-----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, JQ/wcZLr9paEcwSvwUnMEef3vweNCrwlqKErp70+3pl5lDcaQMhtRTSNVrfkDKVu t0SMQ8UndB7qktCrI9c96Q== /in/edgar/work/0000950168-00-002366/0000950168-00-002366.txt : 20001114 0000950168-00-002366.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950168-00-002366 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-69138 FILM NUMBER: 759899 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 497 1 0001.txt 497 FOR FWP P R O S P E C T U S May 1, 2000 as Amended November 8, 2000 WRL FREEDOM WEALTH PROTECTOR(R) issued through WRL Series Life Account by Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 1-800-851-9777 (727) 299-1800 A JOINT SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Consider carefully the risk factors beginning on page 11 of this prospectus. An investment in this Policy is not a bank deposit. The Policy is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. If you already own a life insurance The Securities and Exchange policy, it may not be to your advantage to Commission has not approved buy additional insurance or to replace or disapproved these securities your policy with the Policy described in or passed upon the adequacy this prospectus. of this prospectus. Any representation to the contrary Prospectuses for the Portfolios of: is a criminal offense. WRL Series Fund, Inc.; Variable Insurance Products Fund (VIP); Variable Insurance Products Fund II (VIPII); Variable Insurance Products Fund III (VIPIII) must accompany this prospectus. Certain portfolios may not be available in all states. Please read these documents before investing and save it for future reference. Table of Contents - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Glossary ....................................................... 1 Policy Summary ................................................. 5 Risk Summary ................................................... 11 Portfolio Annual Expense Table ................................. 15 Western Reserve and the Fixed Account .......................... 17 Western Reserve ............................................ 17 The Fixed Account .......................................... 17 The Separate Account and the Portfolios ........................ 18 The Separate Account ....................................... 18 The Funds .................................................. 18 Addition, Deletion, or Substitution of Investments ......... 22 Your Right to Vote Portfolio Shares ........................ 23 The Policy ..................................................... 24 Purchasing a Policy ........................................ 24 Underwriting Standards ..................................... 24 When Insurance Coverage Takes Effect ....................... 25 Ownership Rights ........................................... 27 Policy Split Option ........................................ 28 Canceling a Policy ......................................... 29 Premiums ....................................................... 30 Premium Flexibility ........................................ 30 Planned Periodic Payments .................................. 30 Minimum Monthly Guarantee Premium .......................... 30 No Lapse Period ............................................ 31 Premium Limitations ........................................ 31 Making Premium Payments .................................... 31 Allocating Premiums ........................................ 32 Policy Values .................................................. 33 Cash Value ................................................. 33 Net Surrender Value ........................................ 33 Subaccount Value ........................................... 34 Subaccount Unit Value ...................................... 34 Fixed Account Value ........................................ 35 Transfers ...................................................... 35 General .................................................... 35 Fixed Account Transfers .................................... 37 Conversion Rights .......................................... 37 Dollar Cost Averaging ...................................... 37 Asset Rebalancing Program .................................. 38 Third Party Asset Allocation Services ...................... 39 Charges and Deductions ......................................... 39 Premium Charge ............................................. 40 Monthly Deduction .......................................... 40 Mortality and Expense Risk Charge .......................... 42 This Policy is not available in the State of New York.
i Surrender Charge ....................................................... 42 Transfer Charge ........................................................ 45 Cash Withdrawal Charge ................................................. 46 Taxes .................................................................. 46 Portfolio Expenses ..................................................... 46 Group or Sponsored Policies ............................................ 46 Associate Policies ..................................................... 47 Death Benefit .............................................................. 47 Death Benefit Proceeds ................................................. 47 Effect of Adjustable Term Insurance Rider ("ATIR") on the Death Benefit 48 Base Policy Death Benefit .............................................. 48 Effects of Cash Withdrawals on the Death Benefit ....................... 50 Choosing Death Benefit Options ......................................... 50 Changing the Death Benefit Option ...................................... 50 Decreasing the Specified Amount ........................................ 51 No Increases in the Specified Amount ................................... 51 Payment Options ........................................................ 51 Surrenders and Cash Withdrawals ............................................ 51 Surrenders ............................................................. 51 Cash Withdrawals ....................................................... 52 Loans ...................................................................... 53 General ................................................................ 53 Interest Rate Charged .................................................. 54 Loan Reserve Interest Rate Credited .................................... 54 Effect of Policy Loans ................................................. 54 Policy Lapse and Reinstatement ............................................. 55 Lapse .................................................................. 55 No Lapse Period ........................................................ 55 Reinstatement .......................................................... 56 Federal Income Tax Considerations .......................................... 57 Tax Status of the Policy ............................................... 57 Tax Treatment of Policy Benefits ....................................... 58 Other Policy Information ................................................... 61 Our Right to Contest the Policy ........................................ 61 Split Dollar Arrangements .............................................. 61 Suicide Exclusion ...................................................... 61 Misstatement of Age or Gender .......................................... 61 Modifying the Policy ................................................... 62 Benefits at Maturity ................................................... 62 Payments We Make ....................................................... 63 Settlement Options ..................................................... 63 Reports to Owners ...................................................... 64 Records ................................................................ 65 Policy Termination ..................................................... 65 Supplemental Benefits (Riders) ............................................. 65 Joint Insured Term Rider ............................................... 65 Individual Insured Rider ............................................... 65 Wealth Protector Rider ................................................. 66 Terminal Illness Accelerated Death Benefit Rider ....................... 66 Adjustable Term Insurance Rider ........................................ 67 Death Benefit Extension Rider .......................................... 68
ii IMSA ..................................................................... 69 Performance Data ......................................................... 70 Rates of Return ...................................................... 70 Hypothetical Illustrations Based on Subaccount Performance ........... 71 Other Performance Data in Advertising Sales Literature ............... 82 Western Reserve's Published Ratings .................................. 82 Additional Information ................................................... 83 Sale of the Policies ................................................. 83 Legal Matters ........................................................ 83 Legal Proceedings .................................................... 83 Variations in Policy Provisions ...................................... 83 Experts .............................................................. 84 Financial Statements ................................................. 84 Additional Information about Western Reserve ......................... 85 Western Reserve's Directors and Officers ............................. 86 Additional Information about the Separate Account .................... 88 Appendix A -- Illustrations .............................................. 89 Appendix B -- Wealth Indices of Investments in the U.S. Capital Market ... 93 Index to Financial Statements ............................................ 95 WRL Series Life Account .............................................. 96 Western Reserve Life Assurance Co. of Ohio ........................... 155
iii THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 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 each joint insured, plus the number of completed years since the Policy date. -------------------------------------------------------------------------------- Base Policy The WRL Freedom Wealth Protector variable life insurance policy without any supplemental riders. -------------------------------------------------------------------------------- beneficiary(ies) The person or persons you select to receive the death benefit from this Policy. You can name a 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 The amount we will pay to the beneficiary on the surviving insured's death. proceeds We will reduce the death benefit proceeds by the amount of any outstanding loan amount and any due and unpaid monthly deductions. We will increase the death benefit proceeds by any interest you paid in advance on the loan for the period between the date of death and the next Policy anniversary. -------------------------------------------------------------------------------- fixed account An option to which you may allocate premiums and cash value. We guarantee that any amounts you allocate to the fixed account will earn interest at a declared rate. New Jersey residents: the fixed account is not available to you. -------------------------------------------------------------------------------- free-look period The period during which you may return the Policy and receive a refund as described in this prospectus. The length of the free-look period varies by state. The free-look period is listed in the Policy. -------------------------------------------------------------------------------- funds Investment companies which are registered with the U.S. Securities and Exchange Commission. The Policy allows you to invest in the portfolios of the funds through our subaccounts. We reserve the right to add other registered investment companies to the Policy in the future. -------------------------------------------------------------------------------- in force While coverage under the Policy is active and both insureds' lives 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. -------------------------------------------------------------------------------- issue age Each joint insured's age on his or her birthday nearest to the Policy date. -------------------------------------------------------------------------------- joint insureds The persons whose lives are insured by this Policy. -------------------------------------------------------------------------------- lapse When life insurance coverage ends because you do not have enough cash value in the Policy to pay the monthly deduction, the surrender charge and any outstanding loan amount, and you have not made a sufficient payment by the end of a grace period. -------------------------------------------------------------------------------- loan amount The total amount of all outstanding Policy loans, including both principal and interest due. --------------------------------------------------------------------------------
1 loan reserve A part of the fixed account to which amounts are transferred as collateral for Policy loans. ------------------------------------------------------------------------------------- maturity date The Policy anniversary nearest the younger joint insured's 100th birthday, if either joint 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 and under the Death Benefit Extension Rider. ------------------------------------------------------------------------------------- minimum The amount shown on your Policy schedule page (unless changed when you monthly change death benefit options or decrease the specified amount) that we use guarantee during the no lapse period to determine whether a grace period will begin. We premium will adjust the minimum monthly guarantee premium if you change death benefit options, decrease the specified amount, or increase or add 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 in a calendar month, the Monthiversary is the next valuation date. ------------------------------------------------------------------------------------- monthly The monthly Policy charge, plus the monthly cost of insurance charge, plus deduction the monthly death benefit guarantee charge, plus the monthly charge for any riders added to your Policy. ------------------------------------------------------------------------------------- net premium The part of your premium that we allocate to the fixed account or the subaccounts. The net premium is equal to the premium you paid minus the premium expense charge. ------------------------------------------------------------------------------------- net surrender The amount we will pay you if you surrender the Policy while it is in force. value 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 Either (1) the later of target premium attained age 65 or five Policy years, or (2) the later of target premium attained age 75 or ten Policy years. You select the no lapse date on the Policy application. ------------------------------------------------------------------------------------- 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. ------------------------------------------------------------------------------------- planned periodic A premium payment you make in a level amount at a fixed interval over a premium specified period of time. -------------------------------------------------------------------------------------
2 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 J.P. Morgan 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 J.P. Morgan Money Market subaccount to the accounts that you elected on your application. -------------------------------------------------------------------------------- separate account The WRL Series Life Account. It is a separate investment account that is divided into subaccounts. We established the separate account to receive and invest net premiums under the Policy and other variable life insurance policies we issue. -------------------------------------------------------------------------------- specified amount The minimum death benefit we will pay under the Policy provided the Policy is in force. It is the amount shown on the Policy's schedule page, unless you 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. -------------------------------------------------------------------------------- surviving insured The joint insured who remains alive after the other joint insured has died. -------------------------------------------------------------------------------- target premium The target premium attained age is the target premium age plus the number of attained age completed Policy years. The target premium age equals the average of the joint insureds' issue ages, rounded down, but no more than the younger joint insured's age plus ten years. -------------------------------------------------------------------------------- termination When either of the joint insured's lives 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 Western Reserve Life Assurance Co. of Ohio. Reserve) --------------------------------------------------------------------------------
3 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, The person(s) who owns the Policy, and who may exercise all rights under (owner(s) or the Policy while either or both joint insureds are living. If two owners are policyowner(s)) named, the Policy will be owned jointly and the consent of each owner will be required to exercise ownership rights. -----------------------------------------------------------------------------
4 Policy Summary WRL Freedom Wealth Protector(R) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This summary provides only a brief overview of the more important features of the Policy. More detailed information about the Policy appears later in this prospectus. Please read the remainder of this prospectus carefully. The Policy in General The WRL Freedom Wealth Protector(R) is a joint survivorship flexible premium variable life insurance policy. The Policy insures two lives with a death benefit payable on the death of the surviving insured. Joint insureds may be both male, both female or male and female. The insured will be the surviving insured of the joint insureds stated in the Policy. The Policy is designed to be long-term in nature in order to provide significant life insurance benefits for you. However, purchasing this Policy involves certain risks. (See Risk Summary p. 11.) You should consider the Policy in conjunction with other insurance you own. The Policy is not suitable as a short-term savings vehicle. A few of the Policy features listed below are not available in all states, may vary depending upon when your Policy was issued and may not be suitable for your particular situation. Certain states place restrictions on some of the Policy features. Please consult your agent and refer to your Policy for details. Premiums o You select a payment plan but are not required to pay premiums according to the plan. You can vary the frequency and amount, within limits, and can skip premium payments. o Unplanned premiums may be made, within limits. o Premium payments must be at least $100 per month. o You increase your risk of lapse if you do not regularly pay premiums at least as large as the current minimum monthly guarantee premium. o Until the no lapse date shown on your Policy schedule page, we guarantee that your Policy will not lapse, so long as you have paid total premiums (minus any withdrawals and minus any outstanding loans) 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 withdrawal or a loan, you may need to pay additional premiums in order to keep the no lapse guarantee in place. o The minimum monthly guarantee premium on the Policy date is shown on your Policy schedule page. We will adjust the minimum monthly guarantee premium if you change death benefit options, decrease the specified amount, or increase or add a rider. o Under certain circumstances, extra premiums may be required to prevent lapse. o Once we deliver your Policy, the free-look period begins. You may return the Policy during this period and receive a refund. 5 Deductions From Premium Before We Place it in a Subaccount and/or the Fixed Account o For the first ten Policy years: 6.0% premium expense charge. o After the tenth year: 2.5% premium expense charge. Investment Options Subaccounts. Over the lifetime of your Policy, you may direct the money in your Policy to a total of 18 subaccounts of the WRL Series Life Account (the fixed account counts as one subaccount). For administrative reasons, we currently limit the number of subaccounts in which you can invest during the lifetime of your Policy to 18 subaccounts (including the fixed account). Even if you remove all the cash value from one subaccount, that subaccount will still show as active with a cash value of zero. You will be able to allocate future monies back into this subaccount but you will not be able to designate it as a different subaccount. For example, you allocate monies to the WRL Janus Growth subaccount. After a year, you decide to transfer that money to the WRL LKCM Strategic Total Return subaccount, the WRL Janus Growth subaccount will still show as an active subaccount (and count toward the 18 subaccount maximum) even though you have no cash value in it. You could allocate or transfer future monies into the WRL Janus Growth subaccount. Each subaccount invests exclusively in one investment portfolio of a fund. The money you place in the subaccounts is not guaranteed. The value of each subaccount will increase or decrease, depending on investment performance of the corresponding portfolio. You could lose some or all of your money. The portfolios available to you now (or around February 1, 2001 if marked with "**") are: WRL SERIES FUND, INC. - WRL VKAM Emerging Growth - WRL Goldman Sachs Growth** - WRL T. Rowe Price Small Cap** - WRL GE U.S. Equity - WRL Goldman Sachs Small Cap** - WRL Great Companies -- America(SM)** - WRL Pilgrim Baxter Mid Cap Growth** - WRL Salomon All Cap** - WRL Alger Aggressive Growth - WRL C.A.S.E. Growth - WRL Third Avenue Value - WRL Dreyfus Mid Cap** - WRL Value Line Aggressive Growth** - WRL NWQ Value Equity - WRL GE International Equity - WRL T. Rowe Price Dividend Growth** (formerly, WRL GE/Scottish Equitable - WRL Dean Asset Allocation International Equity) - WRL LKCM Strategic Total Return - WRL Great Companies -- Global2** - WRL J.P. Morgan Real Estate Securities** - WRL Gabelli Global Growth** - WRL Federated Growth & Income - WRL Janus Global* - WRL AEGON Balanced - WRL Great Companies -- Technology(SM)** - WRL AEGON Bond - WRL LKCM Capital Growth** - WRL Janus Growth - WRL J.P. Morgan Money Market
* Effective September 1, 2000, the WRL Janus Global portfolio is not available for investment to new policyowners. The portfolio remains open to policyowners who purchased the Policy before September 1, 2000. 6 VARIABLE INSURANCE PRODUCTS FUND (VIP) - - Fidelity VIP Equity-Income Portfolio -- Service Class 2** VARIABLE INSURANCE PRODUCTS FUND II (VIP II) - - Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2** VARIABLE INSURANCE PRODUCTS FUND III (VIP III) - - Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2** ** These portfolios will be available on or around February 1, 2001. Fixed Account. You may also direct the money in your Policy to the fixed account. The fixed account will count as one of your allowed 18 subaccounts. Money you place in the fixed account is guaranteed, and will earn interest at a current interest rate declared from time to time. The annual interest rate will equal at least 4.0%. New Jersey residents -- the fixed account is not available to you. Cash Value o Cash value equals the sum of your Policy's value in the subaccounts and the fixed account. If there is a loan outstanding, the cash value includes any amounts held in our fixed account to secure the Policy loan. o 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). o Cash value is the starting point for calculating important values under the Policy, such as net surrender value and the death benefit. o There is no guaranteed minimum cash value. The Policy may lapse if you do not have sufficient cash value in the Policy to pay the monthly deductions, the surrender charge and/or any outstanding loan amount (including interest you owe on any Policy loan(s)). o The Policy will not lapse during the no lapse period so long as you have paid sufficient premiums. Transfers o You can transfer cash value among the subaccounts and the fixed account. We charge a $10 transfer processing fee for each transfer after the first 12 transfers in a Policy year. o You may make transfers in writing, by telephone or by fax. o Policy loans reduce the amount of cash value available for transfers. o Dollar cost averaging and asset rebalancing programs are available. o You may make one transfer per Policy year from the fixed account, and we must receive your request to transfer from the fixed account within 30 days after a Policy anniversary unless you select dollar cost averaging from the fixed account. The amount of your transfer is limited to the greater of: -> 25% of your value in the fixed account; or -> the amount you transferred from the fixed account in the preceding Policy year. 7 Charges and Deductions o Premium expense charge: We deduct 6.0% from each premium payment during the first ten Policy years. After the tenth year we reduce the charge to 2.5%. o Monthly Policy charge: We deduct $5.00 from your cash value each month. We may increase this charge but we guarantee that it will not exceed $10.00. o Monthly death benefit guarantee charge: We deduct this charge from your cash value each month. The amount of this charge is shown on the schedule page of your Policy and will be $0.04 for each $1,000 of your initial specified amount. We will deduct this charge only until the no lapse date you chose on the application. o Cost of insurance charges: Deducted monthly from your cash value. Your charges vary each month with each joint insured's attained age, gender, the specified amount, the death benefit option you choose, and the investment experience of the portfolios in which you invest. o Mortality and expense risk charge: Deducted daily from each subaccount at an annual rate of 0.90% of your average daily net assets of each subaccount. o Surrender charge: Deducted when a full surrender occurs during the first 15 Policy years. One portion is a deferred issue charge equal to $5.00 per thousand of initial specified amount. The other is calculated by multiplying total premiums paid up to the guideline premium by 26.5%, and any premium paid above the guideline premium by smaller percentages that vary by issue age and gender. See Charges and Deductions -- Surrender Charge p. 42. We reduce the total surrender charge at the rate of 20% per year, beginning in Policy year 11, until it reaches zero at the end of the 15th Policy year. This charge may be significant. You may have no net surrender value if you surrender your Policy in the first few Policy years. o Transfer fee: We deduct $10 for each transfer in excess of 12 per Policy year. o Rider charges: We deduct charges each month for the optional insurance benefits (riders) you select. Each rider will have its own charge. o Cash withdrawal fee: We deduct a processing fee for cash withdrawals equal to the lesser of $25 or 2% of the withdrawal. o Portfolio expenses: The portfolios deduct management fees and expenses from the amounts you have invested in the portfolios. These fees and expenses currently range from 0.44% to 1.20% annually, depending on the portfolio. See Portfolio Annual Expense Table p. 15. See also the fund prospectuses. Loans o After the first Policy year (as long as your Policy is in force), you may take a loan against the Policy up to 90% of the cash value, less any surrender charge and any already outstanding loan amount. o The minimum loan amount is generally $500. o You may request a loan either by calling us or by writing or faxing us written instructions. o We charge 5.2% interest annually. You will be charged the interest in advance each year on any outstanding loan amount. o To secure the loan, we transfer a portion of your cash value to a loan reserve account. The amount we transfer is equal to the loan plus interest in advance until the next 8 Policy anniversary. The loan reserve account is part of the fixed account. You will earn at least 4.0% interest on amounts in the loan reserve account. o Federal income taxes and a penalty tax may apply to loans you take against the Policy. o There are risks involved in taking a Policy loan. See Risk Summary p. 11. Base Policy Death Benefit o You must choose one of two death benefit options. We offer the following: o 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 surviving insured's death. o Option B is the greater of: -> the current specified amount, plus the Policy's cash value on the date of the surviving insured's death, or -> a specified percentage, multiplied by the Policy's cash value on the date of the surviving insured's death. o So long as the Policy does not lapse, the minimum death benefit we pay under any option will be the current specified amount. o The minimum specified amount for a Policy is $100,000. We will state the minimum specified amount in your Policy. You cannot decrease the specified amount below this minimum. o We will reduce the death benefit proceeds by the amount of any outstanding Policy loan, and any due and unpaid charges. o 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. o After the third Policy year, you may change the death benefit option or decrease the specified amount (but not both) once each Policy year. A change in death benefit option or a decrease in specified amount cannot reduce your specified amount below the minimum specified amount as shown in your Policy. o Under current tax law, the death benefit should be income tax free to the beneficiary. o The death benefit is available in a lump sum or a variety of payout options. Cash Withdrawals and Surrenders o You may take one withdrawal of cash value per Policy year after the first Policy year. o The amount of the withdrawal must be: -> no less than $500; and -> no more than 10% of the net surrender value. o 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. o There is no surrender charge assessed when you take a cash withdrawal. o A cash withdrawal will reduce the death benefit by at least the amount of the withdrawal. o If you choose death benefit Option A, we will reduce the current specified amount by the dollar amount of the withdrawal. o Federal income taxes and a penalty tax may apply to cash withdrawals and surrenders. 9 o You may fully surrender the Policy at any time before the insured's death or the maturity date. You will receive the net surrender value. The surrender charge will apply during the first 15 Policy years. Inquiries If you need more information, please contact us at: Western Reserve Life P.O. Box 5068 Clearwater, Florida 33758-5068 1-800-851-9777 www.westernreserve.com 10 Risk Summary - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Investment If you invest your cash value in one or more Risk subaccounts, you will be subject to the risk that investment performance could be unfavorable and that the cash value of your Policy would decrease. You could lose everything you invest, and your Policy could lapse. If you select the fixed account, your cash value in the fixed account is credited with a declared rate of interest, but you assume a risk that the rate may decrease, although it will never be lower than a guaranteed minimum annual effective rate of 4.0%. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Risk of Lapse If your Policy fails to meet certain conditions, we will notify you that the Policy has entered a 61-day grace period and will lapse unless you make a sufficient payment during the grace period. Your Policy contains a no lapse period. Your Policy will not lapse before the no lapse date stated in your Policy, as long as you pay sufficient minimum monthly guarantee premiums. If you do not pay these premiums, you will automatically lose the no lapse guarantee and you will increase the risk that your Policy will lapse. In addition, if you take a cash withdrawal or Policy loan, you will increase the risk of losing the no lapse guarantee. We deduct the total amount of your withdrawals and any outstanding loans from your premiums paid when we determine whether your minimum monthly guarantee premiums 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. Before you take a cash withdrawal, loan, decrease the specified amount, or increase or add a rider, you should consider carefully the effect it will have on the no lapse guarantee. After the no lapse period, your Policy may lapse if loans, withdrawals, the monthly deduction of insurance charges, and insufficient investment returns reduce the net surrender value to zero. The Policy will enter a grace period if on any Monthiversary the net surrender value (that is, the cash value, minus the surrender charge, and minus any outstanding loans, 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 will have adverse tax consequences. See Federal Income Tax Considerations p. 57 and Policy Lapse and Reinstatement p. 55. You may reinstate this Policy within five years after it has lapsed (and prior to the maturity date), if the joint insureds meet the insurability requirements and you pay the amount we require. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
11 Tax Risks A Policy must satisfy certain requirements set (Income Tax forth in the Internal Revenue Code in order to and MEC) qualify as life insurance for federal income tax purposes. It is reasonable to conclude that the Policy will generally be deemed a life insurance policy under federal tax law, so that the death benefit paid to the beneficiary will not be subject to federal income tax. However, 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 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 cash withdrawals, surrenders and loans taken before you reach age 59 1/2. If a Policy is not treated as a MEC, partial surrenders and withdrawals will not be subject to tax to the extent of your investment in the Policy. Amounts in excess of your investment in the Policy, while subject to tax as ordinary income, will not be subject to a 10% penalty tax. You should consult a qualified tax advisor for assistance in all tax matters involving your Policy. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Limits on Cash The Policy permits you to take only one cash Withdrawals withdrawal per Policy year, after the first Policy year has been completed. The amount you may withdraw is limited to 10% of the net surrender value. A cash withdrawal will reduce cash value, so it will increase the risk that the Policy will lapse. A cash withdrawal may also increase the risk that the no lapse period will end. A cash withdrawal will reduce the death benefit. If you select death benefit Option A, a cash withdrawal will permanently reduce the specified amount of the Policy by the amount of the withdrawal. A cash withdrawal also reduces the death benefit under Option B because the cash value is reduced. In some circumstances, a cash withdrawal may reduce the death benefit by more than the dollar amount of the withdrawal. Federal income taxes and a penalty tax may apply to cash withdrawals and surrenders. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
12 Loan Risks A Policy loan, whether or not repaid, will affect cash value over time because we subtract the amount of the loan from the subaccounts and the fixed account and place that amount in the loan reserve as collateral. We then credit a fixed interest rate of not less than 4.0% to the loan collateral. We currently credit interest at 4.75% annually, but we are not obligated to do so in the future. As a result, the loan collateral does not participate in the investment results of the subaccounts and may not continue to receive the current interest rates credited. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the subaccounts and the interest rates credited to the fixed account, the effect could be favorable or unfavorable. We also charge interest on Policy loans at a rate of 5.2% to be paid in advance. Interest is added to the amount of the loan to be repaid. A Policy loan affects the death benefit because a loan reduces the death benefit proceeds and net surrender value by the amount of the outstanding loan. A Policy loan could make it more likely that a Policy would lapse. A Policy loan will increase the risk that the no lapse period will end. There is also a risk 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 would result. Policy loans may have tax consequences. You should consult a tax advisor before taking out a Policy loan. If a loan from a Policy is outstanding when the Policy is canceled or lapses, then the amount of the outstanding indebtedness will be taxed as if it were a distribution from the Policy. See Federal Income Tax Considerations p. 57. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Effects of the The surrender charge under this Policy is Surrender significant, especially in the early Policy years. Charge It is likely you will receive no net surrender value if you surrender your Policy in the first few Policy years. You should purchase this Policy only if you have the financial ability to keep it in force at the initial specified amount for a substantial period of time. Even if you do not ask to surrender your Policy, the surrender charge plays a role in determining whether your Policy will lapse. Each month we will use the cash value (reduced by the surrender charge and reduced by outstanding loans and interest paid in advance not yet earned) to measure whether your Policy will remain in effect or will enter a grace period. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Leverage Risks Please be aware that the investment returns under the Policy are not guaranteed. If you purchase any portion of this Policy (including any riders) using loan proceeds, and investment returns are less than expected, or your loan and withdrawal history under the Policy results in lower than expected cash value, you may be required to pay additional premiums in order to maintain the Policy in force. Such costs would be in addition to the principal and interest accruing on loans outside the Policy. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
13 Comparison Like fixed benefit life insurance, the Policy with Other offers a death benefit and can provide a cash Insurance value, loan privileges and a value on surrender. Policies However, the Policy differs from a fixed benefit policy because it allows you to place your premiums in investment subaccounts. The amount and duration of life insurance protection and of the Policy's cash value will vary with the investment performance of the amounts you place in the subaccounts. In addition, the cash value and net surrender value will always vary with the investment results of your selected subaccounts. As you consider purchasing this Policy, keep in mind that it may not be to your advantage to replace existing insurance with the Policy. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Illustrations The illustrations in this prospectus are based on hypothetical rates of return that are not guaranteed. They illustrate how the specified amount, Policy charges and hypothetical rates of return affect death benefit levels, cash value and net surrender value of the Policy. We may also illustrate Policy values based on the adjusted historical performance of the portfolios since the portfolios' inception, reduced by Policy and subaccount charges. The hypothetical and adjusted historic portfolio rates illustrated should not be considered to represent past or future performance. It is almost certain that actual rates of return may be higher or lower than those illustrated, so that the values under your Policy will be different from those in the illustrations. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
14 Portfolio Annual Expense Table - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This table shows the fees and expenses charged by each portfolio. More detail concerning each portfolio's fees and expenses is contained in the fund prospectus. Annual Portfolio Operating Expenses (As a percentage of average portfolio assets after fee waivers and expense reimbursements)
Total Portfolio Management Other Rule 12b-1 Annual Portfolio Fees Expenses Fees Expenses WRL SERIES FUND, INC.(1)(9) WRL VKAM Emerging Growth 0.80% 0.07% N/A 0.87% WRL T. Rowe Price Small Cap(5) 0.75% 0.25% N/A 1.00% WRL Goldman Sachs Small Cap(5) 0.90% 0.10% N/A 1.00% WRL Pilgrim Baxter Mid Cap Growth(5) 0.90% 0.10% N/A 1.00% WRL Alger Aggressive Growth 0.80% 0.09% N/A 0.89% WRL Third Avenue Value 0.80% 0.20% N/A 1.00% WRL Value Line Aggressive Growth(6) 0.80% 0.20% N/A 1.00% WRL GE International Equity(2) 1.00% 0.20% N/A 1.20% WRL Great Companies -- Global2(10) 0.80% 0.20% N/A 1.00% WRL Gabelli Global Growth(10) 1.00% 0.20% N/A 1.20% WRL Janus Global(3) 0.80% 0.12% N/A 0.92% WRL Great Companies -- Technology(SM)(6) 0.80% 0.20% N/A 1.00% WRL LKCM Capital Growth (11) 0.80% 0.20% N/A 1.00% WRL Janus Growth(4) 0.80% 0.05% N/A 0.85% WRL Goldman Sachs Growth(5) 0.90% 0.10% N/A 1.00% WRL GE U.S. Equity 0.80% 0.13% N/A 0.93% WRL Great Companies -- America(SM)(6) 0.80% 0.20% N/A 1.00% WRL Salomon All Cap(5) 0.90% 0.10% N/A 1.00% WRL C.A.S.E. Growth 0.80% 0.20% N/A 1.00% WRL Dreyfus Mid Cap(5) 0.85% 0.15% N/A 1.00% WRL NWQ Value Equity 0.80% 0.10% N/A 0.90% WRL T. Rowe Price Dividend Growth(5) 0.90% 0.10% N/A 1.00% WRL Dean Asset Allocation 0.80% 0.07% N/A 0.87% WRL LKCM Strategic Total Return 0.80% 0.06% N/A 0.86% WRL J.P. Morgan Real Estate Securities 0.80% 0.20% N/A 1.00% WRL Federated Growth & Income 0.75% 0.14% N/A 0.89% WRL AEGON Balanced 0.80% 0.09% N/A 0.89% WRL AEGON Bond 0.45% 0.08% N/A 0.53% WRL J.P. Morgan Money Market 0.40% 0.04% N/A 0.44% VARIABLE INSURANCE PRODUCTS FUND (VIP) Fidelity VIP Equity-Income Portfolio -- Service Class 2(8) 0.48% 0.10% 0.25%(7) 0.83% VARIABLE INSURANCE PRODUCTS FUND II (VIP II) Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2(8) 0.58% 0.12% 0.25%(7) 0.95% VARIABLE INSURANCE PRODUCTS FUND III (VIP III) Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2(8) 0.58% 0.13% 0.25%(7) 0.96%
(1) Effective January 1, 1997, the Board of the WRL Series Fund, Inc. ("WRL Fund") authorized the WRL Fund to charge each portfolio of the WRL Fund an annual Rule 12b-1 fee of up to 0.15% of each portfolio's average daily net assets. However, the WRL Fund will not deduct the fee from any portfolio before April 30, 2001. You will receive advance written notice if a Rule 12b-1 fee is to be deducted. See the WRL Fund prospectus for more details. (2) Prior to May 1, 2000 this portfolio was known as WRL GE/Scottish Equitable International Equity. The fee table reflects estimated 2000 expenses because the expense limit for this portfolio will be reduced from 1.50% to 1.20% effective May 1, 2000. 15 (3) WRL Investment Management, Inc. ("WRL Management") currently waives 0.025% of its advisory fee on portfolio average daily net assets over $2 billion (net fee -- 0.775%). This waiver is voluntary and was terminated on June 25, 2000. Effective September 1, 2000, this portfolio is not available for investment to new policyowners. (4) WRL Management currently waives 0.025% of its advisory fee for the first $3 billion of the portfolio's average daily net assets (net fee -- 0.775%); and 0.05% for the portfolio's average daily net assets above $3 billion (net fee -- 0.75%). This waiver is voluntary and was terminated on June 25, 2000. The fee table reflects estimated 2000 expenses because of the termination of the fee waiver. (5) Because these portfolios did not commence operations until May 3, 1999, the percentages set forth as "Other Expenses" and "Total Annual Expenses" are annualized. (6) Because these portfolios did not commence operations until May 1, 2000, the percentages set forth as "Other Expenses" and "Total Annual Expenses" reflect estimates of "Other Expenses" for the first year of operations. (7) The 12b-1 fee deducted for the Variable Insurance Products Fund (VIP), Variable Insurance Products Fund II (VIP II), and Variable Insurance Products Fund III (VIP III) (the "Fidelity VIP Funds") covers certain shareholder support services provided by companies selling variable contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed against the Fidelity VIP Funds shares held for the Policies will be remitted to AFSG, the principal underwriter for the Policies. (8) Service Class 2 expenses are based on estimated expenses for the year 2000. (9) WRL Management, the investment adviser of the WRL Fund, has undertaken, until at least April 30, 2001, to pay expenses on behalf of the portfolios of the WRL Fund to the extent normal operating expenses of a portfolio exceed a stated percentage of each portfolio's average daily net assets. The expense limit, the amount reimbursed by WRL Management during 1999, and the expense ratio without the reimbursement are listed below for each portfolio:
Expense Ratio Expense Reimbursement Without Limit Amount Reimbursement WRL VKAM Emerging Growth 1.00% $ N/A N/A WRL T. Rowe Price Small Cap 1.00% 63,542 2.46% WRL Goldman Sachs Small Cap 1.00% 60,555 5.57% WRL Pilgrim Baxter Mid Cap Growth 1.00% 34,986 1.40% WRL Alger Aggressive Growth 1.00% N/A N/A WRL Third Avenue Value 1.00% 10,734 1.06% WRL Value Line Aggressive Growth 1.00% N/A N/A WRL GE International Equity 1.20% 112,088 1.84% WRL Great Companies -- Global2 1.00% N/A N/A WRL Gabelli Global Growth 1.20% N/A N/A WRL Janus Global 1.00% N/A N/A WRL Great Companies -- Technology(SM) 1.00% N/A N/A WRL LKCM Capital Growth 1.00% N/A N/A WRL Janus Growth 1.00% N/A N/A WRL Goldman Sachs Growth 1.00% 49,677 2.68% WRL GE U.S. Equity 1.00% N/A N/A WRL Great Companies -- America(SM) 1.00% N/A N/A WRL Salomon All Cap 1.00% 53,174 2.87% WRL C.A.S.E. Growth 1.00% N/A N/A WRL Dreyfus Mid Cap 1.00% 34,541 4.89% WRL NWQ Value Equity 1.00% N/A N/A WRL T. Rowe Price Dividend Growth 1.00% 46,989 2.35% WRL Dean Asset Allocation 1.00% N/A N/A WRL LKCM Strategic Total Return 1.00% N/A N/A WRL J.P. Morgan Real Estate Securities 1.00% 51,924 2.69% WRL Federated Growth & Income 1.00% N/A N/A WRL AEGON Balanced 1.00% N/A N/A WRL AEGON Bond 0.70% N/A N/A WRL J.P. Morgan Money Market 0.70% N/A N/A
(10) Because these portfolios did not commence operations until September 1, 2000, the percentages set forth as "Other Expenses" and "Total Annual Expenses" reflect estimates of "Other Expenses" for the first year of operations. (11) Because this portfolio does not commence operations until December 1, 2000, the percentages set forth as "Other Expenses" and "Total Annual Expenses" reflect estimates of "Other Expenses" for the first year of operations. The purpose of the preceding table is to help you understand the various costs and expenses that you will bear directly and indirectly. The table reflects charges and expenses of the portfolios of the funds for the fiscal year ended December 31, 1999 (except as noted in 16 the footnotes). Expenses of the funds may be higher or lower in the future. For more information on the charges described in this table, see the fund prospectuses which accompany this prospectus. Western Reserve and the Fixed Account - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Western Reserve Western Reserve Life Assurance Co. of Ohio is the insurance company issuing the Policy. Western Reserve was incorporated under Ohio law on October 1, 1957. We have established the separate account to support the investment options under this Policy and under other variable life insurance policies we issue. Our general account supports the fixed account under the Policy. Western Reserve intends to sell this Policy in all states (except New York), in Puerto Rico, Guam and the District of Columbia. The Fixed Account The fixed account is part of Western Reserve's general account. We use general account assets to support our insurance and annuity obligations other than those funded by separate accounts. Subject to applicable law, Western Reserve has sole discretion over investment of the fixed account's assets. Western Reserve bears the full investment risk for all amounts contributed to the fixed account. Western Reserve guarantees that the amounts allocated to the fixed account will be credited interest daily at a net effective interest rate of at least 4.0%. We will determine any interest rate credited in excess of the guaranteed rate at our sole discretion. We have no specific formula for determining interest rates. Money you place in the fixed account will earn interest compounded daily at a current interest rate in effect at the time of your allocation. We may declare current interest rates from time to time. We may declare more than one interest rate for different money based upon the date of allocation or transfer to the fixed account. When we declare a higher current interest rate on amounts allocated to the fixed account, we guarantee the higher rate on those amounts for at least one year (the "guarantee period") unless those amounts are transferred to the loan reserve. At the end of the guarantee period we may declare a new current interest rate on those amounts and any accrued interest thereon. We will guarantee this new current interest rate for another guarantee period. We credit interest greater than 4.0% during any guarantee period at our sole discretion. You bear the risk that interest we credit will not exceed 4.0%. We allocate amounts from the fixed account for cash withdrawals, transfers to the subaccounts, or monthly deduction charges on a last in, first out basis ("LIFO") for the purpose of crediting interest. New Jersey residents: The fixed account is not available to you. You may not direct or transfer any premiums or cash value to the fixed account. The fixed account is used solely for Policy loans. The fixed account has not been registered with the Securities and Exchange Commission and the staff of the Securities and Exchange Commission has not reviewed the disclosure in this prospectus relating to the fixed account. 17 The Separate Account and the Portfolios - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Separate Account The separate account is divided into subaccounts, each of which invests in shares of a specific portfolio of a fund. These subaccounts buy and sell portfolio shares at net asset value without any sales charge. Any dividends and distributions from a portfolio are reinvested at net asset value in shares of that portfolio. For administrative reasons, we currently limit the number of subaccounts in which you can invest during the lifetime of your Policy to 18 subaccounts (including the fixed account). Even if you remove all the cash value from one subaccount, that subaccount will still show as active with a cash value of zero. You will be able to allocate future monies back into this subaccount but you will not be able to designate it as a different subaccount. For example, you allocate monies to the WRL Janus Growth subaccount. After a year, you decide to transfer that money to the WRL LKCM Strategic Total Return subaccount, the WRL Janus Growth subaccount will still show as an active subaccount (and count toward the 18 subaccount maximum) even though you have no cash value in it. You could allocate or transfer future monies into the WRL Janus Growth subaccount 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. If the separate account's assets exceed the required reserves and other liabilities, we may transfer the excess to our general account. The separate account may include other subaccounts that are not available under the Policies and are not discussed in this prospectus. We may substitute another subaccount, portfolio or insurance company separate account under the Policies if, in our judgment, investment in a subaccount or portfolio would no longer be possible or becomes inappropriate to the purposes of the Policies, or if investment in another subaccount or insurance company separate account is in the best interest of owners. No substitution shall take place without notice to owners and prior approval of the Securities and Exchange Commission ("SEC") and insurance company regulators, to the extent required by the Investment Company Act of 1940, as amended (the "1940 Act") and applicable law. The Funds The separate account invests in shares of the portfolios. Each portfolio is an investment division of a fund, which is an open-end management investment company registered with the SEC. Such registration does not involve supervision of the management or investment practices or policies of the portfolios by the SEC. Each portfolio's assets are held separate from the assets of the other portfolios, and each portfolio has investment objectives and policies that are different from those of the 18 other portfolios. Thus, each portfolio operates as a separate investment fund, and the income or losses of one portfolio has no effect on the investment performance of any other portfolio. Pending any prior approval by a state insurance regulatory authority, certain subaccounts and corresponding portfolios may not be available to residents of some states. Each portfolio's investment objective(s) and policies are summarized below. There is no assurance that any of the portfolios will achieve its stated objective(s). Certain portfolios may have investment objectives and policies similar to other portfolios that are managed by the same investment adviser or manager. 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 prospectuses for the funds. You should read the fund prospectuses carefully.
Portfolio Sub-Adviser or Adviser Investment Objective - ------------------- ------------------------------ ----------------------------------- WRL VKAM -> Van Kampen -> Seeks capital appreciation by Emerging Asset Management Inc. investing primarily in common Growth stocks of small and medium-sized companies. WRL T. Rowe -> T. Rowe Price -> Seeks long-term growth of capital Price Small Cap** Associates, Inc. by investing primarily in common stocks of small growth companies. WRL Goldman -> Goldman Sachs Asset -> Seeks long-term growth of capital. Sachs Small Cap** Management WRL Pilgrim -> Pilgrim Baxter & Associates, -> Seeks capital appreciation. Baxter Mid Cap Ltd. Growth** WRL Alger -> Fred Alger -> Seeks long-term capital Aggressive Growth Management, Inc. appreciation. WRL Third -> EQSF Advisers, Inc. -> Seeks long-term capital Avenue Value appreciation. WRL Value Line -> Value Line, Inc. -> Seeks long-term growth of capital. Aggressive Growth** WRL GE -> GE Asset Management -> Seeks long-term growth of capital. International Incorporated* Equity WRL Great -> Great Companies, L.L.C. -> Seeks long-term growth of capital Companies -- in a manner consistent with Global 2** preservation of capital. * Effective May 1, 2000, GE Asset Management Incorporated will be the sole sub-adviser. ** These portfolios will be available on or around February 1, 2001.
19
Portfolio Sub-Adviser or Adviser Investment Objective - ------------------ -------------------------- ------------------------------------- WRL Gabelli -> Gabelli Asset Management -> Seeks to provide investors with Global Growth** Company appreciation of capital. Current income is a secondary objective. WRL Janus Global -> Janus Capital -> Seeks long-term growth of capital Corporation in a manner consistent with the preservation of capital. WRL Great -> Great Companies, L.L.C. -> Seeks long-term growth of capital. Companies -- Technology(SM)** WRL LKCM -> Luther King Capital -> Seeks long-term growth of capital. Capital Growth** Management Corporation WRL Janus -> Janus Capital -> Seeks growth of capital. Growth Corporation WRL Goldman -> Goldman Sachs Asset -> Seeks long-term growth of capital Sachs Growth** Management WRL GE U.S. -> GE Asset Management -> Seeks long-term growth of capital. Equity Incorporated WRL Great -> Great Companies, L.L.C. -> Seeks long-term growth of capital. Companies -- America(SM)** WRL Salomon -> Salomon Brothers Asset -> Seeks capital appreciation. All Cap** Management Inc WRL C.A.S.E. -> C.A.S.E. -> Seeks annual growth of capital Growth Management, Inc. through investment in companies whose management, financial resources and fundamentals appear attractive on a scale measured against each company's present value. WRL Dreyfus Mid -> The Dreyfus -> Seeks total investment returns Cap** Corporation (including capital appreciation and income), which consistently outperform the S&P 400 Mid Cap Index. WRL NWQ Value -> NWQ Investment Manage- -> Seeks to achieve maximum, Equity ment consistent total return with Company, Inc. minimum risk to principal. WRL T. Rowe -> T. Rowe Price -> Seeks to provide an increasing level Price Dividend Associates, Inc. of dividend income, long-term Growth** capital appreciation and reasonable current income through investments primarily in dividend paying stocks. ** These portfolios will be available on or around February 1, 2001
20
Portfolio Sub-Adviser or Adviser Investment Objective - ---------------------- ---------------------------- -------------------------------------- WRL Dean Asset -> Dean Investment Associates -> Seeks preservation of capital and Allocation competitive investment returns. WRL LKCM -> Luther King Capital -> Seeks to provide current income, Strategic Management long-term growth of income and Total Return Corporation capital appreciation. WRL J.P. Morgan -> J.P. Morgan Investment -> Seeks long-term total return from Real Estate Management Inc. investments primarily in equity Securities** securities of real estate companies. Total return will consist of realized and unrealized capital gains and losses plus income. WRL Federated -> Federated Investment -> Seeks total return by investing in Growth & Income Counseling securities that have defensive characteristics. WRL AEGON -> AEGON USA -> Seeks preservation of capital, Balanced Investment reduced volatility, and superior Management, Inc. long-term risk-adjusted returns. WRL AEGON -> AEGON USA -> Seeks the highest possible current Bond Investment income within the confines of the Management, Inc. primary goal of insuring the protection of capital. WRL J.P. Morgan -> J.P. Morgan Investment -> Seeks to obtain maximum current Money Market Management Inc. income consistent with preservation of principal and maintenance of liquidity. Fidelity VIP -> Fidelity Management & -> Seeks reasonable income by Equity-Income Research Company investing primarily in income- Portfolio producing equity securities. - -- Service Class 2** Fidelity VIP II -> Fidelity Management & -> Seeks long-term capital appreciation Contrafund(R) Research Company by investing primarily in a broad Portfolio variety of common stocks, using - -- Service Class 2** both growth-oriented and contrarian disciplines. Fidelity VIP III -> Fidelity Management & -> Seeks capital growth by investing Growth Research Company in a wide range of common Opportunities domestic and foreign stocks, and Portfolio securities convertible into common - -- Service Class 2** stocks. ** These portfolios will be available on or around February 1, 2001.
21 WRL Management, located at 570 Carillon Parkway, St. Petersburg, Florida 33716, a wholly-owned subsidiary of Western Reserve, serves as investment adviser to the WRL Fund and manages the WRL Fund in accordance with policies and guidelines established by the WRL Fund's Board of Directors. For certain portfolios, WRL Management has engaged investment sub-advisers to provide portfolio management services. WRL Management and each investment sub-adviser are registered investment advisers under the Investment Advisers Act of 1940, as amended. See the WRL Fund prospectus for more information regarding WRL Management and the investment sub-advisers. FMR, located at 82 Devonshire Street, Boston, Massachusetts 02109, serves as investment adviser to the Fidelity VIP Funds and manages the Fidelity VIP Funds in accordance with policies and guidelines established by the Fidelity VIP Funds' Board of Trustees. For certain portfolios, FMR has engaged investment sub-advisers to provide portfolio management services with regards to foreign investments. FMR and each sub-adviser are registered investment advisers under the Investment Advisers Act of 1940, as amended. See the Fidelity VIP Funds prospectuses for more information regarding FMR and the investment sub-advisers. In addition to the separate account, shares of the portfolios are also sold to other separate accounts that we (or our affiliates) establish to support variable annuity contracts and variable life insurance policies. It is possible that, in the future, it may become disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the portfolios simultaneously. Neither we nor the funds currently foresee any such disadvantages, either to variable life insurance policyowners or to variable annuity contract owners. However, 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 the funds' Board of Directors/Trustees were to conclude that separate funds should be established for variable life insurance and variable annuity separate accounts, Western Reserve will bear the attendant expenses, but variable life insurance policyowners and variable annuity contract owners would no longer have the economies of scale resulting from a larger combined fund. Addition, Deletion, or Substitution of Investments We 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, subject to compliance with applicable law, to add to, delete from, or substitute the investments that are held by any subaccount, or that any subaccount may purchase. We will only add, delete or substitute shares of another portfolio of a fund (or of 22 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 also reserve the right to establish additional subaccounts of the separate account, each of which would invest in a new portfolio of a fund, or in shares of another investment company, with specified investment objectives. We may establish new subaccounts when, in our sole discretion, marketing, tax or investment conditions warrant. We will make any new subaccounts available to existing owners on a basis we determine. We may also eliminate one or more subaccounts for the same reasons as stated above. In the event of any such substitution or change, we may make such changes in this and other policies as may be necessary or appropriate to reflect such substitution or change. If we deem it to be in the best interests of persons having voting rights under the Policies, and when permitted by law, the separate account may be (1) operated as a management company under the 1940 Act, (2) deregistered under the 1940 Act in the event such registration is no longer required, (3) managed under the direction of a committee, or (4) combined with one or more other separate accounts, or subaccounts. Your Right to Vote Portfolio Shares Even though we are the legal owner of the portfolio shares held in the subaccounts, and have the right to vote on all matters submitted to shareholders of the portfolios, we will vote our shares only as policyowners instruct, so long as such action is required by law. See Tax Status of the Policy p. 57. 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. 23 The Policy - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Purchasing a Policy To purchase a Policy, you must submit a completed application and an initial premium to us. You may also send the application and initial premium to us through any licensed life insurance agent who is also a registered representative of a broker-dealer having a selling agreement with AFSG Securities Corporation, the principal underwriter for the Policy. Our address for applications submitted by World Marketing Alliance distribution systems is: Western Reserve P.O. Box 628069 Orlando, Florida 32862-8069 Everyone else should submit applications to: Western Reserve P.O. Box 628078 Orlando, Florida 32862-8078 You determine the specified amount for a Policy based on the initial premium paid and other characteristics of the proposed joint insureds, such as age, gender and rate class. Joint insureds may be both male, both female or male and female. Our current minimum specified amount for a Policy is generally $100,000. We will generally only issue a Policy to joint insureds ages 1-85* who provide sufficient evidence that they meet our insurability standards. The younger joint insured cannot be older than age 80, and the sum of the joint insureds' ages cannot be more than 160 years. 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 younger joint insured is over age 80. The joint insureds must be insurable and acceptable to us under our underwriting rules on the later of: o the date of your application; or o the date the joint insureds complete all of the medical tests and examinations that we require. * Policies for joint insureds ages 1-19 are not available in all states. 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. 24 Your cost of insurance charge will depend on each joint insured's rate class. There is no preferred class for specified amounts less than $1,000,000. We currently place each joint insured into one of the following rate classes: o ultimate select, non-tobacco use (preferred class); o select, non-tobacco use; o ultimate standard, tobacco use (preferred class); and o standard, tobacco use. We then place the joint insureds into one of the following non-sub-standard rate classes: o combination of two non-tobacco users; o combination of two tobacco users; and o combination of a tobacco user and a non-tobacco user. We also place joint insureds in various sub-standard rate classes, which involve a higher mortality risk and higher cost of insurance charges. We generally charge higher rates for insureds who use tobacco. For Policies with a specified amount of $1,000,000 or more, we generally charge a lower rate. This lower rate may not apply to Policies issued prior to January 1, 2001. When Insurance Coverage Takes Effect Insurance coverage under the Policy will take effect only if the insured(s) is alive and in the same condition of health as described in the application when the Policy is delivered to the owner, and if the initial premium required under the Policy as issued is paid. Conditional Insurance Coverage. If you pay the full initial premium listed in the conditional receipt attached to the application, and we deliver the conditional receipt to you, the insured will have conditional insurance coverage under the terms of the conditional receipt. Conditional insurance coverage is void if the check or draft you gave us to pay the initial premium is not honored when we first present it for payment. The amount of o the specified amount applied for; or conditional insurance o $300,000 coverage is the lesser of: reduced by all amounts payable under all life insurance applica- tions that the insured has pending with us.
Conditional life insurance o the date of your application; or coverage begins on the o the date the insured completes all of the medical tests and later of: examinations that we require; or o the date of issue, if any, requested in the application.
25 Conditional life insurance o the date we determine the insured has satisfied our coverage terminates underwriting requirements and the insurance applied for automatically on the takes effect (the Policy date); or earliest of: o 60 days from the date the application was completed; or o the date we determine that any person proposed for insurance in the application is not insurable according to our rules, limits and standards for the plan, amount and rate class shown in the application; or o the date we modify the plan, amount, riders and/or the premium rate class shown in the application, or any supplemental agreements; or o the date we mail notice of the ending of coverage and we refund the first premium to the applicant at the address shown on the application.
Special limitations of the o the conditional receipt will be void: conditional receipt: -> if not signed by an authorized agent of Western Reserve; or -> in the event the application contains any fraud or material misrepresentation; or -> if, on the date of the conditional receipt, the proposed insured is under 15 days of age or over 80 years of age. o the conditional receipt does not provide benefits for disability and accidental death benefits. o the conditional receipt does not provide benefits if any proposed insured commits suicide. In this case, Western Reserve's liability will be limited to return of the first premium paid with the application.
Full Insurance Coverage and Allocation of Initial Premium. Once we determine that the joint insureds meet 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 J.P. Morgan Money Market subaccount. On the record date, which is the date we record your Policy on our books as an in force Policy, we will allocate your cash value from the WRL J.P. Morgan Money Market subaccount to the accounts you elect on your application. On any day we credit net premiums or transfer cash value to a subaccount, we will convert the dollar amount of the net premium (or transfer) into subaccount units at the unit value for that subaccount, determined at the end of the day on which we receive the 26 premium or transaction request at our office. We will credit amounts to the subaccounts only on a valuation date, that is, on a date the New York Stock Exchange ("NYSE") is open for trading. See Policy Values p. 33. 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. If two owners are named, the Policy will be owned jointly, and each owner's consent will be required to exercise ownership rights. If the owner dies before the surviving 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 o Change the owner by providing written notice to us at our Owner office at any time while the surviving insured is alive and the Policy is in force. o Change is effective as of the date that the written notice is accepted by us. o Changing the owner does not automatically change the beneficiary. o Signature of owner's spouse is required if owner is a resident of: Arizona, California, Idaho, Nevada, New Mexico, Washington or Wisconsin. o Changing the owner may have tax consequences. You should consult a tax advisor before changing the owner. o We are not liable for payments we made before we received the written notice at our office.
Choosing the o The owner designates the beneficiary (the person to Beneficiary receive the death benefit when the surviving insured dies) in the application. o If the owner designates more than one beneficiary, then each beneficiary shares equally in any death benefit proceeds unless the beneficiary designation states otherwise. o If the beneficiary dies before the surviving insured, then any contingent beneficiary becomes the surviving beneficiary. o If both the beneficiary and contingent beneficiary die before the surviving insured, then the death benefit will be paid to the owner or the owner's estate upon the surviving insured's death.
27 ss Changing the o The owner changes the beneficiary by providing written Beneficiary notice to us at our office. o Change is effective as of the date the owner signs the written notice. o Signature of owner's spouse is required if owner is a resident of: Arizona, California, Idaho, Nevada, New Mexico, Washington or Wisconsin. o We are not liable for any payments we made before we received the written notice at our office.
Assigning the o The owner may assign Policy rights while either or both Policy joint insureds are alive. o Signature of owner's spouse is required if owner is a resident of: Arizona, California, Idaho, Nevada, New Mexico, Washington or Wisconsin. o The owner retains any ownership rights that are not assigned. o 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. o Claims under any assignment are subject to proof of interest and the extent of the assignment. o Assigning the Policy may have tax consequences. You should consult a tax advisor before assigning the Policy. o We are not: -> bound by any assignment unless we receive a written notice of the assignment; -> responsible for the validity of any assignment; -> liable for any payment we made before we received written notice of the assignment; or -> bound by any assignment which results in adverse tax consequences to the owner, joint insureds or beneficiary(ies).
Policy Split Option As long as you provide us with sufficient evidence that the joint insureds meet our insurability standards, you may request that the Policy, not including any riders, be split (the "Split Option") into two new individual fixed account insurance policies, one on the life of each joint insured if one of the three events listed below occurs. You may request this Split Option by giving us written notice within 90 days after: o the enactment or effective date (whichever is later) of a change in the federal estate tax laws that would reduce or eliminate the unlimited marital deduction; o the date of entry of a final decree of divorce of the joint insureds; or 28 o written confirmation of a dissolution of a business partnership of which the joint insureds were partners.* * The above conditions do not apply to Pennsylvania residents. Conditions for Exercising o If more than one person owns the Policy, each owner must Split Option: agree to the split. o The initial specified amount for each new policy cannot be more than 50% of the Policy's specified amount, excluding the face amount of any riders. o The new policies will be subject to our minimum and maximum specified amounts and issue ages for the plan of insurance you select. o You must obtain our approval before you can exercise the Split Option if one of the joint insureds is older than the new policy's maximum issue age when you request the Split Option. o Exercising a Policy Split Option may have tax consequences. You should consult a tax advisor before exercising this Option.
Cash value and indebtedness under the Policy will be allocated equally to each of the new policies. If one joint insured does not meet our insurability requirements, we will pay you half of the Policy's net surrender value and issue only one new policy covering the joint insured that meets our insurability requirements; or you may cancel the Split Option and keep the Policy in force on both joint insureds. We will base the premiums for the new policies on each joint insured's attained age and premium rate class which we determine based on the current evidence of insurability submitted for each joint insured. Premiums will be payable as of the Policy date for each new policy. The Policy date for each new policy will be the Monthiversary after we receive your written request to exercise the Split Option. The owner and beneficiary for the new policies will be those named in the Policy, unless you specify otherwise. We will not deduct the premium expense charges from the cash value allocated to the new policies. Any new premium you pay to the new policies will be subject to the normal charges, if any, of the new policies at the time you pay the premium. 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. The amount of the refund will be: o any charges and taxes we deduct from your premiums; plus 29 o any monthly deductions or other charges we deducted from amounts you allocated to the subaccounts and the fixed account; plus o your cash value in the subaccounts and the fixed account on the date we (or our agent) receive the returned Policy at our office. Some states may require us to refund all of the premiums you paid for the Policy. Premiums - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Premium Flexibility You generally have flexibility to determine the frequency and the amount of the premiums you pay. Unlike conventional insurance policies, you do not have to pay your premiums according to a rigid and inflexible premium schedule. Before we issue the Policy to you, we may require you to pay a premium at least equal to a minimum monthly guarantee premium set forth in your Policy. Thereafter (subject to the limitations described below), you may make unscheduled premium payments at any time and in any amount over $100. 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). See Policy Lapse and Reinstatement p. 55. 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: o total premiums paid (minus any withdrawals and minus any outstanding loans) equals or exceeds 30 -> the sum of the minimum monthly guarantee premiums in effect for each specific month from the Policy date up to and including the current month. If you take a withdrawal or a loan, you may need to pay additional premiums in order to keep the no lapse guarantee in place. The initial minimum monthly guarantee premium is shown on your Policy's schedule page. The minimum monthly guarantee premium will change if you request a change in death benefit options, decrease the specified amount, or increase or add a rider. 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 that you selected on the Policy application, 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: o the total amount of the premiums you paid (minus any withdrawals and minus outstanding loans) equals or exceeds -> the sum of the minimum monthly guarantee premiums in effect for each specific month from the Policy date up to and including the current month. See Policy Lapse and Reinstatement p. 55. Premium Limitations Premium payments must be at least $100 per month ($1,000 if by wire). We may return premiums less than $100. 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 (see Charges and Deductions -- Premium Charge p. 40). We will accept premium payments by wire transfer. 31 If you wish to make payments by bank wire, you should instruct your bank to wire federal funds as follows: All First Bank of Baltimore ABA #: 052000113 For credit to: Western Reserve Life Account #: 89539639 Policyowner's Name: Policy Number: Attention: General Accounting Tax-Free Exchanges ("1035 Exchanges"). We will accept part or all of your initial premium money from one or more contracts insuring the same insured that qualify for tax-free exchanges under section 1035 of the Internal Revenue Code. If you contemplate such an exchange, you should consult a competent tax advisor to learn the potential tax effects of such a transaction. Subject to our underwriting requirements, we will permit you to make one additional cash payment within three business days of our receipt of the proceeds from the 1035 Exchange before we determine your Policy's specified amount. Allocating Premiums You must instruct us on how to allocate your net premium among the subaccounts and the fixed account. (New Jersey residents: The fixed account is not available to you. You may not direct or transfer any money to the fixed account.) You must follow these guidelines: o over the life of your Policy, you may direct the money in your Policy to no more than 18 subaccounts. (The fixed account counts for these purposes as a subaccount.) See Investment Options p. 6. o allocation percentages must be in whole numbers; o if you select dollar cost averaging, you must have at least $10,000 in each subaccount from which we will make transfers and you must transfer at least a total of $1,000 monthly; and o if you select asset rebalancing, the cash value of your Policy, if an existing Policy, or your minimum initial premium, if a new policy, must be at least $10,000. So long as you stay within the 18 subaccount limit, 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. This 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 each net premium payment. We reserve the right to limit the number of premium allocation changes to once per Policy year. Whenever you direct money into a subaccount, we will credit your Policy with the number of units for that subaccount that can be bought for the dollar payment. We price 32 each subaccount unit using the unit value determined at the end of the day after the closing of the regular business session of the NYSE (usually at 4:00 p.m. Eastern time). We will credit amounts to the subaccounts only on a valuation date, that is, on a date the NYSE is open for trading. See Policy Values below. Your cash value will vary with the investment experience of the subaccounts in which you invest. You bear the investment risk for amounts you allocate to the subaccounts. You should review periodically how your cash value is allocated among the subaccounts and the fixed account because market conditions and your overall financial objectives may change. Policy Values - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Cash Value o 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). o serves as the starting point for calculating values under a Policy. o equals the sum of all values in each subaccount and the fixed account. o is determined on the Policy date and on each valuation date. o has no guaranteed minimum amount and may be more or less than premiums paid. o includes any amount 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 o the cash value as of such date; minus value on any o any surrender charge as of such date; minus valuation date o any outstanding Policy loan(s); plus equals: o any interest you paid in advance on the loan(s) for the period between the date of the surrender and the next Policy anniversary.
33 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 o the initial units purchased at unit value on the record date; units in any plus subaccount on o units purchased with additional net premium(s); plus any valuation o units purchased via transfers from another subaccount or date equals: the fixed account; minus o units redeemed to pay for monthly deductions; minus o units redeemed to pay for cash withdrawals; minus o units redeemed as part of a transfer to another subaccount or the fixed account.
Every time you allocate, transfer or withdraw money to or from a subaccount, we convert that dollar amount into units. We determine the number of units we credit to, or subtract from, your Policy by dividing the dollar amount of the allocation, transfer or cash withdrawal by the unit value for that subaccount next determined at the end of the valuation period on which the premium, transfer request or 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 o the total value of the portfolio shares held in the of any subaccount, determined by multiplying the number of subaccount at portfolio shares owned by the subaccount by the the end of a portfolio's net asset value per share determined at the end valuation of the valuation period; minus period o a charge equal to the daily net assets of the subaccount is calculated as: multiplied by the daily equivalent of the daily charge; minus o 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 o the number of outstanding units in the subaccount.
The portfolio in which any subaccount invests will determine its net asset value per share once daily, as of the close of the regular business session of the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each valuation period. 34 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 J.P. Morgan Money Market subaccount. The fixed account o the sum of net premium(s) allocated to the fixed account; value at the end of plus any valuation o any amounts transferred from a subaccount to the fixed period is equal to: account; plus o total interest credited to the fixed account; minus o amounts charged to pay for monthly deductions; minus o amounts withdrawn or surrendered from the fixed account; minus o amounts transferred from the fixed account to a subaccount.
New Jersey residents: The fixed account value at the end of any valuation period is equal to: o any amounts transferred from a subaccount to the fixed account to establish a loan reserve; plus o total interest credited to the loan reserve. Transfers - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- General You or your agent/representative of record may make transfers among the subaccounts or from the subaccounts to the fixed account. Please remember the 18 subaccount limit when you are planning to make a transfer. See Investment Options, p. 6. 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 modify or revoke the transfer privilege at any time. The following features apply to transfers under the Policy: -> So long as you stay within the 18 subaccount limit, you may make an unlimited number of "non-substantive" transfers in a Policy year among the subaccounts, although we do limit "substantive" transfers, as discussed below. -> You may make one transfer from the fixed account in a Policy year (unless you choose dollar cost averaging from the fixed account). -> You may request transfers in writing (in a form we accept), by fax or by telephone. -> There is no minimum amount that must be transferred. -> There is no minimum amount that must remain in a subaccount after a transfer. -> We deduct a $10 charge from the amount transferred for each transfer in excess of 12 transfers in a Policy year. -> We consider all transfers made in any one day to be a single transfer. 35 -> Transfers resulting from loans, conversion rights, reallocation of cash value immediately after the record date, and transfers from the fixed account are not treated as transfers for the purpose of the transfer charge. -> Transfers under dollar cost averaging and asset rebalancing are treated as transfers for purposes of the transfer charge. The Policy's transfer privilege is not intended to afford policyowners a way to speculate on short-term movements in the market. Excessive use of the transfer privilege can disrupt the management of the portfolios and increase transaction costs. Accordingly, we have established a policy of limiting excessive transfer activity. We will limit transfer activity to two substantive transfers (at least 30 days apart) from each portfolio, except from WRL J.P. Morgan Money Market, during any 12-month period. We interpret "substantive" to mean either a dollar amount large enough to have a negative impact on a portfolio's operations or a series of movements between portfolios. We will not limit non-substantive transfers. Your Policy, as applied for and issued, will automatically receive telephone transfer privileges unless you provide other instructions. The telephone transfer privileges allow you to give authority to the registered representative or agent of record for your Policy to make telephone transfers and to change the allocation of future payments among the subaccounts and the fixed account on your behalf according to your instructions. To make a telephone transfer, you may call 1-800-851-9777 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 request. -> If you do not want the ability to make telephone transfers, you should notify us in writing. -> Telephone or fax requests 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 request 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. 36 We will process any transfer request 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 request after the NYSE closes, we will process the request 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 amount of the transfer is limited to the greater of: -> 25% of your value in the fixed account; or -> the amount you transferred from the fixed account in the prior Policy year. New Jersey residents: The fixed account is not available to you. You may not direct or transfer any money to the fixed account. Conversion Rights If, within 24 months of your Policy date, you transfer all of your subaccount values to the fixed account, then we will not charge you a transfer fee, even if applicable. You must make your request in writing. We will not charge for this transfer. Dollar Cost Averaging Dollar cost averaging is an investment strategy designed to reduce the average purchase price per unit. The strategy spreads the allocation of your premium into the subaccounts over a period of time. This potentially allows you to reduce the risk of investing most of your premium into the subaccounts at a time when prices are high. The success of this strategy is not assured and depends on market trends. You should consider carefully your financial ability to continue the program over a long enough period of time to purchase units when their value is low as well as when it is high. We make no guarantee that dollar cost averaging will result in a profit or protect you against a loss. Under dollar cost averaging, we automatically transfer a set dollar amount from the WRL J.P. Morgan Money Market subaccount, the WRL AEGON Bond subaccount, the fixed account, or any combination of these to a subaccount that you choose. We will make the transfers monthly as of the end of the valuation date. We will make the first transfer in the month after we receive your request, provided that we receive the form by the 25th day of the month. 37 To start dollar cost -> you must submit a completed form to us at our office averaging: requesting dollar cost averaging; -> you must have at least $10,000 in each account from which we will make transfers; -> your total transfers each month under dollar cost averaging must be at least $1,000 ($500 for New Jersey residents); and -> each month, you may not transfer more than one-tenth of the amount that was in your fixed account at the beginning of dollar cost averaging.
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 -> we receive your request to cancel your participation; cost averaging -> the value in the accounts from which we make the will terminate if: transfers is depleted; -> you elect to participate in the asset rebalancing program; or -> you elect to participate in any asset allocation services provided by a third party.
We may modify, suspend, or discontinue dollar cost averaging at any time. Asset Rebalancing Program We also offer an asset rebalancing program under which you may transfer amounts periodically to maintain a particular percentage allocation among the subaccounts you have selected. Cash value allocated to each subaccount will grow or decline in value at different rates. The asset rebalancing program automatically reallocates the cash value in the subaccounts at the end of each period to match your Policy's currently effective premium allocation schedule. Cash value in the fixed account and the dollar cost averaging program is not available for this program. This program does not guarantee gains. A subaccount may still have losses. You may elect asset rebalancing to occur on each quarterly, semi-annual or annual anniversary of the Policy date. Once we receive the asset rebalancing request form, we will effect the initial rebalancing of cash value on the next such anniversary, in accordance with the Policy's current premium allocation schedule. You may modify your allocations quarterly. We will credit the amounts transferred at the unit value next determined on the dates the transfers are made. If a day on which rebalancing would ordinarily occur falls on a day on which the NYSE is closed, rebalancing will occur on the next day the NYSE is open. 38 To start -> you must submit a completed asset rebalancing request asset rebalancing: form to us at our office before the maturity date; and -> you must have a minimum cash value of $10,000 or make a $10,000 initial premium payment.
There is no charge for the asset rebalancing program. However, each reallocation we make under the program counts towards your 12 free transfers each year. Asset rebalancing -> you elect to participate in the dollar cost averaging will cease if: program; -> we receive your request to discontinue participation; -> you make any transfer to or from any subaccount other than under a scheduled rebalancing; or -> you elect to participate in any asset allocation services provided by a third party.
You may start and stop participation in the asset rebalancing program at any time; but we may restrict your right to re-enter the program to once each Policy year. If you wish to resume the asset rebalancing program, you must complete a new request form. We may modify, suspend, or discontinue the asset rebalancing program at any time. Third Party Asset Allocation Services We may provide administrative or other support services to independent third parties you authorize to conduct transfers on your behalf, or who provide recommendations as to how your subaccount values should be allocated. This includes, but is not limited to, transferring subaccount values among subaccounts in accordance with various investment allocation strategies that these third parties employ. These independent third parties may or may not be appointed Western Reserve agents for the sale of Policies. Western Reserve does not engage any third parties to offer investment allocation services of any type, so that persons or firms offering such services do so independent from any agency relationship they may have with Western Reserve for the sale of Policies. Western Reserve therefore takes no responsibility for the investment allocations and transfers transacted on your behalf by such third parties or any investment allocation recommendations made by such parties. Western Reserve does not currently charge you any additional fees for providing these support services. Western Reserve reserves the right to discontinue providing administrative and support services to owners utilizing independent third parties who provide investment allocation and transfer recommendations. Charges and Deductions - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This section describes the charges and deductions that we make under the Policy to compensate for: (1) the services and benefits we provide; (2) the costs and expenses we incur; and (3) the risks we assume. 39 Services and benefits we o the death benefit, cash withdrawals and loan benefits; provide under the Policy: o investment options, including premium allocations; o administration of elective options; and o the distribution of reports to owners.
Costs and expenses o costs associated with processing and underwriting we incur: applications; o expenses of issuing and administering the Policy (includ- ing any Policy riders); o overhead and other expenses for providing services and benefits, sales commissions and marketing expenses; and o other costs of doing business, such as collecting premiums, maintaining records, processing claims, effecting transac- tions, and paying federal, state and local premium and other taxes and fees.
Risks we assume: o that the charges we may deduct may be insufficient to meet our actual claims because insureds die sooner than we estimate; and o that the costs of providing the services and benefits under the Policies may exceed the charges we are allowed to deduct.
Premium Charge Before we allocate the net premiums you make, we will deduct the following charge. Premium expense charge o This charge equals: -> 6.0% of premiums during the first ten Policy years; and -> 2.5% of premiums thereafter. o This charge compensates us for distribution expenses and state premium taxes.
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. 40 The monthly deduction is o the monthly Policy charge; plus equal to: o the monthly cost of insurance charge for the Policy; plus o the monthly death benefit guarantee charge; plus o the monthly charge for any benefits provided by riders attached to the Policy. Monthly Policy Charge: o This charge equals $5.00 each Policy month. o We guarantee this charge will never be more than $10.00 per month. o We may waive this charge at issue on additional policies (not on the original Policy) purchased naming the same owner and insured. o This charge compensates us for administrative expenses such as recordkeeping, processing death benefit claims and Policy changes, and overhead costs. Cost of Insurance Charge: We deduct this charge each month. It varies each month and is equal to: -> the death benefit on the Monthiversary; divided by -> 1.0032737 (this factor reduces the net amount at risk, for purposes of computing the cost of insurance, by taking into account assumed monthly earnings at an annual rate of 4%); minus -> the cash value on the Monthiversary; multiplied by -> the monthly cost of insurance rate for the Policy. Optional Insurance Riders: o The monthly deduction will include charges for any optional insurance benefits you add to your Policy by rider (see Supplemental Benefits (Riders) p. 65).
We base the cost of insurance rates on each joint insured's attained age, gender, and rate class, and the length of time that the Policy has been in force. For Policies with a specified amount of $1,000,000 or more, we generally charge a lower rate. This lower rate may not apply to Policies issued prior to January 1, 2001. The actual monthly cost of insurance rates are based on our expectations as to future mortality experience. The rates will never be greater than the guaranteed amount stated in your Policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.) Mortality Tables and each joint insured's attained age and rate class. For standard rate classes, these guaranteed 41 rates will never be greater than the rates in the C.S.O. tables. We may also guarantee a rate for a specific period of time (e.g., one year). For a listing of rate classes, see Underwriting Standards p. 24. We may issue certain Policies on a simplified or expedited basis. The cost of insurance rates for Policies we issue on this basis will be no higher than the guaranteed rates for select, non-tobacco use or standard, tobacco use categories. However, these rates may be higher or lower than current rates charged under otherwise identical Policies that are using standard underwriting criteria. Monthly death benefit o This charge is $0.04 per $1,000 of your initial specified guarantee charge amount. o This charge is deducted monthly from your cash value. o We will deduct this charge only until the no lapse date you selected on the application. o This charge compensates us for the risk of guaranteeing the death benefit you chose on the application.
Mortality and Expense Risk Charge We deduct a daily charge from your cash value in each subaccount to compensate us for certain mortality and expense risks we assume. This charge is equal to: o your Policy's cash value in each subaccount multiplied by o the daily pro rata portion of the annual mortality and expense risk charge rate of 0.90% (this annual rate is equal to 0.90% of the average daily net assets of each subaccount). The mortality risk is that the surviving insured will live for a shorter time than we project. The expense risk is that the expenses that we incur will exceed the administrative charge limits we set in the Policy. If this charge does not cover our actual costs, we absorb the loss. Conversely, if the charge more than covers actual costs, the excess is added to our surplus. We expect to profit from this charge. We may use any profits to cover distribution costs. Surrender Charge If you surrender your Policy completely during the first 15 years, we deduct a surrender charge from your cash value and pay the remaining cash value (less any outstanding loan amounts) to you. There is no surrender charge if you wait until 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. 42 The surrender charge may be significant. You should calculate this charge carefully before you consider a surrender. Under some circumstances the level of the surrender charge might result in no net surrender value available if you surrender your Policy in the first few Policy years. This will depend on a number of factors, but is more likely if: o you pay premiums equal to or not much higher than the minimum monthly guarantee premium shown in your Policy, and/or o investment performance is too low. The surrender charge is o the deferred issue charge; plus equal to: o the deferred sales charge; and the sum multiplied by o the surrender charge percentage.
The deferred issue charge is $5.00 multiplied by each $1,000 of the initial specified amount stated in your Policy. This charge helps us recover the underwriting, processing and start-up expenses that we incur in connection with the Policy and the separate account. The deferred sales charge equals o 26.5% multiplied by the total premiums paid up to the guideline premium shown in your Policy; plus o a percentage (the excess premium charge), which varies depending on the younger joint insured's issue age (see table below), multiplied by o the total premiums paid in excess of the guideline premium ("excess premium charge").
Issue Age Range (Younger Joint Excess Premium Insured) Charge 1-55 4.2% 56-63 3.7% 64-68 3.1% 69-73 2.5% 74-76 2.0% 77-78 1.6% 79-80 1.2%
The deferred sales charge helps us recover distribution expenses that we incur in connection with the Policy, including agent sales commissions and printing and advertising costs. The proceeds of this charge may not be sufficient to cover these expenses. To the extent they are not, we will cover the shortfall from our general account assets, which may include profits from the mortality and expense risk charge under the Policy. To determine the surrender charge, we apply the surrender charge percentage to the sum of the deferred issue charge and the deferred sales charge. In Policy years 1-10 this 43 percentage is 100% for joint insureds when the age of the younger joint insured is between issue ages 0-74 and then declines at the rate of 20% per year until reaching zero at the end of the 15th Policy year. For joint insureds when the age of the younger joint insured is between issue ages 75-80, the surrender charge percentage is 100% until the end of the 6th Policy year and then declines to 0% at the end of the 15th Policy year. Therefore, the surrender charge will be less if you surrender the Policy during the 11th through the 15th Policy year. There is no surrender charge if the Policy is surrendered after the 15th Policy year (see Example 2 below). Surrender Charge Percentages
End of Policy Year* Younger Age - ----------------------- ------------------------------- Less Than 75 75 or Above --------------- ------------- At Issue 100% 100% 1-6 100% 100% 7 100% 97% 8 100% 88% 9 100% 80% 10 100% 73% 11 80% 66% 12 60% 60% 13 40% 40% 14 20% 20% 15+ 0% 0%
* The percentage on any date other than a Policy anniversary will be determined proportionately using the percentage at the end of the Policy year prior to surrender and the percentage at the end of the Policy year of surrender. o Surrender Charge Example 1: Assume a male non-tobacco user age 35 and a female non-tobacco user age 35 purchase a Policy for $100,000 of specified amount, paying the guideline premium of $806.11, and an additional premium amount of $193.89 in excess of the guideline premium, for a total premium of $1,000 per year for four years ($4,000 total for four years), and then surrenders the Policy. The surrender charge would be calculated as follows: (a) Deferred issue charge: [100 x $5.00] ($5.00/$1,000 of initial specified amount) = $500.00 (b) Deferred sales charge: (1) 26.5% of guideline premium paid [26.5% x $806.11], and = $213.62 (2) 4.2% of premiums paid in excess of guideline premium [4.2% x ((4 x $1,000) - $806.11)] = $134.14 (c) Applicable surrender charge = 100% [(a)$500.00 + (b)($213.62 + $134.14)] x 100% Surrender charge = [$847.76] x 100% = $847.76 =======
44 o Surrender Charge Example 2: Assume the same facts as in Example 1, including continued premium payments of $1,000 per year, except the owner surrenders the Policy on the 14th Policy anniversary: (a) Deferred issue charge: [100 x $5.00] = $500.00 (b) Deferred sales charge: (1) [26.5% x $806.11], and = $213.62 (2) [4.2% x ((14 x $1,000) - $806.11)] = $554.14 (c) Applicable surrender charge = 20% [(a)$500.00 + (b)($213.62) + $554.14)] x 20% Surrender charge = [$1,267.76] x 20% = $253.55 =======
There will be no surrender charge if the owner waits until the 15th Policy anniversary. For Policies issued in the state of Pennsylvania, the following surrender charge percentage table applies. Surrender Charge Percentages
Issue Issue Issue Policy Year Ages 20-69 Ages 70-74 Ages 75-80 - --------------- ------------ ------------ ------------ 1 100% 100% 100% 2 100% 100% 96% 3 100% 100% 89% 4 100% 100% 83% 5 100% 95% 77% 6 100% 90% 73% 7 100% 85% 68% 8 100% 80% 65% 9 95% 76% 61% 10 90% 72% 58% 11 80% 68% 55% 12 60% 60% 51% 13 40% 40% 40% 14 20% 20% 20% 15 0% 0% 0%
The surrender charge helps us to recover distribution expenses that we incur in connection with the Policy, including agent sales commissions and printing and advertising costs. Transfer Charge o We currently allow you to make 12 transfers each year free from charge. o We charge $10 for each additional transfer. o 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. o We deduct the transfer charge from the amount being transferred. o 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. 45 o Transfers under dollar cost averaging and asset rebalancing are transfers for purposes of this charge. o We will not increase this charge. Cash Withdrawal Charge o After the first Policy year, you may take one cash withdrawal per Policy year. o When you make a cash withdrawal, we charge a processing fee of $25 or 2% of the amount you withdraw, whichever is less. o We deduct this amount from the withdrawal, and we pay you the balance. o 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 currently range from 0.44% to 1.20%. See the Portfolio Annual Expense Table in this prospectus, and the fund prospectuses. Group or Sponsored Policies We issue a different Policy for group or sponsored arrangements ("Group/Sponsored Policies"). Under Group/Sponsored Policies, a trustee or employer purchases individual policies covering a group of individuals on a group basis (e.g., Section 401 employer-sponsored benefit plans and deferred compensation plans). A sponsored arrangement is where an employer permits a group solicitation of Policies to its employees or an association permits a group solicitation of Policies to its members. We have certain criteria to issue Group/Sponsored Policies. Generally, a group or sponsored arrangement must be a specific size and must have been in operation for a number of years. We may reduce certain charges, such as premium expense charges, surrender charge, limits on minimum premium and minimum specified amount, or monthly Policy charge, for these Policies. In some cases, we currently waive the monthly Policy charge and reduce the surrender charge. The amount of the reduction and the criteria for Group/Sponsored Policies will reflect the reduced sales effort resulting from these sales. Groups or sponsored arrangements which have been set up solely to purchase Group/ Sponsored Policies or which have been in existence for less than six months will not qualify. Group/Sponsored Policies may not be available in all states. Group/Sponsored Policies may be subject to special tax rules and consequences and other legal restrictions (see Federal Income Tax Considerations, p. 57). Insurance policies where the benefits vary based on gender may not be used to fund certain employer-sponsored benefit plans and fringe benefit programs. Employers should consult tax attorneys before proposing to offer Group/Sponsored Policies. 46 Associate Policies We offer an Associate Policy to certain employees, field associates, directors and their relatives. An Associate Policy may have reduced or waived premium expense charges, the surrender charge, limits on minimum premium and minimum specified amount, or monthly Policy charge. The Associate Policy is available to: o our current and retired directors, officers, full-time employees and registered representatives, and those of our affiliates; current and retired directors, officers, full-time employees and registered representatives of AFSG and any broker-dealer with which they have a sales agreement; o any trust, pension, profit-sharing or other employee benefit plan of the foregoing persons or entities; o current and retired directors, officers, and full-time employees of the WRL Series Fund, Inc., the IDEX Mutual Funds, and any investment adviser or sub-adviser thereto; and o any family member of the above. We may modify or terminate this arrangement. Associate Policies may not be available in all states. 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 surviving 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 surviving insured and there is no contingent beneficiary, we will pay the death benefit proceeds to the owner or the owner's estate. We will pay the death benefit proceeds in a lump sum or under a payment option. See Payment Options p. 51. Death benefit o the death benefit (described below); minus proceeds equal: o any monthly deductions due during the grace period (if applicable); minus o any outstanding Policy loan amount; plus o any additional insurance in force provided by rider; plus o 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 either joint insured's age or gender. See Our Right to Contest the Policy 61; and Misstatement of Age or Gender 61. 47 Effect of Adjustable Term Insurance Rider ("ATIR") on the Death Benefit The ATIR provides a death benefit upon the death of the surviving insured that supplements the death benefit under the Base Policy. Upon our receipt of due proof that the surviving insured's death occurred while the ATIR was in force, the amount of the death benefit payable under the ATIR will generally be the lesser of: (a) the ATIR target death benefit you selected at the rider's issue and is agreeable to us, as shown on the target death benefit page attached to your Policy; or (b) the return of premium(s) you paid on the Policy each year up to an annual maximum, plus interest. The death benefit on the ATIR will automatically decrease on a dollar-for-dollar basis when the Base Policy death benefit is increased due to the operation of the "limitation percentage" required by federal tax requirements. It is possible that the amount of the ATIR death benefit may be zero if your Base Policy death benefit increases enough. When determining the ATIR death benefit, no interest is credited on or after the Policy anniversary on which the younger joint insured turns 100. For additional information regarding the ATIR, see Supplemental Benefits (Riders), Adjustable Term Insurance Rider p. 67. Base Policy Death Benefit The Policy provides a death benefit. The death benefit is determined at the end of the valuation period in which the surviving insured dies. You must select one of the two death benefit options we offer in your application. No matter which death benefit option you choose, we guarantee that, so long as the Policy does not lapse, the death benefit will never be less than the specified amount on the date of the surviving insured's death. Death Benefit o the current specified amount; or Option A equals the o a specified percentage called the "limitation percentage," greater of: multiplied by -> the cash value on the surviving 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 younger joint insured at the beginning of each Policy year. If you elect the Death Benefit Extension Rider, the limitation percentage becomes 101% at attained age 100. The following table (without the Death Benefit Extension Rider) indicates the limitation percentages for different ages: 48
Attained Age of Younger Joint Insured 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 younger joint insured's attained age is under 40, there have been no withdrawals, and there are no outstanding loans. Under Option A, a Policy with a $250,000 specified amount will generally pay $250,000 in death benefits. However, because the death benefit must be equal to or greater than 250% of cash value, any time the cash value of the Policy exceeds $100,000, the death benefit will exceed the $250,000 specified amount. Each additional dollar added to the cash value above $100,000 will increase the death benefit by $2.50. Similarly, so long as the cash value exceeds $100,000, each dollar taken out of the cash value will reduce the death benefit by $2.50. If at any time the cash value multiplied by the limitation percentage is less than the specified amount, the death benefit will equal the specified amount of the Policy reduced by the dollar value of any cash withdrawals. Death Benefit o the current specified amount; plus Option B equals the -> the cash value on the surviving insured's date of greater of: death; or o the limitation percentage, multiplied by -> the cash value on the surviving insured's date of death.
Under Option B, the death benefit always varies as the cash value varies. The Adjustable Term Insurance Rider is not available with Death Benefit Option B. Option B Illustration. Assume that the younger joint insured's attained age is under 40, and there are no outstanding loans. Under Option B, a Policy with a specified amount of $250,000 will generally pay a death benefit of $250,000 plus cash value. Thus, a Policy with a cash value of $50,000 will have a death benefit of $300,000 ($250,000 + $50,000). The death benefit, however, must be at least 250% of cash value. As a result, if the cash value 49 of the Policy exceeds $166,666, the death benefit will be greater than the specified amount plus cash value. Each additional dollar of cash value above $166,666 will increase the death benefit by $2.50. Similarly, any time cash value exceeds $166,666, 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. Effects of Cash Withdrawals on the Death Benefit If you choose Option A, a cash withdrawal will reduce the specified amount by an amount equal to the amount of the cash withdrawal. Regardless of the death benefit option you choose, a cash withdrawal will reduce the death benefit by at least the amount of the withdrawal. If you have the Adjustable Term Insurance Rider on your Policy, the cash withdrawal will cause any future scheduled increases in the maximum target death benefit to be discontinued. 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. You may find Option A more suitable for you if your goal is to increase your cash value through positive investment experience. You may find Option B more suitable if your goal is to increase your total death benefit. Changing the Death Benefit Option After the third Policy year, you may change your death benefit option once each Policy year. o You must make your request in writing. o The effective date of the change will be the Monthiversary on or following the date when we receive your request for a change at our office. o You may not make a change that would decrease the specified amount below the minimum specified amount stated in your Policy. o There may be adverse federal tax consequences. You should consult a tax advisor before changing your Policy's death benefit option. If you change your death benefit option from Option B to Option A, we will make the specified amount after the change equal to the specified amount prior to the change, plus your Policy's cash value on the effective date of the change. If you change your death benefit option from Option A to Option B, we will make the specified amount after the change equal to the specified amount prior to the change, minus the cash value on the 50 effective date of the change. We will notify you of the new specified amount. A change from Option A to Option B will cause an Adjustable Term Insurance Rider to terminate. Decreasing the Specified Amount After the Policy has been in force for three years, you may decrease the specified amount once each Policy year. A decrease in the specified amount may affect your cost of insurance charge and may have adverse federal tax consequences. If you have the Adjustable Term Insurance Rider on your Policy, a decrease in the specified amount will cause any future scheduled increases in the maximum target death benefit to be discontinued. You should consult a tax advisor before decreasing your Policy's specified amount. Conditions for o you must make your request in writing; decreasing the specified o you may not change your death benefit option in the same amount: Policy year that you decrease your specified amount; o you may not decrease your specified amount lower than the minimum specified amount stated in your Policy; o you may not decrease your specified amount if it would disqualify your Policy as life insurance under the Internal Revenue Code; o we may limit the amount of the decrease to no more than 20% of the specified amount; and o a decrease in specified amount will take effect on the Monthiversary on or after we receive your written request.
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 or purchase an additional policy(ies) naming the same owner and insured. 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. See Settlement Options p. 63 for information concerning these settlement options. Surrenders and Cash Withdrawals - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Surrenders You may make a written request 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 surviving 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. The signature of the owner's spouse is 51 required if the owner is a resident of: Arizona, California, Idaho, Nevada, New Mexico, Washington or Wisconsin. You will incur a surrender charge if you surrender the Policy during the first 15 Policy years (see Charges and Deductions -- Surrender Charge p. 42). Once you surrender your Policy, all coverage and other benefits under it cease and cannot be reinstated. We will normally pay you the net surrender value in a lump sum within seven days or under a settlement option. A surrender may have tax consequences. See Federal Income Tax Considerations p. 57. 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 o You must make your cash withdrawal request to us in withdrawal writing. conditions: o Signature of owner's spouse is required if owner is a resident of: Arizona, California, Idaho, Nevada, New Mexico, Washington or Wisconsin. o We only allow one cash withdrawal per Policy year. o We may limit the amount you can withdraw to at least $500, and to no more than 10% of the net surrender value. o You may not take a cash withdrawal if it will reduce the specified amount below the minimum specified amount set forth in the Policy. o 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. o We generally will pay a cash withdrawal request within seven days following the valuation date we receive the request. o 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. o You may not take a cash withdrawal that would disqualify your Policy as life insurance under the Internal Revenue Code. o A cash withdrawal may have tax consequences (see Federal Income Tax Considerations p. 57).
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. If you have the Adjustable Term 52 Insurance Rider on your Policy, the cash withdrawal will cause any future scheduled increases in the maximum target death benefit to be discontinued. Loans - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- General After the first Policy year (as long as the Policy is in force) you may borrow money from us using the Policy as the only security for the loan. We may permit a loan prior to the first anniversary for Policies issued pursuant to 1035 Exchanges. A loan that is taken from, or secured by, a Policy may have tax consequences. See Federal Income Tax Considerations p. 57. Policy loans are o we may require you to borrow at least $500; subject to certain o the maximum amount you may borrow is 90% of the cash conditions: value, less any surrender charge and any outstanding loan amount; and o signature of owner's spouse is required if owner is a resident of: Arizona, California, Idaho, Nevada, New Mexico, Washington or Wisconsin.
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. We may postpone payment of loans under certain conditions. See Payments We Make p. 63. You may request a loan by telephone by calling us at 1-800-851-9777. 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. You will be required to provide certain information for identification purposes when you request a loan by telephone. We may ask you to provide us with written confirmation of your request. We will not be liable for processing 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. We will consider any payments you make on the Policy to be premium payments unless the payments are clearly specified as loan repayments. 53 At each Policy anniversary, we will compare the amount of the outstanding loan to the amount in the loan reserve. We will also make this comparison any time you repay all or part of the loan, or make a request to borrow an additional amount. At each such time, if the amount of the outstanding loan exceeds the amount in the loan reserve, we will withdraw the difference from the subaccounts and the fixed account and transfer it to the loan reserve, in the same manner as when a loan is made. If the amount in the loan reserve exceeds the amount of the outstanding loan, we will withdraw the difference from the loan reserve and transfer it to the subaccounts and the fixed account in the same manner as current premiums are allocated. No charge will be imposed for these transfers, and these transfers are not treated as transfers in calculating the transfer charge. We reserve the right to require a transfer to the fixed account if the loans were originally transferred from the fixed account. If you have the Adjustable Term Insurance Rider on your Policy, taking a loan will cause any future scheduled increases in the maximum target death benefit to be discontinued. Interest Rate Charged We will charge you an annual interest rate on a Policy loan that is equal to 5.2% and is payable annually in advance. Loan interest that is 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. o We currently credit interest at an effective annual rate of 4.75% on amounts you borrow during the first ten Policy years. o After the tenth Policy year, on all amounts that you have borrowed, we currently credit interest to part of the cash value in excess of the premiums paid less withdrawals at an interest rate equal to the interest rate we charge on the total loan. The remaining portion, equal to the cost basis, is currently credited 4.75%. Effect of Policy Loans A Policy loan reduces the death benefit proceeds and net surrender value by the amount of any outstanding loan. Repaying the loan causes the death benefit proceeds and net surrender value to increase by the amount of the repayment. As long as a loan is outstanding, we hold an amount equal to the loan plus interest charged in advance until the next Policy anniversary in the loan reserve. This amount is not affected by the separate account's investment performance and may not be credited with the interest rates accruing on the fixed account. Amounts transferred from the separate account to the loan reserve will affect the value in the separate account because we credit such amounts with an interest rate declared by us rather than a rate of return reflecting the investment results of the separate account. There are risks involved in taking a Policy loan, a few of which include the potential for a Policy to lapse if projected earnings, taking into account outstanding loans, are not 54 achieved. A Policy loan may also have possible adverse tax consequences (see Federal Income Tax Considerations p. 57). 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 loans plus any interest you owe on the loans is more than the net surrender value. If you do not submit a sufficient payment within 61 days from the date of the notice, your Policy may lapse. 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 you selected on the application. Each month we determine whether the no lapse period is still in effect. 55 No lapse period This period is selected by you on the Policy application and may be either: o Option 1 -- the target premium attained age 65 or five Policy years, whichever is later; or o Option 2 -- the target premium attained age 75 or ten Policy years, whichever is later. The target premium attained age is: o the target premium age, plus o the number of completed Policy years. The target premium age equals: o the average of the joint insureds' issue ages, rounded down, but no more than o the younger joint insured's age, plus o ten years.
No lapse date This date is either: o the later of target premium attained age 65 or five Policy years; or o the later of target premium attained age 75 or ten Policy years. You select the no lapse date on the Policy application.
Early termination of the o The no lapse period coverage will end immediately if you no lapse period do not pay sufficient premiums. o You must pay total premiums (minus withdrawals and outstanding loans) that equal at least: -> the sum of the minimum monthly guarantee premium in effect for each month from the Policy date up to and including the current month.
Your minimum monthly guarantee premium amount will vary depending on whether you have chosen Option 1 or 2. Neither option may exceed target premium age 85. 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, you should consider carefully the effect it will have on the no lapse period guarantee. See Minimum Monthly Guarantee Premium p. 30. Reinstatement We will reinstate a lapsed Policy if within five years after the lapse (and prior to the maturity date). To reinstate the Policy you must: o submit a written application for reinstatement; o provide evidence of insurability satisfactory to us; o make a minimum premium payment sufficient to provide a net premium that is large enough to cover: -> three monthly deductions; and 56 -> any surrender charge calculated from the Policy date to the date of reinstatement. (Although we do not currently assess this charge, we reserve the right to do so in the future.) We will not reinstate any indebtedness. The cash value of the loan reserve on the reinstatement date will be zero. Your net surrender value on the reinstatement date will equal the net premiums you pay at reinstatement, minus one monthly deduction and any surrender charge. The reinstatement date for your Policy will be the Monthiversary on or following the day we approve your application for reinstatement. We may decline a request for reinstatement. Federal Income Tax Considerations - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summarizes some of the basic federal income tax considerations associated with a Policy and does not purport to be complete or to cover all situations. This discussion is not intended as tax advice. Please consult counsel or other qualified tax advisors for more complete information. We base this discussion on our understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service (the "IRS"). Federal income tax laws and the current interpretations by the IRS may change. Tax Status of the Policy A Policy must satisfy certain requirements set forth in the Internal Revenue Code (the "Code") in order to qualify as a life insurance policy for federal income tax purposes and to receive the tax treatment normally accorded life insurance policies under federal tax law. Guidance as to how these requirements are to be applied is limited. Nevertheless, we believe that it is reasonable to conclude that a Policy should generally satisfy the applicable Code requirements. If it is subsequently determined that a Policy does not satisfy the applicable requirements, we may take appropriate steps to bring the Policy into compliance with such requirements and we reserve the right to restrict Policy transactions in order to do so. In certain circumstances, owners of variable life insurance policies have been considered for federal income tax purposes to be the owners of the assets of the separate account supporting their policies due to their ability to exercise investment control over those assets. Where this is the case, the policyowners have been currently taxed on income and gains attributable to the separate account assets. There is little guidance in this area, and some features of the Policies, such as your flexibility to allocate premiums and cash values, have not been explicitly addressed in published rulings. While we believe that the Policy does not give you investment control over separate account assets, we reserve the right to modify the Policy as necessary to prevent you from being treated as the owner of the separate account assets supporting the Policy. In addition, the Code requires that the investments of the separate account be "adequately diversified" in order to treat the Policy as a life insurance policy for federal 57 income tax purposes. We intend that the separate account, through the portfolios, will satisfy these diversification requirements. The following discussion assumes that the Policy will qualify as a life insurance policy for federal income tax purposes. Tax Treatment of Policy Benefits In General. We believe that the death benefit under a Policy should be excludible from the beneficiary's gross income. Federal, state and local transfer, 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"). Death Benefit Extension Rider. Under the Death Benefit Extension Rider, you may continue your Policy after the younger joint insured attains age 100 (or would have attained age 100 if the older insured is still alive at such time). The tax consequences associated with continuing your Policy after attained age 100 of the younger joint insured are uncertain and a tax advisor should be consulted about these consequences. Modified Endowment Contracts. Under the Code, certain life insurance policies are classified as MECs and receive less favorable tax treatment than other life insurance policies. The rules are too complex to summarize here, but generally depend on the amount of premiums paid during the first seven Policy years. Certain changes in the Policy after it is issued could also cause the Policy to be classified as a MEC. Due to the Policy's flexibility, each Policy's circumstances will determine whether the Policy is classified as a MEC. Among other things, a reduction in benefits at any time 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. At that time, you will need to notify us if you want to continue your Policy as a MEC. Distributions (other than Death Benefits) from Modified Endowment Contracts. Policies classified as MECs are subject to the following tax rules: o All distributions other than death benefits from a MEC, including distributions upon surrender and cash withdrawals, will be treated first as distributions of gain 58 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. o Loans taken from or secured by (e.g., by assignment) such a Policy are treated as distributions and taxed accordingly. o 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. o 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 Modified Endowment Contracts. 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. Tax consequences of loans from or secured by a Policy that is not a MEC are uncertain and a tax advisor should be consulted about such loans. Finally, neither distributions from nor loans from or secured by a Policy that is not a MEC are subject to the 10% additional tax. 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. Investment in the Policy. Your investment in the Policy is generally the sum of the premium payments you made. When a distribution from the Policy occurs, your investment in the Policy is reduced by the amount of the distribution that is tax-free. Policy Loans. If a loan from a Policy is outstanding when the Policy is canceled or lapses, then the amount of the outstanding indebtedness will be taxed as if it were a distribution. Deductibility of Policy Loan Interest. In general, interest you pay on a loan from a Policy will not be deductible. Before taking out a Policy loan, you should consult a tax advisor as to the tax consequences. 59 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. Any business contemplating the purchase of a new Policy or a change in an existing Policy should consult a tax advisor. Tax Treatment of Policy Split. The Policy Split Option permits you to split the Policy into two new individual life insurance contracts upon the occurrence of a divorce of the joint insureds, certain changes in federal estate tax law, or a dissolution of a business partnership of which the joint insureds were partners. (See Policy Split Option p. 28.) A policy split could have adverse tax consequences. For example, it is not clear whether a policy split will be treated as a nontaxable exchange under Sections 1031 through 1043 of the Code. If a policy split is not treated as a nontaxable exchange, a split could result in the recognition of taxable income in an amount up to any gain in the Policy at the time of the split. It is also not clear whether the individual policies that result from a policy split would in all circumstances be treated as life insurance contracts for federal income tax purposes and, if so treated, whether the individual policies would be classified as MECs. Before you exercise your rights under the Policy Split Option, you should consult a competent tax advisor regarding the possible consequences of a policy split. 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, as long as the beneficiary is an insured under the Policy. You should consult a tax advisor about the consequences of adding this rider to your Policy, or requesting a single-sum payment. Possible Tax Law Changes. Although the likelihood of legislative changes is uncertain, there is always a possibility that the tax treatment of the Policies could change by legislation or otherwise. You should consult a tax advisor with respect to legal developments and their effect on the Policy. 60 Other Policy Information - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Our Right to Contest the Policy In issuing this Policy, we rely on all statements made by or for the joint insureds 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, while both joint insureds are still alive, for two years from the Policy date, or if reinstated, for two years from the date of reinstatement. At the end of the second Policy year, we will send you a notice asking you whether either joint insured has died. We can still contest the Policy's validity even if you do not notify us that a joint insured has died and even if the Policy is still in force. 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 or 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 administrative office. Split dollar arrangements may have tax consequences. You should consult a tax advisor before entering into a split dollar arrangement. Suicide Exclusion If either joint 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 within such two year period, less any outstanding loans, and less any cash withdrawals. We will pay this amount to the beneficiary in one sum. If the Policy lapsed, we will measure the suicide period from the reinstatement date. Misstatement of Age or Gender If the age or gender of either joint insured was stated incorrectly in the application or any supplemental application, then the death benefit will be adjusted based on what the cost 61 of insurance charge for the most recent monthly deduction would have purchased based on the joint insured's correct age and gender. Modifying the Policy Only our President or Secretary may modify this Policy or waive any of our rights or requirements under this Policy. Any modification or waiver must be in writing. No agent may bind us by making any promise not contained in this Policy. If we modify the Policy, we will provide you notice and we will make appropriate endorsements to the Policy. Benefits at Maturity If either joint insured is living, the Policy is in force, and you have not purchased the Death Benefit Extension Rider to extend your coverage, the Policy will mature on the Policy anniversary nearest the younger joint insured's 100th 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, 2000, 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 after May 1, 2000, 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 (other than the Adjustable Term Insurance Rider and Death Benefit Extension Rider) will terminate on that date and will not be extended. Interest on any outstanding Policy loans will continue to accrue during the period for which the maturity date is extended. You must submit a written request for the extension between 90 and 180 days prior to the maturity date and elect one of the following: 1. If you had previously selected death benefit Option B, we will change the death benefit to Option A. On each valuation date, we will adjust the specified amount to equal the cash value, and the limitation percentage will be 100%. We will not permit you to make additional premium payments unless it is required to prevent the Policy from lapsing. We will waive all future monthly deductions; or 2. We will automatically extend the maturity date until the next Policy anniversary. You must submit a written request, between 90 and 180 days before each subsequent Policy anniversary, stating that you wish to extend the maturity date for another Policy year. All benefits and charges will continue as set forth in your Policy. We will adjust the annual cost of insurance rates using the then current cost of insurance rates. 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. 62 The tax consequences of extending the maturity date beyond the younger joint insured's 100th birthday are uncertain. You should consult a tax advisor as to those consequences. You will have additional flexibility at age 100 of the younger joint insured if you purchase the Death Benefit Extension Rider. See p. 68. Payments We Make We usually pay the amounts of any surrender, cash withdrawal, death benefit proceeds, or settlement options within seven business days after we receive all applicable written notices and/or due proofs of death at our office. However, we can postpone such payments if: o the NYSE is closed, other than customary weekend and holiday closing, or trading on the NYSE is restricted as determined by the SEC; or o the SEC permits, by an order, the postponement for the protection of policyowners; or o 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. 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 surviving insured dies, the beneficiary may apply the lump sum death benefit proceeds to one of the same settlement options. If the regular payment under a settlement option would be less than $20, we will instead pay the proceeds in one lump sum. We may make other settlement options available in the future. Once we begin making payments under a settlement option, you or the beneficiary will no longer have any value in the subaccounts or the fixed account. Instead, the only entitlement will be the amount of the regular payment for the period selected under the terms of the settlement option chosen. Depending upon the circumstances, the effective date of a settlement option is the surrender date or the surviving insured's date of death. Under any settlement option, the dollar amount of each payment will depend on four things: o the amount of the surrender or death benefit proceeds on the surrender date or surviving insured's date of death; 63 o the interest rate we credit on those amounts (we guarantee a minimum annual interest rate of 3%); o the mortality tables we use; and o the specific payment option(s) you choose. Option 1 - Equal o We will pay the proceeds, plus interest, in equal monthly Monthly Installments installments for a fixed period of your choice, but not for a Fixed Period longer than 240 months. o We will stop making payments once we have made all the payments for the period selected.
Option 2 - Equal At your or the beneficiary's direction, we will make equal Monthly Installments monthly installments: for Life (Life Income) o only for the life of the payee, at the end of which payments will end; or o 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 o until the total amount of all payments we have made equals the proceeds that were applied to the settlement option.
Option 3 - Equal o We will make equal monthly payments during the joint Monthly Installments for lifetime of two persons, first to a chosen payee, and then the Life of the Payee and to a co-payee, if living, upon the death of the payee. then to a Designated o Payments to the co-payee, if living, upon the payee's death Survivor (Joint and will equal the full amount made to the payee before the Survivor) payee's death.
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: (check) the current cash value (check) any activity since the last report (check) the current net surrender value (check) projected values (check) the current death benefit (check) investment experience of each subaccount (check) any outstanding loans (check) 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. We also will send copies of the annual and semi-annual report to shareholders for each portfolio in which you are indirectly invested. 64 Records We will maintain all records relating to the separate account and the fixed account. Policy Termination Your Policy will terminate on the earliest of: o the maturity date; o the end of the grace period; or o the date the surviving insured dies; o the date the Policy is surrendered.
Supplemental Benefits (Riders) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following supplemental benefits (riders) are available and may be added to a Policy. Monthly charges for these riders are deducted from cash value as part of the monthly deduction. The riders available with the Policies provide fixed benefits that do not vary with the investment experience of the separate account. For purposes of the riders, the face amount is the level term insurance amount we pay at death. These riders may not be available in all states. Joint Insured Term Rider This rider provides additional life insurance on the lives of both joint insureds. We will pay the rider's face amount when we receive proof that both joint insureds died while the rider was in force. The cost of insurance rates for this rider increase each year. For Policies with a specified amount of $1,000,000 or more, we generally charge a lower rate. This lower rate may not apply to Policies issued prior to January 1, 2001. This rider terminates on the younger joint insured's 95th birthday. Individual Insured Rider This rider provides additional life insurance on the life of either joint insured. We will pay the rider's face amount when we receive proof of the insured's death. On any Monthiversary while the rider is in force, you may replace it with a new Policy on the insured's life (without evidence of insurability). This rider terminates on the insured's 95th birthday. 65 Conditions to o your request must be in writing; replace the o the rider has not reached the anniversary nearest to the rider: insured's 70th birthday; o the new policy is any permanent insurance policy that we currently offer; o subject to the minimum specified amount requirements 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 o we will base your premium on the insured's rate class under the rider.
Wealth Protector Rider This rider provides additional life insurance on the lives of both joint insureds. This rider can only be added at issue of your Policy. We will pay the rider's face amount when we receive proof that both joint insureds died while the rider was in force. This rider has no conversion or exchange privilege. The rider will terminate on the earliest of: o the date the Policy terminates; o the fourth Policy anniversary; or o the Monthiversary after we receive your written request to terminate the rider. The cost of insurance rates do not increase while this rider is in force. 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 surviving 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: o the death benefit on the date we pay the single-sum benefit; multiplied by o the election percentage of the death benefit you elect to receive; divided by o 1 + i ("i" equals the current yield on 90-day Treasury bills or the Policy loan interest rate, whichever is greater); minus o any indebtedness at the time we pay the single-sum benefit, multiplied by the election percentage. The maximum terminal illness death benefit we will pay is equal to: o the death benefit available under the Policy at the surviving insured's death; plus o the benefit available under any joint insured Term Rider or Wealth Protector Rider in force. 66 o a single-sum benefit may not be greater than $500,000. The election percentage is a percentage that you select. It may not be greater than 100% of your Policy's death benefit under the rider. We will not pay a benefit under the rider if the surviving insured's terminal condition results from self-inflicted injuries which occur during the period specified in your Policy's suicide provision. The rider terminates at the earliest of: o the date the Policy terminates; o the date a settlement option takes effect; o the date we pay a single-sum benefit; or o the date you terminate the rider. We do not charge for this rider. This rider may not be available in all states, or its terms may vary depending on a state's insurance law requirements. Adjustable Term Insurance Rider ("ATIR") The ATIR provides a death benefit upon the death of the surviving insured that is in addition to the death benefit under the Base Policy. This rider can only be added at issue of your Policy and for issue ages 18 through 85 provided the younger joint insured age is no greater than 80, and the sum of the joint insureds' age in not more than 160 years. The amount of the death benefit payable under the rider adjusts over time, subject to the terms of the rider and the Policy. This rider is not available in all states and currently may not be available through all distribution channels. We require an initial minimum ATIR target death benefit of $4,000. We cap the ATIR death benefit at four (4) times the total of the Base Policy's specified amount and the amount of the Joint Insured Term Rider coverage. In other words, if the Base Policy's specified amount is $1,000,000 and your Joint Insured Term Rider face amount is $500,000, the maximum ATIR death benefit will be $6,000,000. Underwriting may place further limitations on the maximum ATIR death benefit. ATIR Death Benefit Upon our receipt of due proof that the surviving insured's death occurred while the ATIR was in force, the amount of the death benefit payable under the ATIR will generally be the lesser of: o the ATIR target death benefit you selected at the rider's issue, as shown on the target death benefit page attached to your Policy; or o the return of premium(s) you paid on the Policy up to an annual maximum, plus interest.
The death benefit on the ATIR will automatically decrease on a dollar-for-dollar basis when the Base Policy death benefit is increased due to the operation of the "limitation 67 percentage" required by federal tax requirements. It is possible that the amount of the ATIR death benefit may be zero if your Base Policy death benefit increases enough. Even when the ATIR death benefit is reduced to zero by virtue of the operation of the "limitation percentage," your rider remains in effect until you remove it from your Policy. If later the Base Policy death benefit drops, the ATIR coverage reappears. At the younger joint insured's age 95, when the JIR terminates, the face amount of coverage under that rider may be added to coverage under the ATIR and the ATIR charge will apply to the transferred coverage. ATIR charge The ATIR charge is a cost of insurance charge that is calculated by multiplying the monthly cost of insurance rate for the ATIR by the ATIR death benefit in effect on each Monthiversary. The cost of insurance rates for the ATIR are based on both insureds' issue age, gender, rate class, and length of time that the rider has been in force. We deduct the charge from each subaccount and the fixed account in accordance with your current premium allocation instructions.
The total charges you pay may be less if you have greater coverage under an ATIR rather than under the Base Policy and the JIR. The monthly guaranteed maximum costs of insurance rates for this rider are in your Policy. This rider is not available if you have chosen: -> Death Benefit Option B. The rider does not contribute to the Policy's cash value or cash surrender value. It cannot be used for a Policy loan. We do not assess any additional surrender charge for the ATIR. The rider will terminate on the earliest of: -> the date the Policy terminates; -> the effective date of any change in the Death Benefit Option type under the Policy; -> the Monthiversary when the rider terminates at the owner's written request; or -> the anniversary nearest the maturity date if maturity is elected under the Base Policy or if you elect to continue coverage after maturity with the Base Policy death benefit equal to the cash value (Option 1 under Benefits at Maturity on page 59). At attained age 100 of the younger joint insured, if the Death Benefit Extension Rider is on the Policy, any death benefit associated with the ATIR will become part of the Base Policy's specified amount. Death Benefit Extension Rider This rider will extend the life insurance coverage past the younger joint insured's attained age 100 with no administrative or cost of insurance charges at or after the younger 68 joint insured's attained age 100. Only the then current mortality and risk charge associated with the Base Policy will apply. This rider can be elected at issue or, if then available, at any time prior to the younger joint insured's attained age 81. This rider is not available in all states and currently may not be available through all distribution channels. With this rider on your Policy, life insurance coverage automatically extends on the maturity date (the date the younger joint insured attains age 100 or would have attained age 100 if the older insured is still alive at such time) set forth in your Policy. At the younger joint insured's attained age 100, we will discontinue taking monthly deductions for cost of insurance and administrative charges. Death Benefit Extension o The rider is pre-funded. The charge is deducted from your Rider charge Policy's cash value each month from the date the rider is issued until the younger joint insured's attained age 100; o The charge is added to the cost of insurance charges deducted each month for the Base Policy, any ATIR and any Joint Insured Term Rider; and o The charge is based on age when the rider is issued. o These charges may extend over a long period of time and may be significant. You should examine these charges carefully before you purchase this rider.
Conditions on and after o All riders will terminate and the death benefit under the age 100 of younger joint ATIR will be added to the Base Policy's specfied amount. insured o No future premium payments will be accepted without our consent unless required to prevent lapse of the Policy. Additional loan payments may be necessary to keep the Policy in force. o Loan interest will continue to accumulate on any outstand- ing Policy loans. o The death benefit may not be increased or decreased.
IMSA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We are a member of the Insurance Marketplace Standards Association ("IMSA"). IMSA is an independent, voluntary organization of life insurance companies. It promotes high ethical standards in the sales and advertising of individual life insurance and annuity products. Companies must undergo a rigorous self and independent assessment of their practices to become a member of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to these standards. 69 Performance Data - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Rates of Return This section shows the historical investment experience of the portfolios based on the portfolios' historical investment experience. This information does not represent or project future investment performance. We base the rates of return that we show below on each portfolio's actual investment performance. We deduct investment management fees and direct fund expenses. The rates are actual average annual total return for the periods ended on December 31, 1999. These rates of return do not reflect any charges that are deducted under the Policy or from the separate account (such as the annual mortality and expense risk charge, the 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. 70 Average Annual Total Return For the Periods Ended on December 31, 1999
Inception Fund Portfolio Inception 10 Years 5 Years 3 Years 1 Year Date - ------------------------------------------- ------------- ---------- ----------- --------- ----------- ------------- WRL VKAM Emerging Growth .................. 32.64% N/A 42.96% 50.69% 105.16% 03/01/1993 WRL T. Rowe Price Small Cap ............... 38.49% N/A N/A N/A N/A 05/03/1999 WRL Goldman Sachs Small Cap ............... 17.82% N/A N/A N/A N/A 05/03/1999 WRL Pilgrim Baxter Mid Cap Growth ......... 78.00% N/A N/A N/A N/A 05/03/1999 WRL Alger Aggressive Growth ............... 30.35% N/A 36.62% 46.16% 69.02% 03/01/1994 WRL Third Avenue Value .................... 3.84% N/A N/A N/A 15.72% 01/02/1998 WRL GE International Equity ............... 14.90% N/A N/A N/A 24.95% 01/02/1997 WRL Janus Global .......................... 27.91% N/A 32.94% 38.24% 71.10% 12/03/1992 WRL Janus Growth .......................... 23.47% 23.62% 39.89% 45.60% 59.67% 10/02/1986 WRL Goldman Sachs Growth .................. 17.50% N/A N/A N/A N/A 05/03/1999 WRL GE U.S. Equity ........................ 22.76% N/A N/A N/A 18.41% 01/02/1997 WRL Salomon All Cap ....................... 15.57% N/A N/A N/A N/A 05/03/1999 WRL C.A.S.E. Growth ....................... 18.80% N/A N/A 16.41% 33.84% 05/01/1995 WRL Dreyfus Mid Cap ....................... 7.20% N/A N/A N/A N/A 05/03/1999 WRL NWQ Value Equity ...................... 10.76% N/A N/A 8.73% 7.95% 05/01/1996 WRL T. Rowe Price Dividend Growth ......... (7.40)% N/A N/A N/A N/A 05/03/1999 WRL Dean Asset Allocation ................. 10.38% N/A N/A 6.02% (5.64)% 01/03/1995 WRL LKCM Strategic Total Return ........... 13.82% N/A 16.50% 14.40% 12.07% 03/01/1993 WRL J.P. Morgan Real Estate Securities ............................... (11.31)% N/A N/A N/A (3.77)% 05/01/1998 WRL Federated Growth & Income ............. 8.82% N/A 11.41% 7.07% (4.45)% 03/01/1994 WRL AEGON Balanced ........................ 8.53% N/A 11.34% 8.86% 3.03% 03/01/1994 WRL AEGON Bond ............................ 7.03% 7.33% 7.36% 5.02% (2.94)% 10/02/1986 WRL J.P. Morgan Money Market* ............. 5.00% 4.67% 5.11% 5.04% 4.63% 10/02/1986 S&P 500 ................................... 18.11% 18.20% 28.54% 27.56% 21.04% 10/02/1986
*Yield more closely reflects the current earnings than its total return. Because WRL Great Companies -- America(SM), WRL Great Companies -- Technology(SM), WRL Value Line Aggressive Growth, WRL Great Companies -- Global2, WRL Gabelli Global Growth, WRL LKCM Capital Growth portfolios, Fidelity VIP Equity-Income Portfolio -- Service Class 2, Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2, and Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 had not commenced operations as of December 31, 1999, the above chart does not reflect rates of return for these portfolios. The annualized yield for the WRL J.P. Morgan Money Market portfolio for the seven days ended December 31, 1999 was 5.15%. Additional information regarding the investment performance of the portfolios appears in the fund prospectuses, which accompany this prospectus. Hypothetical Illustrations Based on Subaccount Performance This section contains hypothetical illustrations of Policy values based on the historical experience of the subaccounts. We started selling the Policies in 1994. The separate account 71 and the WRL Fund commenced operations on October 2, 1986. The rates of return below show the actual investment experience of each subaccount for the periods shown. The illustrations of cash value and net surrender value below depict these Policy values as if you had purchased the Policy on the last valuation date prior to January 1 of the year after the subaccount began operations and had selected death benefit Option A. The illustrations are based on the historical investment experience of the subaccount indicated as of the last valuation date prior to January 1 of the year after the subaccount began operations. We assumed the rate of return for each subaccount in each calendar year to be uniformly earned throughout the year; however, the subaccount's actual performance did and will vary throughout the year. In order to demonstrate how the actual investment experience of the subaccounts could have affected the Option A death benefit, cash value and net surrender value of the Policy, we provide hypothetical illustrations for a hypothetical insured. These hypothetical illustrations are designed to show the performance that could have resulted if the hypothetical insured had held the Policy during the period illustrated. These illustrations do not represent what may happen in the future. The amounts we show for death benefits, cash values, and net surrender values take into account all charges and deductions from the Policy, the separate account, and the subaccounts. For each subaccount, we base one illustration on the guaranteed cost of insurance rates and one on the current cost of insurance rates, for a hypothetical male and female joint insureds both age 55. The joint insured's age, gender and rate class, amount and timing of premium payments, cash withdrawals, and loans would affect individual Policy benefits. For each subaccount, the illustrations below assume death benefit Option A was selected based on an annual premium of $4,000, a specified amount of $250,000 for a male age 55, and a female age 55, and a non-tobacco use, select rate class. The following example shows how the hypothetical net return of the WRL Janus Growth subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1987. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. 72 WRL JANUS GROWTH Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1988 ..................................... 3,930 3,930 1,620 1,620 1989 ..................................... 8,801 8,801 6,151 6,151 1990 ..................................... 17,996 17,996 15,178 15,178 1991 ..................................... 21,229 21,229 18,243 18,243 1992 ..................................... 39,149 39,149 35,995 35,995 1993 ..................................... 43,159 43,154 39,837 39,831 1994 ..................................... 47,926 47,906 44,436 44,416 1995 ..................................... 46,518 46,476 42,860 42,818 1996 ..................................... 72,656 72,548 68,830 68,722 1997 ..................................... 88,718 88,534 84,724 84,540 1998 ..................................... 107,377 107,065 104,047 103,735 1999 ..................................... 180,840 180,176 178,242 177,578 2000 ..................................... 292,024 290,871 290,224 289,071
* For the years shown, benefits and values reflect only premiums paid during previous Policy years. 73 The following example shows how the hypothetical net return of the WRL AEGON Bond subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1987. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL AEGON BOND Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1988 ..................................... $ 3,330 $ 3,330 $ 1,020 $ 1,020 1989 ..................................... 7,343 7,343 4,693 4,693 1990 ..................................... 12,346 12,347 9,528 9,528 1991 ..................................... 16,656 16,656 13,670 13,670 1992 ..................................... 23,685 23,685 20,531 20,530 1993 ..................................... 28,659 28,653 25,336 25,330 1994 ..................................... 35,975 35,952 32,484 32,462 1995 ..................................... 36,180 36,134 32,522 32,476 1996 ..................................... 48,060 47,958 44,234 44,132 1997 ..................................... 50,798 50,635 46,804 46,640 1998 ..................................... 58,568 58,271 55,239 54,941 1999 ..................................... 67,023 66,498 64,425 63,899 2000 ..................................... 67,555 66,758 65,756 64,959
* For the years shown, benefits and values reflect only premiums paid during previous Policy years. 74 The following example shows how the hypothetical net return of the WRL J.P. Morgan Money Market subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1987. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL J.P. MORGAN MONEY MARKET Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1988 ..................................... $ 3,701 $ 3,701 $ 1,391 $ 1,391 1989 ..................................... 7,596 7,596 4,946 4,946 1990 ..................................... 11,904 11,904 9,086 9,086 1991 ..................................... 16,327 16,327 13,341 13,341 1992 ..................................... 20,611 20,611 17,457 17,457 1993 ..................................... 24,502 24,496 21,180 21,173 1994 ..................................... 28,261 28,239 24,771 24,749 1995 ..................................... 32,326 32,276 28,668 28,618 1996 ..................................... 37,111 37,015 33,285 33,189 1997 ..................................... 41,870 41,704 37,876 37,710 1998 ..................................... 47,114 46,816 43,784 43,486 1999 ..................................... 52,530 52,007 49,932 49,409 2000 ..................................... 57,775 56,909 55,976 55,110
* For the years shown, benefits and values reflect only premiums paid during previous Policy years. The following example shows how the hypothetical net return of the WRL Janus Global subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1993. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL JANUS GLOBAL Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1994 ..................................... $ 4,807 $ 4,807 $ 2,497 $ 2,497 1995 ..................................... 8,293 8,293 5,643 5,643 1996 ..................................... 14,420 14,420 11,602 11,602 1997 ..................................... 22,688 22,688 19,702 19,702 1998 ..................................... 30,767 30,767 27,613 27,613 1999 ..................................... 44,066 44,059 40,743 40,737 2000 ..................................... 80,563 80,534 77,072 77,044
* For the years shown, benefits and values reflect only premiums paid during previous Policy years. 75 The following example shows how the hypothetical net return of the WRL VKAM Emerging Growth subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1994. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL VKAM EMERGING GROWTH Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1995 ..................................... $ 3,269 $ 3,269 $ 959 $ 959 1996 ..................................... 9,956 9,956 7,306 7,306 1997 ..................................... 15,885 15,885 13,067 13,067 1998 ..................................... 23,329 23,329 20,343 20,343 1999 ..................................... 36,480 36,480 33,326 33,326 2000 ..................................... 81,286 81,278 77,964 77,956
* For the years shown, benefits and values reflect only premiums paid during previous Policy years. The following example shows how the hypothetical net return of the WRL LKCM Strategic Total Return subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1994. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL LKCM STRATEGIC TOTAL RETURN Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1995 ..................................... $ 3,516 $ 3,516 $ 1,206 $ 1,206 1996 ..................................... 8,743 8,743 6,093 6,093 1997 ..................................... 13,981 13,981 11,163 11,163 1998 ..................................... 21,105 21,105 18,118 18,118 1999 ..................................... 26,672 26,672 23,518 23,518 2000 ..................................... 33,406 33,399 30,083 30,077
* For the years shown, benefits and values reflect only premiums paid during previous Policy years. 76 The following example shows how the hypothetical net return of the WRL Alger Aggressive Growth subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL ALGER AGGRESSIVE GROWTH Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1996 ..................................... $ 4,915 $ 4,915 $ 2,605 $ 2,605 1997 ..................................... 9,266 9,266 6,616 6,616 1998 ..................................... 15,759 15,759 12,941 12,941 1999 ..................................... 28,407 28,407 25,421 25,421 2000 ..................................... 53,455 53,455 50,300 50,300
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. The following example shows how the hypothetical net return of the WRL Dean Asset Allocation subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL DEAN ASSET ALLOCATION Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1996 ..................................... $ 4,264 $ 4,264 $ 1,954 $ 1,954 1997 ..................................... 8,864 8,864 6,214 6,214 1998 ..................................... 14,315 14,315 11,497 11,497 1999 ..................................... 19,107 19,107 16,121 16,121 2000 ..................................... 21,065 21,065 17,910 17,910
* For the years shown, benefits and values reflect only premiums paid during previous Policy years. 77 The following example shows how the hypothetical net return of the WRL Federated Growth & Income subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL FEDERATED GROWTH & INCOME Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1996 ..................................... $ 4,451 $ 4,451 $ 2,141 $ 2,141 1997 ..................................... 8,854 8,854 6,204 6,204 1998 ..................................... 15,301 15,301 12,483 12,483 1999 ..................................... 19,175 19,175 16,189 16,189 2000 ..................................... 21,396 21,396 18,242 18,242
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. The following example shows how the hypothetical net return of the WRL AEGON Balanced subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL AEGON BALANCED Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1996 ..................................... $ 4,253 $ 4,253 $ 1,943 $ 1,943 1997 ..................................... 8,562 8,562 5,912 5,912 1998 ..................................... 14,028 14,028 11,210 11,210 1999 ..................................... 18,554 18,554 15,568 15,568 2000 ..................................... 22,449 22,449 19,295 19,295
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. 78 The following example shows how the hypothetical net return of the WRL C.A.S.E. Growth subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1996. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL C.A.S.E. GROWTH Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1997 ..................................... $ 4,170 $ 4,170 $ 1,860 $ 1,860 1998 ..................................... 8,804 8,804 6,154 6,154 1999 ..................................... 12,507 12,507 9,688 9,688 2000 ..................................... 21,241 21,241 18,254 18,254
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. The following example shows how the hypothetical net return of the WRL GE International Equity subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1997. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL GE INTERNATIONAL EQUITY Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1998 ..................................... $ 3,807 $ 3,807 $ 1,497 $ 1,497 1999 ..................................... 8,230 8,230 5,580 5,580 2000 ..................................... 14,566 14,566 11,747 11,747
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. 79 The following example shows how the hypothetical net return of the WRL GE U.S. Equity subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1997. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL GE U.S. EQUITY Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1998 ..................................... $ 4,515 $ 4,515 $ 2,205 $ 2,205 1999 ..................................... 9,832 9,832 7,182 7,182 2000 ..................................... 15,676 15,676 12,858 12,858
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. The following example shows how the hypothetical net return of the WRL NWQ Value Equity subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1997. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL NWQ VALUE EQUITY Male, Issue Age 55, Female, Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1998 ..................................... $ 4,443 $ 4,443 $2,133 $2,133 1999 ..................................... 7,528 7,528 4,878 4,878 2000 ..................................... 11,815 11,815 8,997 8,997
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. 80 The following example shows how the hypothetical net return of the WRL Third Avenue Value subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1998. This example assumes that net premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL THIRD AVENUE VALUE Male Issue Age 55, Female Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 1999 ..................................... $3,288 $3,288 $ 978 $ 978 2000 ..................................... 7,846 7,846 5,196 5,196
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. The following example shows how the hypothetical net return of the WRL J.P. Morgan Real Estate Securities subaccount would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1999. This example assumes that premiums and cash values were in the subaccount for the entire period and that the values were determined on each Policy anniversary thereafter. WRL J.P. MORGAN REAL ESTATE SECURITIES Male Issue Age 55, Female Issue Age 55, $4,000 Annual Premium ($250,000 Specified Amount, Non-Tobacco Use Select Class) Death Benefit Option A Both Current and Guaranteed Cost of Insurance Rates
Cash Value Net Surrender Value ------------------------ ----------------------- Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed - ------------------------------------------ --------- ------------ --------- ----------- 2000 ..................................... $3,567 $3,567 $1,257 $1,257
* For each year shown, benefits and values reflect only premiums paid during previous Policy years. Because the WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap subaccounts did not commence operations until May 3, 1999, the Fidelity VIP Equity-Income Portfolio - -- Service Class 2, Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2 and Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2, WRL Great Companies -- America(SM), WRL Great Companies -- Technology(SM), and WRL Value Line Aggressive Growth subaccounts did not commence operations until May 1, 2000, the WRL Great Companies -- Global2 and WRL Gabelli Global Growth subaccounts did not commence operations until September 1, 2000, and the WRL LKCM Capital Growth subaccount did not commence operations until December 1, 2000, there are no hypothetical illustrations for these subaccounts. 81 Other Performance Data in Advertising Sales Literature We may compare each subaccount's performance to the performance of: o other variable life issuers in general; o 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. o 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 o other types of investments, such as: -> certificates of deposit; -> savings accounts and U.S. Treasuries; -> certain interest rate and inflation indices (e.g., the Consumer Price Index); or -> indices measuring the performance of a defined group of securities recognized by investors as representing a particular segment of the securities markets (e.g., Donoghue Money Market Institutional Average, Lehman Brothers Corporate Bond Index, or Lehman Brothers Government Bond Index). Western Reserve's Published Ratings We may publish in advertisements, sales literature, or reports we send to you the ratings and other information that an independent ratings organization assigns to us. These organizations include: A.M. Best Company, Moody's Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Duff & Phelps Credit Rating Co. 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 fund or its portfolios, or to their performance. 82 Additional Information - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Sale of the Policies The Policy will be sold by individuals who are licensed as our life insurance agents and who are also registered representatives of broker-dealers having written sales agreements for the Policy with AFSG Securities Corporation ("AFSG"), the principal underwriter of the Policy. AFSG 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. 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: o 65% of all premiums you make during the first Policy year, plus o 2.50% of all premiums you make during Policy years 2 through 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 $10,000. In addition, certain production, persistency and managerial bonuses may be paid. Legal Matters Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on certain matters relating to the federal securities laws. All matters of Ohio law pertaining to the Policy have been passed upon by Thomas E. Pierpan, Senior Vice President, Assistant Secretary and General Counsel of Western Reserve. Legal Proceedings Western Reserve, like other life insurance companies, is involved in lawsuits, including class action lawsuits. In some lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, at the present time, it appears that there are no pending or threatened lawsuits that are likely to have a material adverse impact on the separate account, on AFSG's ability to perform under its principal underwriting agreement, or on Western Reserve's ability to meet it obligations under the Policy. Variations in Policy Provisions Certain provisions of the Policy may vary from the descriptions in this prospectus, depending on when and where the Policy was issued, in order to comply with different state laws. These variations may include restrictions on use of the fixed account and different interest rates charged and credited on Policy loans. Please refer to your Policy, since any variations will be included in your Policy or in riders or endorsements attached to your Policy. 83 Experts The financial statements of WRL Series Life Account as of December 31, 1999 and for the year then ended included in this prospectus and registration statement have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. The statutory-basis financial statements and schedules of Western Reserve at December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, appearing in this prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein which is based in part on the report of PricewaterhouseCoopers LLP, independent certified public accountants. The financial statements and schedules referred to above are included in reliance upon such report, given upon the authority of such firm, as experts in auditing and accounting. Actuarial matters included in this prospectus and Registration Statement have been examined by Alan Yaeger as stated in the opinion filed as an exhibit to the Registration Statement. Financial Statements Western Reserve's financial statements appear on the following pages. These financial statements should be distinguished from the separate account's financial statements and you should consider these financial statements only as bearing upon Western Reserve's ability to meet our obligations under the Policies. Western Reserve's financial statements as of June 30, 2000 and for the six months then ended (unaudited) and as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, have been prepared on the basis of statutory accounting principles rather than generally accepted accounting principles. 84 Additional Information about Western Reserve Western Reserve is a stock life insurance company that is wholly-owned by First AUSA Life Insurance Company, which, in turn, is wholly-owned indirectly by AEGON USA, Inc. Western Reserve's office is located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202, and the mailing address is P.O. Box 5068, Clearwater, Florida 33758-5068. Western Reserve was incorporated in 1957 under the laws of Ohio and is subject to regulation by the Insurance Department of the State of Ohio, as well as by the insurance departments of all other states and jurisdictions in which it does business. Western Reserve is licensed to sell insurance in all states (except New York), Puerto Rico, Guam, and in the District of Columbia. Western Reserve submits annual statements on its operations and finances to insurance officials in all states and jurisdictions in which it does business. The Policy described in this prospectus has been filed with, and where required, approved by, insurance officials in those jurisdictions in which it is sold. 85 Western Reserve's Directors and Officers We are governed by a board of directors. The following table sets forth the name, address and principal occupation during the past five years of each of our directors. Board of Directors
- ---------------------------------------------------------------------------------------------------- Principal Occupation Name and Address Position with Western Reserve During Past 5 years - ---------------------------------------------------------------------------------------------------- John R. Kenney Chairman of the Board and Chairman of the Board, and 570 Carillon Parkway Chief Executive Officer President of WRL Series Fund, St. Petersburg, Florida 33716 Inc. (1993 - present); Chairman of the Board of IDEX Mutual Funds (1990 - present); Chair- man of the Board of WRL Investment Management, Inc. (1996 - present); and Chairman of the Board of WRL Investment Services, Inc. (1996 - present). - ---------------------------------------------------------------------------------------------------- Jerome C. Vahl Director and President Executive Vice President (1998 - 570 Carillon Parkway 1999), Vice President (1995 - St. Petersburg, Florida 33716 1998), Assistant Vice President (1994 - 1995) of Western Reserve; Vice President and Manager Corporate Projects (1991 - 1996), and Manager Tax and Technical (1986 - 1991) of AEGON USA, Inc. - ---------------------------------------------------------------------------------------------------- Jack E. Zimmerman Director Trustee, IDEX Mutual Funds 507 St. Michel Circle (1987 - present); retired from Kettering, Ohio 45429 Martin Marietta (1993). - ---------------------------------------------------------------------------------------------------- Lyman H. Treadway Director Retired Consultant. 30195 Chagrin Blvd., Ste. 210N Cleveland, Ohio 44124 - ---------------------------------------------------------------------------------------------------- James R. Walker Director Self-employed, Public 3320 Office Park Dr. Accountant (1996 - present); Dayton, Ohio 45439 Partner, Walker-Davis C.P.A.'s, Dayton, Ohio (1990 - 1995). - ----------------------------------------------------------------------------------------------------
86 The following table gives the name, address and principal occupation during the past five years of the principal officers of Western Reserve (other than officers listed above as directors). Principal Officers
- ---------------------------------------------------------------------------------------------------- Principal Occupation Name and Address Position with Western Reserve During Past 5 years - ---------------------------------------------------------------------------------------------------- Alan M. Yaeger* Executive Vice President, Executive Vice President of WRL Actuary and Chief Series Fund, Inc. (1993 - present); Financial Officer Director of WRL Investment Management, Inc. (1996 - present); Director of WRL Investment Services, Inc. (1996 - present). - ---------------------------------------------------------------------------------------------------- William H. Geiger* Senior Vice President, Secretary, Senior Vice President, Secretary, Corporate Counsel and Group Vice Corporate Counsel, and Group Vice President -- Compliance President-Compliance (1998 - present); Senior Vice President, Secretary, General Counsel and Group Vice President-Compliance (1996 - 1998), Senior Vice President, Secretary, and General Counsel (1990 - 1996) of Western Reserve; Group Vice President-Compliance and Corporate Counsel (1996 - present) of AUSA Life Insurance Company, Inc., Bankers United Life Assurance Company, Life Investors Insurance Company of America, Monumental Life Insurance Company and PFL Life Insurance Company, subsidiaries of AEGON USA, Inc.; Assistant Secretary (1990 - present), Vice President and Assistant Secretary (1990 - 1997) of IDEX Mutual Funds; and Assistant Secretary (1994 - present) and Vice President and Assistant Secretary (1994 - 1997) of WRL Series Fund, Inc. - ---------------------------------------------------------------------------------------------------- Allan J. Hamilton* Vice President, Treasurer Vice President and Controller (1987 - and Controller present) Treasurer (1997 - present) of Western Reserve; Treasurer and Chief Financial Officer of WRL Series Fund, Inc. (1997 - present). - ----------------------------------------------------------------------------------------------------
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202. 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. 87 Additional Information about the Separate Account Western Reserve established the separate account as a separate investment account under Ohio law in 1985. We own the assets in the separate account and are obligated to pay all benefits under the Policies. The separate account is used to support other life insurance policies of Western Reserve, as well as for other purposes permitted by law. The separate account is registered with the SEC as a unit investment trust under the 1940 Act and qualifies as a "separate account" within the meaning of the federal securities laws. 88 Appendix A Illustrations - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following illustrations show how certain values under a sample Policy would change with different rates of fictional investment performance over an extended period of time. In particular, the illustrations show how the death benefit, cash value, and net surrender value under a Policy issued to an insured of a given age, would change over time if the premiums indicated were paid and the return on the assets in the subaccounts were a uniform gross annual rate (before any expenses) of 0%, 6% or 12%. The tables illustrate Policy values that would result based on assumptions that you pay the premiums indicated, you do not change your specified amount, and you do not take any cash withdrawals or Policy loans. The values under the Policy will be different from those shown even if the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout the years shown. We based the illustration on page 91 on a Policy for joint insureds who are a 55 year old male and a 55 year old female in the non-tobacco use, select rate class, annual premiums of $4,000, a $250,000 specified amount and death benefit Option A. The illustration on that page also assumes cost of insurance charges based on our current cost of insurance rates. The illustration on page 92 is based on the same factors as those on page 91, except that cost of insurance rates are based on the guaranteed cost of insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality Table). The amounts we show for the death benefits, cash values and net surrender values take into account (1) the daily charge for assuming mortality and expense risks assessed against each subaccount. This charge is equivalent to an annual charge of 0.90% of the average net assets of the subaccounts; (2) estimated daily expenses equivalent to an effective average annual expense level of 0.94% of the portfolios' average daily net assets; and (3) all applicable premium expense charges and cash value charges. The 0.94% average portfolio expense level assumes an equal allocation of amounts among the 31 of the subaccounts (this percentage does not include WRL Janus Global portfolio because effective September 1, 2000, this portfolio was no longer available to new investors). We used annualized actual audited expenses incurred during 1999 as shown in the Portfolio Annual Expense Table for the portfolios to calculate the average annual expense level. Because the WRL Great Companies -- America(SM), WRL Great Companies -- Technology(SM), WRL Value Line Aggressive Growth, WRL Great Companies -- Global2, WRL Gabelli Global Growth, WRL LKCM Capital Growth portfolios, Fidelity VIP Equity-Income Portfolio -- Service Class 2, Fidelity VIP II Contrafund(R) -- Service Class 2, and Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2 had not commenced operations as of December 31, 1999, the estimated average annual portfolio expense level reflects estimated expenses for each of these portfolios for 2000. During 1999, WRL Management undertook to pay those normal operating expenses of certain WRL portfolios that exceeded a certain stated percentage of those portfolios' average daily net assets. WRL Management has undertaken until at least April 30, 2001 to pay expenses to the extent normal operating expenses of certain portfolios of the WRL Fund exceed a stated percentage of the portfolio's average daily net assets. For details on these 89 expense limits, the amounts reimbursed by WRL Management during 1999, and the expense ratios without the reimbursements, see the Portfolio Annual Expense Table on p. 14 of this prospectus. Without these waivers and reimbursements, total annual expenses for the portfolios would have been greater, and the illustrations would have assumed that the assets in the portfolios were subject to an average annual expense level of 1.53%. Taking into account the assumed charges of 1.84%, the gross annual investment return rates of 0%, 6% and 12% are equivalent to net annual investment return rates of -1.84%, 4.16%, and 10.16%. The hypothetical returns shown in the tables are provided only to illustrate the mechanics of a hypothetical policy and do not represent past or future investment rates of return. Tax charges that may be attributable to the separate account are not reflected because we are not currently making such charges. In order to produce after tax returns of 0%, 6% or 12% if such charges are made in the future, the separate account would have to earn a sufficient amount in excess of 0%, 6% or 12% to cover any tax charges. The "Premium Accumulated at 5%" column of each table shows the amount which would accumulate if you invested an amount equal to the premium to earn interest at 5% per year, compounded annually. We will furnish, upon request, a comparable illustration reflecting the proposed insured's age, gender, risk classification and desired Policy features. 90 Western Reserve Life Assurance Co. of Ohio Male and Female Both Issue Age 55 $4,000 Annual Premium for Non-Smoker Select Rate Class $250,000 Specified Amount Option A - Level Death Benefit This illustration is based on CURRENT Cost of Insurance Rates.
Premiums NET Accumulated DEATH BENEFIT SURRENDER VALUE CASH VALUE End of at 5% Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Policy Interest Gross Annual Gross Annual Gross Annual Year Per Year Rate of Return of Rate of Return of Rate of Return of - -------- ------------- -------------------------------- -------------------------------- -------------------------------- 0% 6% 12% 0% 6% 12% 0% 6% 12% --------- --------- ------------ -------- ---------- ------------ -------- ---------- ------------ 1 4,200 250,000 250,000 250,000 1,191 1,410 1,630 3,501 3,720 3,940 2 8,610 250,000 250,000 250,000 4,261 4,918 5,602 6,911 7,568 8,252 3 13,241 250,000 250,000 250,000 7,408 8,725 10,150 10,226 11,543 12,968 4 18,103 250,000 250,000 250,000 10,456 12,659 15,139 13,443 15,645 18,125 5 23,208 250,000 250,000 250,000 13,401 16,718 20,606 16,555 19,873 23,760 6 28,568 250,000 250,000 250,000 16,242 20,908 26,601 19,565 24,230 29,923 7 34,196 250,000 250,000 250,000 18,974 25,225 33,170 22,464 28,715 36,660 8 40,106 250,000 250,000 250,000 21,587 29,665 40,364 25,245 33,323 44,022 9 46,312 250,000 250,000 250,000 24,069 34,222 48,239 27,896 38,048 52,065 10 52,827 250,000 250,000 250,000 26,408 38,887 56,853 30,402 42,881 60,847 15 90,630 250,000 250,000 250,000 42,419 70,720 121,190 42,419 70,720 121,190 20 138,877 250,000 250,000 250,000 51,975 103,942 219,830 51,975 103,942 219,830 25 200,454 250,000 250,000 400,745 57,341 143,175 381,662 57,341 143,175 381,662 30 279,043 250,000 250,000 674,457 54,668 189,660 642,340 54,668 189,660 642,340 35 379,345 250,000 261,637 1,112,687 37,887 249,178 1,059,702 37,887 249,178 1,059,702 40 507,359 * 328,186 1,749,742 * 324,936 1,732,417 * 324,936 1,732,417 45 670,741 * 420,125 2,836,352 * 420,125 2,836,352 * 420,125 2,836,352 Internal Rate of Internal Rate of Return on Net Internal Rate of Return on Cash Surrender Value Return on Value Assuming Assuming Death Benefit End of Hypothetical Hypothetical Assuming Hypothetical Policy Gross Annual Gross Annual Gross Annual Year Rate of Return of Rate of Return of Rate of Return of - -------- ------------------------ -------------------------- ------------------------------- 0% 6% 12% 0% 6% 12% 0% 6% 12% -------- ------- ------- -------- -------- -------- ---------- ---------- --------- 1 -12.48 -6.99 -1.50 -70.23 -64.74 -59.25 6,150.00 6,150.00 6,150.00 2 -9.37 -3.64 2.08 -35.32 -28.37 -21.53 642.15 642.15 642.15 3 -7.79 -1.93 3.93 -22.25 -15.11 -8.14 258.47 258.47 258.47 4 -6.85 -0.90 5.05 -16.31 -9.15 -2.20 148.92 148.92 148.92 5 -6.24 -0.21 5.80 -13.06 -5.92 1.00 100.39 100.39 100.39 6 -5.81 0.27 6.34 -11.06 -3.93 2.95 73.77 73.77 73.77 7 -5.51 0.63 6.74 -9.74 -2.61 4.24 57.22 57.22 57.22 8 -5.30 0.90 7.06 -8.83 -1.69 5.14 46.06 46.06 46.06 9 -5.15 1.10 7.30 -8.18 -1.01 5.80 38.07 38.07 38.07 10 -5.06 1.26 7.50 -7.72 -0.51 6.30 32.11 32.11 32.11 15 -4.47 2.03 8.37 -4.47 2.03 8.37 16.46 16.46 16.46 20 -4.32 2.43 8.88 -4.32 2.43 8.88 9.93 9.93 9.93 25 -4.61 2.66 9.21 -4.61 2.66 9.21 6.48 6.48 9.52 30 -5.72 2.81 9.40 -5.72 2.81 9.40 4.39 4.39 9.64 35 -9.26 3.00 9.50 -9.26 3.00 9.50 3.02 3.24 9.71 40 * 3.19 9.58 * 3.19 9.58 * 3.23 9.62 45 * 3.35 9.66 * 3.35 9.66 * 3.35 9.66
* In the absence of an additional payment, the Policy would lapse. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual investment rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations by an owner and different investment rates of return for the fund. The death benefit, cash value and net surrender value for a Policy would be different from those shown if the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below that average for individual Policy years. No representation can be made by Western Reserve or the fund that these hypothetical investment rates of return can be achieved for any one year or sustained over any period of time. This illustration must be preceded or accompanied by a current fund prospectus. 91 Western Reserve Life Assurance Co. of Ohio Male and Female Both Issue Age 55 $4,000 Annual Premium for Non-Smoker Select Rate Class $250,000 Specified Amount Option A - Level Death Benefit This illustration is based on GUARANTEED Cost of Insurance Rates.
Premiums NET Accumulated DEATH BENEFIT SURRENDER VALUE CASH VALUE End of at 5% Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Policy Interest Gross Annual Gross Annual Gross Annual Year Per Year Rate of Return of Rate of Return of Rate of Return of - -------- ------------- -------------------------------- -------------------------------- -------------------------------- 0% 6% 12% 0% 6% 12% 0% 6% 12% --------- --------- ------------ -------- ---------- ------------ -------- ---------- ------------ 1 4,200 250,000 250,000 250,000 1,191 1,410 1,630 3,501 3,720 3,940 2 8,610 250,000 250,000 250,000 4,261 4,918 5,602 6,911 7,568 8,252 3 13,241 250,000 250,000 250,000 7,408 8,725 10,150 10,226 11,543 12,968 4 18,103 250,000 250,000 250,000 10,456 12,659 15,139 13,443 15,645 18,125 5 23,208 250,000 250,000 250,000 13,401 16,718 20,606 16,555 19,873 23,760 6 28,568 250,000 250,000 250,000 16,236 20,901 26,594 19,558 24,223 29,916 7 34,196 250,000 250,000 250,000 18,952 25,203 33,147 22,443 28,693 36,637 8 40,106 250,000 250,000 250,000 21,538 29,615 40,312 25,196 33,273 43,971 9 46,312 250,000 250,000 250,000 23,977 34,126 48,139 27,804 37,952 51,965 10 52,827 250,000 250,000 250,000 26,250 38,720 56,680 30,244 42,714 60,674 15 90,630 250,000 250,000 250,000 40,427 68,670 119,239 40,427 68,670 119,239 20 138,877 250,000 250,000 250,000 41,486 93,587 212,307 41,486 93,587 212,307 25 200,454 250,000 250,000 385,203 21,216 109,924 366,860 21,216 109,924 366,860 30 279,043 * 250,000 640,664 * 101,681 610,156 * 101,681 610,156 35 379,345 * 250,000 1,030,718 * 6,778 981,636 * 6,778 981,636 40 507,359 * * 1,583,479 * * 1,567,801 * * 1,567,801 45 670,741 * * 2,569,302 * * 2,569,302 * * 2,569,302 Internal Rate of Internal Rate of Return on Net Internal Rate of Return on Cash Surrender Value Return on Value Assuming Assuming Death Benefit End of Hypothetical Hypothetical Assuming Hypothetical Policy Gross Annual Gross Annual Gross Annual Year Rate of Return of Rate of Return of Rate of Return of - -------- ------------------------- -------------------------- ------------------------------- 0% 6% 12% 0% 6% 12% 0% 6% 12% -------- -------- ------- -------- -------- -------- ---------- ---------- --------- 1 -12.48 -6.99 -1.50 -70.23 -64.74 -59.25 6,150.00 6,150.00 6,150.00 2 -9.37 -3.64 2.08 -35.32 -28.37 -21.53 642.15 642.15 642.15 3 -7.79 -1.93 3.93 -22.25 -15.11 -8.14 258.47 258.47 258.47 4 -6.85 -0.90 5.05 -16.31 -9.15 -2.20 148.92 148.92 148.92 5 -6.24 -0.21 5.80 -13.06 -5.92 1.00 100.39 100.39 100.39 6 -5.82 0.26 6.33 -11.08 -3.94 2.94 73.77 73.77 73.77 7 -5.53 0.61 6.73 -9.77 -2.63 4.22 57.22 57.22 57.22 8 -5.34 0.87 7.03 -8.88 -1.72 5.11 46.06 46.06 46.06 9 -5.22 1.05 7.27 -8.26 -1.07 5.76 38.07 38.07 38.07 10 -5.16 1.19 7.45 -7.83 -0.59 6.25 32.11 32.11 32.11 15 -5.12 1.67 8.19 -5.12 1.67 8.19 16.46 16.46 16.46 20 -6.78 1.47 8.59 -6.78 1.47 8.59 9.93 9.93 9.93 25 -15.67 0.72 8.96 -15.67 0.72 8.96 6.48 6.48 9.27 30 * -1.09 9.13 * -1.09 9.13 * 4.39 9.38 35 * -37.11 9.18 * -37.11 9.18 * 3.02 9.39 40 * * 9.22 * * 9.22 * * 9.26 45 * * 9.36 * * 9.36 * * 9.36
* In the absence of an additional payment, the Policy would lapse. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual investment rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations by an owner and different investment rates of return for the fund. The death benefit, cash value and net surrender value for a Policy would be different from those shown if the actual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below that average for individual Policy years. No representation can be made by Western Reserve or the fund that these hypothetical investment rates of return can be achieved for any one year or sustained over any period of time. This illustration must be preceded or accompanied by a current fund prospectus. 92 Appendix B Wealth Indices of Investments in the U.S. Capital Market - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The information below graphically depicts the growth of $1.00 invested in large company stocks, small company stocks, long-term government bonds, Treasury bills, and hypothetical asset returning the inflation rate over the period from the end of 1925 to the end of 1999. All results assume reinvestment of dividends on stocks or coupons on bonds and no taxes. Transaction costs are not included, except in the small stock index starting in 1982. Each of the cumulative index values is initialized at $1.00 at year-end 1925. The graph illustrates that large company stocks and small company stocks have the best performance over the entire 74-year period: investments of $1.00 in these assets would have grown to $2,845.63 and $6,640.79, respectively, by year-end 1999. This higher growth was earned by investments involving substantial risk. In contrast, long-term government bonds (with an approximate 20-year maturity), which exposed the holder to much less risk, grew to only $40.22. The lowest-risk strategy over the past 74 years (for those with short-term time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended to track inflation, the resulting real (inflation-adjusted) returns were near zero for the entire 1926 - 1999 period. 93 [GRAPHIC OMITTED] Compound Annual Rates of Return by Decade
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 18.2% Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.1 Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 8.3 Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 9.0 Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 7.2 Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9 Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 2.9
- ---------------- * Based on the period 1926-1929. Used with permission. (c)2000 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from copyrighted works of Roger G. Ibbotson and Rex Sinquefield.] 94 Index to Financial Statements - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WRL Series Life Account: Statements of Assets and Liabilities as of June 30, 2000 (unaudited) Statements of Operations for the six months ended June 30, 2000 (unaudited) Statements of Changes in Net Assets for the six months ended June 30, 2000 and year ended December 31, 1999 (unaudited) Financial Highlights for the period ended June 30, 2000 and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 (unaudited) Notes to Financial Statements (unaudited) Report of Independent Certified Public Accountants dated February 16, 2000 Statements of Assets and Liabilities as of December 31, 1999 Statements of Operations for the year ended December 31, 1999 Statements of Changes in Net Assets for the years ended December 31, 1999 and 1998 Financial Highlights for the periods ended December 31, 1999, 1998, 1997, 1996 and 1995 Notes to the Financial Statements Western Reserve Life Assurance Co. of Ohio Statutory-Basis Balance Sheet as of September 30, 2000 (unaudited) Statutory-Basis Statement of Operations for the nine months ended September 30, 2000 (unaudited) Statutory-Basis Statement of Changes in Capital and Surplus for the nine months ended September 30, 2000 (unaudited) Statutory-Basis Statement of Cash Flow for the nine months ended September 30, 2000 (unaudited) Note to Statutory-Basis Financial Statements (unaudited) Report of Independent Auditors dated February 18, 2000 Statutory-Basis Balance Sheets at December 31, 1999 and 1998 Statutory-Basis Statements of Operations for the years ended December 31, 1999, 1998 and 1997 Statutory-Basis Statements of Changes in Capital and Surplus for the years ended December 31, 1999, 1998 and 1997 Statutory-Basis Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Statutory-Basis Financial Statements Statutory-Basis Financial Statement Schedules WRL00053-11/2000 95 WRL Series Life Account Statements of Assets and Liabilities At June 30, 2000 All Amounts (except per unit amounts) in Thousands (unaudited)
WRL WRL WRL WRL WRL LKCM J.P. Morgan AEGON Janus Janus Strategic Money Market Bond Growth Global Total Return Subaccount Subaccount Subaccount Subaccount Subaccount Assets: Investment in securities: Number of shares ................................... 36,667 2,235 17,320 12,970 6,093 ======== ======= ======== ======== ======= Cost ............................................... $ 36,667 $ 25,615 $ 777,588 $ 297,376 $ 88,319 ========= ======== =========== ========= ========= Investment, at net asset value ...................... $ 36,667 $ 24,560 $ 1,324,348 $ 494,379 $ 100,376 Dividend receivable ................................. 216 0 0 0 0 Transfers receivable from depositor ................. 88 0 0 165 0 --------- -------- ----------- --------- --------- Total assets ....................................... 36,971 24,560 1,324,348 494,544 100,376 --------- -------- ----------- --------- --------- Liabilities: Accrued expenses .................................... 1 1 32 12 2 Transfers payable to depositor ...................... 0 10 73 0 65 --------- -------- ----------- --------- --------- Total liabilities .................................. 1 11 105 12 67 --------- -------- ----------- --------- --------- Net assets ......................................... $ 36,970 $ 24,549 $ 1,324,243 $ 494,532 $ 100,309 ========= ======== =========== ========= ========= Net Assets Consists of: Policy Owners' equity ............................... $ 36,970 $ 24,549 $ 1,324,243 $ 494,532 $ 100,309 Depositor's equity .................................. 0 0 0 0 0 --------- -------- ----------- --------- --------- Net assets applicable to units outstanding ......... $ 36,970 $ 24,549 $ 1,324,243 $ 494,532 $ 100,309 ========= ======== =========== ========= ========= Policy Owners' units ................................ 2,064 1,081 9,312 12,548 4,515 Depositor's units ................................... 0 0 0 0 0 --------- -------- ----------- --------- --------- Units outstanding .................................. 2,064 1,081 9,312 12,548 4,515 ========= ======== =========== ========= ========= Accumulation unit value ............................ $ 17.91 $ 22.70 $ 142.20 $ 39.41 $ 22.22 ========= ======== =========== ========= =========
See accompanying notes which are an integral part of the financial statements. 96 WRL Series Life Account Statements of Assets and Liabilities At June 30, 2000 All Amounts (except per unit amounts) in Thousands (unaudited)
WRL WRL WRL VKAM Alger WRL Federated WRL Emerging Aggressive AEGON Growth & Dean Asset Growth Growth Balanced Income Allocation Subaccount Subaccount Subaccount Subaccount Subaccount Assets: Investment in securities: Number of shares ................................... 14,390 11,673 1,498 1,754 2,395 ======= ======= ======= ======= ======= Cost ............................................... $ 562,185 $ 244,147 $ 18,313 $ 21,226 $ 32,491 ========= ========= ======== ======== ======== Investment, at net asset value ...................... $ 736,939 $ 359,912 $ 18,882 $ 20,442 $ 29,422 Dividend receivable ................................. 0 0 0 0 0 Transfers receivable from depositor ................. 18 91 0 0 0 --------- --------- -------- -------- -------- Total assets ....................................... 736,957 360,003 18,882 20,442 29,422 --------- --------- -------- -------- -------- Liabilities: Accrued expenses .................................... 18 8 1 1 1 Transfers payable to depositor ...................... 0 0 2 3 12 --------- --------- -------- -------- -------- Total liabilities .................................. 18 8 3 4 13 --------- --------- -------- -------- -------- Net assets ......................................... $ 736,939 $ 359,995 $ 18,879 $ 20,438 $ 29,409 ========= ========= ======== ======== ======== Net Assets Consists of: Policy Owners' equity ............................... $ 736,939 $ 359,995 $ 18,879 $ 20,438 $ 29,409 Depositor's equity .................................. 0 0 0 0 0 --------- --------- -------- -------- -------- Net assets applicable to units outstanding ......... $ 736,939 $ 359,995 $ 18,879 $ 20,438 $ 29,409 ========= ========= ======== ======== ======== Policy Owners' units ................................ 10,232 8,736 1,243 1,234 1,863 Depositor's units ................................... 0 0 0 0 0 --------- --------- -------- -------- -------- Units outstanding .................................. 10,232 8,736 1,243 1,234 1,863 ========= ========= ======== ======== ======== Accumulation unit value ............................ $ 72.02 $ 41.21 $ 15.19 $ 16.56 $ 15.79 ========= ========= ======== ======== ========
See accompanying notes which are an integral part of the financial statements. 97 WRL Series Life Account Statements of Assets and Liabilities At June 30, 2000 All Amounts (except per unit amounts) in Thousands (unaudited)
WRL WRL WRL WRL GE WRL Third C.A.S.E. NWQ International GE Avenue Growth Value Equity Equity U.S. Equity Value Subaccount Subaccount Subaccount Subaccount Subaccount Assets: Investment in securities: Number of shares ................................... 1,784 1,944 548 1,842 689 ===== ===== === ===== === Cost ............................................... $ 25,773 $ 26,435 $ 7,137 $ 27,374 $ 8,007 ======== ======== ======= ======== ======= Investment, at net asset value ...................... $ 27,735 $ 25,275 $ 7,852 $ 29,117 $ 8,869 Dividend receivable ................................. 0 0 0 0 0 Transfers receivable from depositor ................. 0 0 12 0 80 -------- -------- ------- -------- ------- Total assets ....................................... 27,735 25,275 7,864 29,117 8,949 -------- -------- ------- -------- ------- Liabilities: Accrued expenses .................................... 1 1 0 1 0 Transfers payable to depositor ...................... 99 4 0 121 0 -------- -------- ------- -------- ------- Total liabilities .................................. 100 5 0 122 0 -------- -------- ------- -------- ------- Net assets ......................................... $ 27,635 $ 25,270 $ 7,864 $ 28,995 $ 8,949 ======== ======== ======= ======== ======= Net Assets Consists of: Policy Owners' equity ............................... $ 27,635 $ 25,270 $ 7,864 $ 28,995 $ 8,949 Depositor's equity .................................. 0 0 0 0 0 -------- -------- ------- -------- ------- Net assets applicable to units outstanding ......... $ 27,635 $ 25,270 $ 7,864 $ 28,995 $ 8,949 ======== ======== ======= ======== ======= Policy Owners' units ................................ 1,689 1,771 534 1,617 689 Depositor's units ................................... 0 0 0 0 0 -------- -------- ------- -------- ------- Units outstanding .................................. 1,689 1,771 534 1,617 689 ======== ======== ======= ======== ======= Accumulation unit value ............................ $ 16.36 $ 14.27 $ 14.74 $ 17.93 $ 12.98 ======== ======== ======= ======== =======
See accompanying notes which are an integral part of the financial statements. 98 WRL Series Life Account Statements of Assets and Liabilities At June 30, 2000 All Amounts (except per unit amounts) in Thousands (unaudited)
WRL WRL WRL WRL WRL J.P. Morgan Goldman Goldman T. Rowe T. Rowe Real Estate Sachs Sachs Price Price Securities Growth Small Cap Dividend Growth Small Cap Subaccount Subaccount Subaccount Subaccount Subaccount Assets: Investment in securities: Number of shares ................................... 120 123 60 83 156 === === == == === Cost ............................................... $ 1,077 $ 1,351 $ 669 $ 747 $ 2,108 ======= ======= ======= ====== ======= Investment, at net asset value ...................... $ 1,114 $ 1,466 $ 695 $ 788 $ 2,233 Dividend receivable ................................. 0 0 0 0 0 Transfers receivable from depositor ................. 4 31 1 0 0 ------- ------- ------- ------ ------- Total assets ....................................... 1,118 1,497 696 788 2,233 ------- ------- ------- ------ ------- Liabilities: Accrued expenses .................................... 0 0 0 0 0 Transfers payable to depositor ...................... 0 0 0 38 3 ------- ------- ------- ------ ------- Total liabilities .................................. 0 0 0 38 3 ------- ------- ------- ------ ------- Net assets ......................................... $ 1,118 $ 1,497 $ 696 $ 750 $ 2,230 ======= ======= ======= ====== ======= Net Assets Consists of: Policy Owners' equity ............................... $ 748 $ 1,497 $ 696 $ 750 $ 2,230 Depositor's equity .................................. 370 0 0 0 0 ------- ------- ------- ------ ------- Net assets applicable to units outstanding ......... $ 1,118 $ 1,497 $ 696 $ 750 $ 2,230 ======= ======= ======= ====== ======= Policy Owners' units ................................ 81 131 62 81 170 Depositor's units ................................... 40 0 0 0 0 ------- ------- ------- ------ ------- Units outstanding .................................. 121 131 62 81 170 ======= ======= ======= ====== ======= Accumulation unit value ............................ $ 9.25 $ 11.39 $ 11.26 $ 9.32 $ 13.12 ======= ======= ======= ====== =======
See accompanying notes which are an integral part of the financial statements. 99 WRL Series Life Account Statements of Assets and Liabilities At June 30, 2000 All Amounts (except per unit amounts) in Thousands (unaudited)
WRL WRL WRL WRL WRL Great Salomon Pilgrim Baxter Dreyfus Value Line Companies - All Cap Mid Cap Growth Mid Cap Aggressive Growth America(SM) Subaccount Subaccount Subaccount Subaccount Subaccount Assets: Investment in securities: Number of shares ............................... 163 1,645 85 38 335 === ===== == == === Cost ........................................... $ 2,063 $ 34,956 $ 969 $ 388 $ 3,396 ======= ======== ======= ======= ======= Investment, at net asset value .................. $ 2,125 $ 35,830 $ 1,003 $ 400 $ 3,493 Dividend receivable ............................. 0 0 0 0 0 Transfers receivable from depositor ............. 41 81 0 22 78 ------- -------- ------- ------- ------- Total assets ................................... 2,166 35,911 1,003 422 3,571 ------- -------- ------- ------- ------- Liabilities: Accrued expenses ................................ 0 1 0 0 0 Transfers payable to depositor .................. 0 0 1 0 0 ------- -------- ------- ------- ------- Total liabilities .............................. 0 1 1 0 0 ------- -------- ------- ------- ------- Net assets ..................................... $ 2,166 $ 35,910 $ 1,002 $ 422 $ 3,571 ======= ======== ======= ======= ======= Net Assets Consists of: Policy Owners' equity ........................... $ 2,166 $ 35,910 $ 1,002 $ 213 $ 3,363 Depositor's equity .............................. 0 0 0 209 208 ------- -------- ------- ------- ------- Net assets applicable to units outstanding ..... $ 2,166 $ 35,910 $ 1,002 $ 422 $ 3,571 ======= ======== ======= ======= ======= Policy Owners' units ............................ 175 1,840 90 20 323 Depositor's units ............................... 0 0 0 20 20 ------- -------- ------- ------- ------- Units outstanding .............................. 175 1,840 90 40 343 ======= ======== ======= ======= ======= Accumulation unit value ........................ $ 12.39 $ 19.52 $ 11.07 $ 10.47 $ 10.40 ======= ======== ======= ======= =======
See accompanying notes which are an integral part of the financial statements. 100 WRL Series Life Account Statements of Assets and Liabilities At June 30, 2000 All Amounts (except per unit amounts) in Thousands (unaudited)
WRL Great Companies - Fidelity VIP III Fidelity VIP II Fidelity VIP Technology(SM) Growth Opportunities Contrafund(R) Equity-Income Subaccount Subaccount Subaccount Subaccount Assets: Investment in securities: Number of shares ................................... 89 7 8 2 == = = = Cost ............................................... $ 899 $ 143 $ 187 $ 44 ======= ======= ====== ====== Investment, at net asset value ...................... $ 924 $ 144 $ 188 $ 43 Dividend receivable ................................. 0 0 0 0 Transfers receivable from depositor ................. 74 11 10 0 ------- ------- ------ ------ Total assets ....................................... 998 155 198 43 ------- ------- ------ ------ Liabilities: Accrued expenses .................................... 0 0 0 0 Transfers payable to depositor ...................... 0 0 0 0 ------- ------- ------ ------ Total liabilities .................................. 0 0 0 0 ------- ------- ------ ------ Net assets ......................................... $ 998 $ 155 $ 198 $ 43 ======= ======= ====== ====== Net Assets Consists of: Policy Owners' equity ............................... $ 790 $ 130 $ 173 $ 18 Depositor's equity .................................. 208 25 25 25 ------- ------- ------ ------ Net assets applicable to units outstanding ......... $ 998 $ 155 $ 198 $ 43 ======= ======= ====== ====== Policy Owners' units ................................ 76 13 17 2 Depositor's units ................................... 20 3 3 3 ------- ------- ------ ------ Units outstanding .................................. 96 16 20 5 ======= ======= ====== ====== Accumulation unit value ............................ $ 10.39 $ 10.01 $ 9.98 $ 9.92 ======= ======= ====== ======
See accompanying notes which are an integral part of the financial statements. 101 WRL Series Life Account Statements of Operations For the Period Ended June 30, 2000 All Amounts in Thousands (unaudited)
WRL WRL WRL WRL WRL LKCM J.P. Morgan AEGON Janus Janus Strategic Money Market Bond Growth Global Total Return Subaccount Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ....................................... $ 1,291 $ 0 $ 0 $ 0 $ 0 Capital gain distributions ............................ 0 0 0 0 0 ------- ------ ---------- -------- --------- Total investment income .............................. 1,291 0 0 0 0 Expenses: Mortality and expense risk ............................ 203 113 6,111 2,198 450 ------- ------ ---------- -------- --------- Net investment income (loss) ......................... 1,088 (113) (6,111) (2,198) (450) ------- ------ ---------- -------- --------- Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ..... 0 (295) 37,485 4,113 2,093 Change in unrealized appreciation (depreciation) ...... 0 1,187 (62,675) 3,404 (4,502) ------- ------ ---------- -------- --------- Net gain (loss) on investment securities ............. 0 892 (25,190) 7,517 (2,409) ------- ------ ---------- -------- --------- Net increase (decrease) in net assets resulting from operations ................................... $ 1,088 $ 779 $ (31,301) $ 5,319 $ (2,859) ======= ====== ========== ======== =========
WRL WRL WRL VKAM Alger WRL Federated WRL Emerging Aggressive AEGON Growth & Dean Asset Growth Growth Balanced Income Allocation Subaccount Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ....................................... $ 0 $ 0 $ 0 $ 0 $ 0 Capital gain distributions ............................ 0 0 0 0 0 --------- ---------- ------- ------- ------ Total investment income .............................. 0 0 0 0 0 Expenses: Mortality and expense risk ............................ 3,190 1,668 83 78 138 --------- ---------- ------- ------- ------ Net investment income (loss) ......................... (3,190) (1,668) (83) (78) (138) --------- ---------- ------- ------- ------ Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ..... 157,837 3,282 164 (377) 26 Change in unrealized appreciation (depreciation) ...... (89,400) (31,360) (235) 1,480 320 --------- ---------- ------- ------- ------ Net gain (loss) on investment securities ............. 68,437 (28,078) (71) 1,103 346 --------- ---------- ------- ------- ------ Net increase (decrease) in net assets resulting from operations ................................... $ 65,247 $ (29,746) $ (154) $ 1,025 $ 208 ========= ========== ======= ======= ======
See accompanying notes which are an integral part of the financial statements. 102 WRL Series Life Account Statements of Operations For the Period Ended June 30, 2000 All Amounts in Thousands (unaudited)
WRL WRL WRL WRL GE WRL Third C.A.S.E. NWQ International GE Avenue Growth Value Equity Equity U.S. Equity Value Subaccount Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ....................................... $ 0 $ 0 $ 0 $ 0 $ 0 Capital gain distributions ............................ 0 0 0 0 0 ------- ------ ------ ------- ----- Total investment income .............................. 0 0 0 0 0 Expenses: Mortality and expense risk ............................ 117 114 36 118 25 ------- ------ ------ ------- ----- Net investment income (loss) ......................... (117) (114) (36) (118) (25) ------- ------ ------ ------- ----- Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ..... (234) (447) 259 265 474 Change in unrealized appreciation (depreciation) ...... 11 749 (212) (294) 472 ------- ------ ------ ------- ----- Net gain (loss) on investment securities ............. (223) 302 47 (29) 946 ------- ------ ------ ------- ----- Net increase (decrease) in net assets resulting from operations ................................... $ (340) $ 188 $ 11 $ (147) $ 921 ======= ====== ====== ======= =====
WRL WRL WRL WRL WRL J.P. Morgan Goldman Goldman T. Rowe T. Rowe Real Estate Sachs Sachs Price Price Securities Growth Small Cap Dividend Growth Small Cap Subaccount Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ....................................... $ 0 $ 0 $ 0 $ 0 $ 0 Capital gain distributions ............................ 0 0 0 0 0 ----- ----- ----- ----- ----- Total investment income .............................. 0 0 0 0 0 Expenses: Mortality and expense risk ............................ 4 6 3 3 7 ----- ----- ----- ----- ----- Net investment income (loss) ......................... (4) (6) (3) (3) (7) ------ ------ ------ ------ ------ Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ..... 76 18 9 (27) 62 Change in unrealized appreciation (depreciation) ...... 79 1 5 55 (15) ----- ----- ----- ----- ----- Net gain (loss) on investment securities ............. 155 19 14 28 47 ----- ----- ----- ----- ----- Net increase (decrease) in net assets resulting from operations ................................... $ 151 $ 13 $ 11 $ 25 $ 40 ===== ===== ===== ===== =====
See accompanying notes which are an integral part of the financial statements. 103 WRL Series Life Account Statements of Operations For the Period Ended June 30, 2000 All Amounts in Thousands (unaudited)
WRL WRL Salomon Pilgrim Baxter All Cap Mid Cap Growth Subaccount Subaccount Investment Income: Dividend income ....................................... $ 0 $ 0 Capital gain distributions ............................ 0 0 ----- ------ Total investment income .............................. 0 0 Expenses: Mortality and expense risk ............................ 5 92 ----- ------ Net investment income (loss) ......................... (5) (92) ------ ------ Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ..... 100 790 Change in unrealized appreciation (depreciation) ...... 44 (304) ----- ------ Net gain (loss) on investment securities ............. 144 486 ----- ------ Net increase (decrease) in net assets resulting from operations ................................... $ 139 $ 394 ===== ====== WRL WRL WRL Great Dreyfus Value Line Companies - Mid Cap Aggressive Growth America(SM) Subaccount Subaccount (1) Subaccount(1) Investment Income: Dividend income ....................................... $ 0 $ 0 $ 0 Capital gain distributions ............................ 0 0 0 ----- ----- ----- Total investment income .............................. 0 0 0 Expenses: Mortality and expense risk ............................ 3 1 4 ----- ----- ----- Net investment income (loss) ......................... (3) (1) (4) ------ ------ ------ Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ..... 39 0 2 Change in unrealized appreciation (depreciation) ...... 10 12 97 ----- ----- ----- Net gain (loss) on investment securities ............. 49 12 99 ----- ----- ----- Net increase (decrease) in net assets resulting from operations ................................... $ 46 $ 11 $ 95 ===== ===== =====
WRL Great Companies - Fidelity VIP III Fidelity VIP II Fidelity VIP Technology(SM) Growth Opportunities Contrafund(R) Equity-Income Subaccount(1) Subaccount(1) Subaccount(1) Subaccount (1) Investment Income: Dividend income ....................................... $ 0 $ 0 $ 0 $ 0 Capital gain distributions ............................ 0 0 0 0 ----- ----- ----- ----- Total investment income .............................. 0 0 0 0 Expenses: Mortality and expense risk ............................ 1 0 0 0 ----- ----- ----- ----- Net investment income (loss) ......................... (1) 0 0 0 ------ ----- ----- ----- Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ..... 0 0 0 1 Change in unrealized appreciation (depreciation) ...... 25 1 1 (1) ----- ----- ----- ------ Net gain (loss) on investment securities ............. 25 1 1 0 ----- ----- ----- ----- Net increase (decrease) in net assets resulting from operations ................................... $ 24 $ 1 $ 1 $ 0 ===== ===== ===== =====
See accompanying notes which are an integral part of the financial statements. 104 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL J.P. Morgan AEGON Money Market Bond Subaccount Subaccount --------------------------- --------------------------- June 30, December 31, June 30, December 31, ------------ -------------- ------------ -------------- 2000 1999 2000 1999 ------------ -------------- ------------ -------------- Operations: Net investment income (loss) ................... $ 1,088 $ 1,474 $ (113) $ 1,329 Net gain (loss) on investment securities ....... 0 0 892 (2,327) --------- ---------- -------- -------- Net increase (decrease) in net assets resulting from operations ..................... 1,088 1,474 779 (998) --------- ---------- -------- -------- Capital Unit Transactions: Proceeds from units sold (transferred) ......... (16,141) 38,977 (1,344) 7,560 --------- ---------- -------- -------- Less cost of units redeemed: Administrative charges ........................ 1,583 3,050 1,186 2,538 Policy loans .................................. 901 1,775 395 954 Surrender benefits ............................ 1,553 4,017 421 846 Death benefits ................................ 10 115 13 29 --------- ---------- -------- -------- 4,047 8,957 2,015 4,367 --------- ---------- -------- -------- Increase (decrease) in net assets from capital unit transactions .................... (20,188) 30,020 (3,359) 3,193 --------- ---------- -------- -------- Net increase (decrease) in net assets ......... (19,100) 31,494 (2,580) 2,195 Depositor's equity contribution (net redemption) .............................. 0 0 0 0 Net Assets: Beginning of period ............................ 56,070 24,576 27,129 24,934 --------- ---------- -------- -------- End of period .................................. $ 36,970 $ 56,070 $ 24,549 $ 27,129 ========= ========== ======== ======== Unit Activity: Units outstanding - beginning of period ........ 3,206 1,460 1,232 1,090 Units issued ................................... 24,213 18,474 241 883 Units redeemed ................................. (25,355) (16,728) (392) (741) --------- ---------- -------- -------- Units outstanding - end of period .............. 2,064 3,206 1,081 1,232 ========= ========== ======== ======== WRL Janus Growth Subaccount ------------------------------- June 30, December 31, --------------- --------------- 2000 1999 --------------- --------------- Operations: Net investment income (loss) ................... $ (6,111) $ 226,095 Net gain (loss) on investment securities ....... (25,190) 262,161 ----------- ----------- Net increase (decrease) in net assets resulting from operations ..................... (31,301) 488,256 ----------- ----------- Capital Unit Transactions: Proceeds from units sold (transferred) ......... 83,570 192,993 ----------- ----------- Less cost of units redeemed: Administrative charges ........................ 33,462 57,685 Policy loans .................................. 24,282 33,172 Surrender benefits ............................ 20,192 32,554 Death benefits ................................ 4,047 1,908 ----------- ----------- 81,983 125,319 ----------- ----------- Increase (decrease) in net assets from capital unit transactions .................... 1,587 67,674 ----------- ----------- Net increase (decrease) in net assets ......... (29,714) 555,930 Depositor's equity contribution (net redemption) .............................. 0 0 Net Assets: Beginning of period ............................ 1,353,957 798,027 ----------- ----------- End of period .................................. $ 1,324,243 $ 1,353,957 =========== =========== Unit Activity: Units outstanding - beginning of period ........ 9,293 8,668 Units issued ................................... 1,318 2,854 Units redeemed ................................. (1,299) (2,229) ----------- ----------- Units outstanding - end of period .............. 9,312 9,293 =========== ===========
See accompanying notes which are an integral part of the financial statements. 105 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL LKCM Janus Strategic Global Total Return Subaccount Subaccount ---------------------------- ---------------------------- June 30, December 31, June 30, December 31, ------------- -------------- ------------- -------------- 2000 1999 2000 1999 ------------- -------------- ------------- -------------- Operations: Net investment income (loss) ..................... $ (2,198) $ 26,538 $ (450) $ 8,072 Net gain (loss) on investment securities ......... 7,517 153,543 (2,409) 2,825 --------- --------- --------- --------- Net increase (decrease) in net assets resulting from operations ....................... 5,319 180,081 (2,859) 10,897 --------- --------- --------- --------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 67,503 81,308 3,538 11,792 --------- --------- --------- --------- Less cost of units redeemed: Administrative charges .......................... 14,944 25,132 3,990 8,436 Policy loans .................................... 8,000 9,284 1,365 3,000 Surrender benefits .............................. 6,356 8,537 1,578 3,136 Death benefits .................................. 488 194 102 378 --------- --------- --------- --------- 29,788 43,147 7,035 14,950 --------- --------- --------- --------- Increase (decrease) in net assets from capital unit transactions ...................... 37,715 38,161 (3,497) (3,158) --------- --------- --------- --------- Net increase (decrease) in net assets ........... 43,034 218,242 (6,356) 7,739 Depositor's equity contribution (net redemption) ................................ 0 0 0 0 Net Assets: Beginning of period .............................. 451,498 233,256 106,665 98,926 --------- --------- --------- --------- End of period .................................... $ 494,532 $ 451,498 $ 100,309 $ 106,665 ========= ========= ========= ========= Unit Activity: Units outstanding - beginning of period .......... 11,605 10,167 4,674 4,814 Units issued ..................................... 2,647 4,823 742 1,538 Units redeemed ................................... (1,704) (3,385) (901) (1,678) --------- --------- --------- --------- Units outstanding - end of period ................ 12,548 11,605 4,515 4,674 ========= ========= ========= ========= WRL VKAM Emerging Growth Subaccount ---------------------------- June 30, December 31, -------------- ------------- 2000 1999 -------------- ------------- Operations: Net investment income (loss) ..................... $ (3,190) $ 81,707 Net gain (loss) on investment securities ......... 68,437 217,724 ---------- --------- Net increase (decrease) in net assets resulting from operations ....................... 65,247 299,431 ---------- --------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 102,079 94,168 ---------- --------- Less cost of units redeemed: Administrative charges .......................... 16,226 25,202 Policy loans .................................... 11,786 11,395 Surrender benefits .............................. 10,098 11,025 Death benefits .................................. 407 512 ---------- --------- 38,517 48,134 ---------- --------- Increase (decrease) in net assets from capital unit transactions ...................... 63,562 46,034 ---------- --------- Net increase (decrease) in net assets ........... 128,809 345,465 Depositor's equity contribution (net redemption) ................................ 0 0 Net Assets: Beginning of period .............................. 608,130 262,665 ---------- --------- End of period .................................... $ 736,939 $ 608,130 ========== ========= Unit Activity: Units outstanding - beginning of period .......... 9,357 8,218 Units issued ..................................... 5,626 4,977 Units redeemed ................................... (4,751) (3,838) ---------- --------- Units outstanding - end of period ................ 10,232 9,357 ========== =========
See accompanying notes which are an integral part of the financial statements. 106 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL Alger Aggressive Growth Subaccount ---------------------------- June 30, December 31, ------------- -------------- 2000 1999 ------------- -------------- Operations: Net investment income (loss) ................... $ (1,668) $ 35,966 Net gain (loss) on investment securities ....... (28,078) 101,488 --------- --------- Net increase (decrease) in net assets resulting from operations ..................... (29,746) 137,454 --------- --------- Capital Unit Transactions: Proceeds from units sold (transferred) ......... 60,035 74,699 --------- --------- Less cost of units redeemed: Administrative charges ........................ 12,525 19,544 Policy loans .................................. 6,534 8,193 Surrender benefits ............................ 5,181 7,977 Death benefits ................................ 232 118 --------- --------- 24,472 35,832 --------- --------- Increase (decrease) in net assets from capital unit transactions .................... 35,563 38,867 --------- --------- Net increase (decrease) in net assets ......... 5,817 176,321 Depositor's equity contribution (net redemption) .............................. 0 0 Net Assets: Beginning of period ............................ 354,178 177,857 --------- --------- End of period .................................. $ 359,995 $ 354,178 ========= ========= Unit Activity: Units outstanding - beginning of period ........ 7,928 6,669 Units issued ................................... 2,069 3,640 Units redeemed ................................. (1,261) (2,381) --------- --------- Units outstanding - end of period .............. 8,736 7,928 ========= ========= WRL WRL AEGON Federated Balanced Growth & Income Subaccount Subaccount --------------------------- -------------------------- June 30, December 31, June 30, December 31, ------------ -------------- ------------ ------------- 2000 1999 2000 1999 ------------ -------------- ------------ ------------- Operations: Net investment income (loss) ................... $ (83) $ 213 $ (78) $ 1,091 Net gain (loss) on investment securities ....... (71) 105 1,103 (2,078) -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations ..................... (154) 318 1,025 (987) -------- -------- -------- -------- Capital Unit Transactions: Proceeds from units sold (transferred) ......... 2,346 5,997 3,735 5,627 -------- -------- -------- -------- Less cost of units redeemed: Administrative charges ........................ 1,050 1,931 1,151 2,355 Policy loans .................................. 204 429 340 346 Surrender benefits ............................ 228 626 217 542 Death benefits ................................ 14 10 3 55 -------- -------- -------- -------- 1,496 2,996 1,711 3,298 -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions .................... 850 3,001 2,024 2,329 -------- -------- -------- -------- Net increase (decrease) in net assets ......... 696 3,319 3,049 1,342 Depositor's equity contribution (net redemption) .............................. 0 0 0 0 Net Assets: Beginning of period ............................ 18,183 14,864 17,389 16,047 -------- -------- -------- -------- End of period .................................. $ 18,879 $ 18,183 $ 20,438 $ 17,389 ======== ======== ======== ======== Unit Activity: Units outstanding - beginning of period ........ 1,186 990 1,117 976 Units issued ................................... 328 637 482 714 Units redeemed ................................. (271) (441) (365) (573) -------- -------- -------- -------- Units outstanding - end of period .............. 1,243 1,186 1,234 1,117 ======== ======== ======== ========
See accompanying notes which are an integral part of the financial statements. 107 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL WRL Dean C.A.S.E. NWQ Asset Allocation Growth Value Equity Subaccount Subaccount Subaccount --------------------------- --------------------------- -------------------------- June 30, December 31, June 30, December 31, June 30, December 31, ------------ -------------- ------------ -------------- ------------ ------------- 2000 1999 2000 1999 2000 1999 ------------ -------------- ------------ -------------- ------------ ------------- Operations: Net investment income (loss) ................. $ (138) $ 954 $ (117) $ 2,402 $ (114) $ 379 Net gain (loss) on investment securities ..... 346 (3,414) (223) 3,900 302 1,157 -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations ................... 208 (2,460) (340) 6,302 188 1,536 -------- -------- -------- -------- -------- -------- Capital Unit Transactions: Proceeds from units sold (transferred) ....... (1,460) 1,729 2,623 7,781 342 3,283 -------- -------- -------- -------- -------- -------- Less cost of units redeemed: Administrative charges ...................... 1,656 3,875 1,447 2,946 1,256 2,874 Policy loans ................................ 408 991 365 668 287 713 Surrender benefits .......................... 565 901 329 678 312 605 Death benefits .............................. 27 89 16 12 83 32 -------- -------- -------- -------- -------- -------- 2,656 5,856 2,157 4,304 1,938 4,224 -------- -------- -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions .................. (4,116) (4,127) 466 3,477 (1,596) (941) -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets ....... (3,908) (6,587) 126 9,779 (1,408) 595 Depositor's equity contribution (net redemption) ............................ 0 0 0 0 0 0 Net Assets: Beginning of period .......................... 33,317 39,904 27,509 17,730 26,678 26,083 -------- -------- -------- -------- -------- -------- End of period ................................ $ 29,409 $ 33,317 $ 27,635 $ 27,509 $ 25,270 $ 26,678 ======== ======== ======== ======== ======== ======== Unit Activity: Units outstanding - beginning of period ...... 2,128 2,383 1,657 1,417 1,895 1,982 Units issued ................................. 418 937 515 1,347 528 1,296 Units redeemed ............................... (683) (1,192) (483) (1,107) (652) (1,383) -------- -------- -------- -------- -------- -------- Units outstanding - end of period ............ 1,863 2,128 1,689 1,657 1,771 1,895 ======== ======== ======== ======== ======== ========
See accompanying notes which are an integral part of the financial statements. 108 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL WRL GE GE Third Avenue International Equity U.S. Equity Value Subaccount Subaccount Subaccount -------------------------- --------------------------- ------------------------- June 30, December 31, June 30, December 31, June 30, December 31, ----------- -------------- ------------ -------------- ----------- ------------- 2000 1999 2000 1999 2000 1999 ----------- -------------- ------------ -------------- ----------- ------------- Operations: Net investment income (loss) ................. $ (36) $ 325 $ (118) $ 1,730 $ (25) $ 61 Net gain (loss) on investment securities ..... 47 1,104 (29) 1,544 946 365 ------- ------- -------- -------- ------- ------- Net increase (decrease) in net assets resulting from operations ................... 11 1,429 (147) 3,274 921 426 ------- ------- -------- -------- ------- ------- Capital Unit Transactions: Proceeds from units sold (transferred) ....... 1,312 761 4,535 12,169 4,878 730 ------- ------- -------- -------- ------- ------- Less cost of units redeemed: Administrative charges ...................... 319 644 1,305 2,237 162 218 Policy loans ................................ 92 101 255 422 79 52 Surrender benefits .......................... 59 258 237 444 12 80 Death benefits .............................. 2 1 12 8 8 3 ------- ------- -------- -------- ------- ------- 472 1,004 1,809 3,111 261 353 ------- ------- -------- -------- ------- ------- Increase (decrease) in net assets from capital unit transactions .................. 840 (243) 2,726 9,058 4,617 377 ------- ------- -------- -------- ------- ------- Net increase (decrease) in net assets ....... 851 1,186 2,579 12,332 5,538 803 Depositor's equity contribution (net redemption) ............................ 0 0 0 0 0 (199) Net Assets: Beginning of period .......................... 7,013 5,827 26,416 14,084 3,411 2,807 ------- ------- -------- -------- ------- ------- End of period ................................ $ 7,864 $ 7,013 $ 28,995 $ 26,416 $ 8,949 $ 3,411 ======= ======= ======== ======== ======= ======= Unit Activity: Units outstanding - beginning of period ...... 475 489 1,468 919 322 304 Units issued ................................. 279 672 639 1,292 618 258 Units redeemed ............................... (220) (686) (490) (743) (251) (240) ------- ------- -------- -------- ------- ------- Units outstanding - end of period ............ 534 475 1,617 1,468 689 322 ======= ======= ======== ======== ======= =======
See accompanying notes which are an integral part of the financial statements. 109 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL WRL J.P. Morgan Goldman Sachs Goldman Sachs Real Estate Securities Growth Small Cap Subaccount Subaccount Subaccount -------------------------- -------------------------- ------------------------ June 30, December 31, June 30, December 31, June 30, December 31, ----------- -------------- ----------- -------------- ---------- ------------- 2000 1999 2000 1999(1) 2000 1999(1) ----------- -------------- ----------- -------------- ---------- ------------- Operations: Net investment income (loss) ................. $ (4) $ 6 $ (6) $ (2) $ (3) $ 14 Net gain (loss) on investment securities ..... 155 (41) 19 110 14 20 ------- ----- ------- ------- ------- ----- Net increase (decrease) in net assets resulting from operations ................... 151 (35) 13 108 11 34 ------- ----- ------- ------- ------- ----- Capital Unit Transactions: Proceeds from units sold (transferred) ....... 381 (26) 603 871 389 295 ------- ----- ------- ------- ------- ----- Less cost of units redeemed: Administrative charges ...................... 19 19 44 18 18 5 Policy loans ................................ 0 0 23 2 3 5 Surrender benefits .......................... 22 1 1 7 0 0 Death benefits .............................. 0 1 0 0 0 0 ------- ----- ------- ------- ------- ----- 41 21 68 27 21 10 ------- ----- ------- ------- ------- ----- Increase (decrease) in net assets from capital unit transactions .................. 340 (47) 535 844 368 285 ------- ----- ------- ------- ------- ----- Net increase (decrease) in net assets ....... 491 (82) 548 952 379 319 Depositor's equity contribution (net redemption) ............................ 0 0 (28) 25 (27) 25 Net Assets: Beginning of period .......................... 627 709 977 0 344 0 ------- ----- ------- ------- ------- ----- End of period ................................ $ 1,118 $ 627 $ 1,497 $ 977 $ 696 $ 344 ======= ===== ======= ======= ======= ===== Unit Activity: Units outstanding - beginning of period ...... 78 84 87 0 31 0 Units issued ................................. 228 67 83 106 45 41 Units redeemed ............................... (185) (73) (39) (19) (14) (10) ------- ----- ------- ------- ------- ----- Units outstanding - end of period ............ 121 78 131 87 62 31 ======= ===== ======= ======= ======= =====
See accompanying notes which are an integral part of the financial statements. 110 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL WRL T. Rowe Price T. Rowe Price Salomon Dividend Growth Small Cap All Cap Subaccount Subaccount Subaccount ------------------------- -------------------------- ------------------------- June 30, December 31, June 30, December 31, June 30, December 31, ---------- -------------- ----------- -------------- ----------- ------------- 2000 1999(1) 2000 1999(1) 2000 1999(1) ---------- -------------- ----------- -------------- ----------- ------------- Operations: Net investment income (loss) ..................... $ (3) $ (1) $ (7) $ 26 $ (5) $ 11 Net gain (loss) on investment securities ......... 28 (17) 47 162 144 15 ------- ------- ------- ------ ------- ------ Net increase (decrease) in net assets resulting from operations ....................... 25 (18) 40 188 139 26 ------- ------- ------- ------ ------- ------ Capital Unit Transactions: Proceeds from units sold (transferred) ........... 286 499 1,356 727 1,717 344 ------- ------- ------- ------ ------- ------ Less cost of units redeemed: Administrative charges .......................... 37 2 55 15 37 9 Policy loans .................................... 0 0 1 0 5 3 Surrender benefits .............................. 2 3 3 0 1 0 Death benefits .................................. 0 0 0 0 0 0 ------- ------- ------- ------ ------- ------ 39 5 59 15 43 12 ------- ------- ------- ------ ------- ------ Increase (decrease) in net assets from capital unit transactions ...................... 247 494 1,297 712 1,674 332 ------- ------- ------- ------ ------- ------ Net increase (decrease) in net assets ........... 272 476 1,337 900 1,813 358 Depositor's equity contribution (net redemption) ................................ (23) 25 (32) 25 (30) 25 Net Assets: Beginning of period .............................. 501 0 925 0 383 0 ------- ------- ------- ------ ------- ------ End of period .................................... $ 750 $ 501 $ 2,230 $ 925 $ 2,166 $ 383 ======= ======= ======= ====== ======= ====== Unit Activity: Units outstanding - beginning of period .......... 55 0 75 0 36 0 Units issued ..................................... 88 65 142 161 258 58 Units redeemed ................................... (62) (10) (47) (86) (119) (22) ------- ------- ------- ------ ------- ------ Units outstanding - end of period ................ 81 55 170 75 175 36 ======= ======= ======= ====== ======= ======
See accompanying notes which are an integral part of the financial statements. 111 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL Pilgrim Baxter Dreyfus Mid Cap Growth Mid Cap Subaccount Subaccount ----------------------------- --------------------------- June 30, December 31, June 30, December 31, ------------ -------------- ----------- ------------- 2000 1999(1) 2000 1999(1) ------------ -------------- ----------- ------------- Operations: Net investment income (loss) ..................... $ (92) $ 5 $ (3) $ (1) Net gain (loss) on investment securities ......... 486 1,268 49 16 -------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations ....................... 394 1,273 46 15 -------- ------- ------- ------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 31,646 3,885 675 297 -------- ------- ------- ------- Less cost of units redeemed: Administrative charges .......................... 665 37 28 0 Policy loans .................................... 420 18 1 0 Surrender benefits .............................. 94 30 0 0 Death benefits .................................. 16 0 0 0 -------- ------- ------- ------- 1,195 85 29 0 -------- ------- ------- ------- Increase (decrease) in net assets from capital unit transactions ...................... 30,451 3,800 646 297 -------- ------- ------- ------- Net increase (decrease) in net assets ........... 30,845 5,073 692 312 Depositor's equity contribution (net redemption) ................................ 0 (8) (27) 25 Net Assets: Beginning of period .............................. 5,065 0 337 0 -------- ------- ------- ------- End of period .................................... $ 35,910 $ 5,065 $ 1,002 $ 337 ======== ======= ======= ======= Unit Activity: Units outstanding - beginning of period .......... 317 0 33 0 Units issued ..................................... 2,021 412 158 52 Units redeemed ................................... (498) (95) (101) (19) -------- ------- ------- ------- Units outstanding - end of period ................ 1,840 317 90 33 ======== ======= ======= =======
See accompanying notes which are an integral part of the financial statements. 112 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
WRL WRL WRL Great Great Value Line Companies - Companies - Aggressive Growth America(SM) Technology(SM) Subaccount Subaccount Subaccount ------------------- ------------- ------------- June 30, June 30, June 30, ------------------- ------------- ------------- 2000(1) 2000(1) 2000(1) ------------------- ------------- ------------- Operations: Net investment income (loss) ..................... $ (1) $ (4) $ (1) Net gain (loss) on investment securities ......... 12 99 25 -------- -------- -------- Net increase (decrease) in net assets resulting from operations ....................... 11 95 24 -------- -------- -------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 211 3,306 776 -------- -------- -------- Less cost of units redeemed: Administrative charges .......................... 0 19 2 Policy loans .................................... 0 11 0 Surrender benefits .............................. 0 0 0 Death benefits .................................. 0 0 0 -------- -------- -------- 0 30 2 -------- -------- -------- Increase (decrease) in net assets from capital unit transactions ...................... 211 3,276 774 -------- -------- -------- Net increase (decrease) in net assets ........... 222 3,371 798 Depositor's equity contribution (net redemption) ................................ 200 200 200 Net Assets: Beginning of period .............................. 0 0 0 -------- -------- -------- End of period .................................... $ 422 $ 3,571 $ 998 ======== ======== ======== Unit Activity: Units outstanding - beginning of period .......... 0 0 0 Units issued ..................................... 41 382 97 Units redeemed ................................... (1) (39) (1) --------- -------- --------- Units outstanding - end of period ................ 40 343 96 ======== ======== ========
See accompanying notes which are an integral part of the financial statements. 113 WRL Series Life Account Statements of Changes in Net Assets For the Period Ended All Amounts in Thousands (unaudited)
Fidelity VIP III Fidelity VIP II Fidelity VIP Growth Opportunities Contrafund(R) Equity-Income Subaccount Subaccount Subaccount ---------------------- ----------------- -------------- June 30, June 30, June 30, ---------------------- ----------------- -------------- 2000(1) 2000(1) 2000(1) ---------------------- ----------------- -------------- Operations: Net investment income (loss) ..................... $ 0 $ 0 $ 0 Net gain (loss) on investment securities ......... 1 1 0 ------ ------ ------ Net increase (decrease) in net assets resulting from operations ....................... 1 1 0 ------ ------ ------ Capital Unit Transactions: Proceeds from units sold (transferred) ........... 129 173 18 ------ ------ ------ Less cost of units redeemed: Administrative charges .......................... 0 1 0 Policy loans .................................... 0 0 0 Surrender benefits .............................. 0 0 0 Death benefits .................................. 0 0 0 ------ ------ ------ 0 1 0 ------ ------ ------ Increase (decrease) in net assets from capital unit transactions ...................... 129 172 18 ------ ------ ------ Net increase (decrease) in net assets ........... 130 173 18 Depositor's equity contribution (net redemption) ................................ 25 25 25 Net Assets: Beginning of period .............................. 0 0 0 ------ ------ ------ End of period .................................... $ 155 $ 198 $ 43 ====== ====== ====== Unit Activity: Units outstanding - beginning of period .......... 0 0 0 Units issued ..................................... 16 20 6 Units redeemed ................................... 0 0 (1) ------ ------ ------- Units outstanding - end of period ................ 16 20 5 ====== ====== ======
See accompanying notes which are an integral part of the financial statements. 114 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL J.P. Morgan Money Market Subaccount ---------------------------- June 30, December 31, ------------- -------------- 2000 1999 ------------- -------------- Accumulation unit value, beginning of period ......... $ 17.49 $ 16.83 Income from operations: Net investment income (loss) ....................... 0.42 0.66 Net realized and unrealized gain (loss) on investment ........................................ 0.00 0.00 ------- -------- Net income (loss) from operations ................. 0.42 0.66 ------- -------- Accumulation unit value, end of period ............... $ 17.91 $ 17.49 ======= ======== Total return ......................................... 2.43 % 3.92 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $36,970 $ 56,070 Ratio of net investment income (loss) to average net assets ......................................... 4.83 % 3.87 % WRL J.P. Morgan Money Market Subaccount --------------------------------------------------------- December 31, --------------------------------------------------------- 1998 1997 1996 1995 -------------- ------------- ------------- -------------- Accumulation unit value, beginning of period ......... $ 16.13 $ 15.45 $ 14.83 $ 14.19 Income from operations: Net investment income (loss) ....................... 0.70 0.68 0.62 0.64 Net realized and unrealized gain (loss) on investment ........................................ 0.00 0.00 0.00 0.00 --------- ------- ------- --------- Net income (loss) from operations ................. 0.70 0.68 0.62 0.64 --------- ------- ------- --------- Accumulation unit value, end of period ............... $ 16.83 $ 16.13 $ 15.45 $ 14.83 ========= ======= ======= ========= Total return ......................................... 4.36 % 4.37 % 4.17 % 4.49 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 24,576 $ 16,440 $ 12,740 $ 10,759 Ratio of net investment income (loss) to average net assets ......................................... 4.24 % 4.28 % 4.07 % 4.37 %
WRL AEGON Bond Subaccount --------------------------- June 30, December 31, ------------ -------------- 2000 1999 ------------ -------------- Accumulation unit value, beginning of period ......... $ 22.01 $ 22.89 Income from operations: Net investment income (loss) ....................... (0.10) 1.13 Net realized and unrealized gain (loss) on investment ........................................ 0.79 (2.01) -------- --------- Net income (loss) from operations ................. 0.69 (0.88) -------- --------- Accumulation unit value, end of period ............... $ 22.70 $ 22.01 ======== ========= Total return ......................................... 3.12 % (3.81)% Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 24,549 $ 27,129 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 5.10 % WRL AEGON Bond Subaccount ------------------------------------------------------- December 31, ------------------------------------------------------- 1998 1997 1996 1995 ------------- ------------- ------------- ------------- Accumulation unit value, beginning of period ......... $ 21.12 $ 19.53 $ 19.67 $ 16.14 Income from operations: Net investment income (loss) ....................... 1.01 1.01 0.99 1.05 Net realized and unrealized gain (loss) on investment ........................................ 0.76 0.58 (1.13) 2.48 ------- ------- -------- -------- Net income (loss) from operations ................. 1.77 1.59 (0.14) 3.53 ------- ------- -------- -------- Accumulation unit value, end of period ............... $ 22.89 $ 21.12 $ 19.53 $ 19.67 ======= ======= ======== ======== Total return ......................................... 8.34 % 8.18 % (0.75)% 21.81 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 24,934 $ 17,657 $ 11,585 $ 10,066 Ratio of net investment income (loss) to average net assets ......................................... 4.58 % 5.06 % 5.34 % 5.80 %
See accompanying notes which are an integral part of the financial statements. 115 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL Janus Growth Subaccount -------------------------------- June 30, December 31, --------------- ---------------- 2000 1999 --------------- ---------------- Accumulation unit value, beginning of period .... $ 145.70 $ 92.07 Income from operations: Net investment income (loss) .................. (0.66) 25.03 Net realized and unrealized gain (loss) on investment ................................... (2.84) 28.60 ----------- ---------- Net income (loss) from operations ............ (3.50) 53.63 ----------- ---------- Accumulation unit value, end of period .......... $ 142.20 $ 145.70 =========== ========== Total return .................................... (2.40)% 58.25 % Ratios and supplemental data: Net assets at end of period (in thousands) ..... $ 1,324,243 $ 1,353,957 Ratio of net investment income (loss) to average net assets .................................... (0.90)% 22.67 % WRL Janus Growth Subaccount ---------------------------------------------------------- December 31, ---------------------------------------------------------- 1998 1997 1996 1995 -------------- -------------- -------------- ------------- Accumulation unit value, beginning of period .... $ 56.48 $ 48.48 $ 41.47 $ 28.44 Income from operations: Net investment income (loss) .................. 0.13 5.83 2.88 3.89 Net realized and unrealized gain (loss) on investment ................................... 35.46 2.17 4.13 9.14 -------- -------- -------- -------- Net income (loss) from operations ............ 35.59 8.00 7.01 13.03 -------- -------- -------- -------- Accumulation unit value, end of period .......... $ 92.07 $ 56.48 $ 48.48 $ 41.47 ======== ======== ======== ======== Total return .................................... 63.01 % 16.50 % 16.91 % 45.81 % Ratios and supplemental data: Net assets at end of period (in thousands) ..... $ 798,027 $ 450,271 $ 349,491 $ 262,467 Ratio of net investment income (loss) to average net assets .................................... 0.19 % 10.84 % 6.41 % 11.05 %
WRL Janus Global Subaccount ------------------------------- June 30, December 31, -------------- ---------------- 2000 1999 -------------- ---------------- Accumulation unit value, beginning of period .... $ 38.91 $ 22.94 Income from operations: Net investment income (loss) .................. (0.18) 2.44 Net realized and unrealized gain (loss) on investment ................................... 0.68 13.53 --------- ---------- Net income (loss) from operations ............ 0.50 15.97 --------- ---------- Accumulation unit value, end of period .......... $ 39.41 $ 38.91 ========= ========== Total return .................................... 1.30 % 69.58 % Ratios and supplemental data: Net assets at end of period (in thousands) ..... $ 494,532 $ 451,498 Ratio of net investment income (loss) to average net assets .................................... (0.90)% 9.07 % WRL Janus Global Subaccount ---------------------------------------------------------- December 31, ---------------------------------------------------------- 1998 1997 1996 1995 -------------- -------------- -------------- ------------- Accumulation unit value, beginning of period .... $ 17.80 $ 15.13 $ 11.95 $ 9.80 Income from operations: Net investment income (loss) .................. 0.82 2.30 1.50 0.45 Net realized and unrealized gain (loss) on investment ................................... 4.32 0.37 1.68 1.70 -------- -------- -------- -------- Net income (loss) from operations ............ 5.14 2.67 3.18 2.15 -------- -------- -------- -------- Accumulation unit value, end of period .......... $ 22.94 $ 17.80 $ 15.13 $ 11.95 ======== ======== ======== ======== Total return .................................... 28.86 % 17.69 % 26.60 % 21.96 % Ratios and supplemental data: Net assets at end of period (in thousands) ..... $ 233,256 $ 145,017 $ 83,159 $ 37,049 Ratio of net investment income (loss) to average net assets .................................... 3.92 % 13.39 % 11.09 % 4.25 %
See accompanying notes which are an integral part of the financial statements. 116 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL LKCM Strategic Total Return Subaccount ---------------------------- June 30, December 31, ------------- -------------- 2000 1999 ------------- -------------- Accumulation unit value, beginning of period ......... $ 22.82 $ 20.55 Income from operations: Net investment income (loss) ....................... (0.10) 1.68 Net realized and unrealized gain (loss) on investment ........................................ (0.50) 0.59 --------- -------- Net income (loss) from operations ................. (0.60) 2.27 --------- -------- Accumulation unit value, end of period ............... $ 22.22 $ 22.82 ========= ======== Total return ......................................... (2.65)% 11.07 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 100,309 $ 106,665 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 7.93 %
WRL LKCM Strategic Total Return Subaccount ---------------------------------------------------------- December 31, ---------------------------------------------------------- 1998 1997 1996 1995 -------------- -------------- -------------- ------------- Accumulation unit value, beginning of period ......... $ 18.91 $ 15.66 $ 13.74 $ 11.12 Income from operations: Net investment income (loss) ....................... 0.71 1.56 0.82 0.68 Net realized and unrealized gain (loss) on investment ........................................ 0.93 1.69 1.10 1.94 -------- -------- -------- ------- Net income (loss) from operations ................. 1.64 3.25 1.92 2.62 -------- -------- -------- ------- Accumulation unit value, end of period ............... $ 20.55 $ 18.91 $ 15.66 $ 13.74 ======== ======== ======== ======= Total return ......................................... 8.66 % 20.77 % 13.97 % 23.55 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 98,926 $ 80,753 $ 55,900 $ 39,648 Ratio of net investment income (loss) to average net assets ......................................... 3.67 % 8.89 % 5.76 % 5.47 %
WRL VKAM Emerging Growth Subaccount ----------------------------- June 30, December 31, -------------- -------------- 2000 1999 -------------- -------------- Accumulation unit value, beginning of period ......... $ 64.99 $ 31.96 Income from operations: Net investment income (loss) ....................... (0.33) 9.32 Net realized and unrealized gain (loss) on investment ........................................ 7.36 23.71 --------- -------- Net income (loss) from operations ................. 7.03 33.03 --------- -------- Accumulation unit value, end of period ............... $ 72.02 $ 64.99 ========= ======== Total return ......................................... 10.82 % 103.33 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 736,939 $ 608,130 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 23.19 %
WRL VKAM Emerging Growth Subaccount ---------------------------------------------------------- December 31, ---------------------------------------------------------- 1998 1997 1996 1995 -------------- -------------- -------------- ------------- Accumulation unit value, beginning of period ......... $ 23.48 $ 19.51 $ 16.56 $ 11.38 Income from operations: Net investment income (loss) ....................... 0.91 2.20 0.82 0.65 Net realized and unrealized gain (loss) on investment ........................................ 7.57 1.77 2.13 4.53 -------- -------- -------- ------- Net income (loss) from operations ................. 8.48 3.97 2.95 5.18 -------- -------- -------- ------- Accumulation unit value, end of period ............... $ 31.96 $ 23.48 $ 19.51 $ 16.56 ======== ======== ======== ======= Total return ......................................... 36.11 % 20.37 % 17.82 % 45.49 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 262,665 $ 164,702 $ 107,925 $ 67,905 Ratio of net investment income (loss) to average net assets ......................................... 3.44 % 10.18 % 4.51 % 4.66 %
See accompanying notes which are an integral part of the financial statements. 117 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL Alger Aggressive Growth Subaccount ---------------------------- June 30, December 31, ------------- -------------- 2000 1999 ------------- -------------- Accumulation unit value, beginning of period ......... $ 44.67 $ 26.67 Income from operations: Net investment income (loss) ....................... (0.20) 4.90 Net realized and unrealized gain (loss) on investment ........................................ (3.26) 13.10 --------- -------- Net income (loss) from operations ................. (3.46) 18.00 --------- -------- Accumulation unit value, end of period ............... $ 41.21 $ 44.67 ========= ======== Total return ......................................... (7.75)% 67.52 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 359,995 $ 354,178 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 15.54 % WRL Alger Aggressive Growth Subaccount -------------------------------------------------------- December 31, -------------------------------------------------------- 1998 1997 1996 1995 -------------- ------------- ------------- ------------- Accumulation unit value, beginning of period ......... $ 18.10 $ 14.70 $ 13.43 $ 9.82 Income from operations: Net investment income (loss) ....................... 1.33 1.75 0.36 0.37 Net realized and unrealized gain (loss) on investment ........................................ 7.24 1.65 0.91 3.24 -------- ------- ------- ------- Net income (loss) from operations ................. 8.57 3.40 1.27 3.61 -------- ------- ------- ------- Accumulation unit value, end of period ............... $ 26.67 $ 18.10 $ 14.70 $ 13.43 ======== ======= ======= ======= Total return ......................................... 47.36 % 23.14 % 9.46 % 36.79 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 177,857 $ 94,652 $ 54,408 $ 32,904 Ratio of net investment income (loss) to average net assets ......................................... 6.20 % 10.26 % 2.65 % 2.93 %
WRL AEGON Balanced Subaccount -------------------------- June 30, December 31, ------------ ------------- 2000 1999 ------------ ------------- Accumulation unit value, beginning of period ......... $ 15.33 $ 15.02 Income from operations: Net investment income (loss) ....................... (0.07) 0.19 Net realized and unrealized gain (loss) on investment ........................................ (0.07) 0.12 -------- ------- Net income (loss) from operations ................. (0.14) 0.31 -------- ------- Accumulation unit value, end of period ............... $ 15.19 $ 15.33 ======== ======= Total return ......................................... (0.90)% 2.11 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 18,879 $ 18,183 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 1.26 % WRL AEGON Balanced Subaccount -------------------------------------------------------- December 31, -------------------------------------------------------- 1998 1997 1996 1995 -------------- ------------- ------------- ------------- Accumulation unit value, beginning of period ......... $ 14.17 $ 12.21 $ 11.13 $ 9.37 Income from operations: Net investment income (loss) ....................... 0.25 1.55 0.36 0.37 Net realized and unrealized gain (loss) on investment ........................................ 0.60 0.41 0.72 1.39 -------- ------- ------- ------- Net income (loss) from operations ................. 0.85 1.96 1.08 1.76 -------- ------- ------- ------- Accumulation unit value, end of period ............... $ 15.02 $ 14.17 $ 12.21 $ 11.13 ======== ======= ======= ======= Total return ......................................... 5.98 % 16.06 % 9.73 % 18.73 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 14,864 $ 10,716 $ 6,418 $ 3,795 Ratio of net investment income (loss) to average net assets ......................................... 1.76 % 11.62 % 3.18 % 3.59 %
See accompanying notes which are an integral part of the financial statements. 118 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL Federated Growth & Income Subaccount ---------------------------------------- June 30, December 31, ------------ -------------------------- 2000 1999 1998 ------------ ------------ ------------- Accumulation unit value, beginning of period ......... $ 15.57 $ 16.44 $ 16.09 Income from operations: Net investment income (loss) ....................... (0.07) 1.05 0.77 Net realized and unrealized gain (loss) on investment ........................................ 1.06 (1.92) (0.42) -------- ------- ------- Net income (loss) from operations ................. 0.99 (0.87) 0.35 -------- ------- ------- Accumulation unit value, end of period ............... $ 16.56 $ 15.57 $ 16.44 ======== ======= ======= Total return ......................................... 6.38 % (5.31)% 2.13 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 20,438 $ 17,389 $ 16,047 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 6.51 % 4.83 % WRL Federated Growth & Income Subaccount ----------------------------------------- December 31, ----------------------------------------- 1997 1996 1995 ------------- ------------- ------------- Accumulation unit value, beginning of period ......... $ 13.03 $ 11.77 $ 9.49 Income from operations: Net investment income (loss) ....................... 2.61 0.76 0.49 Net realized and unrealized gain (loss) on investment ........................................ 0.45 0.50 1.79 ------- ------- -------- Net income (loss) from operations ................. 3.06 1.26 2.28 ------- ------- -------- Accumulation unit value, end of period ............... $ 16.09 $ 13.03 $ 11.77 ======= ======= ======== Total return ......................................... 23.54 % 10.64 % 24.14 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 9,063 $ 5,501 $ 2,631 Ratio of net investment income (loss) to average net assets ......................................... 18.50 % 6.38 % 4.57 %
WRL Dean Asset Allocation Subaccount --------------------------------------- June 30, December 31, ------------ -------------------------- 2000 1999 1998 ------------ ------------ ------------- Accumulation unit value, beginning of period ......... $ 15.66 $ 16.74 $ 15.60 Income from operations: Net investment income (loss) ....................... (0.07) 0.41 1.58 Net realized and unrealized gain (loss) on investment ........................................ 0.20 (1.49) (0.44) -------- ------- ------- Net income (loss) from operations ................. 0.13 (1.08) 1.14 -------- ------- ------- Accumulation unit value, end of period ............... $ 15.79 $ 15.66 $ 16.74 ======== ======= ======= Total return ......................................... 0.81 % (6.48)% 7.36 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 29,409 $ 33,317 $ 39,904 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 2.50 % 9.69 % WRL Dean Asset Allocation Subaccount ----------------------------------------- December 31, ----------------------------------------- 1997 1996 1995(1) ------------- ------------- ------------- Accumulation unit value, beginning of period ......... $ 13.50 $ 11.90 $ 10.00 Income from operations: Net investment income (loss) ....................... 1.20 0.53 0.61 Net realized and unrealized gain (loss) on investment ........................................ 0.90 1.07 1.29 ------- ------- -------- Net income (loss) from operations ................. 2.10 1.60 1.90 ------- ------- -------- Accumulation unit value, end of period ............... $ 15.60 $ 13.50 $ 11.90 ======= ======= ======== Total return ......................................... 15.55 % 13.40 % 19.03 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 29,123 $ 17,946 $ 9,446 Ratio of net investment income (loss) to average net assets ......................................... 8.14 % 4.35 % 5.47 %
See accompanying notes which are an integral part of the financial statements. 119 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL C.A.S.E. Growth Subaccount -------------------------------------------------------------------- June 30, December 31, ------------ ------------------------------------------------------- 2000 1999 1998 1997 1996(1) ------------ ------------- ------------- ------------- ------------- Accumulation unit value, beginning of period ......... $ 16.60 $ 12.51 $ 12.32 $ 10.81 $ 10.00 Income from operations: Net investment income (loss) ....................... (0.07) 1.52 1.24 1.51 0.37 Net realized and unrealized gain (loss) on investment ........................................ (0.17) 2.57 (1.05) 0.00 0.44 -------- ------- ------- ------- -------- Net income (loss) from operations ................. (0.24) 4.09 0.19 1.51 0.81 -------- ------- ------- ------- -------- Accumulation unit value, end of period ............... $ 16.36 $ 16.60 $ 12.51 $ 12.32 $ 10.81 ======== ======= ======= ======= ======== Total return ......................................... (1.45)% 32.65 % 1.56 % 14.00 % 8.09 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 27,635 $ 27,509 $ 17,730 $ 11,946 $ 4,466 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 10.16 % 10.21 % 12.65 % 6.11 %
WRL NWQ Value Equity Subaccount ------------------------------------------------------------------- June 30, December 31, ------------ ------------------------------------------------------ 2000 1999 1998 1997 1996(1) ------------ ------------- ------------ ------------- ------------- Accumulation unit value, beginning of period ......... $ 14.08 $ 13.16 $ 13.94 $ 11.25 $ 10.00 Income from operations: Net investment income (loss) ....................... (0.06) 0.20 0.95 0.14 0.05 Net realized and unrealized gain (loss) on investment ........................................ 0.25 0.72 (1.73) 2.55 1.20 -------- ------- ------- ------- -------- Net income (loss) from operations ................. 0.19 0.92 (0.78) 2.69 1.25 -------- ------- ------- ------- -------- Accumulation unit value, end of period ............... $ 14.27 $ 14.08 $ 13.16 $ 13.94 $ 11.25 ======== ======= ======= ======= ======== Total return ......................................... 1.35 % 6.98 % (5.63)% 23.93 % 12.51 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 25,270 $ 26,678 $ 26,083 $ 26,714 $ 8,887 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 1.42 % 6.84 % 1.05 % 0.77 %
See accompanying notes which are an integral part of the financial statements. 120 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL GE International Equity Subaccount -------------------------------------------------------- June 30, December 31, ---------- ------------------------------------------- 2000 1999 1998 1997(1) ---------- ------------- ------------ ------------ Accumulation unit value, beginning of period ......... $ 14.76 $ 11.92 $ 10.65 $ 10.00 Income from operations: Net investment income (loss) ....................... (0.07) 0.62 (0.09) (0.03) Net realized and unrealized gain (loss) on investment ........................................ 0.05 2.22 1.36 0.68 -------- ------- -------- -------- Net income (loss) from operations ................. (0.02) 2.84 1.27 0.65 -------- ------- -------- -------- Accumulation unit value, end of period ............... $ 14.74 $ 14.76 $ 11.92 $ 10.65 ======== ======= ======== ======== Total return ......................................... (0.12)% 23.84 % 11.84 % 6.54 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 7,864 $ 7,013 $ 5,827 $ 2,289 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 5.09 % (0.81)% (0.28)%
WRL GE U.S. Equity Subaccount ------------------------------------------------------------ June 30, December 31, ------------ --------------------------------------------- 2000 1999 1998 1997(1) ------------ ------------- ------------- ------------- Accumulation unit value, beginning of period ......... $ 17.99 $ 15.33 $ 12.59 $ 10.00 Income from operations: Net investment income (loss) ....................... (0.08) 1.38 0.73 0.99 Net realized and unrealized gain (loss) on investment ........................................ 0.02 1.28 2.01 1.60 -------- -------- -------- ------- Net income (loss) from operations ................. (0.06) 2.66 2.74 2.59 -------- -------- -------- ------- Accumulation unit value, end of period ............... $ 17.93 $ 17.99 $ 15.33 $ 12.59 ======== ======== ======== ======= Total return ......................................... (0.33)% 17.35 % 21.78 % 25.89 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 28,995 $ 26,416 $ 14,084 $ 3,258 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 8.27 % 5.30 % 8.28 %
See accompanying notes which are an integral part of the financial statements. 121 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL WRL J.P. Morgan Third Avenue Value Real Estate Securities Subaccount Subaccount ------------------------------------ ----------------------------------- June 30, December 31, June 30, December 31, ---------- ------------------------- ---------- ------------------------ 2000 1999 1998(1) 2000 1999 1998(1) ---------- ------------- ----------- ---------- ----------- ------------ Accumulation unit value, beginning of period ......... $ 10.59 $ 9.23 $ 10.00 $ 8.06 $ 8.46 $ 10.00 Income from operations: Net investment income (loss) ....................... (0.06) 0.19 (0.05) (0.04) 0.07 (0.05) Net realized and unrealized gain (loss) on investment ........................................ 2.45 1.17 (0.72) 1.23 (0.47) (1.49) -------- -------- ------- ------- -------- ------- Net income (loss) from operations ................. 2.39 1.36 (0.77) 1.19 (0.40) (1.54) -------- -------- ------- ------- -------- ------- Accumulation unit value, end of period ............... $ 12.98 $ 10.59 $ 9.23 $ 9.25 $ 8.06 $ 8.46 ======== ======== ======= ======= ======== ======= Total return ......................................... 22.60 % 14.68 % (7.67)% 14.73 % (4.63)% (15.44)% Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 8,949 $ 3,411 $ 2,807 $ 1,118 $ 627 $ 709 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% 1.98 % (0.52)% (0.90)% 0.95 % (0.90)%
WRL WRL Goldman Sachs Goldman Sachs Growth Small Cap Subaccount Subaccount --------------------------- ---------------------------- June 30, December 31, June 30, December 31, ---------- -------------- ------------ ------------- 2000 1999(1) 2000 1999(1) ---------- -------------- ------------ ------------- Accumulation unit value, beginning of period ......... $ 11.29 $ 10.00 $ 10.92 $ 10.00 Income from operations: Net investment income (loss) ....................... (0.05) (0.05) (0.05) 0.76 Net realized and unrealized gain (loss) on investment ........................................ 0.15 1.34 0.39 0.16 -------- --------- -------- -------- Net income (loss) from operations ................. 0.10 1.29 0.34 0.92 -------- --------- -------- -------- Accumulation unit value, end of period ............... $ 11.39 $ 11.29 $ 11.26 $ 10.92 ======== ========= ======== ======== Total return ......................................... 0.91 % 12.91 % 3.11 % 9.23 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 1,497 $ 977 $ 696 $ 344 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% (0.90)% (0.90)% 15.66 %
See accompanying notes which are an integral part of the financial statements. 122 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL WRL T. Rowe Price T. Rowe Price Dividend Growth Small Cap Subaccount Subaccount --------------------------- --------------------------- June 30, December 31, June 30, December 31, ------------ -------------- ------------ -------------- 2000 1999(1) 2000 1999(1) ------------ -------------- ------------ -------------- Accumulation unit value, beginning of period ........ $ 9.16 $ 10.00 $ 12.31 $ 10.00 Income from operations: Net investment income (loss) ...................... (0.04) (0.04) (0.06) 0.41 Net realized and unrealized gain (loss) on investment ....................................... 0.20 (0.80) 0.87 1.90 ------- ------- -------- -------- Net income (loss) from operations ................ 0.16 (0.84) 0.81 2.31 ------- ------- -------- -------- Accumulation unit value, end of period .............. $ 9.32 $ 9.16 $ 13.12 $ 12.31 ======= ======= ======== ======== Total return ........................................ 1.70 % (8.37)% 6.61 % 23.09 % Ratios and supplemental data: Net assets at end of period (in thousands) ......... $ 750 $ 501 $ 2,230 $ 925 Ratio of net investment income (loss) to average net assets ........................................ (0.90)% (0.90)% (0.90)% 8.13 % WRL Salomon All Cap Subaccount -------------------------- June 30, December 31, ------------ ------------- 2000 1999(1) ------------ ------------- Accumulation unit value, beginning of period ........ $ 10.70 $ 10.00 Income from operations: Net investment income (loss) ...................... (0.05) 0.40 Net realized and unrealized gain (loss) on investment ....................................... 1.74 0.30 -------- ------- Net income (loss) from operations ................ 1.69 0.70 -------- ------- Accumulation unit value, end of period .............. $ 12.39 $ 10.70 ======== ======= Total return ........................................ 15.76 % 7.02 % Ratios and supplemental data: Net assets at end of period (in thousands) ......... $ 2,166 $ 383 Ratio of net investment income (loss) to average net assets ........................................ (0.90)% 8.07 %
WRL WRL Pilgrim Baxter Dreyfus Mid Cap Growth Mid Cap Subaccount Subaccount --------------------------- -------------------------- June 30, December 31, June 30, December 31, ------------ -------------- ------------ ------------- 2000 1999(1) 2000 1999(1) ------------ -------------- ------------ ------------- Accumulation unit value, beginning of period .... $ 15.98 $ 10.00 $ 10.14 $ 10.00 Income from operations: Net investment income (loss) .................. (0.08) 0.04 (0.04) (0.04) Net realized and unrealized gain (loss) on investment ................................... 3.62 5.94 0.97 0.18 -------- -------- -------- --------- Net income (loss) from operations ............ 3.54 5.98 0.93 0.14 -------- -------- -------- --------- Accumulation unit value, end of period .......... $ 19.52 $ 15.98 $ 11.07 $ 10.14 ======== ======== ======== ========= Total return .................................... 22.16 % 59.78 % 9.12 % 1.44 % Ratios and supplemental data: Net assets at end of period (in thousands) ..... $ 35,910 $ 5,065 $ 1,002 $ 337 Ratio of net investment income (loss) to average net assets .................................... (0.90)% 0.62 % (0.90)% (0.90)%
See accompanying notes which are an integral part of the financial statements. 123 WRL Series Life Account Financial Highlights For the Period Ended (unaudited)
WRL WRL WRL Value Line Great Companies - Great Companies - Aggressive Growth America(SM) Technology(SM) Subaccount Subaccount Subaccount ------------------- ------------------- ------------------ June 30, June 30, June 30, ------------------- ------------------- ------------------ 2000(1) 2000(1) 2000(1) ------------------- ------------------- ------------------ Accumulation unit value, beginning of period ......... $ 10.00 $ 10.00 $ 10.00 Income from operations: Net investment income (loss) ....................... (0.02) (0.02) (0.02) Net realized and unrealized gain (loss) on investment ........................................ 0.49 0.42 0.41 --------- --------- --------- Net income (loss) from operations ................. 0.47 0.40 0.39 --------- --------- --------- Accumulation unit value, end of period ............... $ 10.47 $ 10.40 $ 10.39 ========= ========= ========= Total return ......................................... 4.74 % 4.04 % 3.94 % Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 422 $ 3,571 $ 998 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% (0.90)% (0.90)%
Fidelity VIP III Fidelity VIP II Fidelity VIP Growth Opportunities Contrafund(R) Equity-Income Subaccount Subaccount Subaccount ---------------------- ----------------- -------------- June 30, June 30, June 30, ---------------------- ----------------- -------------- 2000(1) 2000(1) 2000(1) ---------------------- ----------------- -------------- Accumulation unit value, beginning of period ......... $ 10.00 $ 10.00 $ 10.00 Income from operations: Net investment income (loss) ....................... 0.00 0.00 0.00 Net realized and unrealized gain (loss) on investment ........................................ 0.01 (0.02) (0.08) ------- ------- ------- Net income (loss) from operations ................. 0.01 (0.02) (0.08) ------- ------- ------- Accumulation unit value, end of period ............... $ 10.01 $ 9.98 $ 9.92 ======= ======= ======= Total return ......................................... 0.09 % (0.23)% (0.76)% Ratios and supplemental data: Net assets at end of period (in thousands) .......... $ 155 $ 198 $ 43 Ratio of net investment income (loss) to average net assets ......................................... (0.90)% (0.90)% (0.90)%
See accompanying notes which are an integral part of the financial statements. 124 WRL Series Life Account Notes to the Financial Statements At June 30, 2000 (unaudited) 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 twenty-nine 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 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: WRL Series Fund, Inc. WRL J.P. Morgan Money Market WRL AEGON Bond WRL Janus Growth WRL Janus Global WRL LKCM Strategic Total Return WRL VKAM Emerging Growth WRL Alger Aggressive Growth WRL AEGON Balanced WRL Federated Growth & Income WRL Dean Asset Allocation WRL C.A.S.E. Growth WRL NWQ Value Equity WRL GE International Equity (formerly WRL GE/Scottish Equitable International Equity) WRL GE U.S. Equity WRL Third Avenue Value WRL J.P. Morgan Real Estate Securities WRL Goldman Sachs Growth WRL Goldman Sachs Small Cap WRL T. Rowe Price Dividend Growth WRL T. Rowe Price Small Cap WRL Salomon All Cap WRL Pilgrim Baxter Mid Cap Growth WRL Dreyfus Mid Cap WRL Value Line Aggressive Growth WRL Great Companies - America(SM) WRL Great Companies - Technology(SM) Variable Insurance Products Fund III (VIP III) Fidelity VIP III Growth Opportunities Portfolio - Service Class 2 (Referred to as "Fidelity VIP III Growth Opportunities") Variable Insurance Products Fund II (VIP II) Fidelity VIP II Contrafund(R) Portfolio - Service Class 2 (Referred to as "Fidelity VIP II Contrafund(R)") Variable Insurance Products Fund (VIP) Fidelity VIP Equity Income Portfolio - Service Class 2 (Referred to as "Fidelity VIP Equity-Income") The WRL Series Fund, Inc. has entered into annually renewable investment advisory agreements for each Portfolio with WRL Investment Management, Inc. ("WRL Management") as investment adviser. Costs incurred in connection with the advisory services rendered by WRL Management are paid by each Portfolio. WRL Management has entered into sub-advisory agreements with various management companies ("Sub-Advisers"), some of which are affiliates of WRL. Each Sub-Adviser is compensated directly by WRL Management. Each period reported on within the financial statements reflects a full six or twelve month period except as follows:
Subaccount Inception Date - ---------------------------------------- --------------- WRL Dean Asset Allocation 01/03/1995 WRL C.A.S.E. Growth 05/01/1996 WRL NWQ Value Equity 05/01/1996 WRL GE International Equity 01/02/1997 WRL GE U.S. Equity 01/02/1997 WRL Third Avenue Value 01/02/1998 WRL J.P. Morgan Real Estate Securities 05/01/1998 WRL Goldman Sachs Growth 07/01/1999 WRL Goldman Sachs Small Cap 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 Pilgrim Baxter Mid Cap Growth 07/01/1999 WRL Dreyfus Mid Cap 07/01/1999 WRL Value Line Aggressive Growth 05/01/2000
125 WRL Series Life Account Notes to the Financial Statements At June 30, 2000 (unaudited) NOTE 1 -- (continued)
Subaccount (continued) Inception Date - --------------------------------------- --------------- WRL Great Companies - America(SM) 05/01/2000 WRL Great Companies - Technology(SM) 05/01/2000 Fidelity VIP III Growth Opportunities 05/01/2000 Fidelity VIP II Contrafund(R) 05/01/2000 Fidelity VIP Equity-Income 05/01/2000
On May 1, 2000, WRL made initial contributions totaling $675,000 to the Life Account. The respective amounts of the contributions and units received are as follows:
Subaccount Contribution Units - ------------------------------- -------------- ------- WRL Value Line Aggressive Growth $ 200,000 20,000 WRL Great Companies - America(SM) 200,000 20,000 WRL Great Companies - Technology(SM) 200,000 20,000 Fidelity VIP III Growth Opportunities 25,000 2,500 Fidelity VIP II Contrafund(R) 25,000 2,500 Fidelity VIP Equity-Income 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. Accordingly, no provision for Federal income taxes has been made. NOTE 2 -- CHARGES AND DEDUCTIONS Charges are assessed by WRL in connection with the issuance and administration of the 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 on the Policies. This charge (not assessed at the individual contract level) effectively reduces the value of a unit outstanding during the year. 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. 126 WRL Series Life Account Notes to the Financial Statements At June 30, 2000 (unaudited) NOTE 4 -- SECURITIES TRANSACTIONS Securities transactions for the period ended June 30, 2000 are as follows (in thousands):
Proceeds Purchases of from Sales Subaccount Securities of Securities - ------------------------------- -------------- -------------- WRL J.P. Morgan Money Market $ 275,368 $ 296,883 WRL AEGON Bond 1,289 4,769 WRL Janus Growth 45,934 49,500 WRL Janus Global 42,255 6,241 WRL LKCM Strategic Total Return 2,593 6,475 WRL VKAM Emerging Growth 305,250 244,241 WRL Alger Aggressive Growth 39,641 5,235 WRL AEGON Balanced 1,821 1,050 WRL Federated Growth & Income 4,090 2,134 WRL Dean Asset Allocation 1,308 5,541 WRL C.A.S.E. Growth 2,863 2,409 WRL NWQ Value Equity 2,887 4,564 WRL GE International Equity 2,756 1,936 WRL GE U.S. Equity 5,008 2,221 WRL Third Avenue Value 6,211 1,723 WRL J.P. Morgan Real Estate Securities 1,935 1,608 WRL Goldman Sachs Growth 732 257 WRL Goldman Sachs Small Cap 440 105 WRL T. Rowe Price Dividend Growth 668 399 WRL T. Rowe Price Small Cap 1,550 288 WRL Salomon All Cap 2,638 1,040 WRL Pilgrim Baxter Mid Cap Growth 32,400 2,107 WRL Dreyfus Mid Cap 1,550 918 WRL Value Line Aggressive Growth 389 1 WRL Great Companies - America(SM) 3,601 207 WRL Great Companies - Technology(SM) 900 1 Fidelity VIP III Growth Opportunities 144 1 Fidelity VIP II Contrafund(R) 188 1 Fidelity VIP Equity-Income 59 16
NOTE 5 -- FINANCIAL HIGHLIGHTS 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. 127 Report of Independent Certified Public Accountants To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and Policy Owners of the WRL Series Life Account In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the Subaccounts constituting the WRL Series Life Account (a separate account of Western Reserve Life Assurance Co. of Ohio ("WRL")) at December 31, 1999, the results of each of their operations, the changes in each of their net assets and financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of WRL's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Tampa, Florida February 16, 2000 128 WRL Series Life Account Statements of Assets and Liabilities At December 31, 1999 All Amounts (except per unit amounts) in Thousands
WRL WRL WRL WRL J.P. Morgan AEGON Janus Janus Money Market Bond Growth Global Subaccount Subaccount Subaccount Subaccount Assets: Investment in WRL Series Fund, Inc.: Shares ............................................. 58,182 2,559 17,348 12,035 ====== ===== ====== ====== Cost ............................................... $ 58,182 $ 29,390 $ 743,669 $ 257,249 ======== ======== =========== ========= Investment, at net asset value ...................... $ 58,182 $ 27,148 $ 1,353,104 $ 450,848 Transfers receivable from depositor ................. 0 0 853 650 -------- -------- ----------- --------- Total assets ....................................... 58,182 27,148 1,353,957 451,498 -------- -------- ----------- --------- Liabilities: Accrued expenses .................................... 0 0 0 0 Transfers payable to depositor ...................... 2,112 19 0 0 -------- -------- ----------- --------- Total liabilities .................................. 2,112 19 0 0 -------- -------- ----------- --------- Net assets ......................................... $ 56,070 $ 27,129 $ 1,353,957 $ 451,498 ======== ======== =========== ========= Net Assets Consists of: Policy Owners' equity ............................... $ 56,070 $ 27,129 $ 1,353,957 $ 451,498 Depositor's equity .................................. 0 0 0 0 -------- -------- ----------- --------- Net assets applicable to units outstanding ......... $ 56,070 $ 27,129 $ 1,353,957 $ 451,498 ======== ======== =========== ========= Policy Owners' units ................................ 3,206 1,232 9,293 11,605 Depositor's units ................................... 0 0 0 0 -------- -------- ----------- --------- Units outstanding .................................. 3,206 1,232 9,293 11,605 ======== ======== =========== ========= Accumulation unit value ............................ $ 17.49 $ 22.01 $ 145.70 $ 38.91 ======== ======== =========== =========
See Notes to to the Financial Statements, which is an integral part of this report. 129 WRL Series Life Account Statements of Assets and Liabilities At December 31, 1999 All Amounts (except per unit amounts) in Thousands
WRL WRL WRL LKCM VKAM Alger WRL Strategic Emerging Aggressive AEGON Total Return Growth Growth Balanced Subaccount Subaccount Subaccount Subaccount Assets: Investment in WRL Series Fund, Inc.: Shares ............................................. 6,332 13,205 10,626 1,436 ===== ====== ====== ===== Cost ............................................... $ 90,108 $ 343,339 $ 206,459 $ 17,378 ========= ========= ========= ======== Investment, at net asset value ...................... $ 106,667 $ 607,493 $ 353,584 $ 18,182 Transfers receivable from depositor ................. 0 637 594 1 --------- --------- --------- -------- Total assets ....................................... 106,667 608,130 354,178 18,183 --------- --------- --------- -------- Liabilities: Accrued expenses .................................... 0 0 0 0 Transfers payable to depositor ...................... 2 0 0 0 --------- --------- --------- -------- Total liabilities .................................. 2 0 0 0 --------- --------- --------- -------- Net assets ......................................... $ 106,665 $ 608,130 $ 354,178 $ 18,183 ========= ========= ========= ======== Net Assets Consists of: Policy Owners' equity ............................... $ 106,665 $ 608,130 $ 354,178 $ 18,183 Depositor's equity .................................. 0 0 0 0 --------- --------- --------- -------- Net assets applicable to units outstanding ......... $ 106,665 $ 608,130 $ 354,178 $ 18,183 ========= ========= ========= ======== Policy Owners' units ................................ 4,674 9,357 7,928 1,186 Depositor's units ................................... 0 0 0 0 --------- --------- --------- -------- Units outstanding .................................. 4,674 9,357 7,928 1,186 ========= ========= ========= ======== Accumulation unit value ............................ $ 22.82 $ 64.99 $ 44.67 $ 15.33 ========= ========= ========= ========
See Notes to to the Financial Statements, which is an integral part of this report. 130 WRL Series Life Account Statements of Assets and Liabilities At December 31, 1999 All Amounts (except per unit amounts) in Thousands
WRL Federated WRL WRL WRL Growth & Dean Asset C.A.S.E. NWQ Income Allocation Growth Value Equity Subaccount Subaccount Subaccount Subaccount Assets: Investment in WRL Series Fund, Inc.: Shares ............................................. 1,594 2,746 1,751 2,087 ===== ===== ===== ===== Cost ............................................... $ 19,647 $ 36,698 $ 25,553 $ 28,559 ======== ======== ======== ======== Investment, at net asset value ...................... $ 17,383 $ 33,309 $ 27,504 $ 26,650 Transfers receivable from depositor ................. 6 8 5 28 -------- -------- -------- -------- Total assets ....................................... 17,389 33,317 27,509 26,678 -------- -------- -------- -------- Liabilities: Accrued expenses .................................... 0 0 0 0 Transfers payable to depositor ...................... 0 0 0 0 -------- -------- -------- -------- Total liabilities .................................. 0 0 0 0 -------- -------- -------- -------- Net assets ......................................... $ 17,389 $ 33,317 $ 27,509 $ 26,678 ======== ======== ======== ======== Net Assets Consists of: Policy Owners' equity ............................... $ 17,389 $ 33,317 $ 27,509 $ 26,678 Depositor's equity .................................. 0 0 0 0 -------- -------- -------- -------- Net assets applicable to units outstanding ......... $ 17,389 $ 33,317 $ 27,509 $ 26,678 ======== ======== ======== ======== Policy Owners' units ................................ 1,117 2,128 1,657 1,895 Depositor's units ................................... 0 0 0 0 -------- -------- -------- -------- Units outstanding .................................. 1,117 2,128 1,657 1,895 ======== ======== ======== ======== Accumulation unit value ............................ $ 15.57 $ 15.66 $ 16.60 $ 14.08 ======== ======== ======== ========
See Notes to to the Financial Statements, which is an integral part of this report. 131 WRL Series Life Account Statements of Assets and Liabilities At December 31, 1999 All Amounts (except per unit amounts) in Thousands
WRL GE/Scottish WRL Equitable WRL WRL J.P. Morgan International GE Third Avenue Real Estate Equity U.S. Equity Value Securities Subaccount Subaccount Subaccount Subaccount Assets: Investment in WRL Series Fund, Inc.: Shares ............................................. 489 1,669 329 78 === ===== === == Cost ............................................... $ 6,058 $ 24,322 $ 3,045 $ 674 ======= ======== ======= ====== Investment, at net asset value ...................... $ 6,985 $ 26,359 $ 3,435 $ 632 Transfers receivable from depositor ................. 28 57 0 0 ------- -------- ------- ------ Total assets ....................................... 7,013 26,416 3,435 632 ------- -------- ------- ------ Liabilities: Accrued expenses .................................... 0 0 0 0 Transfers payable to depositor ...................... 0 0 24 5 ------- -------- ------- ------ Total liabilities .................................. 0 0 24 5 ------- -------- ------- ------ Net assets ......................................... $ 7,013 $ 26,416 $ 3,411 $ 627 ======= ======== ======= ====== Net Assets Consists of: Policy Owners' equity ............................... $ 7,013 $ 26,416 $ 3,411 $ 304 Depositor's equity .................................. 0 0 0 323 ------- -------- ------- ------ Net assets applicable to units outstanding ......... $ 7,013 $ 26,416 $ 3,411 $ 627 ======= ======== ======= ====== Policy Owners' units ................................ 475 1,468 322 38 Depositor's units ................................... 0 0 0 40 ------- -------- ------- ------ Units outstanding .................................. 475 1,468 322 78 ======= ======== ======= ====== Accumulation unit value ............................ $ 14.76 $ 17.99 $ 10.59 $ 8.06 ======= ======== ======= ======
See Notes to to the Financial Statements, which is an integral part of this report. 132 WRL Series Life Account Statements of Assets and Liabilities At December 31, 1999 All Amounts (except per unit amounts) in Thousands
WRL WRL WRL WRL Goldman Sachs Goldman Sachs T. Rowe Price T. Rowe Price Growth Small Cap Dividend Growth Small Cap Subaccount Subaccount Subaccount Subaccount Assets: Investment in WRL Series Fund, Inc.: Shares ............................................. 83 31 53 69 == == == == Cost ............................................... $ 858 $ 325 $ 505 $ 784 ======= ======= ====== ======= Investment, at net asset value ...................... $ 972 $ 346 $ 491 $ 924 Transfers receivable from depositor ................. 5 0 10 1 ------- ------- ------ ------- Total assets ....................................... 977 346 501 925 ------- ------- ------ ------- Liabilities: Accrued expenses .................................... 0 0 0 0 Transfers payable to depositor ...................... 0 2 0 0 ------- ------- ------ ------- Total liabilities .................................. 0 2 0 0 ------- ------- ------ ------- Net assets ......................................... $ 977 $ 344 $ 501 $ 925 ======= ======= ====== ======= Net Assets Consists of: Policy Owners' equity ............................... $ 949 $ 317 $ 478 $ 894 Depositor's equity .................................. 28 27 23 31 ------- ------- ------ ------- Net assets applicable to units outstanding ......... $ 977 $ 344 $ 501 $ 925 ======= ======= ====== ======= Policy Owners' units ................................ 84 28 52 72 Depositor's units ................................... 3 3 3 3 ------- ------- ------ ------- Units outstanding .................................. 87 31 55 75 ======= ======= ====== ======= Accumulation unit value ............................ $ 11.29 $ 10.92 $ 9.16 $ 12.31 ======= ======= ====== =======
See Notes to to the Financial Statements, which is an integral part of this report. 133 WRL Series Life Account Statements of Assets and Liabilities At December 31, 1999 All Amounts (except per unit amounts) in Thousands
WRL WRL WRL Salomon Pilgrim Baxter Dreyfus All Cap Mid Cap Growth Mid Cap Subaccount Subaccount Subaccount Assets: Investment in WRL Series Fund, Inc.: Shares ......................................... 34 285 30 == === == Cost ........................................... $ 365 $ 3,873 $ 298 ======= ======= ======= Investment, at net asset value .................. $ 383 $ 5,051 $ 322 Transfers receivable from depositor ............. 0 14 15 ------- ------- ------- Total assets ................................... 383 5,065 337 ------- ------- ------- Liabilities: Accrued expenses ................................ 0 0 0 Transfers payable to depositor .................. 0 0 0 ------- ------- ------- Total liabilities .............................. 0 0 0 ------- ------- ------- Net assets ..................................... $ 383 $ 5,065 $ 337 ======= ======= ======= Net Assets Consists of: Policy Owners' equity ........................... $ 356 $ 5,065 $ 312 Depositor's equity .............................. 27 0 25 ------- ------- ------- Net assets applicable to units outstanding ..... $ 383 $ 5,065 $ 337 ======= ======= ======= Policy Owners' units ............................ 33 317 30 Depositor's units ............................... 3 0 3 ------- ------- ------- Units outstanding .............................. 36 317 33 ======= ======= ======= Accumulation unit value ........................ $ 10.70 $ 15.98 $ 10.14 ======= ======= =======
See Notes to to the Financial Statements, which is an integral part of this report. 134 WRL Series Life Account Statements of Operations For the Year Ended December 31, 1999 All Amounts in Thousands
WRL WRL WRL WRL J.P. Morgan AEGON Janus Janus Money Market Bond Growth Global Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ........................................... $ 1,813 $ 1,562 $ 19,913 $ 0 Capital gain distributions ................................ 0 0 215,100 29,152 ------- -------- --------- --------- Total investment income .................................. 1,813 1,562 235,013 29,152 Expenses: Mortality and expense risk ................................ 339 233 8,918 2,614 ------- -------- --------- --------- Net investment income (loss) ............................. 1,474 1,329 226,095 26,538 ------- -------- --------- --------- Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ......... 0 317 26,760 3,824 Change in unrealized appreciation (depreciation) .......... 0 (2,644) 235,401 149,719 ------- -------- --------- --------- Net gain (loss) on investment securities ................. 0 (2,327) 262,161 153,543 ------- -------- --------- --------- Net increase (decrease) in net assets resulting from operations ....................................... $ 1,474 $ (998) $ 488,256 $ 180,081 ======= ======== ========= =========
WRL WRL WRL LKCM VKAM Alger WRL Strategic Emerging Aggressive AEGON Total Return Growth Growth Balanced Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ........................................... $ 2,159 $ 2,813 $ 15,251 $ 363 Capital gain distributions ................................ 6,826 82,040 22,784 0 -------- --------- --------- ------ Total investment income .................................. 8,985 84,853 38,035 363 Expenses: Mortality and expense risk ................................ 913 3,146 2,069 150 -------- --------- --------- ------ Net investment income (loss) ............................. 8,072 81,707 35,966 213 -------- --------- --------- ------ Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ......... 3,286 39,266 5,348 292 Change in unrealized appreciation (depreciation) .......... (461) 178,458 96,140 (187) -------- --------- --------- ------ Net gain (loss) on investment securities ................. 2,825 217,724 101,488 105 -------- --------- --------- ------ Net increase (decrease) in net assets resulting from operations ....................................... $ 10,897 $ 299,431 $ 137,454 $ 318 ======== ========= ========= ======
See Notes to to the Financial Statements, which is an integral part of this report. 135 WRL Series Life Account Statements of Operations For the Year Ended December 31, 1999 All Amounts in Thousand
WRL Federated WRL WRL WRL Growth & Dean Asset C.A.S.E. NWQ Income Allocation Growth Value Equity Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ........................................... $ 1,109 $ 1,118 $ 2,613 $ 219 Capital gain distributions ................................ 132 178 0 400 -------- --------- ------- ------- Total investment income .................................. 1,241 1,296 2,613 619 Expenses: Mortality and expense risk ................................ 150 342 211 240 -------- --------- ------- ------- Net investment income (loss) ............................. 1,091 954 2,402 379 -------- --------- ------- ------- Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ......... 9 948 427 307 Change in unrealized appreciation (depreciation) .......... (2,087) (4,362) 3,473 850 -------- --------- ------- ------- Net gain (loss) on investment securities ................. (2,078) (3,414) 3,900 1,157 -------- --------- ------- ------- Net increase (decrease) in net assets resulting from operations ....................................... $ (987) $ (2,460) $ 6,302 $ 1,536 ======== ========= ======= =======
WRL GE/Scottish WRL WRL Equitable WRL Third J.P. Morgan International GE Avenue Real Estate Equity U.S. Equity Value Securities Subaccount Subaccount Subaccount Subaccount Investment Income: Dividend income ........................................... $ 24 $ 786 $ 89 $ 11 Capital gain distributions ................................ 358 1,131 0 0 ------- ------- ------ ------ Total investment income .................................. 382 1,917 89 11 Expenses: Mortality and expense risk ................................ 57 187 28 5 ------- ------- ------ ------ Net investment income (loss) ............................. 325 1,730 61 6 ------- ------- ------ ------ Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ......... 296 575 (126) (75) Change in unrealized appreciation (depreciation) .......... 808 969 491 34 ------- ------- ------ ------ Net gain (loss) on investment securities ................. 1,104 1,544 365 (41) ------- ------- ------ ------ Net increase (decrease) in net assets resulting from operations ....................................... $ 1,429 $ 3,274 $ 426 $ (35) ======= ======= ====== ======
See Notes to to the Financial Statements, which is an integral part of this report. 136 WRL Series Life Account Statements of Operations For the Year Ended December 31, 1999 All Amounts in Thousands
WRL WRL WRL WRL Goldman Sachs Goldman Sachs T. Rowe Price T. Rowe Price Growth Small Cap Dividend Growth Small Cap Subaccount(1) Subaccount(1) Subaccount(1) Subaccount(1) Investment Income: Dividend income ........................................... $ 0 $ 15 $ 0 $ 29 Capital gain distributions ................................ 0 0 0 0 ----- ----- ------ ----- Total investment income .................................. 0 15 0 29 Expenses: Mortality and expense risk ................................ 2 1 1 3 ----- ----- ------ ----- Net investment income (loss) ............................. (2) 14 (1) 26 ------ ----- ------- ----- Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ......... (4) (2) (3) 22 Change in unrealized appreciation (depreciation) .......... 114 22 (14) 140 ----- ----- ------ ----- Net gain (loss) on investment securities ................. 110 20 (17) 162 ----- ----- ------ ----- Net increase (decrease) in net assets resulting from operations ....................................... $ 108 $ 34 $ (18) $ 188 ===== ===== ====== =====
WRL WRL WRL Salomon Pilgrim Baxter Dreyfus All Cap Mid Cap Growth Mid Cap Subaccount(1) Subaccount(1) Subaccount(1) Investment Income: Dividend income ..................................... $ 12 $ 13 $ 0 Capital gain distributions .......................... 0 0 0 ------ ------ ----- Total investment income ............................ 12 13 0 Expenses: Mortality and expense risk .......................... 1 8 1 ------ ------ ----- Net investment income (loss) ....................... 11 5 (1) ------ ------ ------ Realized and Unrealized Gain (Loss): Net realized gain (loss) on investment securities ... (3) 91 (8) Change in unrealized appreciation (depreciation) .... 18 1,177 24 ------ ------ ----- Net gain (loss) on investment securities ........... 15 1,268 16 ------ ------ ----- Net increase (decrease) in net assets resulting from operations ................................. $ 26 $1,273 $ 15 ====== ====== =====
See Notes to to the Financial Statements, which is an integral part of this report. 137 WRL Series Life Account Statements of Changes in Net Assets For the Year Ended All Amounts in Thousands
WRL WRL J.P. Morgan AEGON Money Market Bond Subaccount Subaccount ------------------------- ------------------------ December 31, December 31, ------------------------- ------------------------ 1999 1998 1999 1998 ------------ ------------ ------------ ----------- Operations: Net investment income (loss) ..................... $ 1,474 $ 919 $ 1,329 $ 1,002 Net gain (loss) on investment securities ......... 0 0 (2,327) 713 ---------- ---------- -------- -------- Net increase (decrease) in net assets resulting from operations ....................... 1,474 919 (998) 1,715 ---------- ---------- -------- -------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 38,977 12,763 7,560 9,472 ---------- ---------- -------- -------- Less cost of units redeemed: Administrative charges .......................... 3,050 3,123 2,538 2,292 Policy loans .................................... 1,775 1,163 954 594 Surrender benefits .............................. 4,017 1,250 846 865 Death benefits .................................. 115 10 29 159 ---------- ---------- -------- -------- 8,957 5,546 4,367 3,910 ---------- ---------- -------- -------- Increase (decrease) in net assets from capital unit transactions ...................... 30,020 7,217 3,193 5,562 ---------- ---------- -------- -------- Net increase (decrease) in net assets ........... 31,494 8,136 2,195 7,277 Depositor's equity contribution (net redemption) ................................ 0 0 0 0 Net Assets: Beginning of year ................................ 24,576 16,440 24,934 17,657 ---------- ---------- -------- -------- End of year ...................................... $ 56,070 $ 24,576 $ 27,129 $ 24,934 ========== ========== ======== ======== Unit Activity: Units outstanding - beginning of year ............ 1,460 1,020 1,090 836 Units issued ..................................... 18,474 11,339 883 1,030 Units redeemed ................................... (16,728) (10,899) (741) (776) ---------- ---------- -------- -------- Units outstanding - end of year .................. 3,206 1,460 1,232 1,090 ========== ========== ======== ======== WRL Janus Growth Subaccount --------------------------- December 31, --------------------------- 1999 1998 -------------- ------------ Operations: Net investment income (loss) ..................... $ 226,095 $ 1,103 Net gain (loss) on investment securities ......... 262,161 295,459 ----------- --------- Net increase (decrease) in net assets resulting from operations ....................... 488,256 296,562 ----------- --------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 192,993 140,684 ----------- --------- Less cost of units redeemed: Administrative charges .......................... 57,685 44,910 Policy loans .................................... 33,172 18,083 Surrender benefits .............................. 32,554 22,312 Death benefits .................................. 1,908 4,185 ----------- --------- 125,319 89,490 ----------- --------- Increase (decrease) in net assets from capital unit transactions ...................... 67,674 51,194 ----------- --------- Net increase (decrease) in net assets ........... 555,930 347,756 Depositor's equity contribution (net redemption) ................................ 0 0 Net Assets: Beginning of year ................................ 798,027 450,271 ----------- --------- End of year ...................................... $ 1,353,957 $ 798,027 =========== ========= Unit Activity: Units outstanding - beginning of year ............ 8,668 7,972 Units issued ..................................... 2,854 2,967 Units redeemed ................................... (2,229) (2,271) ----------- --------- Units outstanding - end of year .................. 9,293 8,668 =========== =========
See Notes to to the Financial Statements, which is an integral part of this report. 138 WRL Series Life Account Statements of Changes in Net Assets For the Year Ended All Amounts in Thousands
WRL WRL LKCM WRL Janus Strategic VKAM Global Total Return Emerging Growth Subaccount Subaccount Subaccount ------------------------- ------------------------- ------------------------- December 31, December 31, December 31, ------------------------- ------------------------- ------------------------- 1999 1998 1999 1998 1999 1998 ------------ ------------ ------------- ----------- ------------ ------------ Operations: Net investment income (loss) ..................... $ 26,538 $ 7,425 $ 8,072 $ 3,284 $ 81,707 $ 6,894 Net gain (loss) on investment securities ......... 153,543 38,427 2,825 4,347 217,724 59,514 --------- --------- --------- -------- --------- --------- Net increase (decrease) in net assets resulting from operations ....................... 180,081 45,852 10,897 7,631 299,431 66,408 --------- --------- --------- -------- --------- --------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 81,308 72,962 11,792 24,191 94,168 64,824 --------- --------- --------- -------- --------- --------- Less cost of units redeemed: Administrative charges .......................... 25,132 19,369 8,436 7,696 25,202 19,612 Policy loans .................................... 9,284 4,953 3,000 2,319 11,395 5,601 Surrender benefits .............................. 8,537 5,662 3,136 2,587 11,025 7,688 Death benefits .................................. 194 591 378 1,047 512 368 --------- --------- --------- -------- --------- --------- 43,147 30,575 14,950 13,649 48,134 33,269 --------- --------- --------- -------- --------- --------- Increase (decrease) in net assets from capital unit transactions ...................... 38,161 42,387 (3,158) 10,542 46,034 31,555 --------- --------- --------- -------- --------- --------- Net increase (decrease) in net assets ........... 218,242 88,239 7,739 18,173 345,465 97,963 Depositor's equity contribution (net redemption) ................................ 0 0 0 0 0 0 Net Assets: Beginning of year ................................ 233,256 145,017 98,926 80,753 262,665 164,702 --------- --------- --------- -------- --------- --------- End of year ...................................... $ 451,498 $ 233,256 $ 106,665 $ 98,926 $ 608,130 $ 262,665 ========= ========= ========= ======== ========= ========= Unit Activity: Units outstanding - beginning of year ............ 10,167 8,145 4,814 4,270 8,218 7,013 Units issued ..................................... 4,823 5,610 1,538 1,946 4,977 4,099 Units redeemed ................................... (3,385) (3,588) (1,678) (1,402) (3,838) (2,894) --------- --------- --------- -------- --------- --------- Units outstanding - end of year .................. 11,605 10,167 4,674 4,814 9,357 8,218 ========= ========= ========= ======== ========= =========
See Notes to to the Financial Statements, which is an integral part of this report. 139 WRL Series Life Account Statements of Changes in Net Assets For the Year Ended All Amounts in Thousands
WRL WRL WRL Alger AEGON Federated Aggressive Growth Balanced Growth & Income Subaccount Subaccount Subaccount ------------------------- ----------------------- ------------------------- December 31, December 31, December 31, ------------------------- ----------------------- ------------------------- 1999 1998 1999 1998 1999 1998 ------------ ------------ ----------- ----------- ------------ ------------ Operations: Net investment income (loss) ..................... $ 35,966 $ 7,851 $ 213 $ 227 $ 1,091 $ 644 Net gain (loss) on investment securities ......... 101,488 44,348 105 576 (2,078) (269) --------- --------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations ....................... 137,454 52,199 318 803 (987) 375 --------- --------- -------- -------- -------- -------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 74,699 53,159 5,997 5,658 5,627 8,963 --------- --------- -------- -------- -------- -------- Less cost of units redeemed: Administrative charges .......................... 19,544 13,960 1,931 1,423 2,355 1,633 Policy loans .................................... 8,193 3,522 429 279 346 218 Surrender benefits .............................. 7,977 4,423 626 596 542 431 Death benefits .................................. 118 248 10 15 55 72 --------- --------- -------- -------- -------- -------- 35,832 22,153 2,996 2,313 3,298 2,354 --------- --------- -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions ...................... 38,867 31,006 3,001 3,345 2,329 6,609 --------- --------- -------- -------- -------- -------- Net increase (decrease) in net assets ........... 176,321 83,205 3,319 4,148 1,342 6,984 Depositor's equity contribution (net redemption) ................................ 0 0 0 0 0 0 Net Assets: Beginning of year ................................ 177,857 94,652 14,864 10,716 16,047 9,063 --------- --------- -------- -------- -------- -------- End of year ...................................... $ 354,178 $ 177,857 $ 18,183 $ 14,864 $ 17,389 $ 16,047 ========= ========= ======== ======== ======== ======== Unit Activity: Units outstanding - beginning of year ............ 6,669 5,230 990 756 976 563 Units issued ..................................... 3,640 3,797 637 578 714 966 Units redeemed ................................... (2,381) (2,358) (441) (344) (573) (553) --------- --------- -------- -------- -------- -------- Units outstanding - end of year .................. 7,928 6,669 1,186 990 1,117 976 ========= ========= ======== ======== ======== ========
See Notes to to the Financial Statements, which is an integral part of this report. 140 WRL Series Life Account Statements of Changes in Net Assets For the Year Ended All Amounts in Thousands
WRL WRL WRL Dean C.A.S.E. NWQ Asset Allocation Growth Value Equity Subaccount Subaccount Subaccount ------------------------- ------------------------ ------------------------ December 31, December 31, December 31, ------------------------- ------------------------ ------------------------ 1999 1998 1999 1998 1999 1998 ------------ ------------ ----------- ------------ ------------ ----------- Operations: Net investment income (loss) ..................... $ 954 $ 3,419 $ 2,402 $ 1,475 $ 379 $ 2,021 Net gain (loss) on investment securities ......... (3,414) (1,087) 3,900 (1,114) 1,157 (4,683) -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations ....................... (2,460) 2,332 6,302 361 1,536 (2,662) -------- -------- -------- -------- -------- -------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 1,729 13,703 7,781 8,731 3,283 6,086 -------- -------- -------- -------- -------- -------- Less cost of units redeemed: Administrative charges .......................... 3,875 3,421 2,946 2,433 2,874 2,846 Policy loans .................................... 991 748 668 520 713 643 Surrender benefits .............................. 901 925 678 295 605 401 Death benefits .................................. 89 160 12 60 32 165 -------- -------- -------- -------- -------- -------- 5,856 5,254 4,304 3,308 4,224 4,055 -------- -------- -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions ...................... (4,127) 8,449 3,477 5,423 (941) 2,031 -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets ........... (6,587) 10,781 9,779 5,784 595 (631) Depositor's equity contribution (net redemption) ................................ 0 0 0 0 0 0 Net Assets: Beginning of year ................................ 39,904 29,123 17,730 11,946 26,083 26,714 -------- -------- -------- -------- -------- -------- End of year ...................................... $ 33,317 $ 39,904 $ 27,509 $ 17,730 $ 26,678 $ 26,083 ======== ======== ======== ======== ======== ======== Unit Activity: Units outstanding - beginning of year ............ 2,383 1,867 1,417 969 1,982 1,916 Units issued ..................................... 937 1,377 1,347 1,317 1,296 1,748 Units redeemed ................................... (1,192) (861) (1,107) (869) (1,383) (1,682) -------- -------- -------- -------- -------- -------- Units outstanding - end of year .................. 2,128 2,383 1,657 1,417 1,895 1,982 ======== ======== ======== ======== ======== ========
See Notes to to the Financial Statements, which is an integral part of this report. 141 WRL Series Life Account Statements of Changes in Net Assets For the Year Ended All Amounts in Thousands
WRL WRL WRL GE/Scottish Equitable GE Third Avenue International Equity U.S. Equity Value Subaccount Subaccount Subaccount ----------------------- ----------------------- ----------------------- December 31, December 31, December 31, ----------------------- ----------------------- ----------------------- 1999 1998 1999 1998 1999 1998(1) ----------- ----------- ----------- ----------- ----------- ----------- Operations: Net investment income (loss) ..................... $ 325 $ (32) $ 1,730 $ 434 $ 61 $ (11) Net gain (loss) on investment securities ......... 1,104 369 1,544 1,411 365 (142) ------- ------- -------- -------- ------- ------- Net increase (decrease) in net assets resulting from operations ....................... 1,429 337 3,274 1,845 426 (153) ------- ------- -------- -------- ------- ------- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 761 3,972 12,169 10,178 730 2,932 ------- ------- -------- -------- ------- ------- Less cost of units redeemed: Administrative charges .......................... 644 433 2,237 862 218 138 Policy loans .................................... 101 196 422 159 52 8 Surrender benefits .............................. 258 35 444 113 80 26 Death benefits .................................. 1 107 8 63 3 0 ------- ------- -------- -------- ------- ------- 1,004 771 3,111 1,197 353 172 ------- ------- -------- -------- ------- ------- Increase (decrease) in net assets from capital unit transactions ...................... (243) 3,201 9,058 8,981 377 2,760 ------- ------- -------- -------- ------- ------- Net increase (decrease) in net assets ........... 1,186 3,538 12,332 10,826 803 2,607 Depositor's equity contribution (net redemption) ................................ 0 0 0 0 (199) 200 Net Assets: Beginning of year ................................ 5,827 2,289 14,084 3,258 2,807 0 ------- ------- -------- -------- ------- ------- End of year ...................................... $ 7,013 $ 5,827 $ 26,416 $ 14,084 $ 3,411 $ 2,807 ======= ======= ======== ======== ======= ======= Unit Activity: Units outstanding - beginning of year ............ 489 215 919 259 304 0 Units issued ..................................... 672 767 1,292 1,266 258 495 Units redeemed ................................... (686) (493) (743) (606) (240) (191) ------- ------- -------- -------- ------- ------- Units outstanding - end of year .................. 475 489 1,468 919 322 304 ======= ======= ======== ======== ======= =======
See Notes to to the Financial Statements, which is an integral part of this report. 142 WRL Series Life Account Statements of Changes in Net Assets For the Year Ended All Amounts in Thousands
WRL J.P. Morgan WRL WRL WRL Real Estate Goldman Sachs Goldman Sachs T. Rowe Price Securities Growth Small Cap Dividend Growth Subaccount Subaccount Subaccount Subaccount -------------------- --------------- --------------- ---------------- December 31, December 31, December 31, December 31, -------------------- --------------- --------------- ---------------- 1999 1998(1) 1999(1) 1999(1) 1999(1) -------- ----------- --------------- --------------- ---------------- Operations: Net investment income (loss) ..................... $ 6 $ (4) $ (2) $ 14 $ (1) Net gain (loss) on investment securities ......... (41) (112) 110 20 (17) ----- ------- ------- ------ ----- Net increase (decrease) in net assets resulting from operations ....................... (35) (116) 108 34 (18) ----- ------- ------- ------ ----- Capital Unit Transactions: Proceeds from units sold (transferred) ........... (26) 472 871 295 499 ----- ------- ------- ------ ----- Less cost of units redeemed: Administrative charges .......................... 19 4 18 5 2 Policy loans .................................... 0 43 2 5 0 Surrender benefits .............................. 1 0 7 0 3 Death benefits .................................. 1 0 0 0 0 ----- ------- ------- ------ ----- 21 47 27 10 5 ----- ------- ------- ------ ----- Increase (decrease) in net assets from capital unit transactions ...................... (47) 425 844 285 494 ----- ------- ------- ------ ----- Net increase (decrease) in net assets ........... (82) 309 952 319 476 Depositor's equity contribution (net redemption) ................................ 0 400 25 25 25 Net Assets: Beginning of year ................................ 709 0 0 0 0 ----- ------- ------- ------ ----- End of year ...................................... $ 627 $ 709 $ 977 $ 344 $ 501 ===== ======= ======= ====== ===== Unit Activity: Units outstanding - beginning of year ............ 84 0 0 0 0 Units issued ..................................... 67 113 106 41 65 Units redeemed ................................... (73) (29) (19) (10) (10) ----- ------- ------- ------ ----- Units outstanding - end of year .................. 78 84 87 31 55 ===== ======= ======= ====== =====
See Notes to to the Financial Statements, which is an integral part of this report. 143 WRL Series Life Account Statements of Changes in Net Assets For the Year Ended All Amounts in Thousands
WRL WRL WRL WRL T. Rowe Price Salomon Pilgrim Baxter Dreyfus Small Cap All Cap Mid Cap Growth Mid Cap Subaccount Subaccount Subaccount Subaccount --------------- -------------- ---------------- ------------- December 31, December 31, December 31, December 31, --------------- -------------- ---------------- ------------- 1999(1) 1999(1) 1999(1) 1999(1) --------------- -------------- ---------------- ------------- Operations: Net investment income (loss) ..................... $ 26 $ 11 $ 5 $ (1) Net gain (loss) on investment securities ......... 162 15 1,268 16 ------ ------ ------- ----- Net increase (decrease) in net assets resulting from operations ....................... 188 26 1,273 15 ------ ------ ------- ----- Capital Unit Transactions: Proceeds from units sold (transferred) ........... 727 344 3,885 297 ------ ------ ------- ----- Less cost of units redeemed: Administrative charges .......................... 15 9 37 0 Policy loans .................................... 0 3 18 0 Surrender benefits .............................. 0 0 30 0 Death benefits .................................. 0 0 0 0 ------ ------ ------- ----- 15 12 85 0 ------ ------ ------- ----- Increase (decrease) in net assets from capital unit transactions ...................... 712 332 3,800 297 ------ ------ ------- ----- Net increase (decrease) in net assets ........... 900 358 5,073 312 Depositor's equity contribution (net redemption) ................................ 25 25 (8) 25 Net Assets: Beginning of year ................................ 0 0 0 0 ------ ------ ------- ----- End of year ...................................... $ 925 $ 383 $ 5,065 $ 337 ====== ====== ======= ===== Unit Activity: Units outstanding - beginning of year ............ 0 0 0 0 Units issued ..................................... 161 58 412 52 Units redeemed ................................... (86) (22) (95) (19) ------ ------ ------- ----- Units outstanding - end of year .................. 75 36 317 33 ====== ====== ======= =====
See Notes to to the Financial Statements, which is an integral part of this report. 144 WRL Series Life Account Financial Highlights For the Year Ended
WRL J.P. Morgan Money Market Subaccount ------------------------------------------------------------------------ December 31, ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 -------------- -------------- ------------- ------------- -------------- Accumulation unit value, beginning of year ......... $ 16.83 $ 16.13 $ 15.45 $ 14.83 $ 14.19 Income from operations: Net investment income (loss) ..................... 0.66 0.70 0.68 0.62 0.64 Net realized and unrealized gain (loss) on investment ...................................... 0.00 0.00 0.00 0.00 0.00 -------- --------- ------- ------- --------- Net income (loss) from operations ............... 0.66 0.70 0.68 0.62 0.64 -------- --------- ------- ------- --------- Accumulation unit value, end of year ............... $ 17.49 $ 16.83 $ 16.13 $ 15.45 $ 14.83 ======== ========= ======= ======= ========= Total return ....................................... 3.92 % 4.36 % 4.37 % 4.17 % 4.49 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $ 56,070 $ 24,576 $ 16,440 $ 12,740 $ 10,759 Ratio of net investment income (loss) to average net assets ....................................... 3.87 % 4.24 % 4.28 % 4.07 % 4.37 %
WRL AEGON Bond Subaccount ---------------------------------------------------------------------- December 31, ---------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------------- ------------- ------------- ------------- ------------- Accumulation unit value, beginning of year ......... $ 22.89 $ 21.12 $ 19.53 $ 19.67 $ 16.14 Income from operations: Net investment income (loss) ..................... 1.13 1.01 1.01 0.99 1.05 Net realized and unrealized gain (loss) on investment ...................................... (2.01) 0.76 0.58 (1.13) 2.48 --------- ------- ------- -------- -------- Net income (loss) from operations ............... (0.88) 1.77 1.59 (0.14) 3.53 --------- ------- ------- -------- -------- Accumulation unit value, end of year ............... $ 22.01 $ 22.89 $ 21.12 $ 19.53 $ 19.67 ========= ======= ======= ======== ======== Total return ....................................... (3.81)% 8.34 % 8.18 % (0.75)% 21.81 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $ 27,129 $24,934 $17,657 $ 11,585 $ 10,066 Ratio of net investment income (loss) to average net assets ....................................... 5.10 % 4.58 % 5.06 % 5.34 % 5.80 %
See Notes to to the Financial Statements, which is an integral part of this report. 145 WRL Series Life Account Financial Highlights For the Year Ended
WRL Janus Growth Subaccount --------------------------------------------------------------------------- December 31, --------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------------- -------------- -------------- -------------- ------------- Accumulation unit value, beginning of year ......... $ 92.07 $ 56.48 $ 48.48 $ 41.47 $ 28.44 Income from operations: Net investment income (loss) ..................... 25.03 0.13 5.83 2.88 3.89 Net realized and unrealized gain (loss) on investment ...................................... 28.60 35.46 2.17 4.13 9.14 ---------- -------- -------- -------- -------- Net income (loss) from operations ............... 53.63 35.59 8.00 7.01 13.03 ---------- -------- -------- -------- -------- Accumulation unit value, end of year ............... $ 145.70 $ 92.07 $ 56.48 $ 48.48 $ 41.47 ========== ======== ======== ======== ======== Total return ....................................... 58.25 % 63.01 % 16.50 % 16.91 % 45.81 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $1,353,957 $ 798,027 $ 450,271 $ 349,491 $ 262,467 Ratio of net investment income (loss) to average net assets ....................................... 22.67 % 0.19 % 10.84 % 6.41 % 11.05 %
WRL Janus Global Subaccount --------------------------------------------------------------------------- December 31, --------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------------- -------------- -------------- -------------- ------------- Accumulation unit value, beginning of year ......... $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80 Income from operations: Net investment income (loss) ..................... 2.44 0.82 2.30 1.50 0.45 Net realized and unrealized gain (loss) on investment ...................................... 13.53 4.32 0.37 1.68 1.70 ---------- -------- -------- -------- -------- Net income (loss) from operations ............... 15.97 5.14 2.67 3.18 2.15 ---------- -------- -------- -------- -------- Accumulation unit value, end of year ............... $ 38.91 $ 22.94 $ 17.80 $ 15.13 $ 11.95 ========== ======== ======== ======== ======== Total return ....................................... 69.58 % 28.86 % 17.69 % 26.60 % 21.96 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $ 451,498 $233,256 $145,017 $ 83,159 $ 37,049 Ratio of net investment income (loss) to average net assets ....................................... 9.07 % 3.92 % 13.39 % 11.09 % 4.25 %
See Notes to to the Financial Statements, which is an integral part of this report. 146 WRL Series Life Account Financial Highlights For the Year Ended
WRL LKCM Strategic Total Return Subaccount ------------------------------------------------------------------------- December 31, ------------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------------- -------------- -------------- -------------- ------------- Accumulation unit value, beginning of year ......... $ 20.55 $ 18.91 $ 15.66 $ 13.74 $ 11.12 Income from operations: Net investment income (loss) ..................... 1.68 0.71 1.56 0.82 0.68 Net realized and unrealized gain (loss) on investment ...................................... 0.59 0.93 1.69 1.10 1.94 -------- -------- -------- -------- ------- Net income (loss) from operations ............... 2.27 1.64 3.25 1.92 2.62 -------- -------- -------- -------- ------- Accumulation unit value, end of year ............... $ 22.82 $ 20.55 $ 18.91 $ 15.66 $ 13.74 ======== ======== ======== ======== ======= Total return ....................................... 11.07 % 8.66 % 20.77 % 13.97 % 23.55 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $106,665 $ 98,926 $ 80,753 $ 55,900 $39,648 Ratio of net investment income (loss) to average net assets ....................................... 7.93 % 3.67 % 8.89 % 5.76 % 5.47 %
WRL VKAM Emerging Growth Subaccount ------------------------------------------------------------------------- December 31, ------------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------------- -------------- -------------- -------------- ------------- Accumulation unit value, beginning of year ......... $ 31.96 $ 23.48 $ 19.51 $ 16.56 $ 11.38 Income from operations: Net investment income (loss) ..................... 9.32 0.91 2.20 0.82 0.65 Net realized and unrealized gain (loss) on investment ...................................... 23.71 7.57 1.77 2.13 4.53 -------- -------- -------- -------- ------- Net income (loss) from operations ............... 33.03 8.48 3.97 2.95 5.18 -------- -------- -------- -------- ------- Accumulation unit value, end of year ............... $ 64.99 $ 31.96 $ 23.48 $ 19.51 $ 16.56 ======== ======== ======== ======== ======= Total return ....................................... 103.33 % 36.11 % 20.37 % 17.82 % 45.49 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $608,130 $262,665 $164,702 $107,925 $67,905 Ratio of net investment income (loss) to average net assets ....................................... 23.19 % 3.44 % 10.18 % 4.51 % 4.66 %
See Notes to to the Financial Statements, which is an integral part of this report. 147 WRL Series Life Account Financial Highlights For the Year Ended
WRL Alger Aggressive Growth Subaccount ----------------------------------------------------------------------- December 31, ----------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------------- -------------- ------------- ------------- ------------- Accumulation unit value, beginning of year ......... $ 26.67 $ 18.10 $ 14.70 $ 13.43 $ 9.82 Income from operations: Net investment income (loss) ..................... 4.90 1.33 1.75 0.36 0.37 Net realized and unrealized gain (loss) on investment ...................................... 13.10 7.24 1.65 0.91 3.24 -------- -------- ------- ------- ------- Net income (loss) from operations ............... 18.00 8.57 3.40 1.27 3.61 -------- -------- ------- ------- ------- Accumulation unit value, end of year ............... $ 44.67 $ 26.67 $ 18.10 $ 14.70 $ 13.43 ======== ======== ======= ======= ======= Total return ....................................... 67.52 % 47.36 % 23.14 % 9.46 % 36.79 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $354,178 $177,857 $94,652 $54,408 $32,904 Ratio of net investment income (loss) to average net assets ....................................... 15.54 % 6.20 % 10.26 % 2.65 % 2.93 %
WRL AEGON Balanced Subaccount ----------------------------------------------------------------------- December 31, ----------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------------- -------------- ------------- ------------- ------------- Accumulation unit value, beginning of year ......... $ 15.02 $ 14.17 $ 12.21 $ 11.13 $ 9.37 Income from operations: Net investment income (loss) ..................... 0.19 0.25 1.55 0.36 0.37 Net realized and unrealized gain (loss) on investment ...................................... 0.12 0.60 0.41 0.72 1.39 -------- -------- ------- ------- ------- Net income (loss) from operations ............... 0.31 0.85 1.96 1.08 1.76 -------- -------- ------- ------- ------- Accumulation unit value, end of year ............... $ 15.33 $ 15.02 $ 14.17 $ 12.21 $ 11.13 ======== ======== ======= ======= ======= Total return ....................................... 2.11 % 5.98 % 16.06 % 9.73 % 18.73 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $ 18,183 $ 14,864 $10,716 $ 6,418 $ 3,795 Ratio of net investment income (loss) to average net assets ....................................... 1.26 % 1.76 % 11.62 % 3.18 % 3.59 %
See Notes to to the Financial Statements, which is an integral part of this report. 148 WRL Series Life Account Financial Highlights For the Year Ended
WRL Federated Growth & Income Subaccount -------------------------------------------------------------------- December 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------- ------------- ------------- ------------- Accumulation unit value, beginning of year ......... $ 16.44 $ 16.09 $ 13.03 $ 11.77 $ 9.49 Income from operations: Net investment income (loss) ..................... 1.05 0.77 2.61 0.76 0.49 Net realized and unrealized gain (loss) on investment ...................................... (1.92) (0.42) 0.45 0.50 1.79 ------- ------- ------- ------- -------- Net income (loss) from operations ............... (0.87) 0.35 3.06 1.26 2.28 ------- ------- ------- ------- -------- Accumulation unit value, end of year ............... $ 15.57 $ 16.44 $ 16.09 $ 13.03 $ 11.77 ======= ======= ======= ======= ======== Total return ....................................... (5.31)% 2.13 % 23.54 % 10.64 % 24.14 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $17,389 $16,047 $ 9,063 $ 5,501 $ 2,631 Ratio of net investment income (loss) to average net assets ....................................... 6.51 % 4.83 % 18.50 % 6.38 % 4.57 %
WRL Dean Asset Allocation Subaccount -------------------------------------------------------------------- December 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995(1) ------------ ------------- ------------- ------------- ------------- Accumulation unit value, beginning of year ......... $ 16.74 $ 15.60 $ 13.50 $ 11.90 $ 10.00 Income from operations: Net investment income (loss) ..................... 0.41 1.58 1.20 0.53 0.61 Net realized and unrealized gain (loss) on investment ...................................... (1.49) (0.44) 0.90 1.07 1.29 ------- ------- ------- ------- -------- Net income (loss) from operations ............... (1.08) 1.14 2.10 1.60 1.90 ------- ------- ------- ------- -------- Accumulation unit value, end of year ............... $ 15.66 $ 16.74 $ 15.60 $ 13.50 $ 11.90 ======= ======= ======= ======= ======== Total return ....................................... (6.48)% 7.36 % 15.55 % 13.40 % 19.03 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $33,317 $39,904 $29,123 $17,946 $ 9,446 Ratio of net investment income (loss) to average net assets ....................................... 2.50 % 9.69 % 8.14 % 4.35 % 5.47 %
See Notes to to the Financial Statements, which is an integral part of this report. 149 WRL Series Life Account Financial Highlights For the Year Ended
WRL C.A.S.E. Growth Subaccount ------------------------------------------------------------- December 31, ------------------------------------------------------------- 1999 1998 1997 1996(1) ------------- ------------- ------------- ------------- Accumulation unit value, beginning of year ......... $ 12.51 $ 12.32 $ 10.81 $ 10.00 Income from operations: Net investment income (loss) ..................... 1.52 1.24 1.51 0.37 Net realized and unrealized gain (loss) on investment ...................................... 2.57 (1.05) 0.00 0.44 ------- ------- ------- -------- Net income (loss) from operations ............... 4.09 0.19 1.51 0.81 ------- ------- ------- -------- Accumulation unit value, end of year ............... $ 16.60 $ 12.51 $ 12.32 $ 10.81 ======= ======= ======= ======== Total return ....................................... 32.65 % 1.56 % 14.00 % 8.09 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $27,509 $17,730 $11,946 $ 4,466 Ratio of net investment income (loss) to average net assets ....................................... 10.16 % 10.21 % 12.65 % 6.11 %
WRL NWQ Value Equity Subaccount ------------------------------------------------------------ December 31, ------------------------------------------------------------ 1999 1998 1997 1996(1) ------------- ------------ ------------- ------------- Accumulation unit value, beginning of year ......... $ 13.16 $ 13.94 $ 11.25 $ 10.00 Income from operations: Net investment income (loss) ..................... 0.20 0.95 0.14 0.05 Net realized and unrealized gain (loss) on investment ...................................... 0.72 (1.73) 2.55 1.20 ------- ------- ------- -------- Net income (loss) from operations ............... 0.92 (0.78) 2.69 1.25 ------- ------- ------- -------- Accumulation unit value, end of year ............... $ 14.08 $ 13.16 $ 13.94 $ 11.25 ======= ======= ======= ======== Total return ....................................... 6.98 % (5.63)% 23.93 % 12.51 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $26,678 $26,083 $26,714 $ 8,887 Ratio of net investment income (loss) to average net assets ....................................... 1.42 % 6.84 % 1.05 % 0.77 %
See Notes to to the Financial Statements, which is an integral part of this report. 150 WRL Series Life Account Financial Highlights For the Year Ended
WRL GE/Scottish Equitable International Equity Subaccount WRL GE U.S. Equity Subaccount -------------------------------------- ----------------------------------------- December 31, December 31, -------------------------------------- ----------------------------------------- 1999 1998 1997(1) 1999 1998 1997(1) ------------- ------------ ----------- ------------- ------------- ------------- Accumulation unit value, beginning of year ...... $ 11.92 $ 10.65 $ 10.00 $ 15.33 $ 12.59 $ 10.00 Income from operations: Net investment income (loss) .................. 0.62 (0.09) (0.03) 1.38 0.73 0.99 Net realized and unrealized gain (loss) on investment ................................... 2.22 1.36 0.68 1.28 2.01 1.60 ------- -------- -------- -------- -------- ------- Net income (loss) from operations ............ 2.84 1.27 0.65 2.66 2.74 2.59 ------- -------- -------- -------- -------- ------- Accumulation unit value, end of year ............ $ 14.76 $ 11.92 $ 10.65 $ 17.99 $ 15.33 $ 12.59 ======= ======== ======== ======== ======== ======= Total return .................................... 23.84 % 11.84 % 6.54 % 17.35 % 21.78 % 25.89 % Ratios and supplemental data: Net assets at end of year (in thousands) ....... $ 7,013 $ 5,827 $ 2,289 $ 26,416 $ 14,084 $ 3,258 Ratio of net investment income (loss) to average net assets .................................... 5.09 % (0.81)% (0.28)% 8.27 % 5.30 % 8.28 %
WRL WRL Third Avenue J.P. Morgan Value Real Estate Securities Subaccount Subaccount --------------------------- -------------------------- December 31, December 31, --------------------------- -------------------------- 1999 1998(1) 1999 1998(1) ------------- ----------- ----------- ------------ Accumulation unit value, beginning of year ......... $ 9.23 $ 10.00 $ 8.46 $ 10.00 Income from operations: Net investment income (loss) ..................... 0.19 (0.05) 0.07 (0.05) Net realized and unrealized gain (loss) on investment ...................................... 1.17 (0.72) (0.47) (1.49) -------- ------- -------- ------- Net income (loss) from operations ............... 1.36 (0.77) (0.40) (1.54) -------- ------- -------- ------- Accumulation unit value, end of year ............... $ 10.59 $ 9.23 $ 8.06 $ 8.46 ======== ======= ======== ======= Total return ....................................... 14.68 % (7.67)% (4.63)% (15.44)% Ratios and supplemental data: Net assets at end of year (in thousands) .......... $ 3,411 $ 2,807 $ 627 $ 709 Ratio of net investment income (loss) to average net assets ....................................... 1.98 % (0.52)% 0.95% (0.90)%
See Notes to to the Financial Statements, which is an integral part of this report. 151 WRL Series Life Account Financial Highlights For the Year Ended
WRL WRL WRL T. Rowe Price WRL Goldman Sachs Goldman Sachs Dividend T. Rowe Price Growth Small Cap Growth Small Cap Subaccount Subaccount Subaccount Subaccount --------------- --------------- --------------- -------------- December 31, December 31, December 31, December 31, --------------- --------------- --------------- -------------- 1999(1) 1999(1) 1999(1) 1999(1) --------------- --------------- --------------- -------------- Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 $ 10.00 Income from operations: Net investment income (loss) ..................... (0.05) 0.76 (0.04) 0.41 Net realized and unrealized gain (loss) on investment ...................................... 1.34 0.16 (0.80) 1.90 --------- -------- ------- -------- Net income (loss) from operations ............... 1.29 0.92 (0.84) 2.31 --------- -------- ------- -------- Accumulation unit value, end of period ............. $ 11.29 $ 10.92 $ 9.16 $ 12.31 ========= ======== ======= ======== Total return ....................................... 12.91 % 9.23 % (8.37)% 23.09 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $ 944 $ 344 $ 501 $ 925 Ratio of net investment income (loss) to average net assets ....................................... (0.90)% 15.66 % (0.90)% 8.13 %
WRL WRL Pilgrim WRL Salomon Baxter Dreyfus All Cap Mid Cap Growth Mid Cap Subaccount Subaccount Subaccount -------------- ---------------- ------------- December 31, December 31, December 31, -------------- ---------------- ------------- 1999(1) 1999(1) 1999(1) -------------- ---------------- ------------- Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00 Income from operations: Net investment income (loss) ..................... 0.40 0.04 (0.04) Net realized and unrealized gain (loss) on investment ...................................... 0.30 5.94 0.18 ------- -------- --------- Net income (loss) from operations ............... 0.70 5.98 0.14 ------- -------- --------- Accumulation unit value, end of period ............. $ 10.70 $ 15.98 $ 10.14 ======= ======== ========= Total return ....................................... 7.02 % 59.78 % 1.44 % Ratios and supplemental data: Net assets at end of year (in thousands) .......... $ 383 $ 5,065 $ 337 Ratio of net investment income (loss) to average net assets ....................................... 8.07 % 0.62 % (0.90)%
See Notes to to the Financial Statements, which is an integral part of this report. 152 WRL Series Life Account Notes to the Financial Statements At December 31, 1999 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 twenty-three investment options referred to as subaccounts. Each subaccount invests in the corresponding Portfolio of the WRL Series Fund, Inc. (collectively referred to as the "Fund" and individually as a "Portfolio"), a registered management investment company under the Investment Company Act of 1940, as amended. The Fund has entered into annually renewable investment advisory agreements for each Portfolio with WRL Investment Management, Inc. ("WRL Management") as investment adviser. Costs incurred in connection with the advisory services rendered by WRL Management are paid by each Portfolio. WRL Management has entered into sub-advisory agreements with various management companies ("Sub-Advisers"), some of which are affiliates of WRL. Each Sub-Adviser is compensated directly by WRL Management. Effective May 1, 1999 the names on the following subaccounts were changed:
Subaccount Formerly - --------------------------------- --------------------------- WRL J.P. Morgan Money Market Money Market Subaccount WRL AEGON Bond Bond Subaccount WRL Janus Growth Growth Subaccount WRL Janus Global Global Subaccount WRL LKCM Strategic Total Return Strategic Total Return Subaccount WRL VKAM Emerging Growth Emerging Growth Subaccount WRL Alger Aggressive Growth Aggressive Growth Subaccount WRL AEGON Balanced Balanced Subaccount WRL Federated Growth & Income Growth & Income Subaccount WRL Dean Asset Allocation Tactical Asset Allocation Subaccount WRL C.A.S.E. Growth C.A.S.E. Growth Subaccount WRL NWQ Value Equity Value Equity Subaccount WRL GE/Scottish Equitable International Equity International Equity Subaccount WRL GE U.S. Equity U.S. Equity Subaccount WRL Third Avenue Value Third Avenue Value Subaccount WRL J.P. Morgan Real Estate Real Estate Securities Securities Subaccount
The Financial Statements reflect a full twelve month period for each year reported on, except as follows:
Subaccount Inception Date - ------------------------------------------------ --------------- WRL Dean Asset Allocation 01/03/1995 WRL C.A.S.E. Growth 05/01/1996 WRL NWQ Value Equity 05/01/1996 WRL GE/Scottish Equitable International Equity 01/02/1997 WRL GE U.S. Equity 01/02/1997 WRL Third Avenue Value 01/02/1998 WRL J.P. Morgan Real Estate Securities 05/01/1998 WRL Goldman Sachs Growth 07/01/1999 WRL Goldman Sachs Small Cap 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 Pilgrim Baxter Mid Cap Growth 07/01/1999 WRL Dreyfus Mid Cap 07/01/1999
On July 1, 1999, WRL made initial contributions totaling $175,000 to the Life Account. The respective amounts of the contributions and units received are as follows:
Subaccount Contribution Units - ----------------------------------- -------------- -------- WRL Goldman Sachs Growth $ 25,000 2,500 WRL Goldman Sachs Small Cap 25,000 2,500 WRL T. Rowe Price Dividend Growth 25,000 2,500 WRL T. Rowe Price Small Cap 25,000 2,500 WRL Salomon All Cap 25,000 2,500 WRL Pilgrim Baxter Mid Cap Growth 25,000 2,500 WRL Dreyfus Mid Cap 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. 153 WRL Series Life Account Notes to the Financial Statements (continued) At December 31, 1999 NOTE 1--(continued) A. Valuation of Investments and Securities Transactions Investments in the Fund's shares are valued at the closing net asset value ("NAV") per share of the underlying Portfolio, as determined by the Fund. Investment transactions are accounted for on the trade date at the Portfolio NAV next determined after receipt of sale or redemption orders without sales charges. Dividend income and capital gains distributions are recorded on the ex-dividend date. The cost of investments sold is determined on a first-in, first-out basis. B. Federal Income Taxes The operations of the 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. Accordingly, no provision for Federal income taxes has been made. NOTE 2--CHARGES AND DEDUCTIONS Charges are assessed by WRL in connection with the issuance and administration of the 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 for administrative services in connection with issuance and administration of the Policies. This charge (not assessed at the individual contract level) effectively reduces the value of a unit outstanding during the year. 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, 1999 are as follows (in thousands):
Purchases Proceeds of from Sales Subaccount Securities of Securities - ---------------------------------------- ------------ -------------- WRL J.P. Morgan Money Market $ 133,389 $ 99,679 WRL AEGON Bond 11,936 7,386 WRL Janus Growth 329,222 36,072 WRL Janus Global 71,976 7,800 WRL LKCM Strategic Total Return 14,849 9,892 WRL VKAM Emerging Growth 188,708 61,487 WRL Alger Aggressive Growth 83,923 9,614 WRL AEGON Balanced 4,525 1,311 WRL Federated Growth & Income 5,634 2,209 WRL Dean Asset Allocation 4,351 7,517 WRL C.A.S.E. Growth 10,787 4,903 WRL NWQ Value Equity 6,846 7,419 WRL GE/Scottish Equitable International Equity 5,739 5,682 WRL GE U.S. Equity 13,901 3,164 WRL Third Avenue Value 1,611 1,344 WRL J.P. Morgan Real Estate Securities 519 554 WRL Goldman Sachs Growth 977 115 WRL Goldman Sachs Small Cap 374 47 WRL T. Rowe Price Dividend Growth 543 35 WRL T. Rowe Price Small Cap 1,428 666 WRL Salomon All Cap 551 183 WRL Pilgrim Baxter Mid Cap Growth 4,402 620 WRL Dreyfus Mid Cap 470 164
NOTE 5--FINANCIAL HIGHLIGHTS 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. 154 Western Reserve Life Assurance Co. of Ohio Balance Sheet - Statutory Basis As of September 30, 2000 (In Thousands) (Unaudited) Admitted Assets Cash and invested assets: Cash and short-term investments ....................................... $ 17,438 Bonds ................................................................. 98,430 Common stock, at market ............................................... 4,113 Mortgage loans on real estate ......................................... 9,525 Home office properties, at cost less accumulated depreciation ......... 33,720 Investment real estate ................................................ 10,876 Policy loans .......................................................... 264,188 ---------- Total cash and invested assets ......................................... 438,290 Premiums deferred and uncollected ...................................... 991 Accrued investment income .............................................. 1,853 Transfers from separate accounts due or accrued ........................ 527,786 Cash surrender value of life insurance policies ........................ 49,206 Federal income tax benefit ............................................. 1,295 Other assets ........................................................... 5,567 Separate account assets ................................................ 12,482,470 ---------- Total admitted assets .................................................. 13,507,458 ==========
155 Western Reserve Life Assurance Co. of Ohio Balance Sheet - Statutory Basis As of September 30, 2000 (In Thousands) (Unaudited) (continued) Liabilities and capital and surplus Liabilities: Aggregate reserves for policies and contracts: Life ......................................................................... 379,126 Annuity ...................................................................... 253,606 Policy and contract claim reserves ............................................ 13,153 Other policyholders' funds .................................................... 32,294 Remittances and items not allocated ........................................... 17,808 Asset valuation reserve ....................................................... 5,241 Interest maintenance reserve .................................................. 6,363 Short-term note payable to affiliate .......................................... 77,700 Other liabilities ............................................................. 67,318 Separate account liabilities .................................................. 12,475,791 ---------- Total liabilities .............................................................. 13,328,400 Capital and surplus: Common stock, $1.00 par value, 2,500 shares authorized, issued and outstanding 2,500 Paid-in surplus ............................................................... 120,107 Unassigned surplus ............................................................ 56,451 ---------- Total capital and surplus ...................................................... 179,058 ---------- Total liabilities and capital and surplus ...................................... 13,507,458 ==========
156 Western Reserve Life Assurance Co. of Ohio Statement of Operations - Statutory Basis for the Nine Months Ended September 30, 2000 (In Thousands) (Unaudited) Revenues: Premiums and other considerations, net of reinsurance Life .............................................................................. $ 565,778 Annuity ........................................................................... 1,305,110 Net investment income .............................................................. 36,788 Amortization of interest maintenance reserve ....................................... 1,249 Commissions and expense allowances on reinsurance ceded ............................ 1,124 Income from fees associated with investment management, administration and contract guarantees for separate accounts ........................................ 22,266 Other income ........................................................................ 42,888 1,975,203 Benefits and expenses: Benefits paid or provided for: ..................................................... Life .............................................................................. 45,206 Surrender benefits ................................................................ 687,497 Other benefits .................................................................... 34,949 Increase (decrease) in aggregate reserves for policies and contracts: Life ............................................................................. 76,987 Annuity .......................................................................... (15,258) Other ............................................................................ (508) 828,873 Insurance expenses: Commissions ........................................................................ 250,357 General insurance expenses ......................................................... 93,503 Taxes, licenses and fees ........................................................... 17,925 Transfer to separate accounts ...................................................... 783,208 Other ............................................................................. (88) ---------- 1,144,905 ---------- ,973,778 ---------- Gain from operations before federal income tax expense and net realized capital gains on investments ..................................................................... 1,425 Federal income tax expense .......................................................... 3,487 ---------- Loss from operations before net realized capital gains on investments ............... (2,062) Net realized capital gains on investments (net of related federal income taxes and amounts transferred to interest maintenance reserve) ............................... 153 ---------- Net loss ............................................................................ (1,909) ==========
157 Western Reserve Life Assurance Co. of Ohio Statement of Changes in Capital and Surplus - Statutory Basis (In Thousands) (Unaudited)
Total Capital Common Paid-in Unassigned and Stock Surplus Surplus Surplus -------- ----------- ------------ ----------- Balance at January 1, 2000 ...................... $2,500 $120,107 $ 62,309 $184,916 Net loss ........................................ 0 0 (1,909) (1,909) Net unrealized gains ........................... 0 0 1,603 1,603 Change in non-admitted assets .................. 0 0 (5,730) (5,730) Change in asset valuation reserve .............. 0 0 (1,431) (1,431) Change in surplus in separate accounts ......... 0 0 (1,325) (1,325) Other adjustments ............................... 0 0 2,934 2,934 ------ -------- -------- -------- Balance at September 30, 2000 ................... 2,500 120,107 56,451 179,058 ====== ======== ======== ========
158 Western Reserve Life Assurance Co. of Ohio Statement of Cash Flow - Statutory Basis for the Nine Months Ended September 30, 2000 (In Thousands) (Unaudited) Operating Activities Premiums and other considerations, net of reinsurance ......... $1,937,082 Net investment income ......................................... 40,087 Life and accident and health claims ........................... (41,768) Surrender benefits to policyholders ........................... (687,497) Other benefits to policyholders ............................... (34,858) Commissions, other expenses and other taxes ................... (357,541) Federal income taxes, excluding tax on capital gains .......... (9,101) Other, net .................................................... 26,601 Net transfers to separate accounts ............................ (845,628) ---------- Net cash provided by operating activities .................... 27,377 Investing Activities Proceeds from investments sold, matured or repaid: Bonds and preferred stocks ................................... 29,783 Mortgage loans on real estate ................................ 167 ---------- 29,950 Cost of investments acquired: Bonds and preferred stocks ................................... 8,472 Real estate .................................................. 96 Policy loans ................................................. 81,212 Other ........................................................ (259) ---------- 89,521 Net cash used in investing activities ........................ (59,571) Financing Activities Borrowed money ................................................ 25,700 ---------- Net cash provided by financing activities .................... 25,700 Decrease in cash and short-term investments ................... (6,494) Cash and short-term investments at beginning of year .......... 23,932 ---------- Cash and short-term investments at end of year ................ 17,438 ==========
159 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements - Statutory Basis for the Nine Months Ended September 30, 2000 (In Thousands) (Unaudited) 1. 1. Basis of Presentation The accompanying unaudited statutory basis financial statements have been prepared in accordance with statutory accounting principles for interim financial information and the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. For further information, refer to the accompanying statutory basis financial statements and notes thereto for the year ended December 31, 1999. 160 Report of Independent Auditors The Board of Directors Western Reserve Life Assurance Co. of Ohio We have audited the accompanying statutory-basis balance sheets of Western Reserve Life Assurance Co. of Ohio (wholly owned indirectly by AEGON N.V.) as of December 31, 1999 and 1998, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the statutory-basis financial statement schedules required by Regulation S-X, Article 7. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the "Separate Account Assets" and "Separate Account Liabilities" in the statutory-basis balance sheets of the Company. The Separate Account financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the data included for the Separate Accounts, is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio, which practices differ from generally accepted accounting principles. The variances between such practices and generally accepted accounting principles are also described in Note 1. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material. In our opinion, because of the effects of the matter described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of Western Reserve Life Assurance Co. of Ohio at December 31, 1999 and 1998, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 1999. However, in our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Western Reserve Life Assurance Co. of Ohio at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic statutory-basis financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Des Moines, Iowa February 18, 2000 161 Western Reserve Life Assurance Co. of Ohio Balance Sheets -- Statutory Basis (Dollars in thousands, except per share amounts)
December 31 ----------------------------- 1999 1998 ------------- ------------- Admitted assets Cash and invested assets: Cash and short-term investments .......................... $ 23,932 $ 73,808 Bonds .................................................... 119,731 184,697 Common stocks: Affiliated entities (cost: 1999 and 1998 $243)........... 2,156 704 Other (cost: 1999 and 1998 $302)......................... 358 384 Mortgage loans on real estate ............................ 9,698 9,916 Home office properties .................................. 34,066 34,583 Investment properties ................................... 11,078 11,594 Policy loans ............................................ 182,975 112,982 Other invested assets ................................... -- 396 ----------- ---------- Total cash and invested assets ............................ 383,994 429,064 Premiums deferred and uncollected ......................... 785 900 Accrued investment income ................................. 1,638 2,867 Transfers from separate accounts due or accrued ........... 463,721 350,633 Cash surrender value of life insurance policies ........... 47,518 45,445 Other assets .............................................. 6,614 9,239 Separate account assets ................................... 11,587,982 6,999,290 ----------- ---------- Total admitted assets ..................................... $12,492,252 $7,837,438 =========== ==========
See accompanying notes. 162 Western Reserve Life Assurance Co. of Ohio Balance Sheets -- Statutory Basis (continued) (Dollars in thousands, except per share amounts)
December 31 ----------------------------- 1999 1998 -------------- ------------ Liabilities and capital and surplus Liabilities: Aggregate reserves for policies and contracts: Life .................................................................... $ 302,138 $ 231,596 Annuity ................................................................. 268,864 265,418 Policy and contract claim reserves ....................................... 9,269 9,233 Other policyholders' funds ............................................... 38,633 38,080 Remittances and items not allocated ...................................... 20,686 20,569 Federal income taxes payable ............................................. 5,873 5,716 Asset valuation reserve .................................................. 3,809 2,848 Interest maintenance reserve ............................................. 7,866 9,684 Short-term note payable to affiliate ..................................... 17,100 44,200 Payable to affiliate ..................................................... 964 37,907 Other liabilities ........................................................ 49,478 31,151 Separate account liabilities ............................................. 11,582,656 6,997,456 ----------- ---------- Total liabilities ......................................................... 12,307,336 7,693,858 Commitments and contingencies (Note 11) ................................... Capital and surplus: Common stock, $1.00 par value, 3,000,000 shares authorized and 2,500,000 shares issued and outstanding at December 31, 1999 and 1,500,000 shares authorized, issued and outstanding at December 31, 1998 2,500 1,500 Paid-in surplus .......................................................... 120,107 120,107 Unassigned surplus ....................................................... 62,309 21,973 ----------- ---------- Total capital and surplus ................................................. 184,916 143,580 ----------- ---------- Total liabilities and capital and surplus ................................. $12,492,252 $7,837,438 =========== ==========
See accompanying notes. 163 Western Reserve Life Assurance Co. of Ohio Statements of Operations -- Statutory Basis (Dollars in thousands)
Year ended December 31 -------------------------------------------- 1999 1998 1997 ------------- ------------- ------------ Revenues: Premiums and other considerations, net of reinsurance: Life .................................................................. $ 584,729 $ 476,053 $ 394,370 Annuity ............................................................... 1,104,525 794,841 822,149 Net investment income .................................................. 39,589 36,315 40,013 Amortization of interest maintenance reserve ........................... 1,751 744 1,576 Commissions and expense allowances on reinsurance ceded ................ 4,178 15,333 11 Income from fees associated with investment management, administration and contract guarantees for separate accounts ......... 19,620 72,817 -- Other income ........................................................... 44,366 67,751 3,016 ---------- ---------- ---------- 1,798,758 1,463,854 1,261,135 Benefits and expenses: Benefits paid or provided for: Life .................................................................. 35,591 42,982 28,060 Surrender benefits .................................................... 689,535 551,528 431,939 Other benefits ........................................................ 32,201 31,280 28,112 Increase (decrease) in aggregate reserves for policies and contracts: Life ................................................................. 70,542 42,940 29,485 Annuity .............................................................. 3,446 (30,872) (35,940) Other ................................................................ (121) 32,178 794 ---------- ---------- ---------- 831,194 670,036 482,450 Insurance expenses: Commissions ............................................................ 246,334 205,939 179,106 General insurance expenses ............................................. 112,536 102,611 70,546 Taxes, licenses and fees ............................................... 19,019 15,545 13,101 Net transfers to separate accounts ..................................... 540,443 475,435 519,214 Other expenses ......................................................... -- 59 21 ---------- ---------- ---------- 918,332 799,589 781,988 ---------- ---------- ---------- 1,749,526 1,469,625 1,264,438 ---------- ---------- ---------- Gain (loss) from operations before federal income tax expense (benefit) and net realized capital gains (losses) on investments ................................................ 49,232 (5,771) (3,303) Federal income tax expense (benefit) .................................... 11,816 (347) 469 ---------- ---------- ---------- Gain (loss) from operations before net realized capital gains (losses) on investments ......................................................... 37,416 (5,424) (3,772) Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to interest maintenance reserve) .......................................... (716) 1,494 747 ---------- ---------- ---------- Net income (loss) ....................................................... $ 36,700 $ (3,930) $ (3,025) ========== ========== ==========
See accompanying notes. 164 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, 1997 .......................... $1,500 $ 68,015 $ 26,041 $ 95,556 Net loss ........................................... -- -- (3,025) (3,025) Change in non-admitted assets ...................... -- -- (702) (702) Change in asset valuation reserve .................. -- -- 3,274 3,274 Change in surplus in separate accounts ............. -- -- (2,115) (2,115) Change in reserve valuation ........................ -- -- (1,872) (1,872) Capital contribution ............................... -- 20,000 -- 20,000 Tax effect of capital loss carry-forward utilized by affiliates ....................................... -- -- 3,747 3,747 ------ -------- -------- -------- Balance at December 31, 1997 ........................ 1,500 88,015 25,348 114,863 Net loss ........................................... -- -- (3,930) (3,930) Change in net unrealized capital gains ............. -- -- 248 248 Change in non-admitted assets ...................... -- -- (1,815) (1,815) Change in asset valuation reserve .................. -- -- (412) (412) Change in surplus in separate accounts ............. -- -- (341) (341) Change in reserve valuation ........................ -- -- (2,132) (2,132) Capital contribution ............................... -- 32,092 -- 32,092 Settlement of prior period tax returns ............. -- -- 353 353 Tax benefits on stock options exercised ............ -- -- 4,654 4,654 ------ -------- -------- -------- Balance at December 31, 1998 ........................ 1,500 120,107 21,973 143,580 Net income .......................................... -- -- 36,700 36,700 Change in net unrealized capital gains ............. -- -- 1,421 1,421 Change in non-admitted assets ...................... -- -- 703 703 Change in asset valuation reserve .................. -- -- (961) (961) Change in surplus in separate accounts ............. -- -- 451 451 Transfer from unassigned surplus to common stock (stock dividend) ........................... 1,000 -- (1,000) -- Settlement of prior period tax returns ............. -- -- 1,000 1,000 Tax benefits on stock options exercised ............ -- -- 2,022 2,022 ------ -------- -------- -------- Balance at December 31, 1999 ........................ $2,500 $120,107 $ 62,309 $184,916 ====== ======== ======== ========
See accompanying notes. 165 Western Reserve Life Assurance Co. of Ohio Statements of Cash Flows -- Statutory Basis (Dollars in thousands)
Year ended December 31 --------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- Operating activities Premiums and other considerations, net of reinsurance .......... $1,738,870 $1,356,732 $1,223,898 Net investment income .......................................... 44,235 38,294 43,802 Life and accident and health claims ............................ (35,872) (44,426) (26,005) Surrender benefits and other fund withdrawals .................. (689,535) (551,528) (431,939) Other benefits to policyholders ................................ (32,642) (31,231) (28,147) Commissions, other expenses and other taxes .................... (382,372) (326,080) (262,901) Net transfers to separate accounts ............................. (628,762) (461,982) (596,347) Federal income taxes received (paid) ........................... (9,637) 11,956 5,006 Interest paid .................................................. -- -- (731) Other, net ..................................................... (21,054) (7,109) (14,901) ---------- ---------- ---------- Net cash used in operating activities .......................... (16,769) (15,374) (88,265) Investing activities Proceeds from investments sold, matured or repaid: Bonds and preferred stocks .................................... 114,177 143,449 146,963 Mortgage loans on real estate ................................. 212 221 2,116 Other ......................................................... 18 -- -- 114,407 143,670 149,079 Cost of investments acquired Bonds and preferred stocks .................................... (49,279) (68,202) (40,418) Common stocks ................................................. -- (93) (150) Mortgage loans on real estate ................................. (1) (5,313) (891) Real estate ................................................... (286) (26,213) (12,002) Policy loans .................................................. (69,993) (36,241) (24,137) Other ......................................................... (855) (414) -- ---------- ---------- ---------- (120,414) (136,476) (77,598) Net cash provided by (used in) investing activities ............ (6,007) 7,194 71,481 Financing activities Issuance (payment) of short-term note payable to affiliate, net ............................................... (27,100) 36,000 8,200 Capital contribution ........................................... -- 32,092 20,000 ---------- ---------- ---------- Net cash provided by (used in) financing activities ............ (27,100) 68,092 28,200 ---------- ---------- ---------- Increase (decrease) in cash and short-term investments ......... (49,876) 59,912 11,416 Cash and short-term investments at beginning of year ........... 73,808 13,896 2,480 ---------- ---------- ---------- Cash and short-term investments at end of year ................. $ 23,932 $ 73,808 $ 13,896 ========== ========== ==========
See accompanying notes. 166 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis (Dollars in thousands) December 31, 1999 1. Organization and Summary of Significant Accounting Policies Organization Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a holding company organized under the laws of The Netherlands. Nature of Business The Company operates predominantly in the variable universal life and variable annuity areas of the life insurance business. The Company is licensed in 49 states, District of Columbia, Puerto Rico and Guam. Sales of the Company's products are through financial planners, independent representatives, financial institutions and stockbrokers. The majority of the Company's new life insurance written and a substantial portion of new annuities written is done through one marketing organization; the Company expects to maintain this relationship for the foreseeable future. Basis of Presentation The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio ("Insurance Department"), which practices differ from generally accepted accounting principles. The more significant of these differences are as follows: (a) bonds are generally reported at amortized cost rather than segregating the portfolio into held-to-maturity (reported at amortized cost), available-for-sale (reported at fair value), and trading (reported at fair value) classifications; (b) acquisition costs of acquiring new business are expensed as incurred rather than deferred and amortized over the life of the policies; (c) policy reserves on traditional life products are based on statutory mortality rates and interest which may differ from reserves based on reasonable assumptions of expected mortality, interest, and withdrawals which include a provision for possible unfavorable deviation from such assumptions; (d) policy reserves on certain investment products use discounting methodologies utilizing statutory interest rates rather than full account values; (e) reinsurance amounts are netted against the corresponding asset or 167 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 1. Organization and Summary of Significant Accounting Policies -- (Continued) liability rather than shown as gross amounts on the balance sheet; (f) deferred income taxes are not provided for the difference between the financial statement amounts and income tax bases of assets and liabilities; (g) net realized gains or losses attributed to changes in the level of interest rates in the market are deferred and amortized over the remaining life of the bond or mortgage loan, rather than recognized as gains or losses in the statement of operations when the sale is completed; (h) potential declines in the estimated realizable value of investments are provided for through the establishment of a formula-determined statutory investment reserve (reported as a liability), changes to which are charged directly to surplus, rather than through recognition in the statement of operations for declines in value, when such declines are judged to be other than temporary; (i) certain assets designated as "non-admitted assets" have been charged to unassigned surplus rather than being reported as assets; (j) revenues for universal life and investment products consist of the entire premiums received rather than policy charges for the cost of insurance, policy administration charges, amortization of policy initiation fees and surrender charges assessed; (k) pension expense is recorded as amounts are paid rather than accrued and expensed during the periods in which the employers provide service; (l) stock options settled in cash are recorded as an expense of the Company's indirect parent rather than charged to current operations; (m) adjustments to federal income taxes of prior years are charged or credited directly to unassigned surplus, rather than reported as a component of income tax expense in the statement of operations; and (n) the financial statements of wholly-owned affiliates are not consolidated with those of the Company. The effects of these variances have not been determined by the Company, but are presumed to be material. In 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles ("Codification") effective January 1, 2001. Codification will likely change, to some extent, prescribed statutory accounting practices and may result in changes to the accounting practices that the Company uses to prepare its statutory-basis financial statements. Codification will require adoption by the various states before it becomes the prescribed statutory basis of accounting for insurance companies domesticated within those states. Accordingly, before Codification becomes effective for the Company, the State of Ohio must adopt Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results to the Insurance Department. At this time it is unclear whether the State of Ohio will adopt Codification. However, based on current guidance, management believes that the impact of Codification will not be material to the Company's statutory-basis financial statements. 168 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 1. Organization and Summary of Significant Accounting Policies -- (Continued) Other significant statutory accounting practices are as follows: Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments with remaining maturities of one year or less when purchased to be cash equivalents. Investments Investments in bonds (except those to which the Securities Valuation Office of the NAIC has ascribed a value), mortgage loans on real estate and short-term investments are reported at cost adjusted for amortization of premiums and accrual of discounts. Amortization is computed using methods which result in a level yield over the expected life of the investment. The Company reviews its prepayment assumptions on mortgage and other asset backed securities at regular intervals and adjusts amortization rates retrospectively when such assumptions are changed due to experience and/or expected future patterns. Common stocks of unaffiliated companies are carried at market, and the related unrealized capital gains/(losses) are reported in unassigned surplus without any adjustment for federal income taxes. Common stocks of the Company's wholly-owned affiliates are recorded at the equity in net assets. Home office and investment properties are reported at cost less allowances for depreciation. Depreciation is computed principally by the straight-line method. Policy loans are reported at unpaid principal. Other "admitted assets" are valued, principally at cost, as required or permitted by Ohio Insurance Laws. Realized capital gains and losses are determined on the basis of specific identification and are recorded net of related federal income taxes. The Asset Valuation Reserve (AVR) is established by the Company to provide for potential losses in the event of default by issuers of certain invested assets. These amounts are determined using a formula prescribed by the NAIC and are reported as a liability. The formula for the AVR provides for a corresponding adjustment for realized gains and losses. Under a formula prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve (IMR), the portion of realized gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the security. During 1999, 1998 and 1997, net realized capital gains (losses) of $(67), $1,294 and $3,259, respectively, were credited to the IMR rather than being immediately 169 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 1. Organization and Summary of Significant Accounting Policies -- (Continued) recognized in the statements of operations. Amortization of these net gains aggregated $1,751, $744 and $1,576 for the years ended December 31, 1999, 1998 and 1997, respectively. Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or which are delinquent more than twelve months, or real estate where rent is in arrears for more than three months. Further, income is not accrued when collection is uncertain. No investment income due and accrued has been excluded for the years ended December 31, 1999, 1998 and 1997, with respect to such practices. Aggregate Reserves for Policies Life and annuity reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum required by law. The aggregate policy reserves for life insurance policies are based principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality Tables. The reserves are calculated using interest rates ranging from 2.25 to 5.50 percent and are computed principally on the Net Level Premium Valuation and the Commissioners' Reserve Valuation Methods. Reserves for universal life policies are based on account balances adjusted for the Commissioners' Reserve Valuation Method. Deferred annuity reserves are calculated according to the Commissioners' Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest. Reserves for immediate annuities and supplementary contracts with life contingencies are equal to the present value of future payments assuming interest rates ranging from 5.75 to 8.75 percent and mortality rates, where appropriate, from a variety of tables. Policy and Contract Claim Reserves Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the statement date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available. 170 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 1. Organization and Summary of Significant Accounting Policies -- (Continued) Separate Accounts Assets held in trust for purchases of variable universal life and variable annuity contracts and the Company's corresponding obligation to the contract owners are shown separately in the balance sheets. The assets in the separate accounts are valued at market. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the policyholders and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The separate accounts do not have any minimum guarantees and the investment risks associated with market value changes are borne entirely by the policyholders. The Company received variable contract premiums of $1,675,642, $1,240,858 and $1,164,013 in 1999, 1998 and 1997, respectively. All variable account contracts are subject to discretionary withdrawal by the policyholder at the market value of the underlying assets less the current surrender charge. Separate account contractholders have no claim against the assets of the general account. Stock Option Plan AEGON N.V. sponsors a stock option plan for eligible employees of the Company. Under this plan, certain employees have indicated a preference to immediately sell shares received as a result of their exercise of the stock options; in these situations, AEGON N.V. has settled such options in cash rather than issuing stock to these employees. These cash settlements are paid by the Company, and AEGON N.V. subsequently reimburses the Company for such payments. Under statutory accounting principles, the Company does not record any expense related to this plan, as the expense is recognized by AEGON N.V. However, the Company is allowed to record a deduction in the consolidated tax return filed by the Company and certain affiliates. The tax benefit of this deduction has been credited directly to unassigned surplus. Reclassifications Certain reclassifications have been made to the 1998 and 1997 financial statements to conform to the 1999 presentation. 2. Fair Values of Financial Instruments Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the statutory-basis balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation 171 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 2. Fair Values of Financial Instruments -- (Continued) techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement of Financial Accounting Standards No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements and allows companies to forego the disclosures when those estimates can only be made at excessive cost. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and Short-Term Investments: The carrying amounts reported in the statutory-basis balance sheet for these instruments approximate their fair values. Investment Securities: Fair values for fixed maturity securities (including redeemable preferred stocks) are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or (in the case of private placements) are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values for equity securities are based on quoted market prices. Mortgage Loans and Policy Loans: The fair values for mortgage loans are estimated utilizing discounted cash flow analyses, using interest rates reflective of current market conditions and the risk characteristics of the loans. The fair value of policy loans are assumed to equal their carrying value. Investment Contracts: Fair values for the Company's liabilities under investment-type insurance contracts are estimated using discounted cash flow calculations, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. Fair values for the Company's insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. 172 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 2. Fair Values of Financial Instruments -- (Continued) The following sets forth a comparison of the fair values and carrying amounts of the Company's financial instruments subject to the provisions of Statement of Financial Accounting Standards No. 107:
December 31 ----------------------------------------------------- 1999 1998 --------------------------- ------------------------- Carrying Carrying Amount Fair Value Amount Fair Value ------------- ------------- ------------ ------------ Admitted assets Cash and short-term investments ..... $ 23,932 $ 23,932 $ 73,808 $ 73,808 Bonds ............................... 119,731 119,076 184,697 192,556 Common stocks, other than affiliates 358 358 384 384 Mortgage loans on real estate ....... 9,698 9,250 9,916 10,390 Policy loans ........................ 182,975 182,975 112,982 112,982 Separate account assets ............. 11,587,982 11,587,982 6,999,290 6,999,290 Liabilities Investment contract liabilities ..... 301,403 294,342 297,349 294,105 Separate account annuities .......... 8,271,548 8,079,141 5,096,680 5,038,296
173 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 3. Investments The carrying amount and estimated fair value of investments in debt securities are as follows:
Gross Gross Estimated Carrying Unrealized Unrealized Fair Amount Gains Losses Value ---------- ------------ ------------ ---------- December 31, 1999 Bonds: United States Government and agencies .......... $ 4,755 $ 4 $ 66 $ 4,693 State, municipal and other government .......... 2,185 12 -- 2,197 Public utilities ............................... 13,134 129 368 12,895 Industrial and miscellaneous ................... 52,997 1,213 1,208 53,002 Mortgage and other asset-backed securities ..... 46,660 480 851 46,289 -------- ------ ------ -------- Total bonds ..................................... $119,731 $1,838 $2,493 $119,076 ======== ====== ====== ======== December 31, 1998 Bonds: .......................................... United States Government and agencies .......... $ 4,749 $ 83 $ -- $ 4,832 State, municipal and other government .......... 3,234 117 -- 3,351 Public utilities ............................... 18,792 818 251 19,359 Industrial and miscellaneous ................... 96,332 6,685 577 102,440 Mortgage and other asset-backed securities ..... 61,590 1,235 251 62,574 -------- ------ ------ -------- Total bonds ..................................... $184,697 $8,938 $1,079 $192,556 ======== ====== ====== ========
The carrying amount and fair value of bonds at December 31, 1999 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
Estimated Carrying Fair Amount Value ---------- ---------- Due in one year or less ............................ $ 10,521 $ 10,560 Due one through five years ......................... 32,248 31,993 Due five through ten years ......................... 17,342 17,104 Due after ten years ................................ 12,960 13,130 -------- -------- 73,071 72,787 Mortgage and other asset-backed securities ......... 46,660 46,289 -------- -------- $119,731 $119,076 ======== ========
174 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 3. Investments -- (Continued) A detail of net investment income is presented below:
Year ended December 31 ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Interest on bonds .................... $ 12,094 $ 17,150 $ 25,723 Dividends on equity investments from subsidiaries ........................ 18,555 13,233 10,855 Interest on mortgage loans ........... 746 499 478 Rental income on real estate ......... 5,794 2,839 1,371 Interest on policy loans ............. 9,303 6,241 4,656 Other investment income .............. 414 540 26 -------- -------- -------- Gross investment income .............. 46,906 40,502 43,109 Investment expenses .................. (7,317) (4,187) (3,096) -------- -------- -------- Net investment income ................ $ 39,589 $ 36,315 $ 40,013 ======== ======== ========
Proceeds from sales and maturities of debt securities and related gross realized gains and losses were as follows:
Year ended December 31 --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Proceeds ...................... $114,177 $143,449 $146,963 ======== ======== ======== Gross realized gains .......... $ 1,762 $ 4,641 $ 3,921 Gross realized losses ......... 1,709 899 626 -------- -------- -------- Net realized gains ............ $ 53 $ 3,742 $ 3,295 ======== ======== ========
At December 31, 1999, bonds with an aggregate carrying value of $4,152 were on deposit with certain state regulatory authorities or were restrictively held in bank custodial accounts for benefit of such state regulatory authorities, as required by statute. 175 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 3. Investments -- (Continued) Realized investment gains (losses) and changes in unrealized gains (losses) for investments are summarized below:
Realized ------------------------------------- Year ended December 31 ------------------------------------- 1999 1998 1997 --------- ----------- ----------- Debt securities .................................. $ 53 $ 3,742 $ 3,295 Other invested assets ............................ 18 (18) -- ------ -------- -------- 71 3,724 3,295 Tax expense ...................................... (854) (936) (711) Transfer to interest maintenance reserve ......... 67 (1,294) (3,259) ------ -------- -------- Net realized gains (losses) ...................... $ (716) $ 1,494 $ 747 ====== ======== ========
Changes in Unrealized ---------------------------------------- Year ended December 31 ---------------------------------------- 1999 1998 1997 ------------ ------------ ---------- Debt securities .......................................... $ (8,514) $ (3,985) $ (896) Common stocks ............................................ 1,426 248 -- -------- -------- ------ Change in unrealized appreciation (depreciation) ......... $ (7,088) $ (3737) $ (896) ======== ======== ======
Gross unrealized gains (losses) on common stocks were as follows:
Unrealized ------------------- December 31 ------------------- 1999 1998 --------- ------- Unrealized gains ............. $1,995 $ 579 Unrealized losses ............ (26) (36) ------ ----- Net unrealized gains ......... $1,969 $ 543 ====== =====
During 1999, the Company did not issue any mortgage loans. The Company requires all mortgagees to carry fire insurance equal to the value of the underlying property. During 1999, 1998 and 1997, no mortgage loans were foreclosed and transferred to real estate. During 1999 and 1998, the Company held a mortgage loan loss reserve in the asset valuation reserve of $110 and $112, respectively. At December 31, 1999, the Company had no investments (excluding U. S. Government guaranteed or insured issues) which individually represented more than ten percent of capital and surplus and the asset valuation reserve, collectively. 176 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 4. Reinsurance The Company reinsures portions of certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligations under the reinsurance treaty.
Year ended December 31 --------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- Direct premiums ............. $1,748,265 $1,345,752 $1,219,271 Reinsurance assumed ......... -- 461 2,389 Reinsurance ceded ........... (59,011) (75,319) (5,141) ---------- ---------- ---------- Net premiums earned ......... $1,689,254 $1,270,894 $1,216,519 ========== ========== ==========
The Company received reinsurance recoveries in the amount of $4,916, $5,260 and $2,288 during 1999, 1998 and 1997, respectively. At December 31, 1999 and 1998, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $1,557 and $1,003, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 1999 and 1998 of $3,487 and $2,849, respectively. 5. Income Taxes For federal income tax purposes, the Company joins in a consolidated tax return filing with certain affiliated companies. Under the terms of a tax-sharing agreement between the Company and its affiliates, the Company computes federal income tax expense as if it were filing a separate income tax return, except that tax credits and net operating loss carryforwards are determined on the basis of the consolidated group. Additionally, the alternative minimum tax is computed for the consolidated group and the resulting tax, if any, is allocated back to the separate companies on the basis of the separate companies' alternative minimum taxable income. 177 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 5. Income Taxes -- (Continued) Federal income tax expense (benefit) differs from the amount computed by applying the statutory federal income tax rate to gain (loss) from operations before federal income tax expense (benefit) and realized capital gains (losses) on investments for the following reasons:
Year ended December 31 ------------------------------------------ 1999 1998 1997 ------------ ------------ ------------ Computed tax (benefit) at federal statutory rate (35%) ......... $ 17,231 $ (2,019) $ (1,156) Deferred acquisition costs -- tax basis ........................ 11,344 9,672 9,164 Tax reserve valuation .......................................... (2,272) 1,513 (194) Excess tax depreciation ........................................ (727) (442) (127) Amortization of IMR ............................................ (613) (260) (552) Dividend received deduction .................................... (10,784) (6,657) (5,326) Prior year over-accrual ........................................ (3,167) (2,322) (1,541) Other, net ..................................................... 804 168 201 --------- -------- -------- Federal income tax expense (benefit) ........................... $ 11,816 $ (347) $ 469 ========= ======== ========
Federal income tax expense (benefit) differs from the amount computed by applying the statutory federal income tax rate to realized gains (losses) due to the differences in book and tax asset bases at the time certain investments are sold. Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959, a portion of statutory income was not subject to current taxation, but was accumulated for income tax purposes in a memorandum account referred to as the policyholders' surplus account. No federal income taxes have been provided for in the financial statements on income deferred in the policyholders' surplus account ($293 at December 31, 1999). To the extent dividends are paid from the amount accumulated in the policyholders' surplus account, net earnings would be reduced by the amount of tax required to be paid. Should the entire amount in the policyholders' surplus account become taxable, the tax thereon computed at current rates would amount to approximately $103. At December 31, 1996, the Company had capital loss carryforwards of approximately $10,705, which were utilized by the Company's affiliates in the consolidated tax return filing in 1997. This transaction resulted in a receipt from the Company's affiliate of $3,747, which was credited directly to unassigned surplus. In 1999, the Company received $1,000 from its former parent, an unaffiliated company, for reimbursement of prior period tax payments made by the Company but owed by the former parent. In 1998, the Company reached a final settlement with the 178 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 5. Income Taxes -- (Continued) Internal Revenue Service for 1994 and 1995 resulting in a tax refund of $300 and interest received of $53. Tax settlements for 1999 and 1998 were credited directly to unassigned surplus. 6. Policy and Contract Attributes A portion of the Company's policy reserves and other policyholders' funds relate to liabilities established on a variety of the Company's products, primarily separate accounts, that are not subject to significant mortality or morbidity risk; however, there may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on these products, by withdrawal characteristics are summarized as follows:
December 31 ------------------------------------------------------ 1999 1998 -------------------------- ------------------------- Percent Percent Amount of Total Amount of Total ------------- ---------- ------------- --------- Subject to discretionary withdrawal with market value adjustment ..................... $ 12,534 0% $ 12,810 0% Subject to discretionary withdrawal at book value less surrender charge ................. 73,903 1 76,289 1 Subject to discretionary withdrawal at market value ....................................... 8,271,441 96 5,096,680 94 Subject to discretionary withdrawal at book value (minimal or no charges or adjustments) ................................ 217,372 3 210,270 4 Not subject to discretionary withdrawal provision ................................... 15,433 0 15,681 1 ---------- -- ---------- -- 8,590,683 100% 5,411,730 100% === === Less reinsurance ceded ....................... 1,581 1,131 ---------- ---------- Total policy reserves on annuities and deposit fund liabilities ............................ $8,589,102 $5,410,599 ========== ==========
179 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 6. Policy and Contract Attributes -- (Continued) A reconciliation of the amounts transferred to and from the separate accounts is presented below:
Year ended December 31 --------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- Transfers as reported in the summary of operations of the separate accounts statement: Transfers to separate accounts ................. $1,675,642 $1,240,858 $1,164,013 Transfers from separate accounts ............... 1,056,207 774,690 646,477 ---------- ---------- ---------- Net transfers to separate accounts ............. 619,435 466,168 517,536 Reconciling adjustments -- change in accruals for investment management, administration fees and contract guarantees, reinsurance and separate account surplus ..................... (78,992) 9,267 1,678 ---------- ---------- ---------- Transfers as reported in the summary of operations of the life, accident and health annual statement ............................. $ 540,443 $ 475,435 $ 519,214 ========== ========== ==========
Reserves on the Company's traditional life insurance products are computed using mean reserving methodologies. These methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policy's paid-through date to the policy's next anniversary date. At December 31, 1999 and 1998, these assets (which are reported as premiums deferred and uncollected) and the amounts of the related gross premiums and loadings, are as follows:
Gross Loading Net --------- --------- ------- December 31, 1999 Ordinary direct renewal business ......... $1,017 $232 $785 ------ ---- ---- $1,017 $232 $785 ====== ==== ==== December 31, 1998 Ordinary direct renewal business ......... $1,101 $201 $900 ------ ---- ---- $1,101 $201 $900 ====== ==== ====
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for contracts that require immediate payment of claims upon proof of death of the insured. Companies were allowed to grade the effects of the change in reserving methodologies over five years. A direct charge to surplus of $2,132 and $1,872 was made for the years ended December 31, 1998 and 1997, respectively, related to the change in reserve methodology. 180 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 7. Dividend Restrictions The Company is subject to limitations, imposed by the State of Ohio, on the payment of dividends to its parent company. Generally, dividends during any twelve month period may not be paid; without prior regulatory approval, in excess of the greater of (a) 10 percent of statutory capital and surplus as of the preceding December 31, or (b) statutory gain from operations for the preceding year. Subject to the availability of unassigned surplus at the time of such dividend, the maximum payment which may be made in 2000, without the prior approval of insurance regulatory authorities, is $36,700. 8. Capital Structure During 1999, the Company's Board of Director's approved an amendment to the Company's Articles of Incorporation which increased the number of authorized capital shares to 3,000,000. The Board of Directors also authorized a stock dividend in the amount of $1,000, which was transferred from unassigned surplus. This amendment and stock dividend were in response to a change in California law which requires all life insurance companies which do business in the state to have capital stock of at least $2,500. 9. Retirement and Compensation Plans The Company's employees participate in a qualified benefit plan sponsored by AEGON. The Company has no legal obligation for the plan. The Company recognizes pension expense equal to its allocation from AEGON. The pension expense is allocated among the participating companies based on the Statement of Financial Accounting Standards No. 87 expense as a percent of salaries. The benefits are based on years of service and the employee's compensation during the highest five consecutive years of employment. Pension expense aggregated $1,105, $917 and $659 for the years ended December 31, 1999, 1998 and 1997, respectively. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. The Company's employees also participate in a contributory defined contribution plan sponsored by AEGON which is qualified under Section 401(k) of the Internal Revenue Service Code. Employees of the Company who customarily work at least 1,000 hours during each calendar year and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to fifteen percent of their salary to the plan. The Company will match an amount up to three percent of the participant's salary. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. 181 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 9. Retirement and Compensation Plans -- (Continued) Pension expense related to this plan was $816, $632 and $448 for the years ended December 31, 1999, 1998 and 1997, respectively. AEGON sponsors supplemental retirement plans to provide the Company's senior management with benefits in excess of normal pension benefits. The plans are noncontributory and benefits are based on years of service and the employee's compensation level. The plans are unfunded and nonqualified under the Internal Revenue Code. In addition, AEGON has established incentive deferred compensation plans for certain key employees of the Company. AEGON also sponsors an employee stock option plan for individuals employed at least three years and a stock purchase plan for its producers, with the participating affiliated companies establishing their own eligibility criteria, producer contribution limits and company matching formula. These plans have been accrued for or funded as deemed appropriate by management of AEGON and the Company. In addition to pension benefits, the Company participates in plans sponsored by AEGON that provide postretirement medical, dental and life insurance benefits to employees meeting certain eligibility requirements. Portions of the medical and dental plans are contributory. The expenses of the postretirement plans calculated on the pay-as-you-go basis are charged to affiliates in accordance with an intercompany cost sharing arrangement. The Company expensed $81, $157 and $99 for the years ended December 31, 1999, 1998 and 1997, respectively. 10. Related Party Transactions The Company shares certain officers, employees and general expenses with affiliated companies. The Company receives data processing, investment advisory and management, marketing and administration services from certain affiliates. During 1999, 1998 and 1997, the Company paid $16,905 $12,763 and $10,040, respectively, for such services, which approximates their costs to the affiliates. The Company provides office space, marketing and administrative services to certain affiliates. During 1999, 1998 and 1997, the Company received $3,755, $5,125 and $4,395, respectively, for such services, which approximates their cost. Payable to affiliates and intercompany borrowings bear interest at the thirty-day commercial paper rate of 5.06% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net interest of $1,997, $1,090 and $364, respectively, to affiliates. The Company received capital contributions of $32,092 and $20,000 from its parent in 1998 and 1997, respectively. 182 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 10. Related Party Transactions -- (Continued) At December 31, 1999 and 1998, the Company had short-term note payables to an affiliate of $17,100 and $44,200, respectively. Interest on these notes ranged from 5.15% to 5.9% at December 31, 1999 and 5.13% to 5.54% at December 31, 1998. During 1998, the Company purchased life insurance policies covering the lives of certain employees of the Company. Premiums of $43,500 were paid to an affiliate for these policies. At December 31, 1999 and 1998, the cash surrender value of these policies was $47,518 and $45,445, respectively. 11. Commitments and Contingencies The Company is a party to legal proceedings incidental to its business. Although such litigation sometimes includes substantial demands for compensatory and punitive damages in addition to contract liability, it is management's opinion, after consultation with counsel and a review of available facts, that damages arising from such demands will not be material to the Company's financial position. The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company except where right of offset against other taxes paid is allowed by law; amounts available for future offsets are recorded as an asset on the Company's balance sheet. The future obligation has been based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Association. Potential future obligations for unknown insolvencies are not determinable by the Company. The Company has established a reserve of $3,498 and $3,489 and an offsetting premium tax benefit of $837 and $828 at December 31, 1999 and 1998, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund expense (credit) was $(20), $(74) and $0 at December 31, 1999, 1998 and 1997, respectively. 12. Reconciliation of Capital and Surplus and Net Income The following table reconciles capital and surplus and net income as reported in the 1998 Annual Statement filed with the Insurance Department of the State of Ohio, to the amounts reported in the accompanying financial statements: 183 Western Reserve Life Assurance Co. of Ohio Notes to Financial Statements -- Statutory-Basis -- (Continued) (Dollars in thousands) December 31, 1999 12. Reconciliation of Capital and Surplus and Net Income -- (Continued)
Year ended December 31, 1998 December 31, 1998 ------------------- ------------------ Total Capital and Surplus Net Income/Loss ------------------- ------------------ Amounts reported in Annual Statement ............. $148,038 $ 528 Adjustment to federal income tax benefit ......... (4,458) (4,458) -------- -------- Amounts reported herein .......................... $143,580 $ (3,930) ======== ========
184 Western Reserve Life Assurance Co. of Ohio Summary of Investments Other Than Investments in Related Parties (Dollars in thousands) December 31, 1999 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 ................................ $ 5,827 $ 5,820 $ 5,827 States, municipalities and political subdivisions ......... 7,110 7,275 7,110 Public utilities .......................................... 13,134 12,895 13,134 All other corporate bonds ................................. 93,660 93,086 93,660 --------- ------- --------- Total fixed maturities ..................................... 119,731 119,076 119,731 Equity securities Common stocks: Affiliated entities ....................................... 243 2,156 2,156 Industrial, miscellaneous and all other ................... 302 358 358 --------- ------- --------- Total equity securities .................................... 545 2,514 2,514 Mortgage loans on real estate .............................. 9,698 9,698 Real estate ................................................ 45,144 45,144 Policy loans ............................................... 182,975 182,975 Cash and short-term investments ............................ 23,932 23,932 --------- --------- Total investments .......................................... $ 382,025 $ 383,994 ========= =========
- ---------------- (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. 185 Western Reserve Life Assurance Co. of Ohio Supplementary Insurance Information (Dollars in thousands) SCHEDULE III
Benefits, Claims, Future Policy Policy and Net Losses and Other Benefits and Contract Premium Investment Settlement Operating Expenses Liabilities Revenue Income* Expenses Expenses* --------------- ------------- -------------- ------------ ------------ ------------ Year ended December 31, 1999 Individual life ............ $ 291,106 $ 9,152 $ 583,656 $ 10,754 $ 178,237 $ 261,284 Group life ................. 11,032 100 1,073 706 1,437 599 Annuity .................... 268,864 17 1,104,525 28,129 651,520 116,006 --------- -------- ----------- -------- --------- --------- $ 571,002 $ 9,269 $ 1,689,254 $ 39,589 $ 831,194 $ 377,889 ========= ======== =========== ======== ========= ========= Year ended December 31, 1998 Individual life ............ $ 221,050 $ 8,624 $ 474,120 $ 9,884 $ 122,542 $ 230,368 Group life ................. 10,546 100 1,933 723 1,962 2,281 Annuity .................... 265,418 509 794,841 25,708 545,532 91,505 --------- -------- ----------- -------- --------- --------- $ 497,014 $ 9,233 $ 1,270,894 $ 36,315 $ 670,036 $ 324,154 ========= ======== =========== ======== ========= ========= Year ended December 31, 1997 Individual life ............ $ 177,088 $ 9,533 $ 390,452 $ 13,742 $ 88,738 $ 176,303 Group life ................. 9,435 805 3,918 810 3,986 3,292 Annuity .................... 296,290 591 822,149 25,461 389,726 83,179 --------- -------- ----------- -------- --------- --------- $ 482,813 $ 10,929 $ 1,216,519 $ 40,013 $ 482,450 $ 262,774 ========= ======== =========== ======== ========= =========
- ---------------- * 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. 186 Western Reserve Life Assurance Co. of Ohio Reinsurance (Dollars in thousands) SCHEDULE IV
Assumed Percentage Ceded to From of Amount Gross Other Other Net Assumed Amount Companies Companies Amount to Net -------------- -------------- ------------- -------------- ----------- Year ended December 31, 1999 Life insurance in force ......... $63,040,741 $11,297,250 $ -- $51,743,494 0.0% =========== =========== ========== =========== === Premiums: Individual life ................ $ 604,628 $ 20,972 $ -- $ 583,656 0.0% Group life and health .......... 1,383 310 -- 1,073 0.0 Annuity ........................ 1,142,254 37,729 -- 1,104,525 0.0 ----------- ----------- ---------- ----------- --- $ 1,748,265 $ 59,011 $ -- $ 1,689,254 0.0% =========== =========== ========== =========== === Year ended December 31, 1998 Life insurance in force ......... $51,064,173 $ 9,862,460 $ -- $41,201,713 0.0% =========== =========== ========== =========== === Premiums: Individual life ................ $ 493,633 $ 19,512 $ -- $ 474,121 0.0% Group life and health .......... 1,691 220 461 1,932 23.8 Annuity ........................ 850,428 55,587 -- 794,841 0.0 ----------- ----------- ---------- ----------- ---- $ 1,345,752 $ 75,319 $ 461 $ 1,270,894 .03% =========== =========== ========== =========== ==== Year ended December 31, 1997 Life insurance in force ......... $40,221,361 $ 6,776,447 $2,692,822 $36,137,736 7.5% =========== =========== ========== =========== ==== Premiums: Individual life ................ $ 395,361 $ 4,910 $ -- $ 390,452 0.0% Group life and health .......... 1,761 231 2,389 3,918 61.0 Annuity ........................ 822,149 -- -- 822,149 0.0 ----------- ----------- ---------- ----------- ---- $ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2% =========== =========== ========== =========== ====
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