under a Policy should be excludible 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"). Moreover, if a loan from a Policy that is not a MEC is outstanding when the Policy is surrendered or lapses, the amount of the outstanding indebtedness will be added to the amount distributed and will be taxed accordingly. 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 or in the seven Policy years following certain changes in the Policy. 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. If you do not want your Policy to be classified as a MEC, you should consult a tax advisor to determine the circumstances, if any, under which your Policy would or would not be classified as a MEC. Upon issue of your Policy, we will notify you as to whether or not your Policy is classified as a MEC based on the initial premium we receive. If your Policy is not a MEC at issue, then you will also be notified of the maximum amount of additional premiums you can pay without causing your Policy to be classified as a MEC. If a payment would cause your Policy to become a MEC, you and your agent will be notified immediately. At that time, you will need to notify us if you want to continue your Policy as a MEC. Unless you notify us that you do want to continue your Policy as a MEC, we will refund the dollar amount of the excess premium that would cause the Policy to become a MEC. 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. If the Policy is part of a collateral assignment split dollar arrangement, the initial assignment as well as increases in cash value during the assignment may be distributions and taxable. - 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. Distributions from or loans from or secured by a Policy that is not a MEC are not subject to the 10% additional tax. 42 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. If a loan from a Policy that is not a MEC is outstanding when the Policy is surrendered or lapses, the amount of the outstanding indebtedness will be taxed as if it were a distribution at that time. The tax consequences associated with Policy loans outstanding after the first 10 Policy years with preferred loan rates are less clear and a tax advisor should be consulted about such loans. 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 includible in the owner's income when a taxable distribution occurs. 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. 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. Withholding. To the extent that Policy distributions are taxable, they are generally subject to withholding for the recipient's federal income tax liability. The federal income tax withholding rate is generally 10% of the taxable amount of the distribution. Withholding applies only if the taxable amount of all distributions are at least $200 during a taxable year. Some states also require withholding for state income taxes. With the exception of amounts that represent eligible rollover distributions from 403(b) arrangements, which are subject to mandatory withholding of 20% for federal tax, recipients can generally elect, however, not to have tax withheld from distributions. If the taxable distributions are delivered to foreign countries, withholding will apply unless you certify to us that you are not a U.S. person residing abroad. Taxable distributions to non-resident aliens are generally subject to withholding at a 30% rate unless withholding is eliminated under an international treaty with the United States. The payment of death benefits is generally not subject to withholding. Policy Loans. If a loan from a Policy that is not a MEC 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. 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 excludible 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. Continuation of Policy Beyond Age 100. The tax consequences of continuing the Policy beyond the insured's attained age 100 are unclear and may include taxation of the gain in the Policy at the original maturity date or the taxation of the death benefit in whole or in part. You should consult a tax advisor if you intend to keep the Policy in force beyond the insured's attained age 100. 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. 43 The individual situation of each owner or beneficiary will determine the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how ownership or receipt of Policy proceeds will be treated for purposes of federal, state and local estate, inheritance, generation-skipping and other taxes. Special Rules for Pension Plans and 403(b) Arrangements. If the Policy is purchased in connection with a section 401(a) qualified pension or profit sharing plan, including a section 401(k) plan, or in connection with a section 403(b) plan or program, federal and state and estate tax consequences could differ from those stated in this prospectus. The purchase may also affect the qualified status of the plan. You should be consult a qualified tax advisor in connection with such purchase. Policies owned under these types of plans may be subject to the Employee Retirement Income Security Act of 1974, or ERISA, which may impose additional requirements on the purchase of policies by such plans. You should consult a qualified advisor regarding ERISA. OTHER POLICY INFORMATION 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 between 90 and 180 days prior to the maturity date. We must agree to the extension. If your Policy was issued on or 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 to our office, for the extension 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 or C, 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 charge the then current cost of insurance rates. 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 and may include taxation of the gain in the Policy at the original maturity date or taxation of the death benefit in whole or in part. You should consult a tax advisor as to those consequences. 44 PAYMENTS WE MAKE We usually pay the amounts of any surrender, cash withdrawal, death benefit proceeds, or settlement options within seven calendar 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. We may also be required to provide additional information about you or your account to governmental regulators. SPLIT DOLLAR ARRANGEMENTS You may enter into a split dollar arrangement with another owner or another person(s) whereby the payment of premiums and the right to receive the benefits under the Policy (i.e., cash surrender value of insurance proceeds) are split between the parties. There are different ways of allocating these rights. For example, an employer and employee might agree that under a Policy on the life of the employee, the employer will pay the premiums and will have the right to receive the cash surrender value. The employee may designate the beneficiary to receive any insurance proceeds in excess of the cash surrender value. If the employee dies while such an arrangement is in effect, the employer would receive from the insurance proceeds the amount that he would have been entitled to receive upon surrender of the Policy and the employee's beneficiary would receive the balance of the proceeds. No transfer of Policy rights pursuant to a split dollar arrangement will be binding on us unless in writing and received by us at our office. Split dollar arrangements may have tax consequences. You should consult a tax advisor before entering into a split dollar arrangement. On July 30, 2002, President Bush signed into law significant accounting and corporate governance reform legislation, known as the Sarbanes-Oxley Act of 2002 (the "Act"). The Act prohibits, with limited exceptions, PUBLICLY-TRADED companies, including non-U.S. companies that have securities listed on exchanges in the United States, from extending, directly or through a subsidiary, many types of personal loans to their directors or executive officers. It is possible that this prohibition may be interpreted as applying to split-dollar life insurance policies for directors and executive officers of such companies, since such insurance arguably can be viewed as involving a loan from the employer for at least some purposes. Although the prohibition on loans of publicly-traded companies is generally effective as of July 30, 2002, there is an exception for loans outstanding as of the date of enactment, so long as there is no material modification to the loan terms and the loan is not renewed after July 30, 2002. Any affected business contemplating the payment of a premium on an existing Policy, or the purchase of a new Policy, in connection with a split-dollar life insurance arrangement should consult legal counsel. 45 In addition, the IRS recently issued guidance that affects the tax treatment of split-dollar arrangements and the Treasury Department recently issued proposed regulations that, if finalized, would significantly affect the tax treatment of such arrangements. The IRS guidance and the proposed regulations affect all split dollar arrangements, not just those involving publicly-traded companies. Consult your qualified tax advisor with respect to the effect of this current and proposed guidance on your split dollar policy. 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 do not build cash value and provide 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. 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 15 days - 18 years of age 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 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). 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. Subject to the terms of the rider, we will pay the face amount of the rider to the primary insured. Our current minimum face amount for this rider for issue 46 ages 0-80 is $10,000. The maximum face amount is the lesser of $500,000 or the amount of coverage on the primary insured. The maximum number of Other Insured Riders that is allowed on any one Policy is five (5). 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 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 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 Policy anniversary nearest to the insured's 95th birthday; - the date the Policy terminates for any reason except for death of the primary insured; - the date of conversion of this rider; or - the Monthiversary on which the rider is terminated upon written request by the owner. DISABILITY WAIVER RIDER Subject to certain conditions, we will waive the Policy's monthly deductions while the insured is disabled. This rider may be purchased if your issue age is 15-55 years of age. We must receive proof that: - the insured is totally disabled; - the rider was in force when the insured became disabled; - the insured became disabled before the anniversary nearest their 60th birthday; and - the insured is continuously disabled for at least six months. We will not waive any deduction that 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. 47 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 0-80; - the PIR Plus may be purchased from issue ages 18-80; - 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 under the Base Policy, because the 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 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) ("discount factor"); minus - any indebtedness at the time we pay the single-sum benefit, multiplied by the election percentage. 48 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%. We will not pay a benefit under the rider if the insured's terminal condition results from self-inflicted injuries that 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 assess an administrative charge for this rider; however, we do reduce the single sum benefit by a discount factor to compensate us for lost income due to the early payment of the death benefit. 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. ADDITIONAL INFORMATION SALE OF THE POLICIES 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. We have entered into a distribution agreement with AFSG Securities Corporation ("AFSG") for the distribution and sale of the Policies. AFSG is affiliated with us. AFSG may sell the Policies by entering into selling agreements with other broker-dealers who in turn may sell the Policies through their sales representatives. See "Sale of the Policies" in the SAI for more information concerning compensation paid for the sale of Policies. 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 Reserve's ability to meet its obligations under the Policy. FINANCIAL STATEMENTS The financial statements of Western Reserve and the separate account are included in the SAI. 49 PERFORMANCE DATA ================================================================================ RATES OF RETURN The average rates of return in Table 1 reflect each subaccount's actual historical investment performance. 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. TABLE 1 AVERAGE ANNUAL SUBACCOUNT TOTAL RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 2002
10 YEARS SUBACCOUNT OR INCEPTION SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE - ---------- ------ ------- ------- --------- ---- WRL Van Kampen Emerging Growth.......... (33.66)% (27.37)% 1.18% 9.69% 03/01/93 WRL T. Rowe Price Small Cap............. (28.00)% (16.39)% N/A (5.76)% 07/01/99 WRL PBHG Mid Cap Growth................. (29.03)% (27.42)% N/A (10.12)% 07/01/99 WRL Alger Aggressive Growth............. (34.98)% (28.45)% (2.00)% 5.71% 03/01/94 WRL Third Avenue Value.................. (12.66)% 7.25% N/A 5.49% 01/02/98 WRL American Century International...... (21.89)% (20.67)% (7.12)% (4.98)% 01/02/97 WRL Janus Global........................ (26.69)% (22.92)% 0.01% 6.76% 03/01/94 WRL Great Companies - Technology(SM).... (38.67)% N/A N/A (39.92)% 05/01/00 WRL Janus Growth+....................... (30.55)% (29.66)% (2.14)% 5.25% 10/02/86 WRL Marsico Growth...................... (26.64)% (17.12)% N/A (10.55)% 07/01/99 WRL GE U.S. Equity...................... (20.52)% (10.97)% 0.16% 4.06% 01/02/97 WRL Great Companies - America(SM)....... (21.40)% N/A N/A (9.17)% 05/01/00 WRL Salomon All Cap..................... (25.39)% (3.99)% N/A 0.45% 07/01/99 WRL Dreyfus Mid Cap..................... (13.50)% (2.69)% N/A (0.50)% 07/01/99 WRL PBHG/NWQ Value Select............... (14.98)% (1.89)% (0.95)% 4.37% 05/01/96 WRL T. Rowe Price Equity Income......... (19.54)% (5.95)% N/A (7.03)% 07/01/99 WRL Transamerica Value Balanced......... (14.59)% 0.24% 0.22% 5.87% 01/03/95 WRL LKCM Strategic Total Return......... (11.35)% (6.42)% (0.22)% 6.55% 03/01/93 WRL Clarion Real Estate Securities...... 2.67% 13.22% N/A 3.42% 05/01/98 WRL Federated Growth & Income........... 0.06% 13.66% 7.26% 9.78% 03/01/94 WRL AEGON Bond+......................... 8.99% 8.65% 5.97% 6.13% 10/02/86
50 WRL Transamerica Money Market(1) +...... 0.54% 2.91% 3.34% 3.36% 10/02/86 WRL Great Companies - Global(2)......... (22.21)% N/A N/A (22.87)% 09/01/00 WRL Munder Net50........................ (38.97)% (23.70%) N/A (16.34)% 07/01/99 WRL Janus Balanced...................... N/A N/A N/A (5.67)% 05/01/02 WRL Asset Allocation - Conservative Portfolio....................... N/A N/A N/A (9.65)% 05/01/02 WRL Asset Allocation - Moderate Portfolio ...................... N/A N/A N/A (12.43)% 05/01/02 WRL Asset Allocation - Moderate Growth Portfolio................. N/A N/A N/A (15.31)% 05/01/02 WRL Asset Allocation - Growth Portfolio....................... N/A N/A N/A (18.79)% 05/01/02 WRL Transamerica Convertible Securities....................... N/A N/A N/A (7.36)% 05/01/02 WRL PIMCO Total Return.................. N/A N/A N/A 5.56% 05/01/02 WRL Transamerica Equity................. N/A N/A N/A (14.69)% 05/01/02 WRL Transamerica Growth Opportunities................... N/A N/A N/A (20.84)% 05/01/02 VIP Equity-Income Portfolio............. (17.89)% N/A N/A (4.39)% 05/01/00 VIP Contrafund(R) Portfolio............. (10.41)% N/A N/A (11.16)% 05/01/00 VIP Growth Opportunities Portfolio...... (22.70)% N/A N/A (19.54)% 05/01/00 S&P 500+................................ (23.37%) (15.70%) (1.94%) (7.28%) 10/02/86
+ Shows ten year performance. (1) The current yield 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. TABLE 2 ADJUSTED HISTORICAL PORTFOLIO AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 2002
10 YEARS PORTFOLIO OR INCEPTION PORTFOLIO 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE - --------- ------ ------- ------- --------- ---- Van Kampen Emerging Growth.............. (33.66)% (27.37)% 1.18% 9.69% 03/01/93 T. Rowe Price Small Cap................. (28.00)% (16.39)% N/A (5.76)% 05/03/99 PBHG Mid Cap Growth..................... (29.03)% (27.42)% N/A (10.12)% 05/03/99 Alger Aggressive Growth................. (34.98)% (28.45)% (2.00)% 5.71% 03/01/94 Third Avenue Value...................... (12.66)% 7.25% N/A 5.49% 01/02/98 American Century International.......... (21.89)% (20.67)% (7.12)% (4.98)% 01/02/97 Janus Global............................ (26.69)% (22.92)% 0.01% 9.23% 12/03/92 Great Companies--Technology(SM)......... (38.67)% N/A N/A (39.92)% 05/01/00 Janus Growth+........................... (30.55)% (29.66)% (2.14)% 5.25% 10/02/86 Marsico Growth.......................... (26.64)% (17.12)% N/A (10.55)% 05/03/99 GE U.S. Equity.......................... (20.52)% (10.97)% 0.16% 4.06% 01/02/97 Great Companies--America(SM)............ (21.40)% N/A N/A (9.17)% 05/01/00 Salomon All Cap......................... (25.39)% (3.99)% N/A 0.45% 05/03/99 Dreyfus Mid Cap......................... (13.50)% (2.69)% N/A (0.50)% 05/03/99 PBHG/NWQ Value Select................... (14.98)% (1.89)% (0.95)% 4.37% 05/01/96 T. Rowe Price Equity Income............. (19.54)% (5.95) N/A (7.03)% 05/03/99 Transamerica Value Balanced............. (14.59)% 0.24% 0.22% 5.87% 01/03/95 LKCM Strategic Total Return............. (11.35)% (6.42)% (0.22)% 6.55% 03/01/93
51 Clarion Real Estate Securities.......... 2.67% 13.22% N/A 3.42% 05/01/98 Federated Growth & Income............... 0.06% 13.66% 7.26% 9.78% 03/01/94 AEGON Bond+............................. 8.99% 8.65% 5.97% 6.13% 10/02/86 Transamerica Money Market(1) +.......... 0.54% 2.91% 3.34% 3.36% 10/02/86 Great Companies--Global(2).............. (22.21)% N/A N/A (22.87)% 09/01/00 Munder Net50............................ (38.97)% (23.70%) N/A (16.34)% 05/03/99 Janus Balanced.......................... N/A N/A N/A (5.67)% 05/01/02 Asset Allocation - Conservative Portfolio.......................... N/A N/A N/A (9.65)% 05/01/02 Asset Allocation - Moderate Portfolio... N/A N/A N/A (12.43)% 05/01/02 Asset Allocation - Moderate Growth Portfolio.......................... N/A N/A N/A (15.31)% 05/01/02 Asset Allocation - Growth Portfolio..... N/A N/A N/A (18.79)% 05/01/02 Transamerica Convertible Securities..... N/A N/A N/A (7.36)% 05/01/02 PIMCO Total Return...................... N/A N/A N/A 5.56% 05/01/02 Transamerica Equity(3) +................ (22.94)% (17.43)% 1.77% 14.76% 02/26/69 Transamerica Growth Opportunities(2)(4). (15.08)% N/A N/A (3.44%) 05/02/01 VIP Equity-Income Portfolio............. (17.90)% (6.16)% (0.77)% 8.69% 10/09/86 VIP Contrafund(R) Portfolio............. (10.41)% (10.47)% 2.60% 11.13% 01/03/95 VIP Growth Opportunities Portfolio...... (22.54)% (18.71)% (7.31)% 3.89% 01/03/95 S&P 500+................................ (23.37%) (15.70%) (1.94%) (7.28%) 10/02/86
+ Shows ten year performance. (1) The current yield 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) 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. (4) 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. The annualized yield for the WRL Transamerica Money Market subaccount for the seven days ended December 31, 2002 was 0.24%. Additional information regarding the investment performance of the portfolios appears in the fund prospectuses, which accompany this prospectus. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Glossary The Policy - General Provisions Ownership Rights Our Right to Contest the Policy Suicide Exclusion Misstatement of Age or Gender Modifying the Policy Mixed and Shared Funding Addition, Deletion, or Substitution of Investments Additional Information Settlement Options Additional Information about Western Reserve and the Separate Account Legal Matters Variations in Policy Provisions Personalized Illustrations of Policy Benefits 52 Sale of the Policies Report to Owners Records Independent Auditors Experts Financial Statements Underwriters Underwriting Standards IMSA Performance Data Other Performance Data in Advertising Sales Literature Western Reserve's Published Ratings Index to Financial Statements WRL Series Life Account Western Reserve Life Assurance Co. of Ohio 53 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 name the primary 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(ies) 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 net premiums and cash value. We guarantee that any amounts you allocate to the fixed account will earn interest at a declared rate. New Jersey: the fixed account is NOT available to you if your Policy was issued in the State of New Jersey. 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. 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. loan reserve account 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. 54 minimum monthly The amount shown on your Policy schedule page (unless guarantee premium changed when you change death benefit options, or decrease the specified amount or increase or add a rider) that we use during the no lapse period to determine whether a grace period will begin. We will adjust the minimum monthly guarantee premium if you change death benefit options, decrease the specified amount, or add, increase or decrease a rider, and you may need to pay additional premiums in order to keep the no lapse guarantee in place. A grace period will begin whenever your net surrender value is not enough to meet monthly deductions. 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 in the calendar month that coincides with the Policy date, 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, plus, if any, the pro rata decrease charge incurred as a result of a decrease in your specified amount. 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 charge 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 twentieth Policy anniversary, whichever is earlier. For a Policy issued to an insured ages 61-80, 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. Our hours are Monday - Friday from 8:30 a.m. - 7:00 p.m. Eastern time. planned periodic A premium payment you make in a level amount at a premium fixed 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. portfolio One of the separate investment portfolios of a fund. premiums All payments you make under the Policy other than loan repayments. pro rata decrease Surrender charge that may be imposed upon a decrease charge in specified amount during the first 15 Policy years. 55 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 you selected 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 decrease the specified amount. In addition, we will reduce the specified amount by the dollar amount of any cash withdrawal if you choose 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. 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 Life Assurance Co. of Ohio. (Western Reserve) 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 The person entitled to exercise all rights as owner or policyowner) under the Policy. 56
APPENDIX A SURRENDER CHARGE PER THOUSAND (BASED ON THE GENDER AND RATE CLASS OF THE INSURED) MALE MALE MALE/ FEMALE FEMALE ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ FEMALE ULTIMATE SELECT/ ULTIMATE STANDARD/ AGE SELECT STANDARD JUVENILE SELECT STANDARD - ----- --------------- ------------------ -------- ---------------- ------------------ 0 N/A N/A 11.76 N/A N/A 1 N/A N/A 8.16 N/A N/A 2 N/A N/A 8.16 N/A N/A 3 N/A N/A 7.92 N/A N/A 4 N/A N/A 7.68 N/A N/A 5 N/A N/A 7.68 N/A N/A 6 N/A N/A 7.68 N/A N/A 7 N/A N/A 7.68 N/A N/A 8 N/A N/A 7.68 N/A N/A 9 N/A N/A 7.68 N/A N/A 10 N/A N/A 7.68 N/A N/A 11 N/A N/A 7.68 N/A N/A 12 N/A N/A 7.68 N/A N/A 13 N/A N/A 7.92 N/A N/A 14 N/A N/A 8.16 N/A N/A 15 N/A N/A 8.40 N/A N/A 16 N/A N/A 8.52 N/A N/A 17 N/A N/A 8.88 N/A N/A 18 8.72 9.20 8.72 9.20 19 8.84 9.32 8.84 9.32 20 8.96 9.44 8.96 9.44 21 9.16 9.88 9.16 9.64 22 9.32 10.04 9.32 9.80 23 9.52 10.24 9.52 10.00 24 9.68 10.40 9.68 10.40 25 9.88 10.84 9.88 10.60 26 10.56 11.28 10.32 11.04 27 11.00 11.72 10.76 11.48 28 11.40 12.12 11.16 12.12 29 12.08 12.80 11.84 12.56 30 12.52 13.24 12.28 13.00 31 13.04 14.00 12.80 13.52 32 13.76 14.48 13.52 14.24 33 14.28 15.24 14.04 14.76 34 14.76 15.96 14.52 15.48 35 15.52 16.48 15.28 16.00 36 16.20 17.40 15.96 16.92 37 17.20 18.40 16.72 17.92 38 18.12 19.56 17.64 18.60 39 19.08 20.76 18.36 19.56
57
MALE MALE FEMALE FEMALE ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/ AGE SELECT STANDARD SELECT STANDARD - ----- --------------- ------------------ ---------------- ------------------ 40 20.28 21.96 19.32 20.52 41 21.64 23.56 20.68 22.12 42 23.08 25.24 22.12 23.80 43 24.44 27.08 23.15 25.40 44 26.04 29.16 23.86 26.96 45 27.44 31.04 24.59 27.83 46 28.72 32.80 25.38 28.76 47 29.84 34.56 26.22 29.73 48 31.00 36.32 27.11 30.75 49 32.24 38.32 28.04 31.84 50 33.56 40.56 29.05 32.99 51 34.98 42.56 30.11 34.20 52 36.49 45.24 31.24 35.48 53 38.10 47.68 32.45 36.84 54 39.83 50.84 33.72 38.28 55 41.68 53.28 35.09 39.79 56 43.63 55.79 36.54 41.39 57 45.74 57.00 38.08 43.06 58 47.98 57.00 39.74 44.88 59 50.38 57.00 41.54 46.85 60 52.97 57.00 43.47 48.97 61 55.74 57.00 45.57 51.26 62 57.00 57.00 47.82 53.73 63 57.00 57.00 50.26 56.41 64 57.00 57.00 52.88 57.00 65 57.00 57.00 55.68 57.00 66 and over 57.00 57.00 57.00 57.00
58 PROSPECTUS BACK COVER PERSONALIZED ILLUSTRATIONS OF POLICY BENEFITS In order to help you understand how your Policy values could vary over time under different sets of assumptions, we will provide you, without charge and upon request, with certain personalized hypothetical illustrations showing the death benefit, cash surrender value and cash value. These will be based on the age and insurance risk characteristics of the insured persons under your Policy and such factors as the specified amount, death benefit option, premium payment amounts, and hypothetical rates of return (within limits) that you request. The illustrations also will reflect the arithmetic average portfolio expenses for 2002 and are not a representation or guarantee of investment returns or cash value. You may request illustrations that reflect the expenses of the portfolios in which you intend to invest. INQUIRIES To learn more about the Policy, you should read the SAI dated the same date as this prospectus. The SAI has been filed with the SEC and is incorporated herein by reference. The table of contents of the SAI is included near the end of this prospectus. For a free copy of the SAI, for other information about the Policy, and to obtain personalized illustrations, please contact your agent, or our office at: Western Reserve Life P.O. Box 5068 Clearwater, Florida 33758-5068 1-800-851-9777 Facsimile: 1-727-299-1648 (Monday - Friday from 8:30 a.m. - 7:00 p.m. Eastern time) www.westernreserve.com More information about the Registrant (including the SAI) may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. For information on the operation of the Public Reference Room, please contact the SEC at 202-942-8090. You may also obtain copies of reports and other information about the Registrant on the SEC's website at http://www.sec.gov and copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549-0102. The Registrant's file numbers are listed below. SEC File No. 333-23359/811-4420 WRL00159-5/03 59 PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2003 WRL FINANCIAL FREEDOM BUILDER(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 This Statement of Additional Information ("SAI") expands upon subjects discussed in the current prospectus for the WRL Financial Freedom Builder(R) flexible premium variable life insurance policy offered by Western Reserve Life Assurance Co. of Ohio. You may obtain a copy of the prospectus dated May 1, 2003, by calling 1-800-851-9777 (Monday - Friday from 8:30 a.m. - 7:00 p.m. Eastern time), or by writing to the administrative office at, Western Reserve Life, P.O. Box 5068, Clearwater, Florida 33758-5068. The prospectus sets forth information that a prospective investor should know before investing in a Policy. Terms used in this SAI have the same meanings as in the prospectus for the Policy. THIS SAI IS NOT A PROSPECTUS AND SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR THE POLICY AND THE AEGON/TRANSAMERICA SERIES FUND, INC. - INITIAL CLASS AND THE FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS - SERVICE CLASS 2 SHARES. TABLE OF CONTENTS Glossary .......................................................................................................... 1 The Policy - General Provisions ................................................................................... 4 Ownership Rights.......................................................................................... 4 Our Right to Contest the Policy........................................................................... 5 Suicide Exclusion......................................................................................... 5 Misstatement of Age or Gender............................................................................. 5 Modifying the Policy...................................................................................... 5 Mixed and Shared Funding ................................................................................. 5 Addition, Deletion, or Substitution of Investments........................................................ 6 Additional Information............................................................................................. 6 Settlement Options........................................................................................ 6 Additional Information about Western Reserve and the Separate Account..................................... 7 Legal Matters............................................................................................. 8 Variations in Policy Provisions........................................................................... 8 Personalized Illustrations of Policy Benefits............................................................. 8 Sale of the Policies...................................................................................... 8 Reports to Owners......................................................................................... 9 Records................................................................................................... 9 Independent Auditors...................................................................................... 9 Experts................................................................................................... 9 Financial Statements...................................................................................... 9 Underwriters....................................................................................................... 10 Underwriting Standards.................................................................................... 10 IMSA .......................................................................................................... 10 Performance Data................................................................................................... 10 Other Performance Data in Advertising Sales Literature.................................................... 10 Western Reserve's Published Ratings....................................................................... 11 Index to Financial Statements...................................................................................... 11 WRL Series Life Account................................................................................... 12 Western Reserve Life Assurance Co. of Ohio................................................................ 62
i 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 name the primary 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(ies) 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 net premiums and cash value. We guarantee that any amounts you allocate to the fixed account will earn interest at a declared rate. New Jersey: the fixed account is NOT available to you if your Policy was issued in the State of New Jersey. free-look period The period during which you may return the Policy and receive a refund as described in the prospectus. The length of the free-look period varies by state. The freelook 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. 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. loan reserve account 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. 1 minimum monthly The amount shown on your Policy schedule page (unless guarantee premium changed when you change death benefit options, or decrease the specified amount or increase or add a rider) that we use during the no lapse period to determine whether a grace period will begin. We will adjust the minimum monthly guarantee premium if you change death benefit options, decrease the specified amount, or add, increase or decrease a rider. We make this determination whenever your net surrender value is not enough to meet monthly deductions. 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 in the calendar month that coincides with the Policy date, 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, plus, if any, the pro rata decrease charge incurred as a result of a decrease in your specified amount. 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 charge 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 twentieth Policy anniversary, whichever is earlier. For a Policy issued to an insured ages 61-80, 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. Our hours are Monday - Friday from 8:30 a.m. - 7:00 p.m. Eastern time. planned periodic A premium payment you make in a level amount at a premium fixed 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 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. 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 selected on your application. 2 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 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. 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 Life Assurance Co. of Ohio. (Western Reserve) 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 The person entitled to exercise all rights as owner or policyowner) under the Policy. 3 In order to supplement the description in the prospectus, the following provides additional information about Western Reserve and the Policy, which may be of interest to a prospective purchaser. THE POLICY - GENERAL PROVISIONS 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. 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 accepted by us at our office. - Changing the owner does not automatically change the beneficiary. - 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. CHOOSING THE BENEFICIARY - The owner designates the beneficiary (the person 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 the beneficiary dies before the insured, then any contingent beneficiary becomes the beneficiary. - 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. CHANGING THE BENEFICIARY - The owner changes the beneficiary by providing written notice to us at our office. - Change is effective as of the date the owner signs the written notice. - We are not liable for any payments we made before we received the written notice at our office. ASSIGNING THE POLICY - The owner may assign Policy rights while the insured is alive. - 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. - We are not: - bound by any assignment unless we receive a written notice of the assignment at our office; - responsible for the validity of any assignment; - liable for any payment we made before we received written notice of the assignment at our office; or 4 - 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. 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 will terminate and our liability is limited to an amount equal to the premiums paid, less any outstanding loan amount, 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. MIXED AND SHARED FUNDING 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 the funds nor we currently foresee any such disadvantages, either to variable life insurance policyowners or to variable annuity contract owners. However, the funds' 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. 5 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 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. ADDITIONAL INFORMATION 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 $100, 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. 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 3.0%); - the mortality tables we use; and - the specific payment option(s) you choose. OPTION 1--EQUAL MONTHLY - We will pay the proceeds, plus INSTALLMENTS FOR A FIXED PERIOD interest, in equal monthly installments for a fixed period of your choice, but not longer than 240 months. - We will stop making payments once we have made all the payments for the period selected. 6 OPTION 2--EQUAL MONTHLY INSTALLMENTS FOR At your or the beneficiary's LIFE (LIFE INCOME) direction, will make equal monthly installments: - 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 10 years if the payee dies before the end of the first 10 years of payments; 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. OPTION 3--EQUAL MONTHLY INSTALLMENTS - We will make equal monthly FOR THE LIFE OF THE PAYEE AND THEN TO payments during the joint A DESIGNATED SURVIVOR (JOINT AND SURVIVOR) lifetime of two persons, first to a chosen payee, and then to a co-payee, if living, upon the death of the payee. - Payments to the co-payee, if living, upon the payee's death will equal either: - the full amount paid 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. ADDITIONAL INFORMATION ABOUT WESTERN RESERVE AND THE SEPARATE ACCOUNT 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., which conducts most of its operations through subsidiary companies engaged in the insurance business or in providing non-insurance financial services. 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 the prospectus has been filed with, and where required, approved by, insurance officials in those jurisdictions in which it is sold. 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. Western Reserve holds the assets of the separate account physically segregated and apart from the general account. Western Reserve maintains records of all purchases and sales of portfolio shares by each of the subaccounts. A blanket bond was issued to AEGON USA, Inc. ("AEGON USA") in the aggregate amount of $12 million, covering all of the employees of AEGON USA and its affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued to AEGON U.S.A. Securities, Inc. providing fidelity coverage, covers the activities of registered representatives of AFSG to a limit of $10 million. LEGAL MATTERS All matters of Ohio law pertaining to the Policy have been passed upon by Thomas E. Pierpan, Senior Vice President, General Counsel and Assistant Secretary of Western Reserve. 7 VARIATIONS IN POLICY PROVISIONS Certain provisions of the Policy may vary from the descriptions in the 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 specified amount, death benefit option, premium payment amounts, and rates of return (within limits) that you request. The illustrations also will reflect the arithmetic average portfolio expenses for 2002 and are not a representation or guarantee of investment returns or cash value. You may request illustrations that reflect the expenses of the portfolios in which you intend to invest. 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 Western Reserve and AFSG Securities Corporation ("AFSG"), the principal underwriter of the Policy. Both AFSG and Western Reserve are indirect subsidiaries of AEGON U.S. Corporation. AFSG 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 its 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 - 2.5% of all premiums you make during Policy years 2 - 10. We will pay an additional sales commission of up to 0.15% 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 $5,000. 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 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 or the separate account. We offer the Policies to the public on a continuous basis. We anticipate continuing to offer the Policies, but reserve the right to discontinue the offering. 8 AFSG Securities Corporation, the principal underwriter for the Policy, 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. During fiscal years 2002, 2001 and 2000, AFSG received $82,236,981, $104,819,449 and $182,279,540, respectively, as sales compensation with respect to all Policies issued through the separate account. No amounts were retained by AFSG. 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: [X] the current cash value [X] any activity since the last report [X] the current net surrender value [X] projected values [X] the current death benefit [X] investment experience of each subaccount [X] outstanding loans [X] any other information required by law 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. INDEPENDENT AUDITORS The accounting firm of Ernst & Young LLP, independent auditors, provided audit services to the separate account and Western Reserve for the year ended December 31, 2002. The principal business address of Ernst & Young LLP is 801 Grand Avenue, Suite 3400, Des Moines, Iowa 50309-2764. EXPERTS Actuarial matters included in this SAI have been examined by Lorne Schinbein, Vice President and Managing Actuary of Western Reserve, located at 570 Carillon Parkway, St. Petersburg, Florida 33716, 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, 2002 and 2001 and for each of the three years in the period ended December 31, 2002, have been prepared on the basis of statutory accounting principles rather than accounting principles generally accepted in the United States. 9 UNDERWRITERS UNDERWRITING STANDARDS This Policy uses mortality tables that distinguish between men and women. As a result, the Policy pays different benefits to men and women of the same age. Montana prohibits our use of actuarial tables that distinguish between males and females to determine premiums and policy benefits for policies issued on the lives of its residents. Therefore, we will base the premiums and benefits in Policies that we issue in Montana, to insure residents of that state, on actuarial tables that do not differentiate on the basis of gender. Your cost of insurance charge will vary by 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 currently 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. 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 240-497-2900. PERFORMANCE DATA 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; 10 - savings accounts and U.S. Treasuries; - certain interest rate and inflation indices (e.g., the Consumer Price Index); or - indices measuring the performance of a defined group of securities recognized by investors as representing a particular segment of the securities markets (e.g., Donoghue Money Market Institutional Average, Lehman Brothers Corporate Bond Index, or Lehman Brothers Government Bond Index). WESTERN RESERVE'S PUBLISHED RATINGS We may publish in advertisements, sales literature, or reports we send to you the ratings and other information that an independent ratings organization assigns to us. These organizations include: A.M. Best Company, Moody's Investors Service, Inc., Standard & Poor's Insurance Rating Services, and 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. INDEX TO FINANCIAL STATEMENTS WRL SERIES LIFE ACCOUNT: Report of Independent Auditors, dated January 31, 2003 Statements of Assets and Liabilities at December 31, 2002 Statements of Operations for the year ended December 31, 2002 Statements of Changes in Net Assets for the years ended December 31, 2002 and 2001 Notes to the Financial Statements WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Report of Independent Auditors, dated February 14, 2003 Balance Sheets Statutory-Basis at December 31, 2002 and 2001 Statements of Operations Statutory-Basis for the years ended December 31, 2002, 2001 and 2000 Statements of Changes in Capital and Surplus Statutory-Basis for the years ended December 31, 2002, 2001 and 2000 Statements of Cash Flow Statutory-Basis for the years ended December 31, 2002, 2001 and 2000 Notes to Financial Statements--Statutory-Basis Statutory-Basis Financial Statement Schedules 11 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, 2002, 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, 2002, 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, 2002, 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, 2003 12 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL LKCM TRANSAMERICA AEGON JANUS JANUS STRATEGIC MONEY MARKET BOND GROWTH GLOBAL TOTAL RETURN SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares........................ 93,408 4,831 20,721 16,624 6,385 ======== ======== =========== ========= ======== Cost.................................... $ 93,408 $ 57,478 $ 1,014,354 $ 409,780 $ 96,728 ======== ======== =========== ========= ======== Investment, at net asset value............. $ 93,408 $ 61,263 $ 474,095 $ 218,777 $ 79,807 Dividend receivable........................ 3 0 0 0 0 Transfers receivable from depositor........ 0 48 0 0 3 -------- -------- ----------- --------- -------- Total assets............................ 93,411 61,311 474,095 218,777 79,810 -------- -------- ----------- --------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 23 0 87 12 0 -------- -------- ----------- --------- -------- Total liabilities....................... 23 0 87 12 0 -------- -------- ----------- --------- -------- Net assets.............................. $ 93,388 $ 61,311 $ 474,008 $ 218,765 $ 79,810 ======== ======== =========== ========= ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 93,388 $ 61,311 $ 474,008 $ 218,765 $ 79,810 Depositor's equity......................... 0 0 0 0 0 -------- -------- ----------- --------- -------- Net assets applicable to units outstanding........................... $ 93,388 $ 61,311 $ 474,008 $ 218,765 $ 79,810 ======== ======== =========== ========= ======== Policy owners' units....................... 4,901 2,171 9,348 12,274 4,266 Depositor's units.......................... 0 0 0 0 0 -------- -------- ----------- --------- -------- Units outstanding....................... 4,901 2,171 9,348 12,274 4,266 ======== ======== =========== ========= ======== Accumulation unit value................. $ 19.06 $ 28.24 $ 50.70 $ 17.82 $ 18.71 ======== ======== =========== ========= ========
See accompanying notes. 13 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL VAN KAMPEN ALGER FEDERATED TRANSAMERICA WRL EMERGING AGGRESSIVE GROWTH & VALUE PBHG/NWQ GROWTH GROWTH INCOME BALANCED VALUE SELECT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 19,306 15,381 5,512 5,229 2,617 ========= ========= ======== ======== ======== Cost..................................... $ 514,880 $ 322,194 $ 78,860 $ 68,625 $ 35,296 ========= ========= ======== ======== ======== Investment, at net asset value............. $ 250,972 $ 164,884 $ 79,092 $ 55,745 $ 30,437 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 0 0 118 17 0 --------- --------- -------- -------- -------- Total assets............................. 250,972 164,884 79,210 55,762 30,437 --------- --------- -------- -------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 13 27 0 0 148 --------- --------- -------- -------- -------- Total liabilities........................ 13 27 0 0 148 --------- --------- -------- -------- -------- Net assets............................... $ 250,959 $ 164,857 $ 79,210 $ 55,762 $ 30,289 ========= ========= ======== ======== ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 250,959 $ 164,857 $ 79,210 $ 55,762 $ 30,289 Depositor's equity......................... 0 0 0 0 0 --------- --------- -------- -------- -------- Net assets applicable to units outstanding............................ $ 250,959 $ 164,857 $ 79,210 $ 55,762 $ 30,289 ========= ========= ======== ======== ======== Policy owners' units....................... 10,076 10,072 3,465 3,535 2,278 Depositor's units.......................... 0 0 0 0 0 --------- --------- -------- -------- -------- Units outstanding........................ 10,076 10,072 3,465 3,535 2,278 ========= ========= ======== ======== ======== Accumulation unit value.................. $ 24.91 $ 16.37 $ 22.86 $ 15.77 $ 13.30 ========= ========= ======== ======== ========
See accompanying notes. 14 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL AMERICAN WRL THIRD CLARION WRL CENTURY GE AVENUE REAL ESTATE MARSICO INTERNATIONAL U.S. EQUITY VALUE SECURITIES GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 1,326 2,480 3,042 1,700 664 ======== ======== =========== ========= ======== Cost..................................... $ 11,549 $ 36,268 $ 42,642 $ 19,813 $ 5,021 ======== ======== =========== ========= ======== Investment, at net asset value............. $ 7,972 $ 26,762 $ 37,689 $ 19,392 $ 4,460 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 2 12 0 172 4 -------- -------- ----------- --------- -------- Total assets............................. 7,974 26,774 37,689 19,564 4,464 -------- -------- ----------- --------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 0 0 33 0 0 -------- -------- ----------- --------- -------- Total liabilities........................ 0 0 33 0 0 -------- -------- ----------- --------- -------- Net assets............................... $ 7,974 $ 26,774 $ 37,656 $ 19,564 $ 4,464 ======== ======== =========== ========= ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 7,974 $ 26,774 $ 37,656 $ 19,564 $ 4,464 Depositor's equity......................... 0 0 0 0 0 -------- -------- ----------- --------- -------- Net assets applicable to units outstanding............................ $ 7,974 $ 26,774 $ 37,656 $ 19,564 $ 4,464 ======== ======== =========== ========= ======== Policy owners' units....................... 1,082 2,109 2,882 1,671 694 Depositor's units.......................... 0 0 0 0 0 -------- -------- ----------- --------- -------- Units outstanding........................ 1,082 2,109 2,882 1,671 694 ======== ======== =========== ========= ======== Accumulation unit value.................. $ 7.37 $ 12.70 $ 13.07 $ 11.71 $ 6.43 ======== ======== =========== ========= ========
See accompanying notes. 15 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL T. ROWE WRL WRL WRL PRICE T. ROWE WRL PBHG MUNDER DIVIDEND PRICE SALOMON MID CAP NET50 GROWTH SMALL CAP ALL CAP GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 490 588 837 2,843 3,760 ======= ======= ======= ======== ======== Cost..................................... $ 2,622 $ 5,300 $ 8,264 $ 36,191 $ 51,708 ======= ======= ======= ======== ======== Investment, at net asset value............. $ 2,435 $ 4,589 $ 6,667 $ 27,581 $ 25,982 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 4 5 0 2 19 ------- ------- ------- -------- -------- Total assets............................. 2,439 4,594 6,667 27,583 26,001 ------- ------- ------- -------- -------- 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............................... $ 2,439 $ 4,594 $ 6,667 $ 27,583 $ 26,001 ======= ======= ======= ======== ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 2,439 $ 4,594 $ 6,667 $ 27,583 $ 26,001 Depositor's equity......................... 0 0 0 0 0 ------- ------- ------- -------- -------- Net assets applicable to units outstanding............................ $ 2,439 $ 4,594 $ 6,667 $ 27,583 $ 26,001 ======= ======= ======= ======== ======== Policy owners' units....................... 501 603 927 2,912 4,256 Depositor's units.......................... 0 0 0 0 0 ------- ------- ------- -------- -------- Units outstanding........................ 501 603 927 2,912 4,256 ======= ======= ======= ======== ======== Accumulation unit value.................. $ 4.87 $ 7.62 $ 7.20 $ 9.47 $ 6.11 ======= ======= ======= ======== ========
See accompanying notes. 16 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS) WRL WRL WRL WRL WRL VALUE LINE GREAT GREAT GREAT DREYFUS AGGRESSIVE COMPANIES - COMPANIES - COMPANIES - MID CAP GROWTH AMERICA(SM) TECHNOLOGY(SM) GLOBAL(2) SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 964 213 4,596 1,957 732 ======== ======= ======== ======= ======= Cost..................................... $ 10,910 $ 1,581 $ 54,535 $ 7,108 $ 4,662 ======== ======= ======== ======= ======= Investment, at net asset value............. $ 9,500 $ 1,327 $ 36,217 $ 5,147 $ 4,079 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 0 4 19 48 5 -------- ------- -------- ------- ------- Total assets............................. 9,500 1,331 36,236 5,195 4,084 -------- ------- -------- ------- ------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 2 0 0 0 0 -------- ------- -------- ------- ------- Total liabilities........................ 2 0 0 0 0 -------- ------- -------- ------- ------- Net assets............................... $ 9,498 $ 1,331 $ 36,236 $ 5,195 $ 4,084 ======== ======= ======== ======= ======= NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 9,498 $ 1,210 $ 36,081 $ 5,144 $ 4,070 Depositor's equity......................... 0 121 155 51 14 -------- ------- -------- ------- ------- Net assets applicable to units outstanding............................ $ 9,498 $ 1,331 $ 36,236 $ 5,195 $ 4,084 ======== ======= ======== ======= ======= Policy owners' units....................... 1,016 199 4,663 2,003 745 Depositor's units.......................... 0 20 20 20 3 -------- ------- -------- ------- ------- Units outstanding........................ 1,016 219 4,683 2,023 748 ======== ======= ======== ======= ======= Accumulation unit value.................. $ 9.35 $ 6.08 $ 7.74 $ 2.57 $ 5.46 ======== ======= ======== ======= =======
See accompanying notes. 17 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL GABELLI LKCM CONSERVATIVE MODERATE GLOBAL CAPITAL ASSET ASSET GROWTH GROWTH ALLOCATION ALLOCATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 1,592 257 465 1,217 ======== ======= ======= ======== Cost..................................... $ 12,713 $ 1,172 $ 4,167 $ 10,784 ======== ======= ======= ======== Investment, at net asset value............. $ 10,841 $ 775 $ 4,230 $ 10,725 Dividend receivable........................ 0 0 0 0 Transfers receivable from depositor........ 11 0 146 53 -------- ------- ------- -------- Total assets............................. 10,852 775 4,376 10,778 -------- ------- ------- -------- LIABILITIES: Accrued expenses........................... 0 0 0 0 Transfers payable to depositor............. 0 0 0 0 -------- ------- ------- -------- Total liabilities........................ 0 0 0 0 -------- ------- ------- -------- Net assets............................... $ 10,852 $ 775 $ 4,376 $ 10,778 ======== ======= ======= ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 10,836 $ 768 $ 4,353 $ 10,756 Depositor's equity......................... 16 7 23 22 -------- ------- ------- -------- Net assets applicable to units outstanding............................ $ 10,852 $ 775 $ 4,376 $ 10,778 ======== ======= ======= ======== Policy owners' units....................... 1,616 268 481 1,228 Depositor's units.......................... 3 3 3 3 -------- ------- ------- -------- Units outstanding........................ 1,619 271 484 1,231 ======== ======= ======= ======== Accumulation unit value.................. $ 6.70 $ 2.86 $ 9.04 $ 8.76 ======== ======= ======= ======== WRL MODERATELY AGGRESSIVE ASSET ALLOCATION SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 1,760 ======== Cost..................................... $ 15,204 ======== Investment, at net asset value............. $ 14,996 Dividend receivable........................ 0 Transfers receivable from depositor........ 58 -------- Total assets............................. 15,054 -------- LIABILITIES: Accrued expenses........................... 0 Transfers payable to depositor............. 0 -------- Total liabilities........................ 0 -------- Net assets............................... $ 15,054 ======== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 15,033 Depositor's equity......................... 21 -------- Net assets applicable to units outstanding............................ $ 15,054 ======== Policy owners' units....................... 1,775 Depositor's units.......................... 3 -------- Units outstanding........................ 1,778 ======== Accumulation unit value.................. $ 8.47 ========
See accompanying notes. 18 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL AGGRESSIVE WRL WRL TRANSAMERICA WRL ASSET PIMCO JANUS CONVERTIBLE TRANSAMERICA ALLOCATION TOTAL RETURN BALANCED SECURITIES EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 825 695 251 33 199 ======= ======= ======= ======= ======= Cost..................................... $ 6,952 $ 7,086 $ 2,385 $ 314 $ 2,767 ======= ======= ======= ======= ======= Investment, at net asset value............. $ 6,740 $ 7,380 $ 2,380 $ 311 $ 2,740 Dividend receivable........................ 0 0 0 0 0 Transfers receivable from depositor........ 11 0 0 0 41 ------- ------- ------- ------- ------- Total assets............................. 6,751 7,380 2,380 311 2,781 ------- ------- ------- ------- ------- LIABILITIES: Accrued expenses........................... 0 0 0 0 0 Transfers payable to depositor............. 0 4 61 0 0 ------- ------- ------- ------- ------- Total liabilities........................ 0 4 61 0 0 ------- ------- ------- ------- ------- Net assets............................... $ 6,751 $ 7,376 $ 2,319 $ 311 $ 2,781 ======= ======= ======= ======= ======= NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 6,731 $ 7,349 $ 2,295 $ 288 $ 2,759 Depositor's equity......................... 20 27 24 23 22 ------- ------- ------- ------- ------- Net assets applicable to units outstanding............................ $ 6,751 $ 7,376 $ 2,319 $ 311 $ 2,781 ======= ======= ======= ======= ======= Policy owners' units....................... 828 696 243 31 323 Depositor's units.......................... 3 3 3 3 3 ------- ------- ------- ------- ------- Units outstanding........................ 831 699 246 34 326 ======= ======= ======= ======= ======= Accumulation unit value.................. $ 8.12 $ 10.56 $ 9.43 $ 9.26 $ 8.53 ======= ======= ======= ======= =======
See accompanying notes. 19 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
WRL WRL WRL TRANSAMERICA WRL TRANSAMERICA J.P. MORGAN GROWTH CAPITAL U.S. GOVERNMENT ENHANCED OPPORTUNITIES GUARDIAN VALUE SECURITIES INDEX SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 58 14 18 5 ======= ====== ======= ======= Cost..................................... $ 562 $ 206 $ 215 $ 55 ======= ====== ======= ======= Investment, at net asset value............. $ 552 $ 181 $ 221 $ 50 Dividend receivable........................ 0 0 0 0 Transfers receivable from depositor........ 0 0 0 0 ------- ------ ------- ------- Total assets............................. 552 181 221 50 ------- ------ ------- ------- LIABILITIES: Accrued expenses........................... 0 0 0 0 Transfers payable to depositor............. 0 0 0 0 ------- ------ ------- ------- Total liabilities........................ 0 0 0 0 ------- ------ ------- ------- Net assets............................... $ 552 $ 181 $ 221 $ 50 ======= ====== ======= ======= NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 532 $ 161 $ 195 $ 30 Depositor's equity......................... 20 20 26 20 ------- ------ ------- ------- Net assets applicable to units outstanding............................ $ 552 $ 181 $ 221 $ 50 ======= ====== ======= ======= Policy owners' units....................... 67 20 18 3 Depositor's units.......................... 3 3 3 3 ------- ------ ------- ------- Units outstanding........................ 70 23 21 6 ======= ====== ======= ======= Accumulation unit value.................. $ 7.92 $ 7.91 $ 10.47 $ 8.11 ======= ====== ======= ======= WRL CAPITAL GUARDIAN U.S. EQUITY SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 20 ====== Cost..................................... $ 158 ====== Investment, at net asset value............. $ 144 Dividend receivable........................ 0 Transfers receivable from depositor........ 0 ------ Total assets............................. 144 ------ LIABILITIES: Accrued expenses........................... 0 Transfers payable to depositor............. 0 ------ Total liabilities........................ 0 ------ Net assets............................... $ 144 ====== NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 124 Depositor's equity......................... 20 ------ Net assets applicable to units outstanding............................ $ 144 ====== Policy owners' units....................... 15 Depositor's units.......................... 3 ------ Units outstanding........................ 18 ====== Accumulation unit value.................. $ 8.04 ======
See accompanying notes. 20 WRL SERIES LIFE ACCOUNT STATEMENTS OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 (ALL AMOUNTS EXCEPT PER UNIT AMOUNTS IN THOUSANDS)
FIDELITY VIP GROWTH FIDELITY VIP FIDELITY VIP OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT ASSETS: Investment in securities: Number of shares......................... 158 365 342 ======= ======= ======= Cost..................................... $ 2,153 $ 7,018 $ 7,287 ======= ======= ======= Investment, at net asset value............. $ 1,844 $ 6,549 $ 6,162 Dividend receivable........................ 0 0 0 Transfers receivable from depositor........ 1 3 5 ------- ------- ------- Total assets............................. 1,845 6,552 6,167 ------- ------- ------- LIABILITIES: Accrued expenses........................... 0 0 0 Transfers payable to depositor............. 0 0 0 ------- ------- ------- Total liabilities........................ 0 0 0 ------- ------- ------- Net assets............................... $ 1,845 $ 6,552 $ 6,167 ======= ======= ======= NET ASSETS CONSISTS OF: Policy owners' equity...................... $ 1,831 $ 6,534 $ 6,167 Depositor's equity......................... 14 18 0 ------- ------- ------- Net assets applicable to units outstanding............................ $ 1,845 $ 6,552 $ 6,167 ======= ======= ======= Policy owners' units....................... 326 895 728 Depositor's units.......................... 3 3 0 ------- ------- ------- Units outstanding........................ 329 898 728 ======= ======= ======= Accumulation unit value.................. $ 5.60 $ 7.29 $ 8.48 ======= ======= =======
See accompanying notes. 21 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL LKCM TRANSAMERICA AEGON JANUS JANUS STRATEGIC MONEY MARKET BOND GROWTH GLOBAL TOTAL RETURN SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 1,262 $ 1,990 $ 0 $ 7,028 $ 2,660 ---------- --------- ---------- ---------- -------- EXPENSES: Mortality and expense risk.............. 792 454 5,012 2,359 785 ---------- --------- ---------- ---------- -------- Net investment income (loss).......... 470 1,536 (5,012) 4,669 1,875 ---------- --------- ---------- ---------- -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ 0 512 (12,389) (5,899) 878 Realized gain distributions............. 0 0 0 0 0 Change in unrealized appreciation (depreciation)........................ 0 2,261 (197,834) (81,748) (13,559) ---------- --------- ---------- ---------- -------- Net gain (loss) on investment securities.......................... 0 2,773 (210,223) (87,647) (12,681) ---------- --------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from operations....................... $ 470 $ 4,309 $ (215,235) $ (82,978) $(10,806) ========== ========= ========== ========== ========
WRL WRL WRL WRL VAN KAMPEN ALGER FEDERATED TRANSAMERICA WRL EMERGING AGGRESSIVE GROWTH & VALUE PBHG/NWQ GROWTH GROWTH INCOME BALANCED VALUE SELECT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 285 $ 0 $ 4,516 $ 1,949 $ 701 ---------- --------- ---------- ---------- -------- EXPENSES: Mortality and expense risk.............. 2,820 1,818 663 465 289 ---------- --------- ---------- ---------- -------- Net investment income (loss).......... (2,535) (1,818) 3,853 1,484 412 ---------- --------- ---------- ---------- -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ (112,559) (9,541) 978 (1,178) (705) Realized gain distributions............. 0 0 935 1,757 462 Change in unrealized appreciation (depreciation)........................ (15,225) (77,324) (6,777) (11,078) (5,665) ---------- --------- ---------- ---------- -------- Net gain (loss) on investment securities.......................... (127,784) (86,865) (4,864) (10,499) (5,908) ---------- --------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from operations....................... $ (130,319) $ (88,683) $ (1,011) $ (9,015) $ (5,496) ========== ========= ========== ========== ========
See accompanying notes. 22 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL AMERICAN WRL THIRD CLARION WRL CENTURY GE AVENUE REAL ESTATE MARSICO INTERNATIONAL U.S. EQUITY VALUE SECURITIES GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 26 $ 132 $ 706 $ 276 $ 4 -------- -------- -------- -------- -------- EXPENSES: Mortality and expense risk.............. 76 260 348 131 33 -------- -------- -------- -------- -------- Net investment income (loss).......... (50) (128) 358 145 (29) -------- -------- -------- -------- -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ (2,143) (618) (41) 273 (631) Realized gain distributions............. 0 0 497 18 0 Change in unrealized appreciation (depreciation)........................ 116 (6,109) (6,894) (698) (554) -------- -------- -------- -------- -------- Net gain (loss) on investment securities.......................... (2,027) (6,727) (6,438) (407) (1,185) -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations....................... $ (2,077) $ (6,855) $ (6,080) $ (262) $ (1,214) ======== ======== ======== ======== ========
WRL WRL WRL WRL T. ROWE T. ROWE WRL PBHG MUNDER PRICE PRICE SALOMON MID CAP NET50 DIVIDEND GROWTH SMALL CAP ALL CAP GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 0 $ 20 $ 0 $ 324 $ 0 -------- ------ -------- -------- --------- EXPENSES: Mortality and expense risk.............. 19 35 61 272 258 -------- ------ -------- -------- --------- Net investment income (loss).......... (19) (15) (61) 52 (258) -------- ------ -------- -------- --------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ (1,455) (65) (684) (1,188) (8,272) Realized gain distributions............. 0 0 0 56 0 Change in unrealized appreciation (depreciation)........................ 375 (757) (1,640) (8,330) (1,583) -------- ------ -------- -------- --------- Net gain (loss) on investment securities.......................... (1,080) (822) (2,324) (9,462) (9,855) -------- ------ -------- -------- --------- Net increase (decrease) in net assets resulting from operations....................... $ (1,099) $ (837) $ (2,385) $ (9,410) $ (10,113) ======== ====== ======== ======== =========
See accompanying notes. 23 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL WRL GREAT GREAT GREAT DREYFUS VALUE LINE COMPANIES - COMPANIES - COMPANIES - MID CAP AGGRESSIVE GROWTH AMERICA(SM) TECHNOLOGY(SM) GLOBAL(2) SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 4 $ 0 $ 78 $ 0 $ 2 -------- ------- -------- -------- ------- EXPENSES: Mortality and expense risk.............. 81 12 257 49 29 -------- ------- -------- -------- ------- Net investment income (loss).......... (77) (12) (179) (49) (27) -------- ------- -------- -------- ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ (336) (210) (5,335) (2,577) (219) Realized gain distributions............. 0 0 0 0 0 Change in unrealized appreciation (depreciation)........................ (1,412) (139) (1,336) (197) (552) -------- ------- -------- -------- ------- Net gain (loss) on investment securities.......................... (1,748) (349) (6,671) (2,774) (771) -------- ------- -------- -------- ------- Net increase (decrease) in net assets resulting from operations....................... $ (1,825) $ (361) $ (6,850) $ (2,823) $ (798) ======== ======= ======== ======== =======
WRL WRL WRL GABELLI LKCM WRL WRL MODERATELY GLOBAL CAPITAL CONSERVATIVE MODERATE AGGRESSIVE GROWTH GROWTH ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION SUBACCOUNT SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) INVESTMENT INCOME: Dividend income......................... $ 38 $ 0 $ 0 $ 0 $ 0 -------- ------- -------- -------- ------- EXPENSES: Mortality and expense risk.............. 84 7 13 30 38 -------- ------- -------- -------- ------- Net investment income (loss).......... (46) (7) (13) (30) (38) -------- ------- -------- -------- ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ (181) (229) (22) (39) (39) Realized gain distributions............. 0 0 0 0 0 Change in unrealized appreciation (depreciation)........................ (1,493) (430) 63 (59) (208) -------- ------- -------- -------- ------- Net gain (loss) on investment securities.......................... (1,674) (659) 41 (98) (247) -------- ------- -------- -------- ------- Net increase (decrease) in net assets resulting from operations....................... $ (1,720) $ (666) $ 28 $ (128) $ (285) ======== ======= ======== ======== =======
See accompanying notes. 24 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL TRANSAMERICA AGGRESSIVE PIMCO JANUS CONVERTIBLE ASSET ALLOCATION TOTAL RETURN BALANCED SECURITIES SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) INVESTMENT INCOME: Dividend income......................... $ 0 $ 0 $ 0 $ 0 ------ ----- ----- ---- EXPENSES: Mortality and expense risk.............. 19 28 6 1 ------ ----- ----- ---- Net investment income (loss).......... (19) (28) (6) (1) ------ ----- ----- ---- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ (36) 38 (27) (5) Realized gain distributions............. 0 0 0 0 Change in unrealized appreciation (depreciation)........................ (212) 294 (5) (3) ------ ----- ----- ---- Net gain (loss) on investment securities.......................... (248) 332 (32) (8) ------ ----- ----- ---- Net increase (decrease) in net assets resulting from operations....................... $ (267) $ 304 $ (38) $ (9) ====== ===== ===== ====
WRL WRL TRANSAMERICA WRL TRANSAMERICA GROWTH CAPITAL EQUITY OPPORTUNITIES GUARDIAN VALUE SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) INVESTMENT INCOME: Dividend income......................... $ 0 $ 0 $ 10 ----- ----- ----- EXPENSES: Mortality and expense risk.............. 8 2 1 ----- ----- ----- Net investment income (loss).......... (8) (2) 9 ----- ----- ----- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities............................ (20) (17) (36) Realized gain distributions............. 0 0 0 Change in unrealized appreciation (depreciation)........................ (27) (10) (25) ----- ----- ----- Net gain (loss) on investment securities.......................... (47) (27) (61) ----- ----- ----- Net increase (decrease) in net assets resulting from operations....................... $ (55) $ (29) $ (52) ===== ===== =====
See accompanying notes. 25 WRL SERIES LIFE ACCOUNT STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL TRANSAMERICA J.P. MORGAN CAPITAL U.S. GOVERNMENT ENHANCED GUARDIAN SECURITIES INDEX U.S. EQUITY SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) INVESTMENT INCOME: Dividend income......................... $ 1 $ 0 $ 1 ------- ------- ------- EXPENSES: Mortality and expense risk.............. 1 0 1 ------- ------- ------- Net investment income (loss).......... 0 0 0 ------- ------- ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. 0 0 (22) Realized gain distributions............. 0 0 0 Change in unrealized appreciation (depreciation)........................ 6 (5) (14) ------- ------- ------- Net gain (loss) on investment securities.......................... 6 (5) (36) ------- ------- ------- Net increase (decrease) in net assets resulting from operations....................... $ 6 $ (5) $ (36) ======= ======= =======
FIDELITY VIP FIDELITY VIP GROWTH FIDELITY VIP EQUITY - OPPORTUNITIES CONTRAFUND(R) INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT INVESTMENT INCOME: Dividend income......................... $ 11 $ 25 $ 74 ------- ------- ------- EXPENSES: Mortality and expense risk.............. 14 48 49 ------- ------- ------- Net investment income (loss).......... (3) (23) 25 ------- ------- ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on sale of investment securities................. (98) (191) (154) Realized gain distributions............. 0 0 91 Change in unrealized appreciation (depreciation)........................ (282) (433) (1,102) ------- ------- ------- Net gain (loss) on investment securities.......................... (380) (624) (1,165) ------- ------- ------- Net increase (decrease) in net assets resulting from operations....................... $ (383) $ (647) $(1,140) ======= ======= =======
See accompanying notes. 26 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL TRANSAMERICA AEGON JANUS MONEY MARKET BOND GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------- ------------------- ------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- ------------------- ------------------------ 2002 2001 2002 2001 2002 2001 --------- --------- -------- -------- ---------- ----------- OPERATIONS: Net investment income (loss)..................... $ 470 $ 1,940 $ 1,536 $ (88) $ (5,012) $ (6,861) Net gain (loss) on investment securities......... 0 0 2,773 2,274 (210,223) (274,731) --------- --------- -------- -------- ---------- ----------- Net increase (decrease) in net assets resulting from operations................................ 470 1,940 4,309 2,186 (215,235) (281,592) --------- --------- -------- -------- ---------- ----------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 28,184 31,666 19,850 21,257 80,390 126,273 --------- --------- -------- -------- ---------- ----------- Less cost of units redeemed: Administrative charges......................... 7,315 4,916 4,658 3,034 67,288 71,004 Policy loans................................... 1,698 2,096 514 586 0 10,816 Surrender benefits............................. 8,517 4,288 2,237 977 22,526 22,233 Death benefits................................. 153 168 148 72 996 1,980 --------- --------- -------- -------- ---------- ----------- 17,683 11,468 7,557 4,669 90,810 106,033 --------- --------- -------- -------- ---------- ----------- Increase (decrease) in net assets from capital unit transactions............................ 10,501 20,198 12,293 16,588 (10,420) 20,240 --------- --------- -------- -------- ---------- ----------- Net increase (decrease) in net assets.......... 10,971 22,138 16,602 18,774 (225,655) (261,352) Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 82,417 60,279 44,709 25,935 699,663 961,015 --------- --------- -------- -------- ---------- ----------- End of year...................................... $ 93,388 $ 82,417 $ 61,311 $ 44,709 $ 474,008 $ 699,663 ========= ========= ======== ======== ========== =========== UNIT ACTIVITY: Units outstanding - beginning of year............ 4,349 3,278 1,725 1,072 9,583 9,366 Units issued..................................... 8,745 27,105 1,543 1,365 3,597 4,247 Units redeemed................................... (8,193) (26,034) (1,097) (712) (3,832) (4,030) --------- --------- -------- -------- ---------- ----------- Units outstanding - end of year.................. 4,901 4,349 2,171 1,725 9,348 9,583 ========= ========= ======== ======== ========== ===========
See accompanying notes. 27 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, ---------------------- -------------------- ----------------------- 2002 2001 2002 2001 2002 2001 --------- ---------- -------- --------- ---------- ---------- OPERATIONS: Net investment income (loss)..................... $ 4,669 $ 35 $ 1,875 $ (413) $ (2,535) $ (3,594) Net gain (loss) on investment securities......... (87,647) (97,544) (12,681) (2,662) (127,784) (195,822) --------- ---------- -------- --------- ---------- ---------- Net increase (decrease) in net assets resulting from operations................................ (82,978) (97,509) (10,806) (3,075) (130,319) (199,416) --------- ---------- -------- --------- ---------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 28,004 47,977 8,019 12,375 45,407 64,879 --------- ---------- -------- --------- ---------- ---------- Less cost of units redeemed: Administrative charges......................... 28,362 31,569 8,198 8,111 35,720 38,288 Policy loans................................... 921 4,476 440 1,157 1,402 6,127 Surrender benefits............................. 10,567 10,117 3,860 2,908 13,454 13,487 Death benefits................................. 323 503 236 259 456 860 --------- ---------- -------- --------- ---------- ---------- 40,173 46,665 12,734 12,435 51,032 58,762 --------- ---------- -------- --------- ---------- ---------- Increase (decrease) in net assets from capital unit transactions............................ (12,169) 1,312 (4,715) (60) (5,625) 6,117 --------- ---------- -------- --------- ---------- ---------- Net increase (decrease) in net assets.......... (95,147) (96,197) (15,521) (3,135) (135,944) (193,299) Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 313,912 410,109 95,331 98,466 386,903 580,202 --------- ---------- -------- --------- ---------- ---------- End of year...................................... $ 218,765 $ 313,912 $ 79,810 $ 95,331 $ 250,959 $ 386,903 ========= ========== ======== ========= ========== ========== UNIT ACTIVITY: Units outstanding - beginning of year............ 12,912 12,899 4,517 4,523 10,305 10,226 Units issued..................................... 3,858 3,942 1,138 1,239 4,184 7,855 Units redeemed................................... (4,496) (3,929) (1,389) (1,245) (4,413) (7,776) --------- ---------- -------- --------- ---------- ---------- Units outstanding - end of year.................. 12,274 12,912 4,266 4,517 10,076 10,305 ========= ========== ======== ========= ========== ==========
See accompanying notes. 28 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL ALGER FEDERATED TRANSAMERICA AGGRESSIVE GROWTH GROWTH & INCOME VALUE BALANCED SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------- ------------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------- ------------------- ------------------- 2002 2001 2002 2001 2002 2001 --------- ---------- -------- -------- -------- -------- OPERATIONS: Net investment income (loss)..................... $ (1,818) $ (2,225) $ 3,853 $ 404 $ 1,484 $ 217 Net gain (loss) on investment securities......... (86,865) (47,770) (4,864) 4,997 (10,499) 91 --------- ---------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations...................... (88,683) (49,995) (1,011) 5,401 (9,015) 308 --------- ---------- -------- -------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 40,020 57,462 33,512 31,343 31,611 13,027 --------- ---------- -------- -------- -------- -------- Less cost of units redeemed: Administrative charges......................... 26,439 28,461 7,408 3,816 5,788 3,491 Policy loans................................... 471 3,294 371 422 242 671 Surrender benefits............................. 8,049 6,759 3,053 1,499 2,569 1,257 Death benefits................................. 273 373 290 59 169 195 --------- ---------- -------- -------- -------- -------- 35,232 38,887 11,122 5,796 8,768 5,614 --------- ---------- -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions............... 4,788 18,575 22,390 25,547 22,843 7,413 --------- ---------- -------- -------- -------- -------- Net increase (decrease) in net assets.......... (83,895) (31,420) 21,379 30,948 13,828 7,721 Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 248,752 280,172 57,831 26,883 41,934 34,213 --------- ---------- -------- -------- -------- -------- End of year...................................... $ 164,857 $ 248,752 $ 79,210 $ 57,831 $ 55,762 $ 41,934 ========= ========== ======== ======== ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year............ 9,881 9,215 2,531 1,349 2,270 1,881 Units issued..................................... 4,879 4,796 2,434 2,283 2,440 1,125 Units redeemed................................... (4,688) (4,130) (1,500) (1,101) (1,175) (736) --------- ---------- -------- -------- -------- -------- Units outstanding - end of year.................. 10,072 9,881 3,465 2,531 3,535 2,270 ========= ========== ======== ======== ======== ========
See accompanying notes. 29 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL PBHG/NWQ AMERICAN CENTURY GE VALUE SELECT INTERNATIONAL U.S. EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------- -------------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------- -------------------- ------------------- 2002 2001 2002 2001 2002 2001 -------- -------- -------- --------- -------- -------- OPERATIONS: Net investment income (loss)..................... $ 412 $ (234) $ (50) $ 192 $ (128) $ (215) Net gain (loss) on investment securities......... (5,908) (693) (2,027) (2,435) (6,727) (2,933) -------- -------- -------- --------- -------- -------- Net increase (decrease) in net assets resulting from operations................................ (5,496) (927) (2,077) (2,243) (6,855) (3,148) -------- -------- -------- --------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 7,488 8,780 3,468 3,756 6,882 8,860 -------- -------- -------- --------- -------- -------- Less cost of units redeemed: Administrative charges......................... 3,168 2,649 1,298 1,003 3,283 3,049 Policy loans................................... 162 294 22 76 95 319 Surrender benefits............................. 1,177 882 265 189 851 998 Death benefits................................. 86 26 15 6 44 97 -------- -------- -------- --------- -------- -------- 4,593 3,851 1,600 1,274 4,273 4,463 -------- -------- -------- --------- -------- -------- Increase (decrease) in net assets from capital unit transactions............................ 2,895 4,929 1,868 2,482 2,609 4,397 -------- -------- -------- --------- -------- -------- Net increase (decrease) in net assets.......... (2,601) 4,002 (209) 239 (4,246) 1,249 Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 32,890 28,888 8,183 7,944 31,020 29,771 -------- -------- -------- --------- -------- -------- End of year...................................... $ 30,289 $ 32,890 $ 7,974 $ 8,183 $ 26,774 $ 31,020 ======== ======== ======== ========= ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year............ 2,103 1,797 868 639 1,942 1,683 Units issued..................................... 1,061 1,040 930 647 1,000 1,000 Units redeemed................................... (886) (734) (716) (418) (833) (741) -------- -------- -------- --------- -------- -------- Units outstanding - end of year.................. 2,278 2,103 1,082 868 2,109 1,942 ======== ======== ======== ========= ======== ========
See accompanying notes. 30 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL CLARION WRL THIRD AVENUE REAL ESTATE MARSICO VALUE SECURITIES GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------- ------------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------- ------------------- ------------------- 2002 2001 2002 2001 2002 2001 -------- -------- -------- -------- -------- -------- OPERATIONS: Net investment income (loss)..................... $ 358 $ (202) $ 145 $ 96 $ (29) $ (2) Net gain (loss) on investment securities......... (6,438) 1,396 (407) 308 (1,185) (284) -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations................................ (6,080) 1,194 (262) 404 (1,214) (286) -------- -------- -------- -------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 14,963 19,475 14,584 5,874 2,591 2,717 -------- -------- -------- -------- -------- -------- Less cost of units redeemed: Administrative charges......................... 3,735 2,064 1,838 545 538 273 Policy loans................................... 301 289 91 179 3 4 Surrender benefits............................. 1,400 698 660 131 117 22 Death benefits................................. 136 8 68 0 5 9 -------- -------- -------- -------- -------- -------- 5,572 3,059 2,657 855 663 308 -------- -------- -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions............................ 9,391 16,416 11,927 5,019 1,928 2,409 -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets.......... 3,311 17,610 11,665 5,423 714 2,123 Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 34,345 16,735 7,899 2,476 3,750 1,627 -------- -------- -------- -------- -------- -------- End of year...................................... $ 37,656 $ 34,345 $ 19,564 $ 7,899 $ 4,464 $ 3,750 ======== ======== ======== ======== ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year............ 2,296 1,177 693 239 428 158 Units issued..................................... 2,107 2,223 2,043 945 863 552 Units redeemed................................... (1,521) (1,104) (1,065) (491) (597) (282) -------- -------- -------- -------- -------- -------- Units outstanding - end of year.................. 2,882 2,296 1,671 693 694 428 ======== ======== ======== ======== ======== ========
See accompanying notes. 31 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 MUNDER NET50 DIVIDEND GROWTH SMALL CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- ----------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------- ----------------- ----------------- 2002 2001 2002 2001 2002 2001 ------- ------- ------- ------- ------- ------- OPERATIONS: Net investment income (loss)..................... $ (19) $ (7) $ (15) $ (19) $ (61) $ (35) Net gain (loss) on investment securities......... (1,080) (862) (822) (19) (2,324) (275) ------- ------- ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ (1,099) (869) (837) (38) (2,385) (310) ------- ------- ------- ------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 1,112 3,046 2,656 2,751 3,498 5,178 ------- ------- ------- ------- ------- ------- Less cost of units redeemed: Administrative charges......................... 317 187 519 224 878 462 Policy loans................................... 0 17 25 3 76 27 Surrender benefits............................. 57 31 93 51 324 113 Death benefits................................. 4 0 7 1 0 2 ------- ------- ------- ------- ------- ------- 378 235 644 279 1,278 604 ------- ------- ------- ------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 734 2,811 2,012 2,472 2,220 4,574 ------- ------- ------- ------- ------- ------- Net increase (decrease) in net assets.......... (365) 1,942 1,175 2,434 (165) 4,264 Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 2,804 862 3,419 985 6,832 2,568 ------- ------- ------- ------- ------- ------- End of year...................................... $ 2,439 $ 2,804 $ 4,594 $ 3,419 $ 6,667 $ 6,832 ======= ======= ======= ======= ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 351 80 361 99 684 230 Units issued..................................... 771 453 529 484 1,055 898 Units redeemed................................... (621) (182) (287) (222) (812) (444) ------- ------- ------- ------- ------- ------- Units outstanding - end of year.................. 501 351 603 361 927 684 ======= ======= ======= ======= ======= =======
See accompanying notes. 32 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL SALOMON PBHG DREYFUS ALL CAP MID CAP GROWTH MID CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------- ------------------- ------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------- ------------------- ------------------ 2002 2001 2002 2001 2002 2001 -------- -------- -------- -------- -------- ------- OPERATIONS: Net investment income (loss)..................... $ 52 $ 189 $ (258) $ (288) $ (77) $ 17 Net gain (loss) on investment securities......... (9,462) (476) (9,855) (15,752) (1,748) (142) -------- -------- -------- -------- -------- ------- Net increase (decrease) in net assets resulting from operations................................ (9,410) (287) (10,113) (16,040) (1,825) (125) -------- -------- -------- -------- -------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 11,953 26,248 9,414 15,784 7,429 4,160 -------- -------- -------- -------- -------- ------- Less cost of units redeemed: Administrative charges......................... 4,191 2,370 5,227 5,547 956 404 Policy loans................................... 144 402 164 417 20 29 Surrender benefits............................. 941 646 744 530 442 85 Death benefits................................. 210 89 32 85 13 3 -------- -------- -------- -------- -------- ------- 5,486 3,507 6,167 6,579 1,431 521 -------- -------- -------- -------- -------- ------- Increase (decrease) in net assets from capital unit transactions............................ 6,467 22,741 3,247 9,205 5,998 3,639 -------- -------- -------- -------- -------- ------- Net increase (decrease) in net assets.......... (2,943) 22,454 (6,866) (6,835) 4,173 3,514 Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 30,526 8,072 32,867 39,702 5,325 1,811 -------- -------- -------- -------- -------- ------- End of year...................................... $ 27,583 $ 30,526 $ 26,001 $ 32,867 $ 9,498 $ 5,325 ======== ======== ======== ======== ======== ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 2,405 643 3,818 2,929 493 159 Units issued..................................... 2,208 2,831 2,861 3,589 1,315 636 Units redeemed................................... (1,701) (1,069) (2,423) (2,700) (792) (302) -------- -------- -------- -------- -------- ------- Units outstanding - end of year.................. 2,912 2,405 4,256 3,818 1,016 493 ======== ======== ======== ======== ======== =======
See accompanying notes. 33 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL GREAT GREAT VALUE LINE COMPANIES - COMPANIES - AGGRESSIVE GROWTH AMERICA(SM) TECHNOLOGY(SM) SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ------------------- ----------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------- ------------------- ----------------- 2002 2001 2002 2001 2002 2001 ------- ------- -------- -------- ------- ------- OPERATIONS: Net investment income (loss)..................... $ (12) $ (9) $ (179) $ (65) $ (49) $ (34) Net gain (loss) on investment securities......... (349) (98) (6,671) (1,083) (2,774) (1,814) ------- ------- -------- -------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ (361) (107) (6,850) (1,148) (2,823) (1,848) ------- ------- -------- -------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 630 434 31,951 10,837 3,029 5,801 ------- ------- -------- -------- ------- ------- Less cost of units redeemed: Administrative charges......................... 147 66 4,060 1,180 908 508 Policy loans................................... 13 30 545 106 0 36 Surrender benefits............................. 55 5 833 151 246 43 Death benefits................................. 6 10 34 136 4 7 ------- ------- -------- -------- ------- ------- 221 111 5,472 1,573 1,158 594 ------- ------- -------- -------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 409 323 26,479 9,264 1,871 5,207 ------- ------- -------- -------- ------- ------- Net increase (decrease) in net assets.......... 48 216 19,629 8,116 (952) 3,359 Depositor's equity contribution.................. 0 0 0 0 0 0 NET ASSETS: Beginning of year................................ 1,283 1,067 16,607 8,491 6,147 2,788 ------- ------- -------- -------- ------- ------- End of year...................................... $ 1,331 $ 1,283 $ 36,236 $ 16,607 $ 5,195 $ 6,147 ======= ======= ======== ======== ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 161 119 1,687 751 1,468 416 Units issued..................................... 209 155 4,889 1,591 2,408 1,793 Units redeemed................................... (151) (113) (1,893) (655) (1,853) (741) ------- ------- -------- -------- ------- ------- Units outstanding - end of year.................. 219 161 4,683 1,687 2,023 1,468 ======= ======= ======== ======== ======= =======
See accompanying notes. 34 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL GREAT WRL LKCM COMPANIES- GABELLI CAPITAL GLOBAL(2) GLOBAL GROWTH GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ------------------ ---------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------- ------------------ ---------------- 2002 2001 2002 2001 2002 2001(1) ------- ------- -------- ------- ------ ------- OPERATIONS: Net investment income (loss)..................... $ (27) $ (11) $ (46) $ (34) $ (7) $ 0 Net gain (loss) on investment securities......... (771) (79) (1,674) (399) (659) (7) ------- ------- -------- ------- ------ ------- Net increase (decrease) in net assets resulting from operations................................ (798) (90) (1,720) (433) (666) (7) ------- ------- -------- ------- ------ ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 3,465 2,057 7,022 8,042 444 1,164 ------- ------- -------- ------- ------ ------- Less cost of units redeemed: Administrative charges......................... 647 176 1,709 837 119 21 Policy loans................................... 29 12 22 18 9 3 Surrender benefits............................. 139 35 272 66 23 1 Death benefits................................. 6 0 37 69 9 0 ------- ------- -------- ------- ------ ------- 821 223 2,040 990 160 25 ------- ------- -------- ------- ------ ------- Increase (decrease) in net assets from capital unit transactions............................ 2,644 1,834 4,982 7,052 284 1,139 ------- ------- -------- ------- ------ ------- Net increase (decrease) in net assets.......... 1,846 1,744 3,262 6,619 (382) 1,132 Depositor's equity contribution.................. 0 0 0 0 0 25 NET ASSETS: Beginning of year................................ 2,238 494 7,590 971 1,157 0 ------- ------- -------- ------- ------ ------- End of year...................................... $ 4,084 $ 2,238 $ 10,852 $ 7,590 $ 775 $ 1,157 ======= ======= ======== ======= ====== ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 319 58 939 107 180 0 Units issued..................................... 861 434 1,351 1,191 424 211 Units redeemed................................... (432) (173) (671) (359) (333) (31) ------- ------- -------- ------- ------ ------- Units outstanding - end of year.................. 748 319 1,619 939 271 180 ======= ======= ======== ======= ====== =======
See accompanying notes. 35 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL WRL WRL CONSERVATIVE MODERATE MODERATELY AGGRESSIVE ASSET ASSET AGGRESSIVE ASSET ASSET ALLOCATION ALLOCATION ALLOCATION ALLOCATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ---------------- ------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------ ---------------- ------------ 2002(1) 2002(1) 2002(1) 2002(1) ------------ ------------ ---------------- ------------ OPERATIONS: Net investment income (loss)..................... $ (13) $ (30) $ (38) $ (19) Net gain (loss) on investment securities......... 41 (98) (247) (248) ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ 28 (128) (285) (267) ------- ------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 4,723 11,575 16,346 7,553 ------- ------- ------- ------- Less cost of units redeemed: Administrative charges......................... 150 492 865 472 Policy loans................................... 70 35 0 0 Surrender benefits............................. 180 107 167 88 Death benefits................................. 0 60 0 0 ------- ------- ------- ------- 400 694 1,032 560 ------- ------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 4,323 10,881 15,314 6,993 ------- ------- ------- ------- Net increase (decrease) in net assets.......... 4,351 10,753 15,029 6,726 Depositor's equity contribution.................. 25 25 25 25 NET ASSETS: Beginning of year................................ 0 0 0 0 ------- ------- ------- ------- End of year...................................... $ 4,376 $10,778 $15,054 $ 6,751 ======= ======= ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 0 0 0 0 Units issued..................................... 633 1,478 2,083 1,011 Units redeemed................................... (149) (247) (305) (180) ------- ------- ------- ------- Units outstanding - end of year.................. 484 1,231 1,778 831 ======= ======= ======= =======
See accompanying notes. 36 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL PIMCO WRL TRANSAMERICA WRL TOTAL JANUS CONVERTIBLE TRANSAMERICA RETURN BALANCED SECURITIES EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ---------------- ------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------ ---------------- ------------ 2002(1) 2002(1) 2002(1) 2002(1) ------------ ------------ ---------------- ------------ OPERATIONS: Net investment income (loss)..................... $ (28) $ (6) $ (1) $ (8) Net gain (loss) on investment securities......... 332 (32) (8) (47) ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ 304 (38) (9) (55) ------- ------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 7,623 2,421 309 2,916 ------- ------- ------- ------- Less cost of units redeemed: Administrative charges......................... 304 73 13 80 Policy loans................................... 109 0 0 0 Surrender benefits............................. 161 6 1 23 Death benefits................................. 2 10 0 2 ------- ------- ------- ------- 576 89 14 105 ------- ------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 7,047 2,332 295 2,811 ------- ------- ------- ------- Net increase (decrease) in net assets.......... 7,351 2,294 286 2,756 Depositor's equity contribution.................. 25 25 25 25 NET ASSETS: Beginning of year................................ 0 0 0 0 ------- ------- ------- ------- End of year...................................... $ 7,376 $ 2,319 $ 311 $ 2,781 ======= ======= ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 0 0 0 0 Units issued..................................... 986 352 43 381 Units redeemed................................... (287) (106) (9) (55) ------- ------- ------- ------- Units outstanding - end of year.................. 699 246 34 326 ======= ======= ======= =======
See accompanying notes. 37 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL TRANSAMERICA TRANSAMERICA WRL U.S. GROWTH CAPITAL GOVERNMENT OPPORTUNITIES GUARDIAN VALUE SECURITIES SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------- -------------- ------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------- -------------- ------------- 2002(1) 2002(1) 2002(1) ------------- -------------- ------------- OPERATIONS: Net investment income (loss)..................... $ (2) $ 9 $ 0 Net gain (loss) on investment securities......... (27) (61) 6 ------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ (29) (52) 6 ------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 599 217 195 ------- ------- ------- Less cost of units redeemed: Administrative charges......................... 25 9 5 Policy loans................................... 0 0 0 Surrender benefits............................. 13 0 0 Death benefits................................. 5 0 0 ------- ------- ------- 43 9 5 ------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 556 208 190 ------- ------- ------- Net increase (decrease) in net assets.......... 527 156 196 Depositor's equity contribution.................. 25 25 25 NET ASSETS: Beginning of year................................ 0 0 0 ------- ------- ------- End of year...................................... $ 552 $ 181 $ 221 ======= ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 0 0 0 Units issued..................................... 89 37 22 Units redeemed................................... (19) (14) (1) ------- ------- ------- Units outstanding - end of year.................. 70 23 21 ======= ======= =======
See accompanying notes. 38 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
WRL WRL J.P. MORGAN CAPITAL ENHANCED GUARDIAN INDEX U.S. EQUITY SUBACCOUNT SUBACCOUNT ------------ ------------ DECEMBER 31, DECEMBER 31, ------------ ------------ 2002(1) 2002(1) ------------ ------------ OPERATIONS: Net investment income (loss).............................. $ 0 $ 0 Net gain (loss) on investment securities.................. (5) (36) ------- ------- Net increase (decrease) in net assets resulting from operations.............................................. (5) (36) ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred).................... 33 160 ------- ------- Less cost of units redeemed: Administrative charges.................................. 3 5 Policy loans............................................ 0 0 Surrender benefits...................................... 0 0 Death benefits.......................................... 0 0 ------- ------- 3 5 ------- ------- Increase (decrease) in net assets from capital unit transactions.......................................... 30 155 ------- ------- Net increase (decrease) in net assets................... 25 119 Depositor's equity contribution........................... 25 25 NET ASSETS: Beginning of year......................................... 0 0 ------- ------- End of year............................................... $ 50 $ 144 ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year..................... 0 0 Units issued.............................................. 6 27 Units redeemed............................................ 0 (9) ------- ------- Units outstanding - end of year........................... 6 18 ======= =======
See accompanying notes. 39 WRL SERIES LIFE ACCOUNT STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED (ALL AMOUNTS IN THOUSANDS)
FIDELITY VIP FIDELITY VIP FIDELITY VIP GROWTH OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------- ----------------- ----------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- ----------------- ----------------- 2002 2001 2002 2001 2002 2001 --------- --------- ------- ------- ------- ------- OPERATIONS: Net investment income (loss)..................... $ (3) $ (6) $ (23) $ (9) $ 25 $ (8) Net gain (loss) on investment securities......... (380) (118) (624) (146) (1,165) (66) ------- ------- ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations................................ (383) (124) (647) (155) (1,140) (74) ------- ------- ------- ------- ------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred)........... 1,196 1,100 4,843 2,727 4,084 4,211 ------- ------- ------- ------- ------- ------- Less cost of units redeemed: Administrative charges......................... 301 117 762 249 738 225 Policy loans................................... 18 9 40 0 12 0 Surrender benefits............................. 39 15 171 18 186 31 Death benefits................................. 7 0 6 0 2 0 ------- ------- ------- ------- ------- ------- 365 141 979 267 938 256 ------- ------- ------- ------- ------- ------- Increase (decrease) in net assets from capital unit transactions............................ 831 959 3,864 2,460 3,146 3,955 ------- ------- ------- ------- ------- ------- Net increase (decrease) in net assets.......... 448 835 3,217 2,305 2,006 3,881 Depositor's equity contribution.................. 0 0 0 0 0 (27) NET ASSETS: Beginning of year................................ 1,397 562 3,335 1,030 4,161 307 ------- ------- ------- ------- ------- ------- End of year...................................... $ 1,845 $ 1,397 $ 6,552 $ 3,335 $ 6,167 $ 4,161 ======= ======= ======= ======= ======= ======= UNIT ACTIVITY: Units outstanding - beginning of year............ 193 66 410 110 403 28 Units issued..................................... 307 242 1,039 504 679 571 Units redeemed................................... (171) (115) (551) (204) (354) (196) ------- ------- ------- ------- ------- ------- Units outstanding - end of year.................. 329 193 898 410 728 403 ======= ======= ======= ======= ======= =======
See accompanying notes. 40 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS AT DECEMBER 31, 2002 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 forty-three 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. Transamerica Money Market AEGON Bond Janus Growth Janus Global LKCM Strategic Total Return Van Kampen Emerging Growth Alger Aggressive Growth Federated Growth & Income Transamerica Value Balanced PBHG/NWQ Value Select American Century International GE U.S. Equity Third Avenue Value Clarion Real Estate Securities Marsico Growth Munder Net50 T. Rowe Price Dividend Growth T. Rowe Price Small Cap Salomon All Cap PBHG Mid Cap Growth Dreyfus Mid Cap Value Line Aggressive Growth Great Companies - America(SM) Great Companies - Technology(SM) AEGON/TRANSAMERICA SERIES FUND, INC. (CONTINUED) Great Companies - Global(2) Gabelli Global Growth LKCM Capital Growth Conservative Asset Allocation Moderate Assets Allocation Moderately Aggressive Asset Allocation Aggressive Asset Allocation PIMCO Total Return Janus Balanced Transamerica Convertible Securities Transamerica Equity Transamerica Growth Opportunities Capital Guardian Value Transamerica U.S. Government Securities J.P. Morgan Enhanced Index Capital Guardian U.S. Equity VARIABLE INSURANCE PRODUCTS FUNDS (VIP) - SERVICE CLASS 2 Fidelity VIP Growth Opportunities Portfolio Fidelity VIP Contrafund(R) Portfolio Fidelity VIP Equity-Income Portfolio The following portfolio names have changed:
PORTFOLIO FORMERLY - --------- -------- Transamerica Money Market J.P. Morgan Money Market PBHG/NWQ Value Select NWQ Value Equity American Century International Equity International Clarion Real Estate J.P. Morgan Real Estate Securities Securities Marsico Growth Goldman Sachs Growth PBHG Mid Cap Growth Pilgrim Baxter Mid Cap Growth Fidelity VIP Growth Fidelity VIP III Growth Opportunities Portfolio Opportunities Portfolio - Service Class 2 Fidelity VIP Contrafund(R) Fidelity VIP II Portfolio Contrafund(R) Portfolio - Service Class 2 Fidelity VIP Equity-Income Fidelity VIP Equity-Income Portfolio Portfolio - Service Class 2
41 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 1 -- (CONTINUED) In accordance with the shareholder approved agreements and plans of reorganization, the following mergers of the underlying funds occurred within 2002:
DATE ACQUIRING FUND ACQUIRED FUND - ---- -------------- ------------- Mergers of portfolios within the AEGON/Transamerica Series Fund, Inc.: 2/28/02 American Century American Century International International (formerly International Equity) 4/26/02 Transamerica Value AEGON Balanced Balanced 4/26/02 Great Companies - C.A.S.E. Growth American(SM)
The AEGON/Transamerica Series Fund, Inc. has entered into annually renewable investment advisory agreements for each Portfolio with AEGON/Transamerica Fund Advisers, Inc. ("ATFA") as investment adviser. Costs incurred in connection with the advisory services rendered by ATFA are paid by each Portfolio. ATFA 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 ATFA. The other Fund has entered into participation agreements for each Portfolio with WRL. Each period reported on within the financial statements reflects a full twelve month period except as follows:
SUBACCOUNT INCEPTION DATE - ---------- -------------- WRL Third Avenue Value 01/02/1998 WRL Clarion Real Estate Securities 05/01/1998 WRL Marsico 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 WRL PBHG 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
SUBACCOUNT INCEPTION DATE - ---------- -------------- 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 WRL Conservative Asset Allocation 05/01/2002 WRL Moderate Asset Allocation 05/01/2002 WRL Moderately Aggressive Asset Allocation 05/01/2002 WRL Aggressive Asset Allocation 05/01/2002 WRL PIMCO Total Return 05/01/2002 WRL Janus Balanced 05/01/2002 WRL Transamerica Convertible Securities 05/01/2002 WRL Transamerica Equity 05/01/2002 WRL Transamerica Growth Opportunities 05/01/2002 WRL Capital Guardian Value 05/01/2002 WRL Transamerica U.S. Government Securities 05/01/2002 WRL J.P. Morgan Enhanced Index 05/01/2002 WRL Capital Guardian U.S. Equity 05/01/2002 Fidelity VIP Growth Opportunities 05/01/2000 Fidelity VIP Contrafund(R) 05/01/2000 Fidelity VIP Equity-Income 05/01/2000
On May 1, 2002, WRL made initial contributions totaling $325,000 to the Life Account. The respective amounts of the contributions and units received are as follows:
SUBACCOUNT CONTRIBUTION UNITS - ---------- ------------ ----- WRL Conservative Asset Allocation $ 25,000 2,500 WRL Moderate Asset Allocation 25,000 2,500 WRL Moderately Aggressive Asset Allocation 25,000 2,500 WRL Aggressive Asset Allocation 25,000 2,500 WRL PIMCO Total Return 25,000 2,500 WRL Janus Balanced 25,000 2,500 WRL Transamerica Convertible Securities $ 25,000 2,500 WRL Transamerica Equity 25,000 2,500 WRL Transamerica Growth Opportunities 25,000 2,500 WRL Capital Guardian Value 25,000 2,500
42 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 1 -- (CONTINUED)
SUBACCOUNT CONTRIBUTION UNITS - ---------- ------------ ----- WRL Transamerica U.S. Government Securities 25,000 2,500 WRL J.P. Morgan Enhanced Index 25,000 2,500 WRL Capital Guardian U.S. Equity 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, 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. 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 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 .90% of average daily net assets is assessed to compensate WRL for assumption of mortality and expense risks 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 ATFA 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 ATFA as a percentage of the average daily net assets of the portfolio.
PORTFOLIO ADVISORY FEE - --------- ------------ Transamerica Money Market(1) 0.35 % 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 % Federated Growth & Income 0.75 % Transamerica Value Balanced 0.75 % PBHG/NWQ Value Select 0.80 % American Century International(2) 1.00 % GE U.S. Equity 0.80 % Third Avenue Value 0.80 % Clarion Real Estate Securities 0.80 % Marsico Growth(3) 0.90 % Munder Net50 0.90 % T. Rowe Price Dividend Growth(3) 0.90 % T. Rowe Price Small Cap 0.75 %
43 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 2 -- (CONTINUED)
PORTFOLIO ADVISORY FEE - --------- ------------ Salomon All Cap(3) 0.90 % PBHG Mid Cap Growth(3) 0.90 % Dreyfus Mid Cap(4) 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(5) 1.00 % LKCM Capital Growth 0.80 % Conservative Asset Allocation 0.10 % Moderate Assets Allocation 0.10 % Moderately Aggressive Asset Allocation 0.10 % Aggressive Asset Allocation 0.10 % PIMCO Total Return 0.70 % Janus Balanced(6) 0.90 % Transamerica Convertible Securities(7) 0.80 % Transamerica Equity 0.75 % Transamerica Growth Opportunities 0.85 % Capital Guardian Value(8) 0.85 % Transamerica US Government Securities 0.65 % J.P. Morgan Enhanced Index 0.75 % Capital Guardian U.S. Equity(8) 0.85 %
AEGON/Transamerica Fund Services, Inc. ("ATFS") provides the Fund with administrative and transfer agency services. ATFA and ATFS are wholly owned subsidiaries of WRL. WRL is an indirect wholly owned subsidiary of AEGON NV, a Netherlands corporation. - --------------- (1) On May 1, 2002 the advising fee for Transamerica Money Market was reduced from .40% to .35% of average daily net assets. (2) AEGON/Transamerica Advisers receives compensation for its services at 1.00% for the first $50 million of the portfolio's average daily net assets; 0.95% of assets over $50 million up to $150 million; 0.90% of assets over $150 million up to $500 million; and 0.85% of assets in excess of $500 million. (3) 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% of assets in excess of $100 million. (4) 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% of assets in excess of $100 million. (5) AEGON/Transamerica Advisers receives compensation for its services at 1.00% for 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. (6) AEGON/Transamerica Advisers receives compensation for its services at 0.90% for the first $500 million of the portfolio's average daily net assets; and 0.85% of assets over $500 million up to $1 billion; and 0.80% of assets in excess of $1 billion. (7) AEGON/Transamerica Advisers receives compensation for its services at 0.80% for the first $500 million of the portfolio's average daily net assets; and 0.70% of assets in excess of $500 million. (8) AEGON/Transamerica Advisers receives compensation for its services at 0.85% for the first $300 million of the portfolio's average daily net assets; and 0.80% of assets over $300 million up to $500 million; and 0.775% of assets in excess of $500 million. 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, 2002 are as follows (in thousands):
PURCHASES PROCEEDS OF FROM SALES SUBACCOUNT SECURITIES OF SECURITIES - ---------- ------------ ------------- WRL Transamerica Money Market $ 97,098 $ 85,845 WRL AEGON Bond 24,986 11,904 WRL Janus Growth 50,560 65,665 WRL Janus Global 20,085 27,488 WRL LKCM Strategic Total Return 5,930 8,751 WRL Van Kampen Emerging Growth 38,062 46,006 WRL Alger Aggressive Growth 35,295 32,146 WRL Federated Growth & Income 32,908 5,617 WRL Transamerica Value Balanced 32,348 5,354 WRL PBHG/NWQ Value Select 7,341 3,411
44 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 4 -- (CONTINUED)
PURCHASES PROCEEDS OF FROM SALES SUBACCOUNT SECURITIES OF SECURITIES - ---------- ------------ ------------- WRL American Century International $ 4,252 $ 2,245 WRL GE U.S. Equity 5,577 3,080 WRL Third Avenue Value 15,644 5,301 WRL Clarion Real Estate Securities 15,351 3,399 WRL Marsico Growth 4,691 2,783 WRL Munder Net50 3,239 2,516 WRL T. Rowe Price Dividend Growth 2,926 931 WRL T. Rowe Price Small Cap 4,835 2,647 WRL Salomon All Cap 10,992 4,340 WRL PBHG Mid Cap Growth 7,580 4,560 WRL Dreyfus Mid Cap 9,088 3,155 WRL Value Line Aggressive Growth 961 566 WRL Great Companies - America(SM) 46,491 3,534 WRL Great Companies - Technology(SM) 4,500 2,714 WRL Great Companies - Global(2) 3,394 773 WRL Gabelli Global Growth 5,555 577 WRL LKCM Capital Growth 1,448 1,169
PURCHASES PROCEEDS OF FROM SALES SUBACCOUNT SECURITIES OF SECURITIES - ---------- ------------ ------------- WRL Conservative Asset Allocation $ 4,753 $ 564 WRL Moderate Asset Allocation 11,134 311 WRL Moderately Aggressive Asset Allocation 15,464 221 WRL Aggressive Asset Allocation 7,151 163 WRL PIMCO Total Return 8,312 1,264 WRL Janus Balanced 3,027 615 WRL Transamerica Convertible Securities 378 59 WRL Transamerica Equity 2,919 132 WRL Transamerica Growth Opportunities 655 76 WRL Capital Guardian Value 338 96 WRL Transamerica U.S. Government Securities 226 11 WRL J.P. Morgan Enhanced Index 56 1 WRL Capital Guardian U.S. Equity 245 65 Fidelity VIP Growth Opportunities 1,253 417 Fidelity VIP Contrafund(R) 5,861 2,019 Fidelity VIP Equity - Income 4,169 887
45 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL TRANSAMERICA MONEY MARKET SUBACCOUNT ----------------------------------------------------- DECEMBER 31, ----------------------------------------------------- 2002 2001 2000 1999 1998 --------- -------- -------- -------- -------- Accumulation unit value, beginning of year.................. $ 18.95 $ 18.39 $ 17.49 $ 16.83 $ 16.13 --------- -------- -------- -------- -------- Income from operations: Net investment income (loss)............................ 0.11 0.56 0.90 0.66 0.70 Net realized and unrealized gain (loss) on investment... 0.00 0.00 0.00 0.00 0.00 --------- -------- -------- -------- -------- Net income (loss) from operations..................... 0.11 0.56 0.90 0.66 0.70 --------- -------- -------- -------- -------- Accumulation unit value, end of year........................ $ 19.06 $ 18.95 $ 18.39 $ 17.49 $ 16.83 ========= ======== ======== ======== ======== Total return................................................ 0.54 % 3.05 % 5.17 % 3.92 % 4.36 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 93,388 $ 82,417 $ 60,279 $ 56,070 $ 24,576 Ratio of net investment income (loss) to average net assets.................................................. 0.53 % 2.80 % 5.05 % 3.87 % 4.24 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL AEGON BOND SUBACCOUNT ----------------------------------------------------- DECEMBER 31, ----------------------------------------------------- 2002 2001 2000 1999 1998 --------- -------- -------- -------- -------- Accumulation unit value, beginning of year.................. $ 25.91 $ 24.19 $ 22.01 $ 22.89 $ 21.12 --------- -------- -------- -------- -------- Income from operations: Net investment income (loss)............................ 0.82 (0.06) 1.04 1.13 1.01 Net realized and unrealized gain (loss) on investment... 1.51 1.78 1.14 (2.01) 0.76 --------- -------- -------- -------- -------- Net income (loss) from operations..................... 2.33 1.72 2.18 (0.88) 1.77 --------- -------- -------- -------- -------- Accumulation unit value, end of year........................ $ 28.24 $ 25.91 $ 24.19 $ 22.01 $ 22.89 ========= ======== ======== ======== ======== Total return................................................ 8.99 % 7.11 % 9.90 % (3.81)% 8.34 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 61,311 $ 44,709 $ 25,935 $ 27,129 $ 24,934 Ratio of net investment income (loss) to average net assets.................................................. 3.03 % (0.24)% 4.58 % 5.10 % 4.58 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
46 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL JANUS GROWTH SUBACCOUNT ------------------------------------------------------- DECEMBER 31, ------------------------------------------------------- 2002 2001 2000 1999 1998 --------- -------- -------- ---------- -------- Accumulation unit value, beginning of year................. $ 73.01 $ 102.61 $ 145.70 $ 92.07 $ 56.48 --------- -------- -------- ---------- -------- Income from operations: Net investment income (loss)........................... (0.53) (0.73) 16.41 25.03 0.13 Net realized and unrealized gain (loss) on investment........................................... (21.78) (28.87) (59.50) 28.60 35.46 --------- -------- -------- ---------- -------- Net income (loss) from operations.................... (22.31) (29.60) (43.09) 53.63 35.59 --------- -------- -------- ---------- -------- Accumulation unit value, end of year....................... $ 50.70 $ 73.01 $ 102.61 $ 145.70 $ 92.07 ========= ======== ======== ========== ======== Total return............................................... (30.55)% (28.85)% (29.58)% 58.25 % 63.01 % Ratios and supplemental data: Net assets at end of period (in thousands)............... $ 474,008 $699,663 $961,015 $1,353,957 $798,027 Ratio of net investment income (loss) to average net assets................................................. (0.90)% (0.90)% 11.75 % 22.67 % 0.19 % Ratio of expenses to average net assets.................. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL JANUS GLOBAL SUBACCOUNT ------------------------------------------------------- DECEMBER 31, ------------------------------------------------------- 2002 2001 2000 1999 1998 --------- -------- -------- ---------- -------- Accumulation unit value, beginning of year................. $ 24.31 $ 31.79 $ 38.91 $ 22.94 $ 17.80 --------- -------- -------- ---------- -------- Income from operations: Net investment income (loss)........................... 0.37 0.00 7.93 2.44 0.82 Net realized and unrealized gain (loss) on investment........................................... (6.86) (7.48) (15.05) 13.53 4.32 --------- -------- -------- ---------- -------- Net income (loss) from operations.................... (6.49) (7.48) (7.12) 15.97 5.14 --------- -------- -------- ---------- -------- Accumulation unit value, end of year....................... $ 17.82 $ 24.31 $ 31.79 $ 38.91 $ 22.94 ========= ======== ======== ========== ======== Total return............................................... (26.69)% (23.53)% (18.28)% 69.58 % 28.86 % Ratios and supplemental data: Net assets at end of period (in thousands)............... $ 218,765 $313,912 $410,109 $ 451,498 $233,256 Ratio of net investment income (loss) to average net assets................................................. 1.78 % 0.01 % 20.55 % 9.07 % 3.92 % Ratio of expenses to average net assets.................. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
47 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT ------------------------------------------------------------ DECEMBER 31, ------------------------------------------------------------ 2002 2001 2000 1999 1998 ---------- ---------- ---------- --------- --------- Accumulation unit value, beginning of year............. $ 21.10 $ 21.77 $ 22.82 $ 20.55 $ 18.91 ---------- ---------- ---------- --------- --------- Income from operations: Net investment income (loss)....................... 0.42 (0.09) 1.63 1.68 0.71 Net realized and unrealized gain (loss) on investment....................................... (2.81) (0.58) (2.68) 0.59 0.93 ---------- ---------- ---------- --------- --------- Net income (loss) from operations................ (2.39) (0.67) (1.05) 2.27 1.64 ---------- ---------- ---------- --------- --------- Accumulation unit value, end of year................... $ 18.71 $ 21.10 $ 21.77 $ 22.82 $ 20.55 ========== ========== ========== ========= ========= Total return........................................... (11.35)% (3.06)% (4.62)% 11.07 % 8.66 % Ratios and supplemental data: Net assets at end of period (in thousands)........... $ 79,810 $ 95,331 $ 98,466 $ 106,665 $ 98,926 Ratio of net investment income (loss) to average net assets............................................. 2.14 % (0.44)% 7.43 % 7.93 % 3.67 % 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, ------------------------------------------------------------ 2002 2001 2000 1999 1998 ---------- ---------- ---------- --------- --------- Accumulation unit value, beginning of year............. $ 37.54 $ 56.74 $ 64.99 $ 31.96 $ 23.48 ---------- ---------- ---------- --------- --------- Income from operations: Net investment income (loss)....................... (0.25) (0.35) 16.83 9.32 0.91 Net realized and unrealized gain (loss) on investment....................................... (12.38) (18.85) (25.08) 23.71 7.57 ---------- ---------- ---------- --------- --------- Net income (loss) from operations................ (12.63) (19.20) (8.25) 33.03 8.48 ---------- ---------- ---------- --------- --------- Accumulation unit value, end of year................... $ 24.91 $ 37.54 $ 56.74 $ 64.99 $ 31.96 ========== ========== ========== ========= ========= Total return........................................... (33.66)% (33.83)% (12.70)% 103.33 % 36.11 % Ratios and supplemental data: Net assets at end of period (in thousands)........... $ 250,959 $ 386,903 $ 580,202 $ 608,130 $ 262,665 Ratio of net investment income (loss) to average net assets............................................. (0.81)% (0.82)% 23.62 % 23.19 % 3.44 % Ratio of expenses to average net assets.............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
48 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT ---------------------------------------------------------------- DECEMBER 31, ---------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, beginning of year......... $ 25.17 $ 30.40 $ 44.67 $ 26.67 $ 18.10 ----------- ----------- ---------- ---------- ---------- Income from operations: Net investment income (loss)................... (0.18) (0.23) 4.76 4.90 1.33 Net realized and unrealized gain (loss) on investment................................... (8.62) (5.00) (19.03) 13.10 7.24 ----------- ----------- ---------- ---------- ---------- Net income (loss) from operations............ (8.80) (5.23) (14.27) 18.00 8.57 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, end of year............... $ 16.37 $ 25.17 $ 30.40 $ 44.67 $ 26.67 =========== =========== ========== ========== ========== Total return....................................... (34.98)% (17.20)% (31.94)% 67.52 % 47.36 % Ratios and supplemental data: Net assets at end of period (in thousands)....... $ 164,857 $ 248,752 $ 280,172 $ 354,178 $ 177,857 Ratio of net investment income (loss) to average net assets..................................... (0.90)% (0.90)% 11.65 % 15.54 % 6.20 % Ratio of expenses to average net assets.......... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL FEDERATED GROWTH & INCOME SUBACCOUNT ---------------------------------------------------------------- DECEMBER 31, ---------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, beginning of year......... $ 22.85 $ 19.93 $ 15.57 $ 16.44 $ 16.09 ----------- ----------- ---------- ---------- ---------- Income from operations: Net investment income (loss)................... 1.20 0.21 0.85 1.05 0.77 Net realized and unrealized gain (loss) on investment................................... (1.19) 2.71 3.51 (1.92) (0.42) ----------- ----------- ---------- ---------- ---------- Net income (loss) from operations............ 0.01 2.92 4.36 (0.87) 0.35 ----------- ----------- ---------- ---------- ---------- Accumulation unit value, end of year............... $ 22.86 $ 22.85 $ 19.93 $ 15.57 $ 16.44 =========== =========== ========== ========== ========== Total return....................................... 0.06 % 14.67 % 28.01 % (5.31)% 2.13 % Ratios and supplemental data: Net assets at end of period (in thousands)....... $ 79,210 $ 57,831 $ 26,883 $ 17,389 $ 16,047 Ratio of net investment income (loss) to average net assets..................................... 5.21 % 0.95 % 5.00 % 6.51 % 4.83 % Ratio of expenses to average net assets.......... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
49 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL TRANSAMERICA VALUE BALANCED SUBACCOUNT -------------------------------------------------------- DECEMBER 31, -------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- -------- --------- Accumulation unit value, beginning of year.................. $ 18.47 $ 18.19 $ 15.66 $ 16.74 $ 15.60 --------- --------- --------- -------- --------- Income from operations: Net investment income (loss)............................ 0.47 0.10 1.20 0.41 1.58 Net realized and unrealized gain (loss) on investment... (3.17) 0.18 1.33 (1.49) (0.44) --------- --------- --------- -------- --------- Net income (loss) from operations..................... (2.70) 0.28 2.53 (1.08) 1.14 --------- --------- --------- -------- --------- Accumulation unit value, end of year........................ $ 15.77 $ 18.47 $ 18.19 $ 15.66 $ 16.74 ========= ========= ========= ======== ========= Total return................................................ (14.59)% 1.54 % 16.16 % (6.48)% 7.36 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 55,762 $ 41,934 $ 34,213 $ 33,317 $ 39,904 Ratio of net investment income (loss) to average net assets.................................................. 2.86 % 0.55 % 7.33 % 2.50 % 9.69 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL PBHG/NWQ VALUE SELECT SUBACCOUNT -------------------------------------------------------- DECEMBER 31, -------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- -------- --------- Accumulation unit value, beginning of year.................. $ 15.64 $ 16.07 $ 14.08 $ 13.16 $ 13.94 --------- --------- --------- -------- --------- Income from operations: Net investment income (loss)............................ 0.19 (0.12) 0.23 0.20 0.95 Net realized and unrealized gain (loss) on investment... (2.53) (0.31) 1.76 0.72 (1.73) --------- --------- --------- -------- --------- Net income (loss) from operations..................... (2.34) (0.43) 1.99 0.92 (0.78) --------- --------- --------- -------- --------- Accumulation unit value, end of year........................ $ 13.30 $ 15.64 $ 16.07 $ 14.08 $ 13.16 ========= ========= ========= ======== ========= Total return................................................ (14.98)% (2.68)% 14.17 % 6.98 % (5.63)% Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 30,289 $ 32,890 $ 28,888 $ 26,678 $ 26,083 Ratio of net investment income (loss) to average net assets.................................................. 1.28 % (0.75)% 1.58 % 1.42 % 6.84 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
50 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL AMERICAN CENTURY INTERNATIONAL SUBACCOUNT ----------------------------------------------------------- DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000 1999 1998 ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 9.43 $ 12.43 $ 14.76 $ 11.92 $ 10.65 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... (0.05) 0.25 2.00 0.62 (0.09) Net realized and unrealized gain (loss) on investment...................................... (2.01) (3.25) (4.33) 2.22 1.36 ---------- ---------- --------- --------- --------- Net income (loss) from operations............... (2.06) (3.00) (2.33) 2.84 1.27 ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 7.37 $ 9.43 $ 12.43 $ 14.76 $ 11.92 ========== ========== ========= ========= ========= Total return.......................................... (21.89)% (24.12)% (15.75)% 23.84 % 11.84 % Ratios and supplemental data: Net assets at end of period (in thousands).......... $ 7,974 $ 8,183 $ 7,944 $ 7,013 $ 5,827 Ratio of net investment income (loss) to average net assets............................................ (0.59)% 2.40 % 15.54 % 5.09 % (0.81)% 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, ----------------------------------------------------------- 2002 2001 2000 1999 1998 ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 15.97 $ 17.69 $ 17.99 $ 15.33 $ 12.59 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... (0.06) (0.12) 0.68 1.38 0.73 Net realized and unrealized gain (loss) on investment...................................... (3.21) (1.60) (0.98) 1.28 2.01 ---------- ---------- --------- --------- --------- Net income (loss) from operations............... (3.27) (1.72) (0.30) 2.66 2.74 ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 12.70 $ 15.97 $ 17.69 $ 17.99 $ 15.33 ========== ========== ========= ========= ========= Total return.......................................... (20.52)% (9.69)% (1.67)% 17.35 % 21.78 % Ratios and supplemental data: Net assets at end of period (in thousands).......... $ 26,774 $ 31,020 $ 29,771 $ 26,416 $ 14,084 Ratio of net investment income (loss) to average net assets............................................ (0.44)% (0.72)% 3.81 % 8.27 % 5.30 % Ratio of expenses to average net assets............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
51 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL THIRD AVENUE VALUE SUBACCOUNT ----------------------------------------------------------- DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000 1999 1998(1) ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 14.96 $ 14.22 $ 10.59 $ 9.23 $ 10.00 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... 0.13 (0.11) 0.60 0.19 (0.05) Net realized and unrealized gain (loss) on investment...................................... (2.02) 0.85 3.03 1.17 (0.72) ---------- ---------- --------- --------- --------- Net income (loss) from operations............... (1.89) 0.74 3.63 1.36 (0.77) ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 13.07 $ 14.96 $ 14.22 $ 10.59 $ 9.23 ========== ========== ========= ========= ========= Total return.......................................... (12.66)% 5.22 % 34.26 % 14.68 % (7.67)% Ratios and supplemental data: Net assets at end of period (in thousands).......... $ 37,656 $ 34,345 $ 16,735 $ 3,411 $ 2,807 Ratio of net investment income (loss) to average net assets............................................ 0.92 % (0.78)% 4.53 % 1.98 % (0.52)% Ratio of expenses to average net assets............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
WRL CLARION REAL ESTATE SECURITIES SUBACCOUNT ----------------------------------------------------------- DECEMBER 31, ----------------------------------------------------------- 2002 2001 2000 1999 1998(1) ---------- ---------- --------- --------- --------- Accumulation unit value, beginning of year............ $ 11.40 $ 10.36 $ 8.06 $ 8.46 $ 10.00 ---------- ---------- --------- --------- --------- Income from operations: Net investment income (loss)...................... 0.12 0.21 0.10 0.07 (0.05) Net realized and unrealized gain (loss) on investment...................................... 0.19 0.83 2.20 (0.47) (1.49) ---------- ---------- --------- --------- --------- Net income (loss) from operations............... 0.31 1.04 2.30 (0.40) (1.54) ---------- ---------- --------- --------- --------- Accumulation unit value, end of year.................. $ 11.71 $ 11.40 $ 10.36 $ 8.06 $ 8.46 ========== ========== ========= ========= ========= Total return.......................................... 2.67 % 10.06 % 28.46 % (4.63)% (15.44)% Ratios and supplemental data: Net assets at end of period (in thousands).......... $ 19,564 $ 7,899 $ 2,476 $ 627 $ 709 Ratio of net investment income (loss) to average net assets............................................ 0.99 % 1.92 % 1.07 % 0.95 % (0.90)% Ratio of expenses to average net assets............. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
52 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL MARSICO GROWTH SUBACCOUNT ---------------------------------------------- DECEMBER 31, ---------------------------------------------- 2002 2001 2000 1999(1) --------- --------- --------- ---------- Accumulation unit value, beginning of year.................. $ 8.76 $ 10.29 $ 11.29 $ 10.00 --------- --------- --------- ---------- Income from operations: Net investment income (loss)............................ (0.06) (0.01) 0.06 (0.05) Net realized and unrealized gain (loss) on investment......................................... (2.27) (1.52) (1.06) 1.34 --------- --------- --------- ---------- Net income (loss) from operations..................... (2.33) (1.53) (1.00) 1.29 --------- --------- --------- ---------- Accumulation unit value, end of year........................ $ 6.43 $ 8.76 $ 10.29 $ 11.29 ========= ========= ========= ========== Total return................................................ (26.64)% (14.86)% (8.84)% 12.91 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 4,464 $ 3,750 $ 1,627 $ 977 Ratio of net investment income (loss) to average net assets...................................... (0.79)% (0.08)% 0.59 % (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
WRL MUNDER NET50 SUBACCOUNT ---------------------------------------------- JUNE 30, ---------------------------------------------- 2002 2001 2000 1999(1) --------- --------- --------- ---------- Accumulation unit value, beginning of year.................. $ 7.98 $ 10.80 $ 10.92 $ 10.00 --------- --------- --------- ---------- Income from operations: Net investment income (loss)............................ (0.05) (0.03) 0.22 0.76 Net realized and unrealized gain (loss) on investment......................................... (3.06) (2.79) (0.34) 0.16 --------- --------- --------- ---------- Net income (loss) from operations..................... (3.11) (2.82) (0.12) 0.92 --------- --------- --------- ---------- Accumulation unit value, end of year........................ $ 4.87 $ 7.98 $ 10.80 $ 10.92 ========= ========= ========= ========== Total return................................................ (38.97)% (26.09)% (1.15)% 9.23 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 2,439 $ 2,804 $ 862 $ 344 Ratio of net investment income (loss) to average net assets...................................... (0.90)% (0.29)% 2.00 % 15.66 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
53 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL T. ROWE PRICE DIVIDEND GROWTH SUBACCOUNT ---------------------------------------------- DECEMBER 31, ---------------------------------------------- 2002 2001 2000 1999(1) --------- --------- --------- ---------- Accumulation unit value, beginning of year.................. $ 9.48 $ 9.98 $ 9.16 $ 10.00 --------- --------- --------- ---------- Income from operations: Net investment income (loss)............................ (0.03) (0.08) (0.04) (0.04) Net realized and unrealized gain (loss) on investment......................................... (1.83) (0.42) 0.86 (0.80) --------- --------- --------- ---------- Net income (loss) from operations..................... (1.86) (0.50) 0.82 (0.84) --------- --------- --------- ---------- Accumulation unit value, end of year........................ $ 7.62 $ 9.48 $ 9.98 $ 9.16 ========= ========= ========= ========== Total return................................................ (19.54)% (5.02)% 8.89 % (8.37)% Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 4,594 $ 3,419 $ 985 $ 501 Ratio of net investment income (loss) to average net assets...................................... (0.38)% (0.90)% (0.42)% (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
WRL T. ROWE PRICE SMALL CAP SUBACCOUNT ---------------------------------------------- DECEMBER 31, ---------------------------------------------- 2002 2001 2000 1999(1) --------- --------- --------- ---------- Accumulation unit value, beginning of year.................. $ 9.99 $ 11.17 $ 12.31 $ 10.00 --------- --------- --------- ---------- Income from operations: Net investment income (loss)............................ (0.07) (0.09) 0.04 0.41 Net realized and unrealized gain (loss) on investment......................................... (2.72) (1.09) (1.18) 1.90 --------- --------- --------- ---------- Net income (loss) from operations..................... (2.79) (1.18) (1.14) 2.31 --------- --------- --------- ---------- Accumulation unit value, end of year........................ $ 7.20 $ 9.99 $ 11.17 $ 12.31 ========= ========= ========= ========== Total return................................................ (28.00)% (10.52)% (9.27)% 23.09 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 6,667 $ 6,832 $ 2,568 $ 925 Ratio of net investment income (loss) to average net assets...................................... (0.90)% (0.90)% 0.29 % 8.13 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
54 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL SALOMON ALL CAP SUBACCOUNT ---------------------------------------------- DECEMBER 31, ---------------------------------------------- 2002 2001 2000 1999(1) ---------- --------- --------- --------- Accumulation unit value, beginning of year.................. $ 12.70 $ 12.55 $ 10.70 $ 10.00 ---------- --------- --------- --------- Income from operations: Net investment income (loss)............................ 0.02 0.11 0.23 0.40 Net realized and unrealized gain (loss) on investment......................................... (3.25) 0.04 1.62 0.30 ---------- --------- --------- --------- Net income (loss) from operations..................... (3.23) 0.15 1.85 0.70 ---------- --------- --------- --------- Accumulation unit value, end of year........................ $ 9.47 $ 12.70 $ 12.55 $ 10.70 ========== ========= ========= ========= Total return................................................ (25.39)% 1.18 % 17.24 % 7.02 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 27,583 $ 30,526 $ 8,072 $ 383 Ratio of net investment income (loss) to average net assets...................................... 0.17 % 0.89 % 1.91 % 8.07 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
WRL PBHG MID CAP GROWTH SUBACCOUNT ---------------------------------------------- DECEMBER 31, ---------------------------------------------- 2002 2001 2000 1999(1) ---------- --------- --------- --------- Accumulation unit value, beginning of year.................. $ 8.61 $ 13.56 $ 15.98 $ 10.00 ---------- --------- --------- --------- Income from operations: Net investment income (loss)............................ (0.06) (0.09) 0.04 0.04 Net realized and unrealized gain (loss) on investment......................................... (2.44) (4.86) (2.46) 5.94 ---------- --------- --------- --------- Net income (loss) from operations..................... (2.50) (4.95) (2.42) 5.98 ---------- --------- --------- --------- Accumulation unit value, end of year........................ $ 6.11 $ 8.61 $ 13.56 $ 15.98 ========== ========= ========= ========= Total return................................................ (29.03)% (36.50)% (15.16)% 59.78 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 26,001 $ 32,867 $ 39,702 $ 5,065 Ratio of net investment income (loss) to average net assets...................................... (0.90)% (0.90)% 0.25 % 0.62 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
55 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL DREYFUS MID CAP SUBACCOUNT ----------------------------------------------- DECEMBER 31, ----------------------------------------------- 2002 2001 2000 1999(1) ---------- --------- ---------- --------- Accumulation unit value, beginning of year.................. $ 10.81 $ 11.35 $ 10.14 $ 10.00 ---------- --------- ---------- --------- Income from operations: Net investment income (loss)............................ (0.09) 0.05 0.23 (0.04) Net realized and unrealized gain (loss) on investment......................................... (1.37) (0.59) 0.98 0.18 ---------- --------- ---------- --------- Net income (loss) from operations..................... (1.46) (0.54) 1.21 0.14 ---------- --------- ---------- --------- Accumulation unit value, end of year........................ $ 9.35 $ 10.81 $ 11.35 $ 10.14 ========== ========= ========== ========= Total return................................................ (13.50)% (4.80)% 11.91 % 1.44 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 9,498 $ 5,325 $ 1,811 $ 337 Ratio of net investment income (loss) to average net assets...................................... (0.85)% 0.44 % 2.02 % (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 % 0.90 %
WRL VALUE LINE AGGRESSIVE GROWTH SUBACCOUNT ----------------------------------- DECEMBER 31, ----------------------------------- 2002 2001 2000(1) ---------- --------- ---------- Accumulation unit value, beginning of year.................. $ 7.97 $ 8.98 $ 10.00 ---------- --------- ---------- Income from operations: Net investment income (loss)............................ (0.06) (0.07) (0.06) Net realized and unrealized gain (loss) on investment... (1.83) (0.94) (0.96) ---------- --------- ---------- Net income (loss) from operations..................... (1.89) (1.01) (1.02) ---------- --------- ---------- Accumulation unit value, end of year........................ $ 6.08 $ 7.97 $ 8.98 ========== ========= ========== Total return................................................ (23.68)% (11.21)% (10.24)% Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 1,331 $ 1,283 $ 1,067 Ratio of net investment income (loss) to average net assets.................................................. (0.90)% (0.90)% (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
56 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL GREAT COMPANIES-AMERICA(SM) SUBACCOUNT ----------------------------------- DECEMBER 31, ----------------------------------- 2002 2001 2000(1) ---------- ---------- --------- Accumulation unit value, beginning of year.................. $ 9.84 $ 11.31 $ 10.00 ---------- ---------- --------- Income from operations: Net investment income (loss)............................ (0.05) (0.05) (0.06) Net realized and unrealized gain (loss) on investment... (2.05) (1.42) 1.37 ---------- ---------- --------- Net income (loss) from operations..................... (2.10) (1.47) 1.31 ---------- ---------- --------- Accumulation unit value, end of year........................ $ 7.74 $ 9.84 $ 11.31 ========== ========== ========= Total return................................................ (21.40)% (12.98)% 13.12 % Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 36,236 $ 16,607 $ 8,491 Ratio of net investment income (loss) to average net assets.................................................. (0.62)% (0.56)% (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
WRL GREAT COMPANIES-TECHNOLOGY(SM) SUBACCOUNT ----------------------------------- DECEMBER 31, ----------------------------------- 2002 2001 2000(1) ---------- ---------- --------- Accumulation unit value, beginning of year.................. $ 4.19 $ 6.70 $ 10.00 ---------- ---------- --------- Income from operations: Net investment income (loss)............................ (0.03) (0.04) (0.05) Net realized and unrealized gain (loss) on investment... (1.59) (2.47) (3.25) ---------- ---------- --------- Net income (loss) from operations..................... (1.62) (2.51) (3.30) ---------- ---------- --------- Accumulation unit value, end of year........................ $ 2.57 $ 4.19 $ 6.70 ========== ========== ========= Total return................................................ (38.67)% (37.51)% (33.01)% Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 5,195 $ 6,147 $ 2,788 Ratio of net investment income (loss) to average net assets.................................................. (0.90)% (0.90)% (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
57 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL GREAT COMPANIES-GLOBAL(2) SUBACCOUNT --------------------------------- DECEMBER 31, --------------------------------- 2002 2001 2000(1) --------- --------- --------- Accumulation unit value, beginning of year.................. $ 7.02 $ 8.52 $ 10.00 --------- --------- --------- Income from operations: Net investment income (loss)............................ (0.05) (0.06) (0.03) Net realized and unrealized gain (loss) on investment... (1.51) (1.44) (1.45) --------- --------- --------- Net income (loss) from operations..................... (1.56) (1.50) (1.48) --------- --------- --------- Accumulation unit value, end of year........................ $ 5.46 $ 7.02 $ 8.52 ========= ========= ========= Total return................................................ (22.21)% (17.58)% (14.84)% Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 4,084 $ 2,238 $ 494 Ratio of net investment income (loss) to average net assets.................................................. (0.85)% (0.90)% (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
WRL GABELLI GLOBAL GROWTH SUBACCOUNT --------------------------------- DECEMBER 31, --------------------------------- 2002 2001 2000(1) --------- --------- --------- Accumulation unit value, beginning of year.................. $ 8.08 $ 9.07 $ 10.00 --------- --------- --------- Income from operations: Net investment income (loss)............................ (0.04) (0.06) (0.03) Net realized and unrealized gain (loss) on investment... (1.34) (0.93) (0.90) --------- --------- --------- Net income (loss) from operations..................... (1.38) (0.99) (0.93) --------- --------- --------- Accumulation unit value, end of year........................ $ 6.70 $ 8.08 $ 9.07 ========= ========= ========= Total return................................................ (17.05)% (10.92)% (9.27)% Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 10,852 $ 7,590 $ 971 Ratio of net investment income (loss) to average net assets.................................................. (0.49)% (0.75)% (0.90)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
58 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL WRL WRL LKCM CONSERVATIVE MODERATE CAPITAL GROWTH ASSET ALLOCATION ASSET ALLOCATION SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------- ---------------- ---------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------------------- ---------------- ---------------- 2002 2001(1) 2002(1) 2002(1) ---------------- ---------------- ---------------- ---------------- Accumulation unit value, beginning of year................................. $ 6.43 $ 10.00 $ 10.00 $ 10.00 ---------------- ---------------- ---------------- ---------------- Income from operations: Net investment income (loss)....... (0.04) 0.00 (0.05) (0.05) Net realized and unrealized gain (loss) on investment............. (3.53) (3.57) (0.91) (1.19) ---------------- ---------------- ---------------- ---------------- Net income (loss) from operations..................... (3.57) (3.57) (0.96) (1.24) ---------------- ---------------- ---------------- ---------------- Accumulation unit value, end of year... $ 2.86 $ 6.43 $ 9.04 $ 8.76 ================ ================ ================ ================ Total return (55.53)% (35.70)%........ (9.65)% (12.43)% Ratios and supplemental data: Net assets at end of period (in thousands)......................... $ 775 $ 1,157 $ 4,376 $ 10,778 Ratio of net investment income (loss) to average net assets.............. (0.90)% (0.07)% (0.90)% (0.90)% Ratio of expenses to average net assets............................. 0.90 % 0.90 % 0.90 % 0.90 % WRL MODERATELY AGGRESSIVE ASSET ALLOCATION SUBACCOUNT ---------------- DECEMBER 31, ---------------- 2002(1) ---------------- Accumulation unit value, beginning of year................................. $ 10.00 ---------------- Income from operations: Net investment income (loss)....... (0.05) Net realized and unrealized gain (loss) on investment............. (1.48) ---------------- Net income (loss) from operations..................... (1.53) ---------------- Accumulation unit value, end of year... $ 8.47 ================ Total return (15.31)% Ratios and supplemental data: Net assets at end of period (in thousands)......................... $ 15,054 Ratio of net investment income (loss) to average net assets.............. (0.90)% Ratio of expenses to average net assets............................. 0.90 %
WRL WRL WRL TRANSAMERICA AGGRESSIVE PIMCO JANUS CONVERTIBLE ASSET ALLOCATION TOTAL RETURN BALANCED SECURITIES SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------- ---------------- ---------------- ---------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------- ---------------- ---------------- ---------------- 2002(1) 2002(1) 2002(1) 2002(1) ---------------- ---------------- ---------------- ---------------- Accumulation unit value, beginning of year................................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 ---------------- ---------------- ---------------- Income from operations: Net investment income (loss)....... (0.05) (0.06) (0.05) (0.05) Net realized and unrealized gain (loss) on investment............. (1.83) 0.62 (0.52) (0.69) ---------------- ---------------- ---------------- Net income (loss) from operations..................... (1.88) 0.56 (0.57) (0.74) ---------------- ---------------- ---------------- Accumulation unit value, end of year... $ 8.12 $ 10.56 $ 9.43 $ 9.26 ================ ================ ================ Total return........................... (18.79)% 5.56 % (5.67)% (7.36)% Ratios and supplemental data: Net assets at end of period (in thousands)......................... $ 6,751 $ 7,376 $ 2,319 $ 311 Ratio of net investment income (loss) to average net assets.............. (0.90)% (0.90)% (0.90)% (0.90)% Ratio of expenses to average net assets............................. 0.90 % 0.90 % 0.90 % 0.90 %
59 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
WRL WRL WRL TRANSAMERICA CAPITAL TRANSAMERICA GROWTH GUARDIAN EQUITY OPPORTUNITIES VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------- ------------- ------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------- ------------- ------------ 2002(1) 2002(1) 2002(1) ------------- ------------- ------------ Accumulation unit value, beginning of year.................. $ 10.00 $ 10.00 $ 10.00 ------------- ------------- ------------ Income from operations: Net investment income (loss)............................ (0.05) (0.04) 0.39 Net realized and unrealized gain (loss) on investment......................................... (1.42) (2.04) (2.48) ------------- ------------- ------------ Net income (loss) from operations..................... (1.47) (2.08) (2.09) ------------- ------------- ------------ Accumulation unit value, end of year........................ $ 8.53 $ 7.92 $ 7.91 ============= ============= ============ Total return................................................ (14.69)% (20.84)% (20.90)% Ratios and supplemental data: Net assets at end of period (in thousands)................ $ 2,781 $ 552 $ 181 Ratio of net investment income (loss) to average net assets...................................... (0.90)% (0.90)% 7.69 % Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
WRL WRL WRL TRANSAMERICA J.P. MORGAN CAPITAL U.S. GOVERNMENT ENHANCED GUARDIAN SECURITIES INDEX U.S. EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- ------------- ------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------- ------------- ------------ 2002(1) 2002(1) 2002(1) --------------- ------------- ------------ Accumulation unit value, beginning of year.................. $ 10.00 $ 10.00 $ 10.00 --------------- ------------- ------------ Income from operations: Net investment income (loss)............................ 0.00 (0.02) (0.01) Net realized and unrealized gain (loss) on investment... 0.47 (1.87) (1.95) --------------- ------------- ------------ Net income (loss) from operations..................... 0.47 (1.89) (1.96) --------------- ------------- ------------ Accumulation unit value, end of year........................ $ 10.47 $ 8.11 $ 8.04 =============== ============= ============ Total return................................................ 4.65 % (18.85)% (19.63)% Ratios and supplemental data: Net assets at end of year (in thousands).................. $ 221 $ 50 $ 144 Ratio of net investment income (loss) to average net assets.................................................. 0.07 % (0.32)% (0.15)% Ratio of expenses to average net assets................... 0.90 % 0.90 % 0.90 %
60 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AT DECEMBER 31, 2002 NOTE 5 -- FINANCIAL HIGHLIGHTS (CONTINUED) FOR THE YEAR ENDED
FIDELITY VIP FIDELITY VIP GROWTH OPPORTUNITIES CONTRAFUND(R) SUBACCOUNT SUBACCOUNT ------------------------------------ ----------------------------------- DECEMBER 31, DECEMBER 31, ------------------------------------ ----------------------------------- 2002 2001 2000(1) 2002 2001 2000(1) ---------- ---------- ---------- ---------- ---------- --------- Accumulation unit value, beginning of year................................. $ 7.25 $ 8.56 $ 10.00 $ 8.14 $ 9.38 $ 10.00 ---------- ---------- ---------- ---------- ---------- --------- Income from operations: Net investment income (loss)....... (0.01) (0.05) (0.06) (0.03) (0.04) (0.06) Net realized and unrealized gain (loss) on investment............. (1.64) (1.26) (1.38) (0.82) (1.20) (0.56) ---------- ---------- ---------- ---------- ---------- --------- Net income (loss) from operations.................... (1.65) (1.31) (1.44) (0.85) (1.24) (0.62) ---------- ---------- ---------- ---------- ---------- --------- Accumulation unit value, end of year... $ 5.60 $ 7.25 $ 8.56 $ 7.29 $ 8.14 $ 9.38 ========== ========== ========== ========== ========== ========= Total return........................... (22.70)% (15.40)% (14.36)% (10.41)% (13.25)% (6.16)% Ratios and supplemental data: Net assets at end of period (in thousands)......................... $ 1,845 $ 1,397 $ 562 $ 6,552 $ 3,335 $ 1,030 Ratio of net investment income (loss) to average net assets.............. (0.17)% (0.65)% (0.90)% (0.43)% (0.45)% (0.90)% Ratio of expenses to average net assets............................. 0.90 % 0.90 % 0.90 % 0.90 % 0.90 % 0.90 %
FIDELITY VIP EQUITY-INCOME SUBACCOUNT ----------------------------------- DECEMBER 31, ----------------------------------- 2002 2001 2000(1) ---------- ---------- --------- Accumulation unit value, beginning of year.................................. $ 10.32 $ 10.99 $ 10.00 ---------- ---------- --------- Income from operations: Net investment income (loss)........ 0.04 (0.04) (0.06) Net realized and unrealized gain (loss) on investment.............. (1.88) (0.63) 1.05 ---------- ---------- --------- Net income (loss) from operations..................... (1.84) (0.67) 0.99 ---------- ---------- --------- Accumulation unit value, end of year.... $ 8.48 $ 10.32 $ 10.99 ========== ========== ========= Total return............................ (17.89)% (6.07)% 9.91 % Ratios and supplemental data: Net assets at end of period (in thousands).......................... $ 6,167 $ 4,161 $ 307 Ratio of net investment income (loss) to average net assets............... 0.46 % (0.35)% (0.90)% Ratio of expenses to average net assets.............................. 0.90 % 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 Life Account and excludes expenses incurred directly by the underlying funds. 61 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, 2002 and 2001, 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, 2002. 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, whose 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, 2002 and 2001, or the results of its operations or its cash flow for each of the three years in the period ended December 31, 2002. 62 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, 2002 and 2001, and the results of its operations and its cash flow for each of the three years in the period ended December 31, 2002, in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic statutory-basis financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2 to the financial statements, in 2002 Western Reserve Life Assurance Co. of Ohio changed various accounting policies to be in accordance with Actuarial Guideline 39. 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 14, 2003 63 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO BALANCE SHEETS - STATUTORY BASIS (Dollars in Thousands, Except per Share Amounts)
DECEMBER 31 2002 2001 ---- ---- ADMITTED ASSETS Cash and invested assets: Bonds $ 312,147 $ 78,489 Common stocks: Affiliated entities (cost: 2002 and 2001 - $543) 16,649 5,903 Other (cost: 2002 and 2001 - $302) 302 472 Mortgage loans on real estate 10,884 13,821 Home office properties 42,654 43,520 Cash and short-term investments 405,560 141,080 Policy loans 275,938 285,178 Other invested assets 18,881 19,558 ---------- ---------- Total cash and invested assets 1,083,015 588,021 Net deferred income taxes 22,784 8,444 Premiums deferred and uncollected 3,844 1,237 Receivable from parent, subsidiaries and affiliates 1,494 -- Accrued investment income 3,586 1,463 Cash surrender value of life insurance policies 52,984 52,254 Other admitted assets 5,585 7,563 Separate account assets 6,501,089 8,093,342 ---------- ---------- Total admitted assets $7,674,381 $8,752,324 ========== ==========
64
DECEMBER 31 2002 2001 ---- ---- LIABILITIES AND CAPITAL AND SURPLUS Liabilities: Aggregate reserves for policies and contracts: Life $ 417,994 $ 399,187 Annuity 728,193 336,587 Life policy and contract claim reserves 12,974 14,358 Liability for deposit-type contracts 12,724 15,754 Other policyholders' funds 56 60 Remittances and items not allocated 41,612 14,493 Reinsurance in unauthorized companies 1,133 -- Federal and foreign income taxes payable 29,649 26,150 Transfers to separate account due or accrued (393,754) (493,930) Asset valuation reserve 9,604 4,299 Interest maintenance reserve 3,459 4,861 Funds held under coinsurance and other reinsurance treaties 34,726 40,227 Payable to affiliate -- 645 Other liabilities 62,559 52,004 Separate account liabilities 6,497,146 8,089,904 ----------- ----------- Total liabilities 7,458,075 8,504,599 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 150,107 150,107 Unassigned surplus 63,699 95,118 ----------- ----------- Total capital and surplus 216,306 247,725 ----------- ----------- Total liabilities and capital and surplus $ 7,674,381 $ 8,752,324 =========== ===========
See accompanying notes. 65 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF OPERATIONS - STATUTORY BASIS (Dollars in Thousands)
YEAR ENDED DECEMBER 31 2002 2001 2000 ---- ---- ---- Revenues: Premiums and other considerations, net of reinsurance: Life $ 611,194 $ 653,398 $ 741,937 Annuity 1,131,849 625,117 1,554,430 Net investment income 48,498 44,424 47,867 Amortization of interest maintenance reserve 1,080 1,440 1,656 Commissions and expense allowances on reinsurance ceded 10,427 (10,789) 1,648 Reserve adjustments on reinsurance ceded 51,453 11,846 55,535 Income from fees associated with investment management, administration and contract guarantees for separate accounts 89,854 108,673 149,086 Other income 5,698 4,540 2,996 ----------- ----------- ----------- 1,950,053 1,438,649 2,555,155 Benefits and expenses: Benefits paid or provided for: Life and accident and health 60,473 56,155 58,813 Surrender benefits 816,174 800,264 888,060 Other benefits 40,010 57,032 47,855 Increase (decrease) in aggregate reserves for policies and contracts: Life 18,807 10,100 98,557 Annuity 384,817 48,217 (9,665) Other -- -- 67 ----------- ----------- ----------- 1,320,281 971,768 1,083,687 Insurance expenses: Commissions 167,582 176,023 316,337 General insurance expenses 111,330 110,808 120,798 Taxes, licenses and fees 20,571 18,714 23,193 Net transfers to separate accounts 344,773 216,797 1,068,213 Other expenses 507 523 -- ----------- ----------- ----------- 644,763 522,865 1,528,541 ----------- ----------- ----------- Total benefits and expenses 1,965,044 1,494,633 2,612,228 ----------- ----------- ----------- Loss from operations before dividends to policyholders, federal income tax expense (benefit) and net realized capital gains (losses) on investments (14,991) (55,984) (57,073) Dividends to policyholders 33 33 36 ----------- ----------- ----------- Loss from operations before federal income tax expense (benefit) and net realized capital gains (losses) on investments (15,024) (56,017) (57,109) Federal income tax expense (benefit) (2,141) 3,500 (17,470) ----------- ----------- ----------- Loss from operations before net realized capital gains (losses) on investments (12,883) (59,517) (39,639) Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to interest maintenance reserve) (1,387) 100 (856) ----------- Net loss $ (14,270) $ (59,417) $ (40,495) =========== =========== ===========
See accompanying notes. 66 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, 2000 $2,500 $120,107 $ 62,309 $ 184,916 Net loss -- -- (40,495) (40,495) Change in net unrealized capital gains and losses -- -- 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 reserve on account of 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 and losses -- -- (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 Net loss -- -- (14,270) (14,270) Change in net unrealized capital gains and losses -- -- 7,352 7,352 Change in non-admitted assets -- -- (14,715) (14,715) Change in asset valuation reserve -- -- (5,305) (5,305) Change in liability for reinsurance in unauthorized companies -- -- (1,133) (1,133) Cumulative effect of change in accounting principles -- -- (6,789) (6,789) Change in surplus in separate accounts -- -- (1,072) (1,072) Change in net deferred income tax asset -- -- 29,670 29,670 Dividend to stockholder -- -- (24,000) (24,000) Tax benefits on stock options exercised -- -- 28 28 Surplus effect of reinsurance transaction -- -- (1,185) (1,185) ------ -------- -------- --------- Balance at December 31, 2002 $2,500 $150,107 $ 63,699 $ 216,306 ====== ======== ======== =========
See accompanying notes. 67 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF CASH FLOW - STATUTORY BASIS (Dollars in Thousands)
YEAR ENDED DECEMBER 31 2002 2001 2000 ---- ---- ---- OPERATING ACTIVITIES Premiums and other considerations, net of reinsurance $ 1,740,602 $ 1,277,856 $ 2,294,042 Allowances and reserve adjustments on reinsurance ceded 62,205 12,908 57,183 Investment income received 47,685 45,355 51,583 Other income received 5,701 4,550 4,429 Life and accident and health claims paid (61,728) (55,303) (55,030) Surrender benefits and other fund withdrawals paid (816,240) (800,321) (888,060) Annuity and other benefits paid to policyholders (39,622) (56,598) (42,060) Commissions, other expenses and taxes paid (292,451) (312,557) (456,568) Net transfers to separate accounts (156,123) (27,317) (935,755) Dividends paid to policyholders (34) (33) (35) Federal income taxes received (paid) 5,668 46,560 (8,236) Other (678) (2,331) (1,145) ----------- ----------- ----------- Net cash provided by operating activities 494,985 132,769 20,348 INVESTING ACTIVITIES Proceeds from investments sold, matured or repaid: Bonds 487,270 29,163 45,079 Stocks 100 -- -- Mortgage loans on real estate 3,288 282 227 Other invested assets 7 -- -- Miscellaneous proceeds 102 -- -- ----------- ----------- ----------- Total investment proceeds 490,767 29,445 45,306 Income taxes paid on net realized capital gains (losses) 26 (170) 345 ----------- ----------- ----------- Net proceeds from sales, maturities, or repayments of investments 490,793 29,275 45,651 Cost of investments acquired: Bonds (723,455) (14,445) (18,005) Stocks (100) (300) -- Mortgage loans on real estate -- -- (5,003) Real estate (6) (13) (108) Other invested assets (2,902) (12,394) (11,203) ----------- ----------- ----------- Total cost of investments acquired (726,463) (27,152) (34,319) Net decrease (increase) in policy loans 9,239 (843) (101,360) ----------- ----------- ----------- Net cost of investments acquired (717,224) (27,995) (135,679) ----------- ----------- ----------- Net cash provided by (used in) investing activities (226,431) 1,280 (90,028) FINANCING AND MISCELLANEOUS ACTIVITIES Other cash provided: Capital and surplus paid in -- 30,000 -- Borrowed money -- (71,400) 54,300 Deposits and deposit-type contract funds and other liabilities without life or disability contingencies 9,703 23,298 -- Other sources 33,122 45,631 27,815 ----------- ----------- ----------- Total cash provided 42,825 27,529 82,115
68 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF CASH FLOW - STATUTORY BASIS (CONTINUED) (Dollars in Thousands)
YEAR ENDED DECEMBER 31 2002 2001 2000 ---- ---- ---- FINANCING AND MISCELLANEOUS ACTIVITIES (CONTINUED) Other cash applied: Dividends paid to stockholder $ (24,000) $ -- $ -- Withdrawals on deposit-type contract funds and other liabilities without life or disability contingencies (13,301) (17,990) -- Other applications, net (9,598) (27,973) (10,902) --------- --------- -------- Total other cash applied (46,899) (45,963) (10,902) --------- --------- -------- Net cash provided by (used in) financing and miscellaneous activities (4,074) (18,434) 71,213 --------- --------- -------- Net increase in cash and short-term investments 264,480 115,615 1,533 Cash and short-term investments at beginning of year 141,080 25,465 23,932 --------- --------- -------- Cash and short-term investments at end of year $ 405,560 $ 141,080 $ 25,465 ========= ========= ========
See accompanying notes. 69 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (Dollars in Thousands) DECEMBER 31, 2002 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 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 rating by the National Association of Insurance Commissioners (NAIC); 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 70 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 remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in operations for those designated as trading and as a separate component of capital and surplus 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, 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. 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. 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. 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. 71 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) 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. 72 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 (including annuities with purchase rate guarantees) consist of the entire premium received and benefits incurred represent the total of surrender and death benefits paid and the change in policy reserves. Premiums received and benefits incurred for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and credited directly to an appropriate policy reserve account, without recognizing premium income or benefits paid. 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 has been 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 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 73 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) 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. Under GAAP, state 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 or 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 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. Other "admitted assets" are valued principally at cost. 74 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) 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. The carrying values of all investments are reviewed on an ongoing basis for credit deterioration. If this review indicates a decline in market value that is other than temporary, the carrying value of the investment is reduced to its estimated realizable value, or fair value, and a specific writedown is taken. Such reductions in carrying value are recognized as realized losses on investments. 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 2002, 2001, and 2000, net realized capital gains (losses) of $(322), $367, and $(276), respectively, were credited to the IMR rather than being immediately recognized in the statements of operations. Amortization of these net gains aggregated $1,080, $1,440, and $1,656, for the years ended December 31, 2002, 2001, and 2000, 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, 2002, 2001, and 2000, with respect to such practices. PREMIUMS AND ANNUITY CONSIDERATIONS Subsequent to January 1, 2001, revenues for policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received and benefits incurred represent the total of surrender and death benefits paid and the change in policy reserves. These revenues are recognized when due. Premiums 75 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) received and benefits paid for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and recorded directly to an appropriate policy reserve account, without recognizing premium income or benefits paid. Prior to January 1, 2001, life, annuity, accident and health premiums were recognized as revenue when due. 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 Coinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Gains associated with reinsurance of inforce blocks of business are included in unassigned surplus and will be amortized into income over the estimated life of the policies. Premiums ceded and 76 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) recoverable losses have been reported as a reduction of premium income and benefits, respectively. POLICY AND CONTRACT CLAIM RESERVES Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the statement date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available. SEPARATE ACCOUNTS Assets held in trust for purchases of variable universal life and variable annuity contracts and the Company's corresponding obligation to the contract owners are shown separately in the balance sheets. The assets in the separate accounts are valued at market. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the policyholders and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The investment risks associated with market value changes of the separate accounts are borne entirely by the policyholders. The Company received variable contract premiums of $1,335,079, $1,208,884, and $2,336,299 in 2002, 2001, and 2000, 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 unassigned surplus. 77 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECLASSIFICATIONS Certain reclassifications have been made to the 2001 and 2000 financial statements to conform to the 2002 presentation. 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. On December 31, 2002, the Company adopted the provisions of Actuarial Guideline 39 ("Guideline 39"). The purpose of Guideline 39 is to interpret the standards for the valuation of reserves for guaranteed living benefits included in variable deferred and immediate annuity contracts. The Company had previously provided reserves for such guarantees based on the accumulation of the amount charged to policyholders for these benefits. The cumulative effect of adopting Guideline 39 on December 31, 2002, was $6,789, which was charged directly to unassigned surplus as a change in accounting principle. See Note 8 regarding the conversion of the valuation system in 2001. 78 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 3. FAIR VALUES OF FINANCIAL INSTRUMENTS 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. 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. 79 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 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. The following sets forth a comparison of the fair values and carrying amounts of the Company's financial instruments:
DECEMBER 31 --------------------------------------------------------------- 2002 2001 ---------------------------- ---------------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------ ---------- ------ ---------- ADMITTED ASSETS Cash and short-term investments $ 405,560 $ 405,560 $ 141,080 $ 141,080 Bonds 312,147 318,874 78,489 80,722 Common stocks, other than affiliates 302 302 472 472 Mortgage loans on real estate 10,884 12,022 13,821 14,263 Policy loans 275,938 275,938 285,178 285,178 Separate account assets 6,501,089 6,501,089 8,093,342 8,093,342 LIABILITIES Investment contract liabilities 740,917 759,322 352,341 347,665 Separate account annuity liabilities 4,464,513 4,602,649 5,792,373 5,709,486
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, 2002 Bonds: United States Government and agencies $166,251 $1,677 $ -- $167,928 State, municipal and other government 3,601 314 -- 3,915 Public utilities 6,974 351 -- 7,325 Industrial and miscellaneous 81,468 5,291 1,746 85,013 Mortgage and other asset-backed securities 53,853 922 82 54,693 -------- ------ ------ -------- Total bonds $312,147 $8,555 $1,828 $318,874 ======== ====== ====== ========
80 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, 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 ======= ====== ====== =======
The carrying amount and fair value of bonds at December 31, 2002, 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 $ 7,110 $ 7,162 Due one through five years 168,201 173,059 Due five through ten years 73,229 73,786 Due after ten years 9,754 10,174 -------- -------- $258,294 $264,181 Mortgage and other asset-backed securities 53,853 54,693 -------- -------- $312,147 $318,874 ======== ========
81 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 2002 2001 2000 ---- ---- ---- Interest on bonds $ 9,357 $ 7,050 $ 8,540 Dividends from common stock of affiliated entities 16,921 18,495 26,453 Interest on mortgage loans 871 1,130 776 Rental income on investment properties 7,381 6,903 6,034 Interest on policy loans 17,364 17,746 14,372 Other investment income 3,308 (51) 1 -------- -------- -------- Gross investment income 55,202 51,273 56,176 Investment expenses (6,704) (6,849) (8,309) -------- -------- -------- Net investment income $ 48,498 $ 44,424 $ 47,867 ======== ======== ========
Proceeds from sales and maturities of debt securities and related gross realized gains and losses were as follows:
YEAR ENDED DECEMBER 31 2002 2001 2000 ---- ---- ---- Proceeds $ 487,270 $29,163 $ 45,079 ========= ======= ======== Gross realized gains $ 2,119 $ 637 $ 117 Gross realized losses (3,955) -- (480) --------- ------- -------- Net realized gains (losses) $ (1,836) $ 637 $ (363) ========= ======= ========
At December 31, 2002, bonds with an aggregate carrying value of $4,437 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. 82 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 ------------------------------------ 2002 2001 2000 ---- ---- ---- Bonds $(1,836) $ 637 $ (363) Other invested assets 102 -- (1,115) ------- ------- ------- (1,734) 637 (1,478) Tax benefit (expense) 26 (170) 346 Transfer to interest maintenance reserve 321 (367) 276 ------- ------- ------- Net realized gains (losses) $(1,387) $ 100 $ (856) ======= ======= =======
CHANGES IN UNREALIZED ------------------------------------ YEAR ENDED DECEMBER 31 ------------------------------------ 2002 2001 2000 ---- ---- ---- Common stocks $ 10,576 $ 1,559 $ 2,002 Mortgage loans on real estate 350 86 (431) Other invested assets (3,574) (2,926) -- -------- ------- ------- Change in unrealized $ 7,352 $(1,281) $ 1,571 ======== ======= =======
Gross unrealized gains (losses) on common stocks were as follows:
UNREALIZED -------------------- DECEMBER 31 -------------------- 2002 2001 ---- ---- Unrealized gains $ 16,492 $ 5,930 Unrealized losses (386) (400) -------- ------- Net unrealized gains $ 16,106 $ 5,530 ======== =======
83 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 4. INVESTMENTS (CONTINUED) During 2002 and 2001 the Company did not issue any mortgage loans. The Company requires all mortgages to carry fire insurance equal to the value of the underlying property. During 2002, 2001, and 2000, no mortgage loans were foreclosed and transferred to real estate. At December 31, 2002 and 2001, the Company held a mortgage loan loss reserve in the asset valuation reserve of $123 and $135, respectively. 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 2002 2001 2000 ---- ---- ---- Direct premiums $ 1,854,568 $ 1,369,720 $ 2,385,134 Reinsurance ceded (111,525) (91,205) (88,767) ----------- ----------- ----------- Net premiums earned $ 1,743,043 $ 1,278,515 $ 2,296,367 =========== =========== ===========
The Company received reinsurance recoveries in the amount of $30,380, $12,337, and $8,856 during 2002, 2001, and 2000, respectively. At December 31, 2002 and 2001, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $3,209 and $6,065, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2002 and 2001 of $119,561 and $63,758, respectively. 84 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 5. REINSURANCE (CONTINUED) 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. Over the course of this reinsurance treaty, the experience of the underlying policies will be reflected as a reduction to the amount initially credited to surplus. During 2002, the amount charged directly to unassigned surplus was $1,185. The Company holds collateral in the form of letters of credit of $70,000. 6. INCOME TAXES The main components of deferred tax amounts are as follows:
DECEMBER 31 2002 2001 ---- ---- Deferred income tax assets: Section 807(f) adjustment $ 1,593 $ 1,977 Pension expenses -- 2,422 Tax basis deferred acquisition costs 88,838 76,692 Reserves 100,307 74,569 Other 8,771 7,009 -------- -------- Total deferred income tax assets $199,509 $162,669 ======== ======== Deferred income tax assets - nonadmitted $ 73,639 $ 58,309 Deferred income tax liabilities: Section 807(f) adjustment - liabilities 102,176 91,560 Other 910 4,356 -------- -------- Total deferred income tax liabilities $103,086 $ 95,916 ======== ========
85 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 6. INCOME TAXES (CONTINUED) The change in net deferred income tax assets and deferred income tax assets - nonadmitted are as follows:
YEAR ENDED DECEMBER 31 2002 2001 ---- ---- Change in net deferred income tax asset $29,670 $(11,733) ======= ======== Change in deferred income tax assets - nonadmitted 15,330 (7,481) ======= ========
Federal income tax expense (benefit) differs from the amount computed by applying the statutory federal income tax rate to loss from operations before federal income tax expense (benefit) and net realized capital gains/losses on investments for the following reasons:
YEAR ENDED DECEMBER 31 2002 2001 2000 ---- ---- ---- Income tax expense (benefit) computed at the federal statutory rate (35%) $ (5,259) $(19,606) $(19,988) Deferred acquisition costs - tax basis 11,920 7,570 14,725 Amortization of IMR (378) (504) (580) Depreciation (413) (6) (426) Dividends received deduction (9,863) (8,705) (12,805) Low income housing credits (2,914) (1,944) -- Prior year under (over) accrual (27,856) 3,340 560 Reinsurance transactions (415) 4,148 -- Reserves 34,358 19,541 123 Other (1,321) (334) 921 -------- -------- -------- Federal income tax expense (benefit) $ (2,141) $ 3,500 $(17,470) ======== ======== ========
86 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 6. INCOME TAXES (CONTINUED) 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 on the basis of the consolidated group. Additionally, the alternative minimum tax is computed for the consolidated group and the resulting tax, if any, is allocated back to the separate companies on the basis of the separate companies' alternative minimum taxable income. 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, 2002). 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 Company's federal income tax returns have been examined by the Internal Revenue Service and the statute is closed through 1995. The examination fieldwork for 1996 through 1997 has been completed and a protest of findings has been filed with the Appeals Office of the Internal Revenue Service. An examination is underway for 1998 through 2000. 87 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 2002 2001 --------------------------- ----------------------- PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL ------ -------- ------ -------- Subject to discretionary withdrawal with market value adjustment $ 14,509 0% $ 11,429 0% Subject to discretionary withdrawal at book value less surrender charge 230,221 4% 102,240 2 Subject to discretionary withdrawal at market value 4,464,409 84% 5,641,756 93 Subject to discretionary withdrawal at book value (minimal or no charges or adjustments) 605,085 12% 294,012 5 Not subject to discretionary withdrawal 14,235 0% 14,654 0 ---------- ---------- ---------- --- 5,328,459 100% 6,064,091 100% === === Less reinsurance ceded 113,923 60,224 ---------- ---------- Total policy reserves on annuities and deposit fund liabilities $5,214,536 $6,003,867 ========== ==========
A reconciliation of the amounts transferred to and from the separate accounts is presented below:
YEAR ENDED DECEMBER 31 2002 2001 2000 ---- ---- ---- Transfers as reported in the summary of operations of the separate accounts statement: Transfers to separate accounts $1,335,079 $1,208,884 $2,336,299 Transfers from separate accounts 990,726 1,107,157 1,268,865 ---------- ---------- ---------- Net transfers to separate accounts 344,353 101,727 1,067,434 Change in valuation adjustment -- 98,321 -- Other 420 16,749 779 ---------- ---------- ---------- Transfers as reported in the summary of operations of the life, accident and health annual statement $ 344,773 $ 216,797 $1,068,213 ========== ========== ==========
88 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, 2002 and 2001, the Company had variable annuities with guaranteed living benefits as follows:
SUBJECTED ACCOUNT AMOUNT OF YEAR BENEFIT AND TYPE OF RISK VALUE RESERVE HELD - ---- ------------------------ ----- ------------ 2002 Guaranteed Minimum Income Benefit $921,683 $8,469 2001 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, 2002 and 2001, 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, 2002 Ordinary direct renewal business $ 1,578 $ 184 $1,394 Ordinary new business 2,072 (378) 2,450 ------- ------- ------ $ 3,650 $ (194) $3,844 ======= ======= ====== DECEMBER 31, 2001 Ordinary direct renewal business $ 1,439 $ 407 $1,032 Ordinary new business 200 (5) 205 ------- ------- ------ $ 1,639 $ 402 $1,237 ======= ======= ======
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. 89 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 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 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 2003, without the prior approval of insurance regulatory authorities, is $21,381. 10. CAPITAL AND SURPLUS 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 2002, the Company meets the RBC requirements. 11. SALES, TRANSFER, AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES During 2002 and 2001, the Company sold $33,160 and $17,515, respectively, 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 90 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 12. RETIREMENT AND COMPENSATION PLANS (CONTINUED) employee's compensation during the highest five consecutive years of employment. Pension expense aggregated $1,734, $1,634, and $1,224 for the years ended December 31, 2002, 2001, and 2000, respectively. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. The Company's employees also participate in a contributory defined contribution plan sponsored by AEGON which is qualified under Section 401(k) of the Internal Revenue Service Code. Employees of the Company who customarily work at least 1,000 hours during each calendar year and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to fifteen percent of their salary to the plan. The Company will match an amount up to three percent of the participant's salary. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. Expense related to this plan was $967, $1,100, and $930 for the years ended December 31, 2002, 2001, and 2000, 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, 2002, 2001, and 2000 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 are charged to affiliates in accordance with an intercompany cost sharing arrangement. The Company expensed $203, $233, and $108 for the years ended December 31, 2002, 2001, and 2000, respectively. 91 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 2002, 2001, and 2000, the Company paid $20,371, $16,904, and $19,248, respectively, for such services, which approximates their costs to the affiliates. The Company provides office space, marketing and administrative services to certain affiliates. During 2002, 2001, and 2000, the Company received $3,673, $6,752, and $4,665, respectively, for such services, which approximates their cost. Receivables from and payables to affiliates and intercompany borrowings bear interest at the thirty-day commercial paper rate. During 2002, 2001, and 2000, the Company paid net interest of $256, $945, and $2,262, respectively, to affiliates. In prior years, the Company purchased life insurance policies covering the lives of certain employees of the Company from an affiliate. At December 31, 2002 and 2001, the cash surrender value of these policies was $52,984 and $52,254, 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. 92 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS (CONTINUED) (Dollars in Thousands) 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company except where right of offset against other taxes paid is allowed by law; amounts available for future offsets are recorded as an asset on the Company's balance sheet. The future obligation has been based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Association. Potential future obligations for unknown insolvencies are not determinable by the Company and are not required to be accrued for financial reporting purposes. The Company has established a reserve of $3,424 and $3,425 and an offsetting premium tax benefit of $763 and $764 at December 31, 2002 and 2001, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund expense (credit) was $70, $13, and $(9) for the years ended December 31, 2002, 2001, and 2000, respectively. The Company may lend securities to approved broker and other parties to earn additional income. The Company receives collateral against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of loaned securities is determined at the close of business and any additional required collateral is delivered to the Company on the next business day. Although risk is mitigated by collateral, the account could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. At December 31, 2002, the value of securities loaned amounted to $69,860. 93 STATUTORY-BASIS FINANCIAL STATEMENT SCHEDULES 94 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES (Dollars in Thousands) DECEMBER 31, 2002 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 $ 166,451 $ 168,139 $ 166,451 States, municipalities, and political subdivisions 30,736 31,379 30,736 Foreign governments 3,096 3,368 3,096 Public utilities 6,974 7,325 6,974 All other corporate bonds 104,890 108,663 104,890 ------------ ---------- ------------- Total fixed maturities 312,147 318,874 312,147 EQUITY SECURITIES Common stocks (unaffiliated): Industrial, miscellaneous, and all other 302 302 302 ------------ ---------- ------------- Total equity securities 302 302 302 Mortgage loans on real estate 10,884 10,884 Home office properties 42,654 42,654 Policy loans 275,938 275,938 Cash and short-term investments 405,560 405,560 Other invested assets 18,881 18,881 ------------ ------------- Total investments $ 1,066,366 $ 1,066,366 ============ =============
(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. 95 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO SUPPLEMENTARY INSURANCE INFORMATION (Dollars in Thousands) SCHEDULE III
FUTURE POLICY POLICY AND NET BENEFITS AND CONTRACT PREMIUM INVESTMENT EXPENSES LIABILITIES REVENUE INCOME* -------- ----------- ------- ------- YEAR ENDED DECEMBER 31, 2002 Individual life $ 404,935 $ 12,874 $ 610,634 $21,194 Group life and health 13,059 100 560 639 Annuity 728,193 -- 1,131,849 26,665 ---------- ---------- ---------- ------- $1,146,187 $ 12,974 $1,743,043 $48,498 ========== ========== ========== ======= YEAR ENDED DECEMBER 31, 2001 Individual life $ 386,965 $ 14,219 $ 652,626 $14,014 Group life and health 12,222 135 772 731 Annuity 336,587 4 625,117 29,679 ---------- ---------- ---------- ------- $ 735,774 $ 14,358 $1,278,515 $44,424 ========== ========== ========== ======= YEAR ENDED DECEMBER 31, 2000 Individual life $ 389,458 $ 13,349 $ 741,090 $13,430 Group life and health 11,237 100 847 936 Annuity 259,199 25 1,554,430 33,501 ---------- ---------- ---------- ------- $ 659,894 $ 13,474 $2,296,367 $47,867 ========== ========== ========== =======
* 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. 96 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO SUPPLEMENTARY INSURANCE INFORMATION (Dollars in Thousands) SCHEDULE III (CONTINUED)
BENEFITS, CLAIMS, LOSSES AND OTHER SETTLEMENT OPERATING PREMIUM EXPENSES EXPENSES* WRITTEN -------- --------- ------- YEAR ENDED DECEMBER 31, 2002 Individual life $ 176,010 $ 484,535 $ -- Group life and health 5,626 (4,316) 917 Annuity 1,138,645 164,544 -- ---------- ----------- ------ $1,320,281 $ 644,763 $ 917 ========== =========== ====== YEAR ENDED DECEMBER 31, 2001 Individual life $ 167,912 $ 529,090 $ -- Group life and health 1,226 422 1,030 Annuity 802,630 (6,647) -- ---------- ----------- ------ $ 971,768 $ 522,865 $1,030 ========== =========== ====== YEAR ENDED DECEMBER 31, 2000 Individual life $ 267,540 $ 591,343 $ -- Group life and health 1,413 (672) 1,100 Annuity 814,734 937,870 -- ---------- ----------- ------ $1,083,687 $ 1,528,541 $1,100 ========== =========== ======
* 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. 97 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 TO AMOUNT COMPANIES COMPANIES AMOUNT NET ------ --------- --------- ------ --- YEAR ENDED DECEMBER 31, 2002 Life insurance in force $79,096,314 $21,759,884 $ -- $57,336,430 0% =========== =========== ==== =========== ==== Premiums: Individual life $ 653,642 $ 43,008 $ -- $ 610,634 0% Group life and health 917 357 -- 560 0% Annuity 1,200,009 68,160 -- 1,131,849 0% ----------- ----------- ---- ----------- ---- $ 1,854,568 $ 111,525 $ -- $ 1,743,043 0% =========== =========== ==== =========== ==== 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% =========== =========== ==== =========== ====
98 PART C - OTHER INFORMATION Item 27. Exhibits (a) Resolution of the Board of Directors of Western Reserve establishing the separate account (6) (b) Not Applicable (c) Distribution of Policies (i) Master Service and Distribution Compliance Agreement (2) (ii) Amendment to Master Service and Distribution Compliance Agreement (3) (iii) Form of Broker/Dealer Supervisory and Service Agreement (3) (iv) Principal Underwriting Agreement (3) (v) First Amendment to Principal Underwriting Agreement (3) (d) (i) Specimen Flexible Premium Variable Life Insurance Policy (1) (ii) Endorsement (EL101) (3) (e) Application for Flexible Premium Variable Life Insurance Policy (13) (f) (i) Second Amended Articles of Incorporation of Western Reserve (2) (ii) Certificate of First Amendment to the Second Amended Articles of Incorporation of Western Reserve (5) (iii) Amended Code of Regulations (By-Laws) of Western Reserve (2) (g) Reinsurance Contracts (i) Reinsurance Treaty dated September 30, 2000 and Amendments Thereto (12) (ii) Reinsurance Treaty dated July 1, 2002 and Amendments Thereto (12) (h) (i) Investment Advisory Agreement with the Fund (6) (ii) Sub-Advisory Agreement (6) (iii) Participation Agreement Among Variable Insurance Products Fund, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (7) (iv) Amendment No. 1 dated March 15, 2000 to Participation Agreement -Variable Insurance Products Fund (8) (v) Second Amendment dated April 12, 2001 to Participation Agreement - Variable Insurance Products Fund (9) (vi) Participation Agreement Among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (7) (vii) Amendment No. 1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund II (8) (viii)Second Amendment dated April 12, 2001 to Participation Agreement - Variable Insurance Products Fund II (9) (ix) Participation Agreement Among Variable Insurance Products Fund III, Fidelity Distributors Corporation and Western Reserve Life Assurance Co. of Ohio dated June 14, 1999 (7) (x) Amendment No. 1 dated March 15, 2000 to Participation Agreement - Variable Insurance Products Fund III (8) (xi) Second Amendment dated April 12, 2001 to Participation Agreement - Variable Insurance Products Fund III (9) (i) Not Applicable (j) Not Applicable (k) Opinion and Consent of Thomas E. Pierpan, Esq. as to Legality of Securities Being Registered (l) Opinion and Consent of Lorne Schinbein as to Actuarial Matters Pertaining to the Securities Being Registered (m) Not Applicable (n) Other Opinions: (i) Written Consent of Ernst & Young LLP (o) Not Applicable (p) Not Applicable (q) Memorandum describing issuance, transfer and redemption procedures (4) (r) Powers of Attorney (10)(11) C-1 - ------------------------------------- (1) This exhibit was previously filed on the Initial Registration Statement to Form S-6 Registration Statement dated March 14, 1997 (File No. 333-23359) 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. 4 to Form S-6 Registration Statement dated December 19, 1997 (File No. 333-23359) and is incorporated herein by reference. (4) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form S-6 Registration Statement dated December 19, 1997 (File No. 333-23359) and is incorporated herein by reference. (5) 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. (6) This exhibit was previously filed on Post-Effective Amendment No. 28 to Form N-1A Registration Statement dated April 28, 1997 (File No. 33-507) and is incorporated herein by reference. (7) This exhibit was previously filed on the Initial Registration Statement to Form S-6 Registration Statement 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. 16 to Form S-6 Registration Statement dated April 16, 2001 (File No. 33-69138) and is incorporated herein by reference. (10) 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. (11) 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. (12) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form N-6 Registration Statement dated January 31, 2003 (File No. 333-100993) and is incorporated herein by reference. (13) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form N-6 Registration Statement dated April 22, 2003 (File No. 333-100993) and is incorporated herein by reference. Item 28. Directors and Officers of the Depositor
Name Principal Business Address Position and Offices with Depositor ---- -------------------------- ----------------------------------- Michael W. Kirby (1) Chairman of the Board and Chief Executive Officer Jerome C. Vahl (1) Director and President Brenda K. Clancy (1) Director and Vice President Paul Reaburn (1) Director and Vice President Kevin Bachmann (2) Director and Vice President Alan M. Yaeger (2) Executive Vice President, Actuary and Chief Financial Officer William H. Geiger (2) Senior Vice President, Secretary, Corporate Counsel and Group Vice President - Compliance Allan J. Hamilton (2) Vice President, Treasurer and Controller
- -------------------------------- (1) 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001 (2) 570 Carillon Parkway, St. Petersburg, Florida 33716 Item 29. Persons Controlled by or Under Common Control with the Depositor or Registrant
Jurisdiction of Percent of Voting Name Incorporation Securities Owned Business - ---- ------------- ---------------- -------- AEGON N.V. Netherlands 32.47% of Vereniging Holding Company AEGON Netherlands Membership Association AEGON Nederland N.V. Netherlands 100% AEGON N.V. Holding Company
C-2 AEGON Nevak Holding B.V. Netherlands 100% AEGON N.V. Holding Company AEGON Derivatives B.V. Netherlands 100% AEGON N.V. Holding Company AEGON International N.V. Netherlands 100% AEGON N.V. Holding Company The AEGON Trust Voting Trust Trustees: Delaware Voting Trust Donald J. Shepard Joseph B.M. Streppel Dennis Hersch AEGON U.S. Holding Corporation Delaware 225 shares of Series A Holding company Preferred Stock owned by Scottish Equitable Finance Limited AEGON DMS Holding B.V. Netherlands 100% AEGON International N.V. Holding company JCPenney Financial & Marketing Korea 100% AEGON DMS Holding B.V. Marketing Services Group Ltd JCPenney Direct Marketing Services Japan 100% AEGON DMS Holding B.V. Marketing Japan K.K. Canadian Premier Holdings Ltd Canada 100% AEGON DMS Holding B.V. Holding company Canadian Premier Life Insurance Company Canada 100% Canadian Premier Holdings Holding company Ltd Legacy General Insurance Company Canada 100% Canadian Premier Holdings Insurance Ltd. Cornerstone International Holdings Ltd United Kingdom 100% AEGON DMS Holding B.V. Holding company Cornerstone International Marketing Ltd United Kingdom 100% Cornerstone International Marketing company Holding Ltd. Stonebridge International Insurance Ltd United Kingdom 100% Cornerstone International Insurance company Holdings, Ltd. JCPenney Direct Asia Pacific Pty Ltd Australia 100% AEGON DMS Holding B.V. Holding company JCPenney Direct Service Asia Pacific Australia 100% JCPenney Direct Asia Operations company Pty Ltd Pacific Pty Ltd JCPenney Insurance Marketing Asia Australia 100% JCPenney Direct Asia Marketing company Pacific Pty Ltd Pacific Pty Ltd
C-3 Short Hills Management Company New Jersey 100% AEGON U.S. Holding Insurance Agent Corporation COPRA Reinsurance Company New York 100% AEGON U.S. Reinsurance Holding Corporation AEGON Management Company Indiana 100% AEGON U.S. Insurance holding company Holding Corporation AEGON U.S. Corporation Iowa 100% AEGON U.S. Holding Holding company Corporation owns 10,000 shares (75.54%); AEGON USA, Inc. owns 3,238 shares (24.46%) Transamerica Corporation and Delaware 100% AEGON NV Major interest in subsidiaries ("TAC") insurance and finance AEGON USA, Inc. Iowa AEGON U.S. Holding Corporation; Holding company AEGON U.S. Corporation RCC North America, LLC Delaware 100% AEGON USA, Inc. Real estate Transamerica Holding Company, LLC Delaware 100% AEGON USA, Inc. Holding Company AEGON Funding Corp. Delaware 100% Transamerica Holding Issue debt securities-net Corporation LLC proceeds used to make loans to affiliates First AUSA Life Insurance Company Maryland 100% Transamerica Holding Insurance holding company Company LLC Transamerica Financial Life Insurance New York 100% First AUSA Life Insurance Insurance Company Company Life Investors Insurance Company of Iowa 100% First AUSA Life Ins. Insurance America Company Apple Partners of Iowa LLC Iowa 58.13% Monumental Life Apple production, packing, Insurance Company; 41.87 storage and sales Peoples Benefit Life Insurance Company Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the equity interest of other entities Transamerica Life Insurance Company Iowa 100% Transamerica Holding Insurance Company LLC
C-4 AEGON Financial Services Group, Inc. Minnesota 100% Transamerica Life Marketing Insurance Co. AEGON Assignment Corporation of Kentucky 100% AEGON Financial Services Administrator of Kentucky Group, Inc. structured settlements AEGON Assignment Corporation Illinois 100% AEGON Financial Services Administrator of Group, Inc. structured settlements Transamerica Financial Institutions, Minnesota 100% AEGON Financial Services Life insurance and Inc. Group, Inc. underwriting services Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance First AUSA Life Ins. Company Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance First AUSA Life Ins. Company Western Reserve Life Assurance Co. of Ohio 100% First AUSA Life Ins. Insurance Ohio Company WRL Insurance Agency, Inc. California 100% Western Reserve Life Insurance Agency Assurance Co. of Ohio WRL Insurance Agency of Alabama, Inc. Alabama 100% WRL Insurance Agency, Inc. Insurance Agency WRL Insurance Agency of Massachusetts, Massachusetts 100% WRL Insurance Agency, Inc. Insurance Agency Inc. WRL Insurance Agency of Nevada, Inc. Nevada 100% WRL Insurance Agency, Inc. Insurance Agency WRL Insurance Agency of Wyoming Wyoming 100% WRL Insurance Agency, Inc. Insurance Agency AEGON/Transamerica Series Fund, Inc. Maryland Various Mutual Fund AEGON/Transamerica Fund Advisors, Inc. Florida 77% Western Reserve Life Registered investment Assurance Co. of Ohio; 23% AUSA adviser Holding Company AEGON/Transamerica Investors Services, Florida 100% AUSA Holding Company Shareholder services Inc. World Financial Group Insurance California 100% Western Reserve Life Insurance agency Agency, Inc. Assurance Co. of Ohio
C-5 World Financial Group Insurance Agency Alabama 100% World Financial Group Insurance Agency of Alabama, Inc. Insurance Agency, Inc. World Financial Group Insurance Agency Massachusetts 100% World Financial Group Insurance Agency of Massachusetts, Inc. Insurance Agency, Inc. World Financial Group Insurance Agency Hawaii 100% World Financial Group Insurance Agency of Hawaii, Inc. Insurance Agency, Inc. World Financial Group Insurance Agency Nevada 100% World Financial Group Insurance Agency of Nevada, Inc. Insurance Agency, Inc. World Financial Group Insurance Agency New Mexico 100% World Financial Group Insurance Agency of New Mexico, Inc. Insurance Agency, Inc. World Financial Group Insurance Agency Wyoming 100% World Financial Group Insurance Agency of Wyoming Insurance Agency, Inc. AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency Assurance Co. of Ohio WFG Property & Casualty Insurance Georgia 100% World Financial Group Insurance Agency, Inc. Insurance Agency, Inc. WFG Property & Casualty Insurance Alabama 100% WFG Property & Casualty Insurance Agency of Alabama, Inc. Insurance Agency, Inc. WFG Property & Casualty Insurance California 100% WFG Property & Casualty Insurance Agency of California, Inc. Insurance Agency, Inc. WFG Property & Casualty Insurance Mississippi 100% WFG Property & Casualty Insurance Agency of Mississippi, Inc. Insurance Agency, Inc. WFG Property & Casualty Insurance Nevada 100% WFG Property & Casualty Insurance Agency of Nevada, Inc. Insurance Agency, Inc. WFG Property & Casualty Insurance Wyoming 100% WFG Property & Casualty Insurance Agency of Wyoming, Inc. Insurance Agency, Inc. Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Insurance Company United Financial Services, Inc. Maryland 100% First AUSA Life Ins. General agency Company
C-6 Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Insurance Company The Whitestone Corporation Maryland 100% First AUSA Life Ins. Insurance agency Company Cadet Holding Corp. Iowa 100% First AUSA Life Insurance Holding company Company Monumental General Life Insurance Puerto Rico 51% First AUSA Life Insurance Insurance Company of Puerto Rico Company 49% Baldrich & Associates of Puerto Rico AUSA Holding Company Maryland 100% Transamerica Holding Holding company Company, L.L.C. AEGON USA Investment Management, Inc. Iowa 100% AUSA Holding Company Investment Adviser AEGON USA Securities, Inc. Iowa 100% Transamerica Holding Broker-Dealer Company, L.L.C. Monumental General Insurance Group, Maryland 100% AUSA Holding Company Holding company Inc. Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel Insurance Group, Inc. insurance Monumental General Administrators, Inc. Maryland 100% Monumental General Provides management srvcs. Insurance Group, Inc. to unaffiliated third party administrator National Association Management and Maryland 100% Monumental General Provides actuarial Consultant Services, Inc. Administrators, Inc. consulting services Monumental General Mass Marketing, Inc. Maryland 100% Monumental General Marketing arm for sale of Insurance Group, Inc. mass marketed insurance coverages Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator Investors Warranty of America, Inc. Iowa 100% AUSA Holding Co. Provider of automobile extended maintenance contracts Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
C-7 Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling for employees and agents of affiliated companies ADB Corporation, L.L.C. Delaware 100% Money Services, Inc. Special purpose limited Liability company ORBA Insurance Services, Inc. California 40.15% Money Services, Inc. Insurance agency Great Companies L.L.C. Iowa 30% Money Services, Inc. Markets & sells mutual funds & individually managed accounts AEGON USA Travel and Conference Iowa 100% Money Services, Inc. Travel and Conference Services, LLC Services Roundit, Inc. Maryland 50% AUSA Holding Co. Financial services Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency Long, Miller & Associates, L.L.C. California 33-1/3% AUSA Holding Co. Insurance agency AEGON Asset Management Services, Inc. Delaware 100% AUSA Holding Co. Registered investment advisor World Group Securities, Inc. Delaware 100% AEGON Asset Management Broker-Dealer Services, Inc. World Financial Group, Inc. Delaware 100% AEGON Asset Management Marketing Services, Inc. InterSecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer IDEX Mutual Funds Massachusetts 100% AEGON/Transamerica Fund Mutual fund Advisers, Inc. Diversified Investment Advisors, Inc. Delaware 100% AUSA Holding Co. Registered investment advisor Diversified Investors Securities Corp. Delaware 100% Diversified Investment Broker-Dealer Advisors, Inc. George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and Advisors, Inc. actuarial consulting Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance CRC Creditor Resources Canadian Dealer Canada 100% Creditor Resources, Inc. Insurance agency Network Inc.
C-8 Premier Solutions Group, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency AEGON USA Investment Management, LLC. Iowa 100% Transamerica Holding Investment advisor Corporation LLC AEGON USA Realty Advisors, Inc. Iowa 100% AUSA Holding Co. Provides real estate administrative and real estate investment services AEGON USA Real Estate Services, Inc. Delaware 100% AEGON USA Realty Advisors, Real estate and mortgage Inc. holding company QSC Holding, Inc. Delaware 100% AEGON USA Realty Advisors, Real estate and financial Inc. software production and sales Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Advisors, Information Systems for Inc. real estate investment management Commonwealth General Corporation and Delaware 100% AEGON U.S. Corporation Holding company subsidiaries Veterans Life Insurance Co. Illinois 100% Transamerica Holding Insurance company Company LLC Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
Item 30. Indemnification Provisions exist under the Ohio General Corporation Law, the Second Amended Articles of Incorporation of Western Reserve and the Amended Code of Regulations of Western Reserve whereby Western Reserve may indemnify certain persons against certain payments incurred by such persons. The following excerpts contain the substance of these provisions. Ohio General Corporation Law SECTION 1701.13 AUTHORITY OF CORPORATION. (E)(1) A corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. C-9 (2) A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any of the following: (a) Any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; (b) Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under divisions (E)(1) and (2) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in divisions (E)(1) and (2) of this section. Such determination shall be made as follows: (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 C-10 of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following: (i) Repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation; (ii) Reasonably cooperate with the corporation concerning the action, suit, or proceeding. (b) Expenses, including attorneys' fees incurred by a director, trustee, officer, employee, or agent in defending any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is entitled to be indemnified by the corporation. (6) The indemnification authorized by this section shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (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 C-11 incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) The corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of 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. C-12 (6) The indemnification provided by this article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (8) As used in this section, references to "the corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise shall stand in the same position under this article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. (9) The foregoing provisions of this article do not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of this corporation. The corporation may indemnify such named fiduciaries of its employee benefit plans against all costs and expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by or imposed upon said named fiduciary in connection with or arising out of any claim, demand, action, suit or proceeding in which the named fiduciary may be made a party by reason of being or having been a named fiduciary, to the same extent it indemnifies an agent of the corporation. To the extent that the corporation does not have the direct legal power to indemnify, the corporation may contract with the named fiduciaries of its employee benefit plans to indemnify them to the same extent as noted above. The corporation may purchase and maintain insurance on behalf of such named fiduciary covering any liability to the same extent that it contracts to indemnify. Amended Code of Regulations of Western Reserve ARTICLE V Indemnification of Directors and Officers Each Director, officer and member of a committee of this Corporation, and any person who may have served at the request of this Corporation as a Director, officer or member of a committee of any other corporation in which this Corporation owns shares of capital stock or of which this Corporation is a creditor (and his heirs, executors and administrators) shall be indemnified by the Corporation against all expenses, costs, judgments, decrees, fines or penalties as provided by, and to the extent allowed by, Article Eighth of the Corporation's Articles of Incorporation, as amended. Rule 484 Undertaking Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of Western Reserve pursuant to the foregoing provisions or otherwise, Western Reserve has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Western Reserve of expenses incurred or paid by a director, officer or controlling person of Western Reserve in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being C-13 registered, Western Reserve will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 31. Principal Underwriter (a) AFSG Securities Corporation ("AFSG") is the principal underwriter for the Policies. AFSG currently serves as principal underwriter for the Retirement Builder Variable Annuity Account, Separate Account VA A, Separate Account VA B, Separate Account VA C, Separate Account VA D, Separate Account VA E, Separate Account VA F, Separate Account VA I, Separate Account VA J, Separate Account VA L, Separate Account VL A, Legacy Builder Variable Life Separate Account, Separate Account VA K, and Separate Account VA P of Transamerica Life Insurance Company; the Separate Account VA BNY, Separate Account C, TFLIC Series Life Account, TFLIC Series Annuity Account and TFLIC Series Annuity Account B of Transamerica Financial Life Insurance Company; the Separate Account I, Separate Account II and Separate Account V of Peoples Benefit Life Insurance Company; the WRL Series Life Account, WRL Series Annuity Account, WRL Series Annuity Account B and WRL Series Life Corporate Account of Western Reserve Life Assurance Co. of Ohio; Separate Account VA-2L, Transamerica Occidental Life Separate Account VUL-3, Separate Account VA G, Separate Account VA H, Transamerica Occidental Life Separate Account VUL-4, Transamerica Occidental Life Separate Account VUL-5, and Transamerica Occidental Life Separate Account VUL-6 of Transamerica Occidental Life Insurance Company; and Separate Account VA-8 of Transamerica Life Insurance and Annuity Company. (b) Directors and Officers of AFSG
PRINCIPAL BUSINESS NAME ADDRESS POSITION AND OFFICES WITH UNDERWRITER ---- ------- ------------------------------------- Larry N. Norman (1) Director and President Anne M. Spaes (1) Director and Vice President Lisa A. Wachendorf (1) Director, Vice President and Chief Compliance Officer John K. Carter (2) Vice President William G. Cummings (2) Vice President Thomas R. Moriarty (2) Vice President Christopher G. Roetzer (2) Vice President Michael V. Williams (2) Vice President Frank A. Camp (1) Secretary Priscilla I. Hechler (2) Assistant Vice President and Assistant Secretary Thomas E. Pierpan (2) Assistant Vice President and Assistant Secretary
C-14 Darin D. Smith (1) Vice President and Assistant Secretary Teresa L. Stolba (1) Assistant Compliance Officer Emily Bates (3) Assistant Treasurer Clifton W. Flenniken (4) Assistant Treasurer
- ------------- (1) 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001 (2) 570 Carillon Parkway, St. Petersburg, FL 33716-1202 (3) 400 West Market Street, Louisville, Kentucky 40202 (4) 1111 North Charles Street, Baltimore, Maryland 21201 (c) Compensation to Principal Underwriter
NET UNDERWRITING NAME OF PRINCIPAL DISCOUNTS AND COMPENSATION BROKERAGE UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS COMMISSIONS ----------- ----------- ------------- ----------- ----------- AFSG Securities Corporation 0 0 $82,236,981 (1) 0 0 0 $104,819,449 (2) 0 0 0 $182,279,540 (3) 0
(1) fiscal year 2002 (2) fiscal year 2001 (3) fiscal year 2000 Item 32. Location of Accounts and Records All accounts, books, or other documents required to be maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder are maintained by the Registrant through Western Reserve at 570 Carillon Parkway, St. Petersburg, Florida 33716, 4800 140th Avenue North, Clearwater, Florida 33762 or 12855 Starkey Road, Largo, Florida 33773. Item 33. Management Services Not Applicable Item 34. Undertakings Western Reserve hereby represents that the fees and charges deducted under the WRL Financial Freedom Builder 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. Registrant promises to file a post-effective amendment to the Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable life policies may be accepted. Registrant furthermore agrees to include either as part of any application to purchase a Policy offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information. Registrant agrees to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-6 promptly upon written or oral request. C-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 9 to the Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of St. Petersburg, State of Florida, on this 25th day of April, 2003. WRL SERIES LIFE ACCOUNT (Registrant) By: /s/ Michael W. Kirby */ ------------------------------------------- Michael W. Kirby, Chairman of the Board and Chief Executive Officer of Western Reserve Life Assurance Co. of Ohio WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO (Depositor) By: /s/ Michael W. Kirby */ ------------------------------------------ Michael W. Kirby, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 9 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- /s/ Michael W. Kirby Chairman of the Board April 25, 2003 - --------------------- and Chief Executive Officer Michael W. Kirby */ - /s/ Jerome C. Vahl Director and President April 25, 2003 - ------------------ Jerome C. Vahl */ - /s/ Brenda K. Clancy Director and Vice President April 25, 2003 - --------------------- Brenda K. Clancy */ - /s/ Paul Reaburn Director and Vice President April 25, 2003 - ------------------ Paul Reaburn */ - /s/ Kevin Bachmann Director and Vice President April 25, 2003 - ------------------ Kevin Bachmann /s/ Allan J. Hamilton Vice President, Treasurer April 25, 2003 - --------------------- and Controller Allan J. Hamilton /s/ Alan M. Yaeger Executive Vice President, April 25, 2003 - ---------------------- Actuary and Chief Financial Officer Alan M. Yaeger */ /s/ Priscilla I. Hechler - --------------------------------------- Signed by Priscilla I. Hechler As Attorney in Fact
EXHIBIT INDEX
EXHIBIT DESCRIPTION NO. OF EXHIBIT - --- ---------- 27(k) Opinion and Consent of Thomas E. Pierpan, Esq. as to Legality of Securities Being Registered 27(l) Opinion and Consent of Lorne Schinbein as to Actuarial Matters Pertaining to the Securities Being Registered 27(n)(i) Written Consent of Ernst & Young LLP
EX-23 3 g82263exv23.txt EX-23 THOMAS PIERPAN OPINION & CONSENT EXHIBIT 23 Exhibit 27(k) Opinion and Consent of Thomas E. Pierpan, Esq. as to Legality of Securities Being Registered WRL LETTERHEAD April 25, 2003 Board of Directors Western Reserve Life Assurance Co. of Ohio WRL Series Life Account 570 Carillon Parkway St. Petersburg Florida 33716 Gentlemen: In my capacity as Senior Vice President, Assistant Secretary and General Counsel of Western Reserve Life Assurance Co. of Ohio ("Western Reserve"), I have participated in the preparation and review of Post-Effective Amendment No. 9 to the Registration Statement on Form N-6 filed with the Securities and Exchange Commission (Reg. No. 333-23359) under the Securities Act of 1933 for the registration of flexible premium variable life insurance policies (the "Policies") to be issued with respect to the WRL Series Life Account (the "Account"). The Account was established on July 16, 1985, by the Board of Directors of Western Reserve as a separate account for assets applicable to the Policies, pursuant to the provisions of the Ohio Insurance Law. I am of the following opinion: 1. Western Reserve has been duly organized under the laws of Ohio and is a validly existing corporation. 2. The Account has been duly created and is validly existing as a separate account pursuant to Ohio Insurance Law. 3. Section 3907.15 of the Ohio Revised Code provides that the portion of the assets of the Account equal to the reserves and other liabilities for variable benefits under the Policies is not chargeable with liabilities arising out of any other business Western Reserve may conduct. Assets allocated to the Fixed Account under the Policies, however, are part of Western Reserve's general account and are subject to Western Reserve's general liabilities from business operations. 4. The Policies, when issued as contemplated by the Registration Statement, will be legal and binding obligations of Western Reserve in accordance with their terms. In arriving at the foregoing opinion, I have made such examination of law and examined such records and other documents as I judged to be necessary or appropriate. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. I further hereby consent to reference to my name under the caption "Legal Matters" in the Statement of Additional Information incorporated by reference in Post-Effective Amendment No. 9 to the Registration Statement on Form N-6 (File No. 333-23359) for the WRL Series Life Account filed by Western Reserve with the Securities and Exchange Commission. Very truly yours, /s/ Thomas E. Pierpan Thomas E. Pierpan Senior Vice President, Assistant Secretary and General Counsel EX-23.1 4 g82263exv23w1.txt EX-23.1 LORNE SCHINBEIN OPINION & CONSENT EXHIBIT 23.1 Exhibit 27(l) Opinion and Consent of Lorne Schinbein as to Actuarial Matters Pertaining to the Securities Being Registered WRL LETTERHEAD April 25, 2003 Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, FL 33716 RE: WRL Series Life Account WRL Financial Freedom Builder File Nos. 333-23359/811-4420 Gentlemen: This opinion is furnished in connection with the filing by Western Reserve Life Assurance Co, of Ohio of Post-Effective Amendment No. 9 (the "Amendment") to the Registration Statement on Form N-6 for the WRL Financial Freedom Builder, a flexible premium variable life insurance policy ("Policy"). It is my opinion that the Prospectus, including the Fee Tables, and the Statement of Additional Information contained in the Amendment accurately describe the Policy. The forms of the Policy were prepared under my direction, and I am familiar with the Registration Statement and Exhibits thereof. I hereby consent to use of this opinion as an exhibit to the Amendment and to the reference to my name under the heading "Experts" in the Statement of Additional Information. Very truly yours, /s/ Lorne Schinbein Lorne Schinbein Vice President and Managing Actuary EX-99.C1 5 g82263exv99wc1.txt WRITTEN CONSENT OF ERNST & YOUNG LLP EXHIBIT 99.C1 Exhibit 27(n)(i) Consent of Ernst & Young LLP CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Independent Auditors" in the Statement of Additional Information and to the use of our reports (1) dated February 14, 2003 with respect to the statutory-basis financial statements and schedules of Western Reserve Life Assurance Co. of Ohio, and (2) dated January 31, 2003 with respect to the financial statements of the WRL Series Life Account, included in Post-Effective Amendment No. 9 to the Registration Statement (Form N-6 No. 333-23359) and related Prospectus of WRL Series Life Account. ERNST & YOUNG LLP Des Moines, Iowa April 24, 2003 -----END PRIVACY-ENHANCED MESSAGE-----