-----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, IaNrNrzRmTm+zDpRzvIKvoIHdY2FFAg0efB4mL3TOMcAAfc72X9lE1G8BvlwOe9v VQTNb/SqIU4GCJHFj/+SWw== 0001016843-99-000651.txt : 19990615 0001016843-99-000651.hdr.sgml : 19990615 ACCESSION NUMBER: 0001016843-99-000651 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-68367 FILM NUMBER: 99644593 BUSINESS ADDRESS: STREET 1: 201 HIGHLAND AVE CITY: LARGO STATE: FL ZIP: 34640 BUSINESS PHONE: 813-587-18 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 S-6/A 1 As filed with the Securities and Exchange Commission on June 11, 1999 Registration File Nos. 333-68367/811-4420 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- PRE-EFFECTIVE AMENDMENT NO. 1 FORM S-6 --------------------------------- FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 --------------------------------- WRL SERIES LIFE ACCOUNT ----------------------- (Exact Name of Trust) WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ------------------------------------------ (Name of Depositor) 570 Carillon Parkway St. Petersburg, Florida 33716 ----------------------------------------------------------- (Complete Address of Depositor's Principal Executive Offices) Thomas E. Pierpan, Esq. Vice President, Assistant Secretary and Associate General Counsel Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 ------------------------------------------------------------------ (Name and Complete Address of Agent for Service) Copies to: Stephen E. Roth, Esq. Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2415 --------------------------------- Approximate Date of Proposed Public Oering: As soon as practicable after the effective date of the Registration Statement. Title of Securities Being Registered: Units of interest in the separate account under modified single premium deferred variable life policies. -------------------------------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Company LOGO P R O S P E C T U S , 1999 WRL FREEDOM NAVIGATOR(SM) issued by 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 MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY. CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9 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. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED DISAPPROVED THESE SECURITIES The prospectus for the WRL OR PASSED UPON THE ADEQUACY Series Fund, Inc. must OR THIS PROSPECTUS. ANY accompany this prospectus. OF REPRESENTATION TO THE CONTRARY Certain portfolios may not be IS A CRIMINAL OFFENSE. available in all states. Please read this document before investing and save it for future reference. TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Glossary ........................................................ 1 Policy Summary .................................................. 4 Risk Summary .................................................... 9 Portfolio Annual Expense Table .................................. 13 Western Reserve and the Fixed Account ........................... 14 Western Reserve ............................................. 14 The Fixed Account Options ................................... 14 The Separate Account and the Portfolios ......................... 15 The Separate Account ........................................ 15 The Portfolios .............................................. 16 Addition, Deletion, or Substitution of Investments .......... 19 Your Right to Vote Portfolio Shares ......................... 20 The Policy ...................................................... 21 Purchasing a Policy ......................................... 21 Underwriting Standards ...................................... 21 When Insurance Coverage Takes Effect ........................ 22 Ownership Rights ............................................ 23 Policy Split Option ......................................... 25 Canceling a Policy .......................................... 26 Premiums ........................................................ 26 Initial Premium ............................................. 26 Additional Premiums ......................................... 27 Allocating Premiums ......................................... 27 Policy Values ................................................... 29 Cash Value .................................................. 29 Net Surrender Value ......................................... 29 Subaccount Value ............................................ 29 Subaccount Unit Value ....................................... 30 Fixed Account Value ......................................... 30 Transfers ....................................................... 31 General ..................................................... 31 Standard Fixed Account Transfers ............................ 32 Conversion Rights ........................................... 32 Standard Dollar Cost Averaging .............................. 32 Fixed DCA Account ........................................... 34 Asset Rebalancing Program ................................... 34 Third Party Asset Allocation Services ....................... 35 Charges and Deductions .......................................... 35 Premium Deductions .......................................... 36 Monthly Deduction ........................................... 36 Monthly Policy Charge ....................................... 37 Daily Charge ................................................ 37 Surrender Charge ............................................ 39 Transfer Charge ............................................. 39 Portfolio Expenses .......................................... 39 Guaranteed Minimum Death Benefit Rider Charge ............... 40 Death Benefit ................................................... 40 Death Benefit Proceeds ...................................... 40 Death Benefit ............................................... 40 Effects of Partial Withdrawals on the Death Benefit ......... 41 Guaranteed Minimum Death Benefit Rider ...................... 41 This Policy is not available in the State of New York. i Changing the Specified Amount .................................. 42 Payment Options ................................................ 42 Surrenders and Partial Withdrawals ................................. 42 Surrenders ..................................................... 42 Partial Withdrawals ............................................ 42 Loans .............................................................. 43 General ........................................................ 43 Interest Rate Charged .......................................... 45 Loan Reserve Interest Rate Credited ............................ 45 Preferred Loans ................................................ 45 Effect of Policy Loans ......................................... 45 Policy Lapse and Reinstatement ..................................... 46 Lapse .......................................................... 46 Reinstatement .................................................. 46 Federal Income Tax Considerations .................................. 47 Tax Status of the Policy ....................................... 47 Tax Treatment of Policy Benefits ............................... 48 Other Policy Information ........................................... 50 Our Right to Contest the Policy ................................ 50 Suicide Exclusion .............................................. 50 Misstatement of Age or Gender .................................. 50 Modifying the Policy ........................................... 50 Benefits at Maturity ........................................... 51 Payments We Make ............................................... 51 Reports to Owners .............................................. 52 Records ........................................................ 52 Policy Termination ............................................. 52 IMSA ............................................................... 52 Performance Data ................................................... 52 Rates of Return ................................................ 52 Hypothetical Illustrations Based on Adjusted Portfolio Performance .................................................. 53 Other Performance Data in Advertising Sales Literature ......... 61 Western Reserve's Published Ratings ............................ 62 Additional Information ............................................. 62 Sale of the Policies ........................................... 62 Legal Matters .................................................. 62 Legal Proceedings .............................................. 63 Variations in Policy Provisions ................................ 63 Year 2000 Readiness Disclosure ................................. 63 Experts ........................................................ 64 Financial Statements ........................................... 64 Additional Information about Western Reserve ................... 64 Western Reserve's Directors and Officers ....................... 65 Additional Information about the Separate Account .............. 67 Appendix A--Illustrations .......................................... 68 Appendix B--Wealth Indices of Investments in the U.S. Capital Market ....................................................... 74 Appendix C--Surrender Charge Table ................................. 76 Index to Financial Statements ...................................... 78 WRL Series Life Account ........................................ 79 Western Reserve Life Assurance Co. of Ohio .....................112 ii GLOSSARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- accounts The options to which you can allocate your money. The accounts include the standard fixed account, the fixed DCA account and the subaccounts in the separate account. -------------------------------------------------------------------------------- age The age of the person insured on his or her last birthday before the Policy date, plus the number of completed years since the Policy date. -------------------------------------------------------------------------------- beneficiary(ies) The person or persons you select to receive the death benefit from this Policy. You name the primary beneficiary and contingent beneficiaries. -------------------------------------------------------------------------------- cash value The sum of your Policy's value in the subaccounts and the fixed account options. If there is a Policy loan outstanding, the cash value includes any amounts held in our general account to secure the Policy loan. -------------------------------------------------------------------------------- daily charge The amount we deduct each valuation date from assets in the subaccounts as part of the calculation of the unit value for each subaccount. -------------------------------------------------------------------------------- death benefit The amount we will pay to the beneficiary on the insured's (or surviving proceeds insured's) death. We will reduce the death benefit proceeds by the amount of any outstanding loan amount (including any interest you owe on the Policy loan(s)), and plus any due and unpaid monthly deduction. -------------------------------------------------------------------------------- fixed account A set of options to which you may allocate premiums and cash value. We options guarantee that any amounts you allocate to the fixed account options will earn interest at a declared rate. The fixed account options are the standard fixed account and the fixed dollar cost averaging account ("fixed DCA account"). -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- fund(s) The WRL Series Fund, Inc., an investment company registered with the U.S. Securities and Exchange Commission, and other registered investment companies that may be added to the Policy. -------------------------------------------------------------------------------- in force While coverage under the Policy is active and the insured's life remains insured. -------------------------------------------------------------------------------- initial premium The amount you must pay before insurance coverage begins under this Policy. The initial premium is shown on the schedule page of your Policy. -------------------------------------------------------------------------------- insured(s) The person or persons whose lives are insured by this Policy. (joint insureds) -------------------------------------------------------------------------------- Joint Policy A Policy that pays the death benefit to the beneficiary on the death of the last-to-die of the two named insureds. --------------------------------------------------------------------------------
1 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 (including any interest you owe on Policy loan(s)), and you have not made a sufficient payment by the end of a grace period. The Policy will not lapse if you have purchased the Guaranteed Minimum Death Benefit rider and the rider is in effect. ------------------------------------------------------------------------------------- loan amount The total amount of all outstanding Policy loans, including both principal and interest due. ------------------------------------------------------------------------------------- loan reserve A part of the general account to which amounts are transferred as collateral for Policy loans. ------------------------------------------------------------------------------------- maturity date The Policy anniversary nearest the insured's (or younger joint insured's) 100th birthday, if the insured (or 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. ------------------------------------------------------------------------------------- monthly The same date each month as the Policy date. If there is no valuation date in anniversary or the calendar month that coincides with the Policy date, the Monthiversary is Monthiversary the next valuation date. ------------------------------------------------------------------------------------- monthly Policy The charge deducted from the cash value (less the loan amount) on each charge Monthiversary. ------------------------------------------------------------------------------------- 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, and minus any outstanding loan amount (including any interest you owe on Policy loan(s)). ------------------------------------------------------------------------------------- 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. ------------------------------------------------------------------------------------- Policy date The date when our underwriting process is complete, full life insurance coverage goes into effect, we issue the Policy, and we begin to deduct the monthly Policy charge. The Policy date is shown on the schedule page of your Policy. It is also the date when, depending on your state of residence, we allocate your premium either to the reallocation account or to the subaccounts and fixed account options you selected on your application. We measure Policy months, years, and anniversaries from the Policy date. ------------------------------------------------------------------------------------- portfolio One of the separate investment portfolios of the fund. ------------------------------------------------------------------------------------- premiums All payments you make under the Policy other than loan repayments. ------------------------------------------------------------------------------------- reallocation The standard fixed account. account -------------------------------------------------------------------------------------
2 reallocation date The date shown on the schedule page of your Policy when we reallocate any premium (plus interest) held in the reallocation account to the subaccounts and fixed account options you selected on your application. We place your premium in the reallocation account only if your state requires us to return the full premium in the event you exercise your free look right. In all other states, the reallocation date is the Policy date. -------------------------------------------------------------------------------- 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 premiums under the Policy and other variable life insurance policies we issue. -------------------------------------------------------------------------------- specified amount The death benefit we will pay under the Policy, as shown on the Policy's schedule page, provided the Policy is in force and has not lapsed. The specified amount varies by the insured's (or joint insured's) age, gender and rate class. Any partial withdrawal proportionately decreases the specified amount. -------------------------------------------------------------------------------- subaccount A subdivision of the separate account that invests exclusively in shares of one investment portfolio of the fund. -------------------------------------------------------------------------------- surrender charge If, during the first nine 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. -------------------------------------------------------------------------------- termination When the insured's (or either of the joint insured's) life is no longer insured under the Policy. -------------------------------------------------------------------------------- valuation date Each day the New York Stock Exchange is open for trading. Western Reserve is open whenever the New York Stock Exchange is open. -------------------------------------------------------------------------------- valuation period The period beginning at the close of business of the New York Stock Exchange on one valuation date and continuing to the close of business of the New York Stock Exchange on the next valuation date. -------------------------------------------------------------------------------- we, us, our Western Reserve Life Assurance Co. of Ohio. (Western Reserve) -------------------------------------------------------------------------------- written notice The written notice you must sign and send us to request or exercise your rights as owner under the Policy. To be complete, it must: (1) be in a form we accept, (2) contain the information and documentation that we determine we need to take the action you request, and (3) be received at our office. -------------------------------------------------------------------------------- you, your The person(s) who owns the Policy, and who may exercise all rights under (owner(s) or the Policy while the insured (or either or both joint insureds) are living. If policyowner(s)) two owners are named, the Policy will be owned jointly and the consent of each owner will be required to exercise ownership rights. --------------------------------------------------------------------------------
3 POLICY SUMMARY WRL FREEDOM NAVIGATOR(SM) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The sections in this summary correspond to sections in this prospectus, which discuss the topics in more detail. THE POLICY IN GENERAL The WRL Freedom NavigatorSM is a modified single premium variable life insurance policy. You may purchase it either as a single life or a Joint Policy. A Joint 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 the insured(s) named in the Policy. However, purchasing this Policy involves certain risks. (See Risk Summary, p. 9.) 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 If the insured (or joint insureds) qualifies for simplified underwriting, conditional life insurance coverage begins as soon as you complete an application and pay an initial premium of at least $20,000. Once we determine that the insured (or joint insureds) meets our underwriting requirements, full insurance coverage begins and we will issue your Policy and begin to deduct monthly and daily insurance charges from your premium. This date is the Policy date. On that date, we will allocate your premium to either the reallocation account or to the subaccounts and fixed account options, depending on the state in which you live. o If the insured (or joint insureds) qualifies for simplified underwriting, the maximum premium you can pay at the time of your application is: -- $50,000 (for ages 35-49) -- $100,000 (for ages 50-80) Other limits apply for Joint Policies and Policies with full underwriting. o Once we deliver your Policy, the FREE LOOK PERIOD begins. You may return the Policy during this period and receive a refund. Depending on your state of residence, we will place your premium in the reallocation account until the reallocation date. See Reallocation Account, p. 28. 4 o We will accept additional premiums only in certain limited circumstances. DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN SUBACCOUNTS AND/OR FIXED ACCOUNT OPTIONS o From the initial premium: None o From additional premiums: None INVESTMENT OPTIONS SUBACCOUNTS. You may direct the money in your Policy to any of the subaccounts of the WRL Series Life Account, a separate account. Each subaccount invests exclusively in one investment portfolio of the WRL Series Fund, Inc. (the "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 are: [ ] WRL Alger Aggressive Growth [ ] WRL AEGON Balanced [ ] WRL VKAM Emerging Growth [ ] WRL NWQ Value Equity [ ] WRL Janus Growth [ ] WRL C.A.S.E. Growth [ ] WRL Janus Global [ ] WRL GE/Scottish Equitable [ ] WRL AEGON Bond International Equity [ ] WRL LKCM Strategic Total Return [ ] WRL Goldman Sachs Growth [ ] WRL Federated Growth & Income [ ] WRL Goldman Sachs Small Cap [ ] WRL J.P. Morgan Real Estate Securities [ ] WRL T. Rowe Price Dividend Growth [ ] WRL Dean Asset Allocation [ ] WRL T. Rowe Price Small Cap [ ] WRL GE U.S. Equity [ ] WRL Salomon All Cap [ ] WRL Third Avenue Value [ ] WRL Pilgrim Baxter Mid Cap Growth [ ] WRL J.P. Morgan Money Market [ ] WRL Dreyfus Mid Cap
FIXED ACCOUNT OPTIONS. You may also direct the money in your Policy to the fixed account options--the standard fixed account option and the fixed dollar cost averaging ("fixed DCA") account option. Money you place in the standard fixed account option will earn interest at current interest rates declared from time to time. The interest rate will equal at least 3.0%. At the time you purchase the Policy, you may place the entire initial premium into the fixed DCA account. Money you place in the fixed DCA account will earn interest at an annual rate of at least 3.0%. Money will be transferred out of the fixed DCA account in six equal monthly installments and placed in the standard fixed account and the subaccounts of your choice. CASH VALUE o Cash value equals the sum of your Policy's value in the subaccounts and the fixed account options. If there is a loan outstanding, the cash value includes any amounts held in our general account to secure the Policy loan. 5 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 options, the charges deducted and any other Policy transactions (such as 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 Policy charge(s), the surrender charge and/or any outstanding loan amount (including interest you owe on any Policy loan(s)). The Policy will not lapse if you have purchased the Guaranteed Minimum Death Benefit rider and the rider is in effect. TRANSFERS o You can transfer cash value among the subaccounts and the standard 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 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 standard fixed account and we must receive your request within 30 days after a Policy anniversary, unless you select dollar cost averaging from the standard fixed account. The amount of your transfer cannot be more than: -- > 25% of the value in the standard fixed account; or -- > the amount transferred from the standard fixed account in the prior Policy year. CHARGES AND DEDUCTIONS o Monthly Policy charge: Deducted from your cash value (reduced by the loan amount) on the Policy date and on each Monthiversary. The monthly Policy charge pays for Policy administrative expenses and the cost of providing death benefits under the Policy. The monthly Policy charge will vary with the gender of the insured(s), the number of insureds, and the number of Policy years you have owned the Policy. o Daily charge: Deducted from the unit value of each subaccount, at an annual rate equal to 0.50%, on each valuation date. o Cost of insurance charge: We reserve the right to charge a maximum monthly cost of insurance charge. See Cost of Insurance Charge, p. 38. We do not currently assess a cost of insurance charge. If, in the future, we assess a cost of insurance charge, then we will waive the surrender charge. o Surrender charge: Deducted when a full surrender occurs during the first nine Policy years. We deduct a declining surrender charge of up to 9.75% of your initial premium if you surrender your Policy or if your Policy lapses during the first nine Policy years. o Transfer fee: We deduct $10 for each transfer in excess of 12 per Policy year. 6 o Portfolio expenses: The portfolios deduct management fees and expenses from the amounts you have invested in the portfolios. These charges range from .40% to 1.50% annually, depending on the portfolio. See Portfolio Annual Expense Table, p. 13. See also the fund prospectus. o Rider charges: If you select the Guaranteed Minimum Death Benefit rider at application, we will deduct a charge from your cash value (less any outstanding Policy loan) each month equal to: o .02% MULTIPLIED BY the total subaccount values; PLUS o .02% MULTIPLIED BY the fixed account value. LOANS o You may take a loan against the Policy for amounts up to 90% of the cash value, less any surrender charge and any outstanding loan amount. o The minimum loan amount is generally $500. o You may request a loan by calling us or by writing or faxing us written instructions. o We currently charge 6.0% interest annually, payable in arrears, on any outstanding loan amount; a lower rate applies to any preferred loans. o We currently permit preferred loans to be taken anytime. You may borrow an amount equal to the cash value less total premiums paid, less any outstanding loan amount. We currently charge a 3.0% preferred loan rate. THIS RATE IS NOT GUARANTEED. o To secure the loan, we transfer a portion of your cash value to a loan reserve account, which is part of our general account. You will earn at least 3.0% interest on amounts in the loan reserve account. o Federal income taxes and a penalty tax may apply to loans you make against the Policy. o If you take a loan, we will terminate any Guaranteed Minimum Death Benefit rider. o There are risks involved in taking a Policy loan. See Risk Summary, p. 9. DEATH BENEFIT o So long as the Policy does not lapse, the death benefit is the greater of: -- > the current specified amount; or -- > a specified percentage, multiplied by the Policy's cash value on the date of the insured's (or surviving insured's) death. o We will reduce the death benefit proceeds by the amount of any outstanding Policy loan(s) (including any interest you owe on Policy loan(s)), and any due and unpaid charges. o We determine your Policy's specified amount based on: -- > the initial premium you pay; and -- > the insured's (or joint insureds') age, gender and rate class. o You may not increase or decrease the specified amount. o The death benefit should be income tax free to the beneficiary. 7 o The death benefit is available in a lump sum or a variety of payout options. o If you purchase the GUARANTEED MINIMUM DEATH BENEFIT RIDER and the rider is in effect, and if the net surrender value on any Monthiversary is not sufficient to cover the monthly Policy charge, then insurance coverage will be provided under this rider and no grace period will begin, provided no Policy loans have been taken under the Policy. If a death benefit is payable under the provisions of this rider, then Western Reserve guarantees to provide a death benefit as follows: (1) During the first 15 Policy years, or before the Policy anniversary following the insured's (or younger joint insured's) 75th birthday, if sooner, the minimum death benefit payable will be the greater of: o the current specified amount; or o a specified percentage, multiplied by the Policy's cash value on the date of the insured's (or surviving insured's) death. (2) After the first 15 Policy years, or on or after the Policy anniversary following the insured's (or younger joint insured's) 75th birthday, if sooner, the minimum death benefit payable will be the initial premium, reduced by any partial withdrawals. (3) The minimum death benefit will never be less than $1,000. If you take a Policy loan, the Guaranteed Minimum Death Benefit rider will terminate and your Policy could lapse. o A partial withdrawal will reduce the specified amount by the amount of the withdrawal multiplied by the ratio of the initial specified amount to the initial premium. PARTIAL WITHDRAWALS AND SURRENDERS o You can take one withdrawal of cash value every 12 months after the first Policy year. o We do not assess any charges for partial withdrawals. o The amount of the withdrawal is limited to your Policy's earnings which we compute as: the cash value, MINUS any outstanding Policy loans, MINUS any interest you owe on Policy loans, and MINUS total premiums paid. o A partial withdrawal reduces the current specified amount (the minimum death benefit) by: Amount of withdrawal X initial specified amount ------------------------ initial premium o A partial withdrawal does not void a Guaranteed Minimum Death Benefit rider, but it reduces the death benefit we would pay, as described above. 8 o You cannot take a partial withdrawal if you elected the Guaranteed Minimum Death Benefit rider and the withdrawal would reduce the specified amount below $1,000. o Federal income taxes and a penalty tax may apply to partial withdrawals and surrenders. o You may fully surrender the Policy at any time before the insured's (or surviving insured's) death or the maturity date. You will receive the net surrender value (cash value, minus any surrender charge, minus any Policy loans outstanding, and minus any interest you owe on Policy loans). The surrender charge will apply during the first nine Policy years. RISK SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT If you direct us to invest your cash value in one RISK or more subaccounts, you will be subject to the risk that investment performance will be unfavorable and that the cash value of your Policy will decrease. If you select the fixed account options, you are 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 3.0%. Because charges continue to be deducted from cash value, if withdrawals, loans and monthly deductions have reduced your net surrender value to too low an amount, and/or if investment experience of your selected subaccounts is not sufficiently favorable, and/or interest rates credited to the fixed account are too low, then the net surrender value of your Policy may fall to zero. In that case, if the Guaranteed Minimum Death Benefit rider is not in effect, the Policy will lapse without value and insurance coverage will no longer be in effect after 61 days, unless you make an additional payment sufficient to prevent a lapse. On the other hand, if investment experience is sufficiently favorable and you have kept the Policy in force for a substantial period of time, you may be able to draw upon cash value, through partial withdrawals and Policy loans. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RISK OF LAPSE Certain circumstances will cause your Policy to enter a 60-day grace period, during which you must make a sufficient payment to keep your Policy in force. If the net surrender value of your Policy (that is, the cash value, minus the surrender charge and minus outstanding loan amounts) is too low to pay a monthly Policy charge, loan charges and any rider fees when due, and if the Guaranteed Minimum Death Benefit rider is not in effect, then the Policy will be in default and a grace period will begin. There is the risk that if withdrawals, loans and monthly deductions reduce your net surrender value to too low an amount and/or if the investment experience of your selected subaccounts is not sufficiently favorable and/or if interest rates credited to the fixed account are too low, then the net surrender value of your Policy may 9 fall to zero and the Policy could lapse. In that case, you will have a 61-day grace period to make a sufficient payment. If we do not receive a sufficient payment before the grace period ends, your Policy will end without value, insurance coverage will no longer be in effect, and you will receive no benefits. Adverse tax consequences may result. You may not reinstate your Policy after it has lapsed unless you completed the Policy application and had your Policy delivered to you in a state which permits reinstatement. If so, then you may reinstate this Policy within five years after it has lapsed if the insured (or joint insureds) meets the insur- ability requirements and you pay the amount we require. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TAX RISK It is reasonable to conclude that the Policy (INCOME TAX will be deemed a life insurance policy under AND MEC) federal tax law, so that the death benefit paid to the beneficiary will not be subject to federal income tax. However, the Policy has certain innovative features that are not addressed in existing legal interpretations and there is, therefore, some risk that the Policy might not be deemed a life insurance policy under federal tax law. If the Policy is not so treated, annual increases in the Policy's cash value will be subject to federal income tax each year. Even if the Policy is treated as a life insurance policy under federal tax laws, the Policy will, in most situations, be treated as a modified endowment contract ("MEC") under those laws. If a Policy is treated as a MEC, partial withdrawals, surrenders and loans will be taxable as ordinary income to the extent of its earnings in the Policy. In addition, a 10% penalty tax may be imposed on partial withdrawals, surrenders and loans taken before you reach age 591/2. If a Policy is treated as a life insurance policy and 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, and 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 The Policy permits you to take only one PARTIAL partial withdrawal in any 12-month period, WITHDRAWALS after the first Policy year has been completed. The amount you may withdraw is limited to earnings. We calculate earnings as cash value, reduced by any outstanding loan amount (including any interest due on Policy loans) and any premiums paid. A partial withdrawal will reduce the specified amount (and the minimum death benefit under the Guaranteed Minimum Death Benefit rider) by: Amount of withdrawal X initial specified amount ------------------------ initial premium 10 This reduction may be significant. However, in no event will any withdrawal reduce the minimum death benefit under the Guaranteed Minimum Death Benefit rider below $1,000. Federal income taxes and a tax penalty may apply to partial withdrawals and surrenders. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOAN RISKS A Policy loan, whether or not repaid, will affect cash value over time because we subtract the amount of the loan from the subaccounts and fixed account options and place that amount in the loan reserve as collateral. We then credit a fixed interest rate of 3.0% to the loan collateral. As a result, the loan collateral does not participate in the investment results of the subaccounts nor does it receive the current interest rates credited to the fixed account options. 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 6.0% payable in arrears. 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 by the amount of the outstanding loan, plus any interest you owe on Policy loans. A Policy loan will terminate the Guaranteed Minimum Death Benefit rider. A Policy loan could make it more likely that a Policy would lapse. There is a risk if the loan reduces your net surrender value to too low an amount and investment experience is unfavorable, that the Policy will lapse, resulting in adverse tax consequences. You will have a 61-day grace period to submit a sufficient payment to avoid the Policy's termination without value and the end of insurance coverage. As mentioned in Risk of Lapse on p. 9, you may only reinstate your Policy if your Policy was delivered to you in a state which permits reinstatement. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EFFECTS OF The surrender charge under this Policy will reduce THE SURRENDER your cash value if you surrender your Policy in CHARGE the first nine 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. Net surrender value (that is, cash value minus the surrender charge and outstanding loans) is the measure we use each month to determine whether your Policy will remain in force or will lapse. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 11 COMPARISON Like fixed benefit life insurance, the Policy WITH OTHER offers a death benefit and provides a cash value, INSURANCE loan privileges and a value on surrender. However, POLICIES the Policy differs from a fixed benefit policy because it allows you to place your premium 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 experience 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 hypothetical illustrations in this prospectus are used in connection with the purchase of a Policy and are based on hypothetical rates of return. These rates are not guaranteed, and are provided only to 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. There is the risk 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 12 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(1) (As a percentage of average portfolio assets after fee waivers and expense reimbursements)
TOTAL MANAGEMENT OTHER EXPENSES ANNUAL PORTFOLIOS FEES (AFTER REIMBURSEMENT) EXPENSES WRL Alger Aggressive Growth 0.80% 0.11% 0.91% WRL VKAM Emerging Growth 0.80% 0.09% 0.89% WRL Janus Growth(2) 0.78% 0.05% 0.83% WRL Janus Global(3) 0.80% 0.15% 0.95% WRL AEGON Bond 0.45% 0.09% 0.54% WRL LKCM Strategic Total Return 0.80% 0.06% 0.86% WRL Federated Growth & Income 0.75% 0.15% 0.90% WRL J.P. Morgan Money Market 0.40% 0.06% 0.46% WRL Dean Asset Allocation 0.80% 0.06% 0.86% WRL GE U.S. Equity 0.80% 0.25% 1.05% WRL Third Avenue Value 0.80% 0.20% 1.00% WRL J.P. Morgan Real Estate Securities(4) 0.80% 0.20% 1.00% WRL AEGON Balanced 0.80% 0.11% 0.91% WRL NWQ Value Equity 0.80% 0.09% 0.89% WRL C.A.S.E. Growth 0.80% 0.20% 1.00% WRL GE/Scottish Equitable International Equity 1.00% 0.50% 1.50% WRL Goldman Sachs Growth(5)(6) 0.90% 0.10% 1.00% WRL Goldman Sachs Small Cap(5) 0.90% 0.10% 1.00% WRL T. Rowe Price Dividend Growth(5)(6) 0.90% 0.10% 1.00% WRL T. Rowe Price Small Cap(5) 0.75% 0.25% 1.00% WRL Salomon All Cap(5)(6) 0.90% 0.10% 1.00% WRL Pilgrim Baxter Mid Cap Growth(5)(6) 0.90% 0.10% 1.00% WRL Dreyfus Mid Cap(5)(7) 0.85% 0.15% 1.00%
(1) Effective January 1, 1997, the fund's Board authorized the fund to charge each portfolio of the fund an annual 12b-1 fee of up to 0.15% of each portfolio's average daily net assets. However, the fund will not deduct the fee from any portfolio before April 30, 2000. You will receive advance written notice if a Rule 12b-1 fee is deducted. See the fund prospectus for more detail. (2) WRL Investment Management, Inc. ("WRL Management") currently waives 0.025% of its advisory fee for the first $3 billion of the portfolio's average daily net assets (net fee -- 0.775%); and 0.05% for the portfolio's average daily net assets above $3 billion (net fee -- 0.75%). This waiver is voluntary and may be terminated at any time upon 90 days' notice to the fund. (3) WRL Management currently waives 0.025% of its advisory fee for the portfolio's average daily net assets above $2 billion (net fee -- 0.775%.) This waiver is voluntary and may be terminated at any time upon 90 days' notice to the fund. (4) Because the WRL J.P. Morgan Real Estate Securities portfolio commenced operations on May 1, 1998, the percentages set forth as "Other Expenses" and "Total Annual Expenses" are annualized. (5) Because these portfolios did not commence operations until May 1, 1999, the percentages set forth as "Other Expenses" and "Total Annual Expenses" reflect estimates of "Other Expenses" for the first year of operations. (6) As compensation for its services to the portfolios, WRL Management receives monthly compensation at 0.90% for the first $100 million of the portfolio's average daily net assets; and 0.80% for the portfolio's average daily net assets above $100 million. (7) As compensation for its services to the portfolios, WRL Management receives monthly compensation at 0.85% for the first $100 million of the portfolio's average daily net assets; and 0.80% for the portfolio's average daily net assets above $100 million. 13 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 fund for the fiscal year ended December 31, 1998. Expenses of the fund may be higher or lower in the future. For more information on the charges described in this table, see the fund prospectus which accompanies this prospectus. WRL Management, the investment adviser of the fund, has undertaken, until at least April 30, 2000, to pay expenses on behalf of the portfolios of the fund to the extent normal operating expenses of a portfolio exceed a stated percentage of each portfolio's average daily net assets. The expense limitation for WRL Alger Aggressive Growth, WRL VKAM Emerging Growth, WRL Janus Growth, WRL Janus Global, WRL LKCM Strategic Total Return, WRL Federated Growth & Income, WRL Dean Asset Allocation, WRL Third Avenue Value, WRL J.P. Morgan Real Estate Securities, WRL AEGON Balanced, WRL NWQ Value Equity, WRL C.A.S.E. Growth, WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap is 1.00% of the average daily net assets; 0.70% of the average daily net assets for WRL AEGON Bond and WRL J.P. Morgan Money Market; 1.50% of the average daily net assets for WRL GE/Scottish Equitable International Equity; and 1.30% of the average daily net assets for WRL GE U.S. Equity. In 1998, WRL Management reimbursed WRL GE/Scottish Equitable International Equity in the amount of $127,763, WRL Third Avenue Value in the amount of $14,229, and WRL J.P. Morgan Real Estate Securities in the amount of $28,275. Without such reimbursement, the total fund expenses during 1998 for WRL GE/Scottish Equitable International Equity, WRL Third Avenue Value, and WRL J.P. Morgan Real Estate Securities would have been 1.96%, 1.13%, and 3.34%, respectively. See the fund prospectus for a description of the expense limitation applicable to each portfolio. 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 options under the Policy. Western Reserve intends to sell this Policy in all states (except New York) and the District of Columbia. THE FIXED ACCOUNT OPTIONS The fixed account is part of Western Reserve's general account. We use general account assets to support our insurance and annuity obligations other than those funded by separate accounts. Subject to applicable law, Western Reserve has sole discretion over the investment of the fixed account's assets. Western Reserve bears the full investment risk for all amounts contributed to the fixed account. Western Reserve guarantees that the amounts 14 allocated to the fixed account options will be credited interest daily at a net effective interest rate of at least 3.0%. 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. If you allocate your initial premium to the fixed account options, then we will credit the interest from the date we receive the premium. THE STANDARD FIXED ACCOUNT. Money you place into the standard fixed account option will earn interest compounded daily at a current interest rate in effect at the time of your allocation. The interest rate is guaranteed never to be less than 3.0% per year. 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 standard fixed account. We allocate amounts from the standard fixed account for partial withdrawals, transfers to the subaccounts, or monthly deduction charges on a last-in, first-out basis ("LIFO") for the purpose of crediting interest. THE FIXED DCA ACCOUNT. At the time you purchase the Policy, you may place your entire initial premium into the fixed DCA account. Money you place into the fixed DCA account will earn interest at an annual rate of at least 3.0%. We may declare current interest rates from time to time. Money will be transferred out of the fixed DCA account in six equal monthly installments and placed in the standard fixed account and the subaccounts of your choice. See Fixed DCA Account, p. 34. THE FIXED ACCOUNT OPTIONS HAVE 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 OPTIONS. 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 the fund. These subaccounts buy and sell portfolio shares at net asset value without any sales charge. Any dividends and distributions from a portfolio are reinvested at net asset value in shares of that portfolio. Income, gains, and losses credited to, or charged against, a subaccount of the separate account reflect the subaccount's own investment experience and not the investment experience of our other assets. The separate account's assets may not be used to pay any of our liabilities other than those arising from the Policies. 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, 15 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 PORTFOLIOS The separate account invests in shares of the portfolios. Each portfolio is an investment division of the fund, an open-ended 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. Currently, the portfolios of the fund corresponding to the subaccounts of the separate account are: WRL Alger Aggressive Growth, WRL VKAM Emerging Growth, WRL Janus Growth, WRL Janus Global, WRL AEGON Bond, WRL LKCM Strategic Total Return, WRL Federated Growth & Income, WRL J.P. Morgan Money Market, WRL Dean Asset Allocation, WRL GE U.S. Equity, WRL Third Avenue Value, WRL J.P. Morgan Real Estate Securities, WRL AEGON Balanced, WRL NWQ Value Equity, WRL C.A.S.E. Growth, WRL GE/ Scottish Equitable International Equity, 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. Each portfolio's assets are held separate from the assets of the other portfolios, and each portfolio has investment objectives and policies that are different from those of the other portfolios. Thus, each portfolio operates as a separate investment fund, and the income or losses of one portfolio has no effect on the investment performance of any other portfolio. Pending any prior approval by a state insurance regulatory authority, certain subaccounts and corresponding portfolios may not be available to residents of some states. Each portfolio's investment objective(s) and policies are summarized below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). Certain portfolios may have investment objectives and policies similar to other portfolios that are managed by the same investment adviser or 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 fund prospectus. You should read the fund prospectus carefully. 16
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE - ----------------- ------------------------ ----------------------------------- WRL ALGER --> Fred Alger --> Seeks long-term capital AGGRESSIVE Management, Inc. appreciation. GROWTH 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 JANUS --> Janus Capital --> Seeks growth of capital. GROWTH Corporation WRL JANUS --> Janus Capital --> Seeks long-term growth of capital GLOBAL Corporation in a manner consistent with the preservation of capital. 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 LKCM --> Luther King Capital --> Seeks to provide current income, STRATEGIC Management long-term growth of income and TOTAL RETURN Corporation capital appreciation. WRL FEDERATED --> Federated Investment --> Seeks total return by investing in GROWTH & INCOME Counseling securities that have defensive characteristics. WRL J.P. MORGAN --> J.P. Morgan Investment --> Seeks to obtain maximum current MONEY MARKET Management Inc. income consistent with the preservation of principal and maintenance of liquidity. WRL DEAN ASSET --> Dean Investment --> Seeks preservation of capital and ALLOCATION Associates competitive investment returns. WRL GE U.S. --> GE Investment --> Seeks long-term growth of capital. EQUITY Management Incorporated WRL THIRD --> EQSF Advisers, Inc. --> Seeks long-term capital AVENUE VALUE appreciation.
17
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE - ----------------- ------------------------ ------------------------------------- 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 AEGON --> AEGON USA --> Seeks preservation of capital, BALANCED Investment reduced volatility, and superior Management, Inc. long-term risk-adjusted returns. WRL NWQ VALUE --> NWQ Investment --> Seeks to achieve maximum, EQUITY Management consistent total return with Company, Inc. minimum risk to principal. 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 GE/SCOTTISH --> Scottish Equitable --> Seeks long-term growth of capital. EQUITABLE Investment Management INTERNATIONAL Limited and GE EQUITY Investment Management Incorporated WRL GOLDMAN --> Goldman Sachs Asset --> Seeks long-term growth of capital. SACHS GROWTH Management Inc. WRL GOLDMAN --> Goldman Sachs Asset --> Seeks long-term growth of capital. SACHS SMALL CAP Management Inc. WRL T. ROWE --> T. Rowe Price --> Seeks to provide an increasing PRICE DIVIDEND Associates, Inc. level of dividend income, GROWTH long-term capital appreciation and reasonable current income through investments primarily in dividend paying stocks. 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 SALOMON --> Salomon Brothers Asset --> Seeks capital appreciation. ALL CAP Management Inc. WRL PILGRIM --> Pilgrim Baxter & --> Seeks capital appreciation. BAXTER MID CAP Associates, Ltd. GROWTH
18
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ------------- ------------------------------------ WRL DREYFUS --> The Dreyfus --> Seeks total investment returns MID CAP Corporation (including capital appreciation and income), which consistently outperform the S&P 400 Mid Cap Index.
WRL Management, located at 570 Carillon Parkway, St. Petersburg, Florida 33716, a wholly-owned subsidiary of Western Reserve, serves as investment adviser to the fund and manages the fund in accordance with policies and guidelines established by the 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 fund prospectus for more information regarding WRL Management and the investment sub-advisers. In addition to the separate account, shares of the portfolios are also sold to other separate accounts that insurance companies, including Western Reserve or its 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 portfolios currently foresee any such disadvantages, either to variable life insurance policyowners or to variable annuity contract owners. However, the fund's Board of Directors 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 fund's Board of Directors 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 the fund (or 19 of another open-end, registered investment company) if the shares of a portfolio are no longer available for investment, or if in our judgement further investment in any portfolio would become inappropriate in view of the purposes of the separate account. We will not add, delete or substitute any shares attributable to your interest in a subaccount without notice to 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 the 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. PLEASE READ THE ATTACHED FUND PROSPECTUS TO OBTAIN MORE COMPLETE INFORMATION REGARDING THE PORTFOLIOS. YOUR RIGHT TO VOTE PORTFOLIO SHARES Even though we are the legal owner of the portfolio shares held in the subaccounts, and have the right to vote on all matters submitted to shareholders of the portfolios, we will vote our shares only as policyowners instruct, so long as such action is required by law. Before a vote of a portfolio's shareholders occurs, you will receive voting materials from us. We will ask you to instruct us on how to vote and to return your proxy to us in a timely manner. You will have the right to instruct us on the number of portfolio shares that corresponds to the amount of cash value you have in that portfolio (as of a date set by the portfolio). If we do not receive voting instructions on time from some policyowners, we will vote those shares in the same proportion as the timely voting instructions we receive. Should federal securities laws, regulations and interpretations change, we may elect to vote portfolio shares in our own right. If required by state insurance officials, or if permitted under federal regulation, we may disregard certain owner voting instructions. If we ever disregard voting instructions, we will send you a summary in the next annual report to policyowners advising you of the action and the reasons we took such action. 20 THE POLICY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PURCHASING A POLICY To purchase a Policy, a prospective owner 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 may also fax your application to us at 727-299-1667 and send us your initial premium by wire transfer. See Initial Premium, p. 26 for details. We determine the specified amount for a Policy based on the initial premium paid and other characteristics of the proposed insured (or joint insureds), such as age, gender and rate class. We base the minimum initial premium for your Policy on the guideline single premium established under federal tax laws given the age, gender and rate class of the insured (or joint insured). We currently require a minimum initial premium of $20,000. We use different underwriting standards (simplified, expanded) in relation to the Policy. We can provide you with details as to these underwriting standards when you apply for a Policy. We must receive evidence of insurability that satisfies our underwriting standards before we will issue a Policy. Generally, for simplified underwriting for a single life Policy we will issue a Policy for an insured between the ages of 35 to 80; for a Joint Policy, the minimum age for both insureds is 45 and the difference between the joint insureds' ages cannot be greater than 20 years. The joint insureds must be spouses or expanded underwriting will be required. For expanded underwriting, we will issue a Policy for an insured (or joint insureds) between the ages of 18 to 34 and 81 to 90. We reserve the right to reject an application for any reason permitted by law. 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 men and women to determine premiums and policy benefits for policies issued on the lives of its residents. Therefore, we 21 will base the premiums and benefits in Policies that we issue in Montana, to insure residents of that state, on actuarial tables that do not differentiate on the basis of gender. Your cost of insurance charge will depend on the insured's (or each joint insured's) rate class. We currently place insureds (or each joint insured) into one of the following rate classes: o select, non-tobacco use; and o standard, tobacco use. We generally charge higher rates for insureds who use tobacco. WHEN INSURANCE COVERAGE TAKES EFFECT Full insurance coverage under the Policy will take effect only if the insured (or joint insureds) 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 is paid. CONDITIONAL INSURANCE COVERAGE. If the insured (or joint insureds) qualifies for simplified underwriting, conditional insurance coverage begins as soon as you complete an application and pay an initial premium of at least $20,000. If the insured (or joint insureds) does not qualify for simplified underwriting, conditional insurance coverage begins on the date all medical tests and exams are completed. Conditional insurance coverage is void if the check or draft sent 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 other life insurance or accidental death benefits that the insured (or joint insureds) has in force or pending with us.
CONDITIONAL LIFE INSURANCE o the date we determine the insured (or joint insureds) has COVERAGE TERMINATES satisfied our underwriting requirements (the Policy date); AUTOMATICALLY, AND o 10 days following our offer of insurance, on any person WITHOUT NOTICE, ON THE proposed, under a different plan or at an increased EARLIEST OF: premium or different rate class; o at the end of the fraction of a year which the payment bears to the premium required to provide one month of insurance in the amount as described above; o 60 days from the beginning of conditional insurance coverage; or o the date we notify you that the application is declined and the initial premium is returned.
22 Conditional insurance coverage is void if the application contains any material misrepresentation or is fraudulently completed. Benefits will also be denied if any proposed insured commits suicide. FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we determine that the insured (or joint insureds) meets our underwriting requirements, full insurance coverage begins, we issue the Policy, and we begin to deduct monthly and daily insurance charges from your initial premium. This date is the Policy date. On the Policy date, we will allocate your premium to the subaccounts and fixed account options you elected on your application, provided you live in a state that does not require a refund of full premium during the free look period. If your state requires us to return the full premium in the event you exercise your free look right, we will place your premium in the reallocation account until the reallocation date. See Reallocation Account, p. 28. On any day we credit premiums or transfer cash value to a subaccount, we will convert the dollar amount of the premium (or transfer) into subaccount units at the unit value for that subaccount, determined at the end of the day. 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. 29. 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. The owner is the insured unless the application specifies a different person as the insured. If the owner dies before the insured (or 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 any OWNER time while the insured (or surviving insured) is alive and the Policy is in force. o Change is effective as of the date that the written notice is signed. o Changing the owner does not automatically change the beneficiary. 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. 23 CHOOSING THE o The owner designates the beneficiary (the person to BENEFICIARY receive the death benefit when the insured or surviving insured dies) in the application. o If you designate 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 insured or surviving insured, then any contingent beneficiary becomes the beneficiary. o If both the beneficiary and contingent beneficiary die before the insured or surviving insured, then the death benefit will be paid to the owner or the owner's estate upon the insured's or surviving insured's death. CHANGING THE o Change the beneficiary by providing us with a written BENEFICIARY notice. o Change is effective as of the date the owner signs the written notice. o We are not liable for any payments we made before we received the written notice. ASSIGNING THE o The owner may assign Policy rights while the insured (or POLICY either or both joint insureds) is alive. 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 Claim under any assignment are subject to proof of interest and the extent of the assignment. 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 --> any assignment which results in adverse tax consequences to the owner, insured(s) or beneficiary(ies). o Assigning the Policy may have tax consequences. You should consult a tax advisor before assigning the Policy. 24 POLICY SPLIT OPTION For a Joint Policy, 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 life 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 o written confirmation of a dissolution of a business partnership of which the joint insureds were partners. CONDITIONS FOR o If more than one person owns the Policy, each owner must EXERCISING agree to the split. SPLIT OPTION: 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. 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 monthly anniversary 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. 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. Exercising the Split Option may result in a taxable event. Moreover, the new life insurance policies received if you exercise the Split Option may not be treated as life insurance policies for federal income tax purposes, or, if so treated, may be treated as MECs, even if the original Policy was not. (See Federal Income Tax Considerations, p. 47.) You should consult a tax advisor before exercising the Split Option. 25 CANCELING A POLICY You may cancel a Policy 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, without interest, within seven days after we receive the returned Policy. The amount of the refund will be: o any monthly deductions or other charges we deducted from amounts allocated to the subaccounts and the fixed account options; PLUS o your cash value in the subaccounts and the fixed account options on the date we (or our agent) receive the returned Policy, except that the amount allocated to the fixed DCA account will be treated as if it had been allocated to the standard fixed account. If any state law prohibits the calculation above, we will refund, without interest, the total of all premiums paid for the Policy. See Allocating Premiums, p. 27. PREMIUMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INITIAL PREMIUM The initial premium for a given specified amount depends on a number of factors including the age, gender, and rate class of the proposed insured(s). For a given initial premium, we will specify the exact specified amount that you must purchase. For a Joint Policy, we will provide the specified amount at the time of application based upon the specific ages, gender, and rate classes of the proposed joint insureds. We will accept initial premium payments by wire transfer and Policy applications by fax under the following conditions. o If you wish to make payments by wire transfer, you should instruct your bank to wire federal funds to us. Please contact us at 1-800-851-9777 for complete wire instructions. o If you send your initial premium by wire transfer, you must, at the same time, send us your completed application by telephone facsimile transmission ("faxed application") to 727-299-1667, and send us the original signed application. o If we accept your initial premium payment by wire transfer accompanied by your faxed application, we will allocate your premium on the Policy date (or reallocation date if you reside in a state that requires full refund of premium during the free look period) according to your instructions once we have received your application. See Reallocation Account, p. 28. o If you send your initial premium by wire transfer but do not send us your faxed application simultaneously, or if the application is incomplete, we will keep the initial premium for up to five business days. If we cannot obtain the faxed application or necessary information within five business days, we will return 26 your initial premium to you, unless you allow us to keep it until we receive your faxed application or necessary information. o When we receive your original signed application and if the allocation instructions are different from those in the faxed application, then we will reallocate your cash value in accordance with the instructions on your original signed application on the first valuation date after we receive the original signed application. We currently require a minimum initial premium of $20,000. If you want to qualify for simplified undewriting, the maximum premium you can pay at the time of your application is $50,000 (for ages 35-49) and $100,00 (for ages 50-80). Other limits apply for Joint Policies and Policies with full underwriting. We reserve the right to modify these requirements and premium amounts at any time. TAX-FREE EXCHANGES ("1035 EXCHANGES"). We will accept as part of your initial premium money from one contract that qualified for a tax-free exchange 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. ADDITIONAL PREMIUMS You will have limited flexibility to add additional premiums to the Policy since we require that the initial premium equal the maximum amount that can be applied to the Policy at issue. In general, you may not pay any additional premiums on the Policy for several years in order for the Policy to continue to qualify as a life insurance Policy as defined in federal tax laws and regulations. At the time the Policy allows for the payment of additional premiums, we reserve the right to limit or refund any premium if: o the amount is below our current minimum additional premium requirement; o the premium would increase the death benefit by more than the amount of the premium; or o accepting the premium would disqualify the Policy as a life insurance Policy as defined in federal tax laws and regulations. You may pay premiums by any method we deem acceptable. We will treat any payment you make as a loan repayment unless you clearly mark it as a premium payment. ALLOCATING PREMIUMS When you apply for a Policy, you must instruct us to allocate your premium to one or more subaccounts of the separate account and to the fixed account options according to the following rules: o allocation percentages must be in whole numbers; o if you select the fixed DCA account, you must put your entire initial premium into the fixed DCA account at the time of your application; and 27 o if you select standard dollar cost averaging, you must put at least $5,000 into the WRL J.P. Morgan Money Market subaccount. Generally, we will not allow you to pay additional premiums except in certain limited circumstances. If we do allow you to pay additional premiums, you may change the allocation instructions for such additional premium payments without charge by writing us or calling us at 1-800-851-9777. Upon instructions from you, the registered representative/agent of record for your Policy may also change your allocation instructions for you. In the future, we may decide that the minimum amount you can allocate to a particular subaccount is 1.0% of each premium payment (currently not required). Whenever you direct money into a subaccount, we will credit your Policy with the number of units for that subaccount that can be bought for the dollar payment. We price each subaccount unit using the unit value determined at the end of the day after the closing 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, p. 29. 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 options because market conditions and your overall financial objectives may change. REALLOCATION ACCOUNT. If your state requires us to return your initial premium in the event you exercise your free-look right, we will allocate the initial premium on the Policy date to the reallocation account. While held in the reallocation account, your premium will earn interest at the current rates for the standard fixed account. The premium will remain in the reallocation account for the number of days in your state's free look period plus five days. This is the reallocation date. Please contact your agent for details concerning the free look period for your state. On the first valuation date on or after the reallocation date, we will reallocate all cash value from the reallocation account to the subaccounts and fixed account options you selected on the application. If you requested either fixed DCA or standard dollar cost averaging, we will reallocate the cash value to either the fixed DCA account or the WRL J.P. Morgan Money Market subaccount respectively, on the reallocation date. For states which do not require full refund of the initial premium, the reallocation date is the same as the Policy date and we will allocate your initial premium on the Policy date to the subaccounts and the fixed account options in accordance with the instructions you gave us on your application. 28 POLICY VALUES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CASH VALUE 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 options. 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. 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. 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); MINUS EQUALS: o any interest you owe on any Policy loan(s). 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 Policy UNITS IN ANY date; PLUS SUBACCOUNT ON o units purchased with additional 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 partial 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 partial withdrawal by the unit value for that subaccount at the end of the valuation period. 29 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 o the total value of the portfolio shares held in the VALUE 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 IS o a charge equal to the daily net assets of the subaccount 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. FIXED ACCOUNT VALUE On the Policy date, the fixed account value is equal to the premiums allocated to the fixed account, minus the portion of the first monthly deduction taken from the fixed account. THE FIXED o the premium(s) allocated to the fixed account; PLUS ACCOUNT VALUE o any amounts transferred from a subaccount to the fixed AT THE END OF account; PLUS ANY VALUATION o total interest credited to the fixed account; MINUS PERIOD IS o amounts charged to pay for monthly deductions; MINUS EQUAL TO: o amounts withdrawn from the fixed account to pay for partial withdrawals; MINUS o amounts transferred from the fixed account to a subaccount. 30 TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL You or your agent/registered representative of record may make transfers among the subaccounts or from the subaccounts to the fixed account. We determine the amount you have available for transfers at the end of the valuation period when we receive your transfer request. WE MAY MODIFY OR REVOKE THE TRANSFER PRIVILEGE AT ANY TIME. The following features apply to transfers under the Policy: /checkmark/ You may make an unlimited number of transfers in a Policy year. /checkmark/ You may make one transfer from the fixed account per Policy year. /checkmark/ You may request transfers in writing (in a form we accept), by fax or by telephone. /checkmark/ There is no minimum amount that must be transferred. /checkmark/ There is no minimum amount that must remain in a subaccount after a transfer. /checkmark/ We deduct a $10 charge from the amount transferred for the 13th and each additional transfer in a Policy year. /checkmark/ We consider all transfers made in any one day to be a single transfer. /checkmark/ Transfers resulting from loans, conversion rights, standard and fixed dollar cost averaging, asset rebalancing, and transfers from the fixed account are NOT treated as transfers for the purpose 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 the WRL J.P. Morgan Money Market portfolio 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 727-299-1667. Please note the following regarding telephone or fax transfers: --> 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. 31 --> We will employ reasonable procedures to confirm that telephone instructions are genuine. --> 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 before 4:00 p.m. Eastern time to assure same-day pricing of the transaction. --> 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. We will process any transfer request we receive before the NYSE closes (usually 4:00 p.m. Easterm 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. STANDARD FIXED ACCOUNT TRANSFERS You may make one transfer per Policy year from the standard fixed account unless you select standard dollar cost averaging from the standard 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 on the date we receive the written request. The maximum amount you may transfer is the greater of: --> 25% of the amount in the standard fixed account; or --> the amount you transferred from the standard fixed account in the immediately prior Policy year (excluding transfers from the fixed DCA account). CONVERSION RIGHTS If within two years of your Policy date, you transfer all of your subaccount values to the standard fixed account, then we will not charge you a transfer fee, even if applicable. You must make your request in writing. STANDARD DOLLAR COST AVERAGING Standard dollar cost averaging is an investment strategy designed to reduce the investment risks associated with market fluctuations. The strategy spreads the allocation of your premium into the subaccounts over a period of time. This potentially allows you to 32 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 they are high. We make no guarantee that dollar cost averaging will result in a profit or protect you against a loss. Under standard dollar cost averaging, we automatically transfer a set dollar amount from the WRL J.P. Morgan Money Market subaccount to one or more subaccounts that you choose. At the beginning of dollar cost averaging, you must choose the time period (12, 24 or 36 months) over which the entire amount will be transferred in equal monthly installments. We will make the transfers monthly as of the end of the valuation date starting on the first Monthiversary after the Policy date or reallocation 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. TO START STANDARD --> you must submit a completed form to us requesting DOLLAR COST AVERAGING: standard dollar cost averaging; --> you must have at least $5,000 in the WRL J.P. Morgan Money Market subaccount; --> the monthly amount transferred will be determined by dividing the total amount to be transferred by the number of months in the period chosen (12, 24 or 36 months); and --> interest accrued on the cash value in the WRL J.P. Morgan Money Market subaccount during the term of dollar cost averaging will be tranferred in the last month of the standard dollar cost averaging term. You may request standard dollar cost averaging to begin at any time, except that you cannot begin standard dollar cost averaging if you have an active fixed DCA account. There is no charge for standard dollar cost averaging. Transfers under standard dollar cost averaging do NOT count as transfers for purposes of the transfer charge. STANDARD DOLLAR COST --> we receive your request to cancel your AVERAGING WILL participation; TERMINATE IF: --> the value in the WRL J.P. Morgan Money Market subaccount 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 standard dollar cost averaging at any time. 33 FIXED DCA ACCOUNT To be eligible for fixed dollar cost averaging, you must elect the fixed DCA account on your application and put your entire initial premium into the fixed DCA account. Money you place in the fixed DCA account will earn interest at rates we declare from time to time. Money will be transferred out of the fixed DCA account in six equal monthly installments with the first transfer starting on the first Monthiversary after the Policy date or reallocation date. Interest accrued on the initial premium will be transferred in the last month of the fixed DCA account term. Money in the fixed DCA account may be transferred entirely to other subaccounts or the standard fixed account after one month. There is no charge for participating in the fixed DCA account. Transfers from the fixed DCA account do NOT count as transfers for purposes of the transfer charge. We reserve the right to stop offering the fixed DCA account at any time for any reason. We may offer a higher 30-day interest rate guaranteed for one month. If you exercise your free look right and you reside in a state which requires us to return your premium, then we will return your full initial premium, but without any interest. But if you reside in a state which requires us to return cash value, then we will treat your initial premium as if it had been allocated to the standard fixed account. FIXED DOLLAR o we receive written notice from you instructing us to cancel COST AVERAGING the program; WILL END IF: o you elect to participate in the asset rebalancing program; or o you elect to participate in any asset allocation services provided by a third party. 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. 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 standard fixed account, the standard dollar cost averaging program and the fixed DCA account are 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. You may modify your allocations quarterly. 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. 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. 34 To start asset rebalancing, you must submit a completed asset rebalancing request form to us before the maturity date. There is no charge for the asset rebalancing program. Reallocations under the asset rebalancing program do NOT count as transfers for purposes of the transfer charge. ASSET REBALANCING --> you elect to participate in the fixed DCA account; WILL CEASE IF: --> you elect to participate in the standard dollar cost averaging 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 participating 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 service and benefits we provide; (2) the costs and expenses we incur; and (3) the risks we assume. 35 SERVICES AND o the death benefit, cash and loan benefits; BENEFITS WE o investment options, including premium allocations; PROVIDE: o administration of elective options; o the distribution of reports to owners. COSTS AND o costs associated with processing and underwriting EXPENSES applications; WE INCUR: o expenses of issuing and administering the Policy (including any Policy riders); o overhead and other expenses for providing services and benefits, sales and marketing expenses; and o other costs of doing business, such as collecting premiums, maintaining records, processing claims, effecting transactions, and paying federal, state and local premium and other taxes and fees. RISKS WE o that the charges we deduct may be insufficient to meet our ASSUME: 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 DEDUCTIONS We deduct no charges from premiums before allocating the premiums to the separate account and the fixed account options according to your instructions. MONTHLY DEDUCTION We take a monthly deduction from the cash value on the Policy date and on each Monthiversary. We subtract any outstanding loan amount from the cash value before calculating the charge. We deduct this charge from your Policy's value in 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 can vary monthly, the monthly deduction will also vary. 36 THE MONTHLY o the monthly Policy charge based on your Policy's separate DEDUCTION account assets; PLUS IS EQUAL TO: o the monthly Policy charge based on your Policy's fixed account assets; PLUS o the monthly cost of insurance charge for the Policy, if any; PLUS o the monthly charge for any benefits provided by riders attached to the Policy (currently, only the Guaranteed Minimum Death Benefit rider). MONTHLY POLICY o Based on your POLICY'S SEPARATE ACCOUNT assets, this charge CHARGE is equal to: o the separate account monthly deduction charge (see table below) divided by 12; MULTIPLIED BY o the sum of the POLICY'S SUBACCOUNT VALUES on the Monthiversary. o Based on your Policy's fixed account assets, this charge is equal to: o the fixed account monthly deduction charge (see table below) divided by 12; MULTIPLIED BY o the fixed account value on the Monthiversary, minus any outstanding Policy loan(s). o This charge compensates us for administrative expenses such as recordkeeping, processing death benefit claims and Policy changes, and overhead costs. o This charge varies for each Policy based on the Policy year, gender, and whether the Policy is issued on a single life or a joint and last survivor basis. DAILY CHARGE o On each valuation date, we deduct a daily charge at the annual rate of 0.50% from your Policy's assets in the subaccounts as part of the calculation of the unit value for each subaccount. o This charge compensates us for certain mortality and expense risks we assume. 37 The monthly Policy charge and the daily charge for single life and Joint Policies are as follows:
SINGLE LIFE POLICY MALE/UNISEX FEMALE ------------------ --------------------------- --------------------------- POLICY YEARS POLICY YEARS POLICY YEARS POLICY YEARS 1-10 11+ 1-10 11+ ------------ ------------ ------------ ------------ SEPARATE ACCOUNT DAILY CHARGE CHARGES (from unit value) .50% .50% .50% .50% (annual rate) MONTHLY POLICY CHARGE (as a % of separate account assets) 2.00% 1.00% 1.85% .85% TOTAL 2.50% 1.50% 2.35% 1.35% FIXED ACCOUNT MONTHLY CHARGES POLICY CHARGE (annual rate) (as a % of fixed account assets) 2.00% 1.00% 1.85% .85% TOTAL 2.00% 1.00% 1.85% .85%
JOINT POLICY POLICY YEARS 1-10 POLICY YEARS 11+ - ------------ ----------------- ---------------- SEPARATE ACCOUNT CHARGES DAILY CHARGE (from unit value) .50% .50% (annual rate) MONTHLY POLICY CHARGE (as 1.50% .50% a % of separate account assets) TOTAL 2.00% 1.00% FIXED ACCOUNT CHARGES MONTHLY POLICY CHARGE (as 1.50% .50% (annual rate) a % of fixed account assets) TOTAL 1.50% .50%
COST OF INSURANCE CHARGE. We reserve the right to assess a monthly cost of insurance charge. The charge would depend on a number of variables (age, gender, rate class) that would cause it to vary from Policy to Policy and from Monthiversary to Monthiversary. If applicable, we would calculate the cost of insurance charge each month for the specified amount at issue. We do not currently assess this charge, and we do not intend to assess this charge. However, if we begin to assess this charge in the future, we will waive the surrender charge upon any surrender of the Policy. See Surrender Charge, p. 39. The guaranteed maximum monthly cost of insurance rates are based on the gender, age, plan of insurance, and risk class of the insured(s). Any change in the current rates will not exceed those shown in your Policy's Table of Guaranteed Maximum Life Insurance Rates. We currently place insureds into standard (tobacco use) and select (non-tobacco use) rate classes. The guaranteed rates are based on the 1980 Commissioners' Standard Ordinary Mortality Tables, Male or Female, Tobacco or Non-Tobacco Mortality Rates ("1980 CSO 38 Tables"). Cost of insurance rates for an insured in a non-tobacco use class are less than or equal to rates for an insured of the same age and gender in a tobacco use class. The Policies are based on mortality tables that distinguish between men and women. As a result, the Policy may pay different benefits to men and women of the same age and rate class. We also offer Policies based on unisex mortality tables if required by state law. SURRENDER CHARGE If you surrender your Policy during the first nine years, we deduct a surrender charge from your cash value and pay the remaining cash value (less any outstanding loan amounts) to you. The payment you receive is called the net surrender value. The surrender charge is 9.75% of the initial premium if you surrender your Policy before the end of the first Policy year and then declines gradually to 0% after the ninth Policy year. The rate at which the surrender charge declines depends on the insured's (or joint insureds') age, gender and whether you have purchased a single life or a Joint Policy. See Appendix C, Surrender Charge Table, for a schedule of the surrender charges by age, year, gender and Policy type. If we begin to assess a cost of insurance charge on Policies as noted above, we will waive all future surrender charges. TRANSFER o We currently allow you to make 12 transfers each year CHARGE 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, dollar cost averaging, asset rebalancing and transfers from the fixed account do NOT count as transfers for purposes of assessing this charge. o We will not increase this charge. PORTFOLIO EXPENSES The portfolios deduct management fees and expenses from the amounts you have invested in the portfolios. These charges range from 0.40% to 1.50%. See the Portfolio Annual Expense Table in this prospectus, and the fund prospectus. 39 GUARANTEED If you select the Guaranteed Minimum Death Benefit rider at MINIMUM DEATH application, then we will deduct from your Policy's cash value BENEFIT RIDER a monthly charge on the Policy date and each Monthiversary CHARGE thereafter. The monthly charge will be equal to: o 0.02% MULTIPLIED BY the sum of your Policy's subaccount values, if any, on the valuation date of each Monthiversary; PLUS o 0.02% MULTIPLIED BY your Policy's fixed account value on the valuation date of each monthly deduction. DEATH BENEFIT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEATH BENEFIT PROCEEDS As long as the Policy is in force, we will pay the death benefit proceeds on a Policy once we receive satisfactory proof of the insured's (or 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 insured (or 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. 42. DEATH BENEFIT o the death benefit (described below); MINUS PROCEEDS EQUAL: o any past due monthly deductions if the insured (or surviving insured) dies during the grace period (see Policy Lapse and Reinstatement, p. 46; MINUS o any outstanding Policy loan on the date of death; MINUS o any interest you owe on Policy loan(s). If all or part of the death benefit proceeds are paid in one sum, we will pay interest on this sum as required by applicable state law from the date we receive due proof of the insured's (or surviving insured's) death to the date we make payment. We may further adjust the amount of the death benefit proceeds if we contest the Policy or if you misstate the insured's (or joint insured's) age or gender. See Our Right to Contest the Policy; and Misstatement of Age or Gender, p. 50. DEATH BENEFIT The Policy provides a death benefit. The death benefit is determined at the end of the valuation period in which the insured (or surviving insured) dies. 40 THE DEATH o the current specified amount; or BENEFIT IS o a specified percentage, called the "limitation percentage," THE GREATER MULTIPLIED BY OF: --> the cash value on the insured's (or surviving insured's) date of death. 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 age of the insured (or younger joint insured) at the beginning of each Policy year. The following table indicates the limitation percentages for different ages:
AGE (YOUNGER INSURED, IF JOINT POLICY) LIMITATION PERCENTAGE ----------------- --------------------- 40 and under 250% 41 to 45 250% minus 7% for each age over age 40 46 to 50 215% minus 6% for each age over age 45 51 to 55 185% minus 7% for each age over age 50 56 to 60 150% minus 4% for each age over age 55 61 to 65 130% minus 2% for each age over age 60 66 to 70 120% minus 1% for each age over age 65 71 to 75 115% minus 2% for each age over age 70 76 to 90 105% 91 to 94 105% minus 1% for each age over age 90 95 and above 100%
EFFECTS OF PARTIAL WITHDRAWALS ON THE DEATH BENEFIT A partial withdrawal will reduce the specified amount by an amount equal to the amount of the partial withdrawal multiplied by the ratio of the initial specified amount to the initial premium. For an example, see Partial Withdrawals, p. 42. GUARANTEED MINIMUM DEATH BENEFIT RIDER If you purchase the Guaranteed Minimum Death Benefit rider at the time you apply for the Policy and the rider is in effect upon the insured's (or surviving insured's) date of death, we guarantee to provide a death benefit as follows: --> If the net surrender value on any Monthiversary is not sufficient to cover the monthly Policy charge on such day, then coverage will be provided as indicated below, and no grace period will begin, provided no Policy loans have been taken under the Policy; --> If a death benefit is payable under the provisions of this rider, then Western Reserve guarantees to provide a death benefit as follows: o During the first 15 Policy years, or before the Policy anniversary following the insured's (or younger joint insured's) 75th birthday, if sooner, the minimum death benefit we will pay is the amount described under Death Benefit, p. 40; o After the first 15 Policy years, or on or after the Policy anniversary following the insured's (or younger joint insured's) 75th birthday, if 41 sooner, the minimum death benefit we will pay is the initial premium, reduced by any partial withdrawals. o However, in no event will the minimum death benefit ever be less than $1,000. THE GUARANTEED o the date the Policy terminates; MINIMUM DEATH o the date any Policy loan is taken; or BENIFIT RIDER o the Monthiversary on which this rider is terminated by WILL TERMINATE written request from the owner. ON THE EARLIEST OF: This rider may only be purchased at the time you purchase the Policy. There is also a charge for this rider. See Guaranteed Minimum Death Benefit Rider Charge, p. 40. CHANGING THE SPECIFIED AMOUNT You may not increase or decrease the specified amount on your Policy. However, a partial withdrawal will reduce the specified amount and the amount payable under the Guaranteed Minimum Death Benefit rider. If you need a higher specified amount, you must apply for a second policy. 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. Information concerning these settlement options is available on request. None of these options vary with the investment performance of a separate account. SURRENDERS AND PARTIAL 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. The insured (or surviving insured) must be alive and the Policy must be in force when you make your written request. A surrender is effective as of the date when we receive your written request. You will incur a surrender charge if you surrender the Policy during the first nine Policy years. See Surrender Charge, p. 39. 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 unless you request other arrangements. A surrender may have tax consequences. See Federal Income Tax Considerations, p. 47. PARTIAL WITHDRAWALS After the first Policy year, you may request a partial withdrawal of a portion of your cash value subject to certain conditions. 42 PARTIAL --> You must make your partial withdrawal request to us in WITHDRAWAL writing. CONDITIONS: --> We will only allow one partial withdrawal during a 12-month period. --> The most you can request is the Policy's earnings. We calculate earnings as the cash value MINUS total outstand- ing loans, MINUS any interest you owe on the Policy loans, and MINUS total premiums paid. --> You may not take a partial withdrawal if it will reduce the specified amount below $1,000. --> You can specify the subaccount(s) and the standard fixed account from which to make the withdrawal. Otherwise we will deduct the amount from the Policy's value in the subaccounts and the standard fixed account in accordance with the current allocation instructions. --> We generally will pay a partial withdrawal request within seven days following the valuation date we receive the request. --> There is no charge for taking a partial withdrawal. --> A partial withdrawal may have tax consequences. See Federal Income Tax Considerations, p. 47. A partial withdrawal will reduce the cash value by the amount of the partial withdrawal and will reduce the specified amount by an amount equal to the amount of the partial withdrawal multiplied by the ratio of the initial specified amount to the initial premium. A partial withdrawal will also reduce the Guaranteed Minimum Death Benefit by an amount equal to the amount of the partial withdrawal multiplied by the ratio of the initial specified amount to the initial premium. An example of a partial withdrawal's effect on the specified amount is shown below. EXAMPLE: A Policy with a specified amount of $200,000 on a male standard (age 35) has a guideline single premium of $48,920. The ratio of the initial specified amount to the initial premium is 4.09 (I.E., 200,000 divided by 48,920). If a $19,000 partial withdrawal is taken after the first Policy year, the specified amount will be reduced by $77,710 (I.E., 4.09 multiplied by $19,000). LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL After the Policy date (as long as the Policy is in force) you may borrow money from us using the Policy as the only security for the loan. Taking a loan will terminate the Guaranteed Minimum Death Benefit rider, if any. See Guaranteed Minimum Death Benefit 43 Rider, p. 41. A loan that is taken from, or secured by, a Policy may have tax consequences. See Federal Income Tax Considerations, p. 47. POLICY LOANS o you must borrow at least $500; and ARE SUBJECT TO o the maximum amount you may borrow is 90% of the cash CERTAIN value, less any surrender charge and any outstanding loan CONDITIONS: amount. When you take a loan, we will withdraw an amount equal to the requested loan 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. 51. 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 AS LOAN REPAYMENTS UNLESS THE PAYMENTS ARE CLEARLY SPECIFIED AS PREMIUM PAYMENTS. 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 standard 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 standard 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 the transfer to the fixed account if the loans were originally transferred from the fixed account. 44 INTEREST RATE CHARGED The annual interest rate you may pay on a Policy loan is 6.0% and is payable in arrears on each Policy anniversary. 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 3.0%. We may credit a higher rate, but we are not obligated to do so. PREFERRED LOANS At any time after the Policy date, you may borrow against the Policy up to an amount that is equal to the cash value MINUS total premiums paid, LESS any outstanding loan amounts (including any interest owed on the Policy loan(s)). Such a loan is called a preferred loan. We will charge interest on a preferred loan at an annual rate of 3.0%, payable in arrears. Any existing loan, other than a preferred loan, is not eligible for a preferred loan rate. Amounts in the loan reserve securing preferred loans accrue interest at the same 3.0% annual rate as other loans. Consult a tax advisor before taking a preferred loan because such a loan may have adverse tax consequences. We reserve the right to modify or discontinue the preferred loan feature. EFFECT OF POLICY LOANS A Policy loan affects the Policy because we reduce the death benefit proceeds and net surrender value under the Policy by the amount of any outstanding loan plus interest you owe on the loans. 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 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 options. 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. Taking a Policy loan will cause a Guaranteed Minimum Death Benefit rider to terminate. 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 achieved. A Policy loan may also have possible adverse tax consequences that could occur if a Policy lapses with loans outstanding (see Federal Income Tax Considerations, p. 47). 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. We will accept 1035 Exchanges where the policy from another company has an outstanding policy loan of no more than 40% of the policy's cash value transferred to our Policy. We intend to treat these as preferred loan amounts. 45 POLICY LAPSE AND REINSTATEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LAPSE 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. A lapse might also occur if poor investment results cause a decrease in the net surrender value. The monthly deductions may exceed the net surrender value if: o we begin to impose monthly cost of insurance charges; or o the sum of all outstanding Policy loans plus accrued loan interest exceeds the net surrender value. If the net surrender value is not enough to pay the monthly deductions, we will mail a notice to your last known address and to 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. Generally, you may not reinstate this Policy after it has lapsed. See Reinstatement below. If you purchase the Guaranteed Minimum Death Benefit rider, then no grace period will begin (and the Policy will not lapse) if there have been no Policy loans. See Guaranteed Minimum Death Benefit Rider, p. 41. REINSTATEMENT You may not reinstate your Policy if it lapses unless you completed the Policy application and had your Policy delivered to you in a state which permits reinstatement. If so, then we will reinstate a lapsed Policy within five years from the date of 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 payment that is large enough to cover: --> any monthly deductions due at the time of termination and upon reinstatement; plus --> one monthly deduction in advance; plus --> repayment of outstanding loans plus unpaid interest. We will not reinstate any indebtedness. The cash value of the loan reserve on the reinstatement date will be zero. The reinstatement date for your Policy will be the 46 monthly anniversary on or following the day we approve your application for reinstatement. We may decline a request for reinstatement. FEDERAL INCOME TAX CONSIDERATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summary provides a general description of the 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, it is reasonable to conclude that the Policy should satisfy the applicable Code requirements. Because of certain innovative features of the Policies and the absence of pertinent interpretations of the Code requirements, there is, however, some uncertainty about the application of such requirements to the Policy. 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 flexibility to allocate premiums and cash values, have not been explicitly addressed in published rulings. While we believe that the Policy does not give you investment control over separate account assets, we reserve the right to modify the Policy as necessary to prevent you from being treated as the owner of the separate account assets supporting the Policy. In addition, the Code requires that the investments of the separate account be "adequately diversified" in order to treat the Policy as a life insurance policy for federal income tax purposes. We intend that the separate account, through the portfolios, will satisfy these diversification requirements. The following discussion assumes that the Policy will qualify as a life insurance Policy for federal income tax purposes. 47 TAX TREATMENT OF POLICY BENEFITS IN GENERAL. We believe that the death benefit under a Policy should be excludable from the beneficiary's gross income. Federal, state and local transfer, 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 (E.G., by assignment), a Policy, the tax consequences depend on whether the Policy is classified as a "Modified Endowment Contract." MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance policies are classified as "Modified Endowment Contracts" ("MECs") and receive less favorable tax treatment than other life insurance policies. IN MOST SITUATIONS, THE POLICIES WILL BE CLASSIFIED AS MECS. There are, however, certain limited situations where a Policy may not be classified as 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 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 annually 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 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 partial withdrawals, will be treated first as distributions of gain taxable as ordinary income. They will be treated as tax-free recovery of the owner's investment in the Policy only after all gain has been distributed. Your investment in the Policy is generally your total premium payments. When a distribution is taken from the Policy, your investment in the Policy is reduced by the amount of the distribution that is tax-free. 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 591/2 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. Distributions 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 48 in the Policy, and as taxable income after the recovery of all investment in the Policy. However, certain distributions which must be made in order to enable the Policy to continue to qualify as a life insurance policy for federal income tax purposes if Policy benefits are reduced during the first 15 Policy years may be treated in whole or in part as ordinary income subject to tax. Loans from or secured by a Policy that is not a MEC are generally not treated as distributions. Instead, such loans are treated as indebtedness. However, the tax consequences associated with preferred loans are less clear 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 includable in the owner's income when a taxable distribution occurs. DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a loan from a Policy will not be deductible. Before taking out a Policy loan, you should consult a tax advisor as to the tax consequences. INVESTMENT IN THE POLICY. Your investment in the Policy is generally the sum of the premium payments you made. When a distribution from the Policy occurs, your investment in the Policy is reduced by the amount of the distribution that is tax-free. 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. If you purchase a Joint Policy, the Policy Split Option permits you to split the Policy into two new individual life insurance policies 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. 25.) 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 policies 49 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. 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 legislative developments and their effect on the Policy. OTHER POLICY INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OUR RIGHT TO CONTEST THE POLICY In issuing this Policy, we rely on all statements made by or for the insured (or 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 during the insured's lifetime (or while both joint insureds are still alive) for two years from the Policy date, or if reinstated (if permitted by state law), for two years from the date of reinstatement. If you purchased a Joint Policy, 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. SUICIDE EXCLUSION If the insured (or either joint insured) commits suicide, while sane or insane, within two years of the Policy date, then the Policy will terminate and our total liability, including the Guaranteed Minimum Death Benefit rider, is limited to an amount equal to the total premiums paid, less any loans and less any partial 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 (if permitted by state law). MISSTATEMENT OF AGE OR GENDER If the age or gender of the insured (or either joint insured) was stated incorrectly in the application or any supplemental application, then the death benefit will be adjusted based on what the initial premium would have purchased based on the insured(s) correct age and gender. MODIFYING THE POLICY Only our President or Secretary may modify this Policy or waive any of our rights or requirements under this Policy. Any modification or waiver must be in writing. No agent may bind us by making any promise not contained in this Policy. 50 If we modify the Policy, we will provide you with notice and we will make appropriate endorsements to the Policy. BENEFITS AT MATURITY If the insured (or either joint insured) is living and the Policy is in force, the Policy will mature on the Policy anniversary nearest the insured's (or a 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. We will extend the maturity date if your Policy is still in force on the maturity date. Any riders in force on the scheduled maturity date will terminate on that date and will not be extended. Interest on any outstanding Policy loans will continue to accrue during the period for which the maturity date is extended. You must submit a written request for the extension between 90 and 180 days prior to the maturity date. 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. If you extend the maturity date 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. The tax consequences of extending the maturity date beyond the 100th birthday of the insured (or a joint insured) are uncertain. You should consult a tax advisor as to those consequences. PAYMENTS WE MAKE We usually pay the amounts of any surrender, partial withdrawal, death benefit proceeds, or settlement options within seven business days after we receive all applicable written notices and/or due proofs of death. 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, partial 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, partial withdrawals, or surrenders from the fixed account for up to six months. 51 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: /checkmark/ the current cash value /checkmark/ any activity since the last report /checkmark/ the current net surrender value /checkmark/ investment experience of each subaccount /checkmark/ the current death benefit /checkmark/ any other information required by law /checkmark/ any outstanding loans
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. 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 insured (or surviving o the date the Policy is insured) dies; surrendered.
IMSA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We are a charter member of the Insurance Marketplace Standards Association ("IMSA"). IMSA is an independent, voluntary organization of life insurance companies. It promotes high ethical standards in the sales, advertising and servicing of individual life insurance and annuity products. Companies must undergo a rigorous self and independent assessment of their practices to become a member of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to these standards. 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 compounded rates of return for the periods ended on December 31, 1998. 52 These rates of return do not reflect the daily charge, monthly deductions from cash value, or surrender charge. These rates are not an estimate, projection or guarantee 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. AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE PERIODS ENDED ON DECEMBER 31, 1998
INCEPTION FUND PORTFOLIO INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR DATE - ------------------------------------------------ ----------- ---------- ---------- ---------- ---------- ---------- WRL Alger Aggressive Growth .................... 23.54% N/A N/A 26.83% 48.69% 3/1/94 WRL VKAM Emerging Growth ....................... 23.09% N/A 21.95% 25.63% 37.33% 3/1/93 WRL Janus Growth ............................... 20.91% 22.61% 25.20% 31.63% 64.47% 10/2/86 WRL Janus Global ............................... 21.94% N/A 19.46% 25.40% 30.01% 12/3/92 WRL AEGON Bond ................................. 7.89% 9.14% 6.46% 6.12% 9.32% 10/2/86 WRL LKCM Strategic Total Return ................ 14.12% N/A 13.76% 15.39% 9.64% 3/1/93 WRL Federated Growth & Income .................. 11.78% N/A N/A 12.77% 3.05% 3/1/94 WRL J.P. Morgan Money Market ................... 5.03% 5.01% 4.87% 5.18% 5.26% 10/2/86 WRL Dean Asset Allocation ...................... 14.80% N/A N/A 13.06% 8.33% 1/3/95 WRL GE U.S. Equity ............................. 25.00% N/A N/A N/A 22.87% 1/2/97 WRL Third Avenue Value ......................... -6.84% N/A N/A N/A -6.84% 1/2/98 WRL J.P. Morgan Real Estate Securities ......... -14.93% N/A N/A N/A N/A 5/1/98 WRL AEGON Balanced ............................. 9.71% N/A N/A 11.51% 6.93% 3/1/94 WRL NWQ Value Equity ........................... 11.83% N/A N/A N/A -4.78% 5/1/96 WRL C.A.S.E. Growth ............................ 15.01% N/A N/A 11.47% 2.47% 5/1/95 WRL GE/Scottish Equitable International Equity ....................................... 10.17% N/A N/A N/A 12.85% 1/2/97 S&P 500 ........................................ 17.86% 19.21% 24.06% 28.23% 28.58% 10/2/86
Because WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap had not commenced operations as of December 31, 1998, the above chart does not reflect rates of return for these portfolios. Additional information regarding the investment performance of the portfolios appears in the attached fund prospectus. HYPOTHETICAL ILLUSTRATIONS BASED ON ADJUSTED PORTFOLIO PERFORMANCE This section contains hypothetical illustrations of Policy values based on the adjusted historical experience of the portfolios. We started selling the Policies in 1999. The separate account and the fund commenced operations on October 2, 1986. The rates of return below show the adjusted actual investment experience of each portfolio for the periods shown. The 53 illustrations of cash values and net surrender values below depict these Policy values as if you had purchased the Policy without the Guaranteed Minimum Death Benefit rider on the last valuation date prior to January 1, 1987. The illustrations are based on the historical investment experience of the portfolio indicated as of the last valuation date prior to January 1 of the year after the portfolio began operations. We assumed the rate of return for each portfolio in each calendar year to be uniformly earned throughout the year; however, the portfolio's actual performance did and will vary throughout the year. In order to demonstrate how the actual investment experience of the portfolios could have affected the cash value and net surrender value of the Policy, we provide hypothetical illustrations using the actual investment experience of each portfolio. THESE HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE RESULTED IF THE HYPOTHETICAL OWNER COULD HAVE HELD THE POLICY DURING THE PERIOD ILLUSTRATED. These illustrations do not represent what may happen in the future. The amounts we show for cash values and net surrender values take into account all charges and deductions from the Policy, the separate account, and the portfolios. For each portfolio, we base one illustration on the guaranteed cost of insurance rates and one on the current cost of insurance rates for a single life Policy for a hypothetical male insured age 35. The insured's age, gender and rate class, amount and timing of premium payments, withdrawals, and loans would affect individual Policy benefits. For each portfolio, the illustrations below show the death benefit without the Guaranteed Minimum Death Benefit rider based on an initial premium of $30,000 and a specified amount of $147,487 for a male age 35, select, non-tobacco use, rate class. The following example shows how the hypothetical net return of the WRL Alger Aggressive Growth portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL ALGER AGGRESSIVE GROWTH Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $40,383 $40,157 $37,458 $37,232 1997* ................................... 43,501 43,063 40,651 40,213 1998* ................................... 52,714 51,973 49,939 49,198 1999* ................................... 76,445 75,134 73,745 72,434
* For each year shown, benefits and values reflect only single premium paid. 54 The following example shows how the hypothetical net return of the WRL VKAM Emerging Growth portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1994. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL VKAM EMERGING GROWTH Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $27,106 $26,916 $24,181 $23,991 1996* ................................... 38,806 38,284 35,956 35,434 1997* ................................... 44,994 44,171 42,219 41,396 1998* ................................... 53,294 52,099 50,594 49,399 1999* ................................... 71,377 69,542 68,977 67,142
* For each year shown, benefits and values reflect only single premium paid. The following example shows how the hypothetical net return of the WRL Janus Growth portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1987. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL JANUS GROWTH Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $ 32,449 $ 32,244 $ 29,524 $ 29,319 1989* ................................... 37,540 37,086 34,690 34,236 1990* ................................... 53,833 52,943 51,058 50,168 1991* ................................... 52,386 51,333 49,686 48,633 1992* ................................... 81,639 79,728 79,239 77,328 1993* ................................... 81,493 79,313 79,393 77,213 1994* ................................... 82,634 80,140 80,834 78,340 1995* ................................... 73,893 71,405 72,693 70,205 1996* ................................... 106,021 102,074 105,421 101,474 1997* ................................... 121,971 116,991 121,971 116,991 1998* ................................... 141,225 134,943 141,225 134,943 1999* ................................... 228,814 217,783 228,814 217,783
* For each year shown, benefits and values reflect only single premium paid. 55 The following example shows how the hypothetical net return of the WRL Janus Global portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1993. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL JANUS GLOBAL Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $39,512 $39,289 $36,587 $36,364 1995* ................................... 38,632 38,224 35,782 35,374 1996* ................................... 46,364 45,654 43,589 42,879 1997* ................................... 57,761 56,657 55,061 53,957 1998* ................................... 66,898 65,406 64,498 63,006 1999* ................................... 84,824 82,648 82,724 80,548
* For each year shown, benefits and values reflect only single premium paid. The following example shows how the hypothetical net return of the WRL AEGON Bond portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1987. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL AEGON BOND Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $27,603 $27,411 $24,678 $24,486 1989* ................................... 29,001 28,583 26,151 25,733 1990* ................................... 32,429 31,726 29,654 28,951 1991* ................................... 33,592 32,629 30,892 29,929 1992* ................................... 38,938 37,561 36,538 35,161 1993* ................................... 40,556 38,866 38,456 36,766 1994* ................................... 44,844 42,697 43,044 40,897 1995* ................................... 40,699 38,481 39,499 37,281 1996* ................................... 48,820 45,826 48,220 45,226 1997* ................................... 47,680 44,446 47,680 44,446 1998* ................................... 51,270 47,442 51,270 47,442 1999* ................................... 55,211 50,722 55,211 50,722
* For each year shown, benefits and values reflect only single premium paid. 56 The following example shows how the hypothetical net return of the WRL LKCM Strategic Total Return portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1994. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL LKCM STRATEGIC TOTAL RETURN Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $29,103 $28,907 $26,178 $25,982 1996* ................................... 35,383 34,917 32,533 32,067 1997* ................................... 39,687 38,942 36,912 36,167 1998* ................................... 47,163 46,046 44,463 43,346 1999* ................................... 50,430 49,014 48,030 46,614
* For each year shown, benefits and values reflect only single premium paid. The following example shows how the hypothetical net return of the WRL Federated Growth & Income portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL FEDERATED GROWTH & INCOME Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $36,645 $36,429 $33,720 $33,504 1997* ................................... 39,899 39,460 37,049 36,610 1998* ................................... 48,506 47,754 45,731 44,979 1999* ................................... 48,747 47,792 46,047 45,092
* For each year shown, benefits and values reflect only single premium paid. 57 The following example shows how the hypothetical net return of the WRL J.P. Morgan Money Market portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1987. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL J.P. MORGAN MONEY MARKET Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $30,593 $30,393 $27,668 $27,468 1989* ................................... 31,558 31,142 28,708 28,292 1990* ................................... 33,269 32,606 30,494 29,831 1991* ................................... 34,745 33,819 32,045 31,119 1992* ................................... 35,664 34,468 33,264 32,068 1993* ................................... 35,835 34,373 33,735 32,273 1994* ................................... 35,806 34,067 34,006 32,267 1995* ................................... 36,121 34,065 34,921 32,865 1996* ................................... 37,130 34,688 36,530 34,088 1997* ................................... 38,031 35,180 38,031 35,180 1998* ................................... 39,426 36,093 39,426 36,093 1999* ................................... 40,880 37,018 40,880 37,018
* For each year shown, benefits and values reflect only single premium paid. The following example shows how the hypothetical net return of the WRL Dean Asset Allocation portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL DEAN ASSET ALLOCATION Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $35,137 $34,924 $32,212 $31,999 1997* ................................... 39,210 38,765 36,360 35,915 1998* ................................... 44,586 43,866 41,811 41,091 1999* ................................... 47,107 46,135 44,407 43,435
* For each year shown, benefits and values reflect only single premium paid. 58 The following example shows how the hypothetical net return of the WRL GE U.S. Equity portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1997. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL GE U.S. EQUITY Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $37,160 $36,942 $34,235 $34,017 1999* ................................... 44,531 44,060 41,681 41,210
* For each year shown, benefits and values reflect only single premium paid. The following example shows how the hypothetical net return of the WRL Third Avenue Value portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1998. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL THIRD AVENUE VALUE Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $27,256 $27,065 $24,331 $24,140
59 The following example shows how the hypothetical net return of the WRL AEGON Balanced portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1995. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL AEGON BALANCED Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $35,051 $34,839 $32,126 $31,914 1997* ................................... 37,851 37,416 35,001 34,566 1998* ................................... 43,226 42,512 40,451 39,737 1999* ................................... 45,081 44,123 42,381 41,423
* For each year shown, benefits and values reflect only single premium paid. The following example shows how the hypothetical net return of the WRL NWQ Value Equity portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1997. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL NWQ VALUE EQUITY Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $36,583 $36,367 $33,658 $33,442 1999* ................................... 33,972 33,581 31,122 30,731
* For each year shown, benefits and values reflect only single premium paid. 60 The following example shows how the hypothetical net return of the WRL C.A.S.E. Growth portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1996. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL C.A.S.E. GROWTH Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $34,378 $34,168 $31,453 $31,243 1998* ................................... 38,566 38,120 35,716 35,270 1999* ................................... 38,542 37,891 35,767 35,116
* For each year shown, benefits and values reflect only single premium paid. The following example shows how the hypothetical net return of the WRL GE/Scottish Equitable International Equity portfolio would have affected benefits for a Policy dated on the last valuation date prior to January 1, 1997. This example assumes that the premium and cash values were in the portfolio for the entire period and that the values were determined on each Policy anniversary thereafter. WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY Male Issue Age 35, $30,000 Single Premium ($147,487 Specified Amount, Select, Non-Tobacco Use Class) 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 .................................... $31,452 $31,250 $28,527 $28,325 1999* ................................... 34,618 34,181 31,768 31,331
* For each year shown, benefits and values reflect only single premium paid. Because the WRL J.P. Morgan Real Estate Securities portfolio did not commence operations until May 1, 1998 and the 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 portfolios did not commence operations until May 1, 1999, there are no hypothetical illustrations for these portfolios. 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); 61 --> 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. 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 NE, 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 maximum sales commission payable to Western Reserve agents or other registered representatives will be approximately 7.65% of the initial premium. 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 62 Policy have been passed upon by Thomas E. Pierpan, Vice President, Assistant Secretary and Associate General Counsel of Western Reserve. LEGAL PROCEEDINGS Like other life insurance companies, we are involved in lawsuits. We are not aware of any class action lawsuits naming us as a defendant or involving the separate account. In some lawsuits involving other insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, we believe that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse impact on us, or AFSG, or the separate account. VARIATIONS IN POLICY PROVISIONS Certain provisions of the Policy may vary from the descriptions in this prospectus in order to comply with different state laws. These variations may include restrictions on Policy reinstatement, 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. YEAR 2000 READINESS DISCLOSURE In May 1996, Western Reserve adopted and presently has in place a Year 2000 Project Plan (the "Plan") to review and analyze existing hardware and software systems, as well as voice and data communications systems, to determine if they are Year 2000 compliant. As of March 1, 1999, substantially all of Western Reserve's mission-critical systems are Year 2000 compliant. The Plan remains on track as we continue with the validation of our mission-critical and non-mission-critical systems, including revalidation testing in 1999. In addition, we have undertaken aggressive initiatives to test all systems that interface with any third parties and other business partners. All of these steps are aimed at allowing current operations to remain unaffected by the Year 2000 date change. As of the date of this prospectus, Western Reserve has identified and made available what it believes are the appropriate resources of hardware, people, and dollars, including the engagement of outside third parties, to ensure that the Plan will be completed. The actions taken by management under the Plan are intended to reduce significantly Western Reserve's risk of a material business interruption based on the Year 2000 issues. It should be noted that the Year 2000 computer problem, and its resolution, is complex and multifaceted, and any company's success cannot be conclusively known until the Year 2000 is reached. In spite of its efforts or results, our ability to function unaffected to and through the Year 2000 may be adversely affected by actions, or failure to act, of third parties beyond our knowledge or control. This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C. Section 1 (1998). 63 EXPERTS The financial statements of WRL Series Life Account as of December 31, 1998 and for the year then ended have been included herein in reliance upon the report of PricewaterhouseCoopers LLP, independent accountants, and upon the authority of that firm as experts in accounting and auditing. The statutory-basis financial statements and schedules of Western Reserve at December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, 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 accountants. The financial statements and schedules referred to above are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. Actuarial matters included in this prospectus have been examined by Alan Yaeger as stated in the opinion filed as an exhibit to the registration statement. FINANCIAL STATEMENTS Our financial statements appear on the following pages. Our financial statements should be distinguished from the separate account's financial statements and you should consider our financial statements only as bearing upon our ability to meet our obligations under the Policies. Our financial statements as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, have been prepared on the basis of statutory accounting principles rather than generally accepted accounting principles. 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 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. 64 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, Chairman of the Board, and 570 Carillon Parkway Chief Executive Officer President of WRL Series Fund, St. Petersburg, Florida 33716 and President 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). Patrick S. Baird Director Executive Vice President (1995 - 4333 Edgewood Road, NE present), Chief Operating Officer Cedar Rapids, Iowa 52499 (1996 - present), Chief Financial Officer (1992 - 1995), Vice President and Chief Tax Officer (1984 - 1995) 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).
65 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, WRL Actuary and Chief Series Fund, Inc. (1993 - Financial Officer present); Director of WRL Investment Management, Inc. (1996 - present); Director of WRL Investment Services, Inc. (1996 - present). William H. Geiger* Senior Vice President, Senior Vice President, Secretary, Secretary and Corporate Counsel Corporate Counsel, and Group Vice 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, Bankers United Life Assurance Company, Life Investors Insurance Company of America, Monumental Life Insurance Company and Western Reserve 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 and Controller (1987 - 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 U.S. Holding Corporation ("AEGON U.S.") in the amount of $10 million covering all of the employees of 66 AEGON U.S. 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 representative of AFSG Securities Corporation to a limit of $10 million. ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT Western Reserve established the separate account as a separate investment account under Ohio law in 1985. We own the assets in the separate account and are obligated to pay all benefits under the Policies. The separate account is used to support other life insurance policies of Western Reserve and its affiliates, AUSA Life Insurance Company, Inc. and Western Reserve Life Insurance Company, as well as for other purposes permitted by law. The separate account is registered with the SEC as an unit investment trust under the 1940 Act and qualifies as a "separate account" within the meaning of the federal securities laws. 67 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 single premium was paid and the return on the assets in the subaccounts was 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 initial premium indicated and you do not take any partial 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 70 on a Policy for an insured who is a 35 year old male in the select, non-tobacco use rate class, initial premium of $30,000 and a $147,487 initial specified amount and the Policy's death benefit without the Guaranteed Minimum Death Benefit rider. The illustration on that page also assumes cost of insurance charges based on our CURRENT cost of insurance rates. The illustration on page 71 is based on the same factors as those on page 70, except that cost of insurance rates are based on the GUARANTEED cost of insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality Table). We based the illustration on page 72 on a Policy for joint insureds who are a 55 year old male and a 55 year old female in the select, non-tobacco use rate class, initial premium of $30,000, a $109,579 initial specified amount and the Policy's death benefit without the Guaranteed Minimum Death Benefit rider. The illustration on that page also assumes cost of insurance charges based on our CURRENT cost of insurance rates. The illustration on page 73 is based on the same factors as those on page 72, 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 0.50% 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 cash value charges using the current monthly Policy charge. The 0.94% average portfolio expense level assumes an equal allocation of amounts among the 23 subaccounts. It is based on an average 0.80% investment advisory fee and estimated 1999 average normal operating expenses of 0.14% for each of the portfolios in operation during 1998. We used actual annual audited expenses incurred during 1998 for the following portfolios to calculate the average annual expense level: WRL J.P. Morgan Money Market (0.46%), WRL AEGON Bond (0.54%), WRL Janus Growth (0.83%), WRL LKCM Strategic Total Return (0.86%), 68 WRL VKAM Emerging Growth (0.89%), WRL Janus Global (0.95%), WRL Alger Aggressive Growth (0.91%), WRL AEGON Balanced (0.91%), WRL Federated Growth & Income (0.90%), WRL C.A.S.E. Growth (1.00%), WRL Dean Asset Allocation (0.86%), WRL NWQ Value Equity (0.89%), WRL GE/Scottish Equitable International Equity (1.50%), WRL GE U.S. Equity (1.05%), WRL Third Avenue Value (1.00%), and WRL J.P. Morgan Real Estate Securities (1.00%). Because the portfolios of 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 had not commenced operations as of December 31, 1998, the estimated average annual portfolio expense level reflects estimated expenses for each of these portfolios at 1.00% for 1999. During 1998, WRL Management undertook to pay normal operating expenses of certain portfolios that exceeded a certain stated percentage of those portfolios' average daily net assets. WRL Management has undertaken until at least April 30, 2000 to pay expenses to the extent normal operating expenses of certain portfolios of the fund exceed a stated percentage of the portfolio's average daily net assets. See the Portfolio Annual Expense Table p. 13. Taking into account the assumed charges of 1.44%, the gross annual investment return rates of 0%, 6% and 12% are equivalent to net annual investment return rates of - -1.44%, 4.56%, and 10.56%. The hypothetical returns shown in the tables are without any tax charges that may be attributable to the separate account, 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 plan features. 69 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 35 Initial Specified Amount $147,487 Select, Non-Tobacco Use Class Initial Premium $30,000 Death Benefit Without Rider Using Current Cost of Insurance Rates
DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS AND NET END OF PREMIUMS ANNUAL INVESTMENT RETURN OF POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS) YEAR AT 5% -1.44% (NET) 4.56 (NET) 10.56% (NET) 1 31,500 147,487 147,487 147,487 2 33,075 147,487 147,487 147,487 3 34,729 147,487 147,487 147,487 4 36,465 147,487 147,487 147,487 5 38,288 147,487 147,487 147,487 6 40,203 147,487 147,487 147,487 7 42,213 147,487 147,487 147,487 8 44,324 147,487 147,487 147,487 9 46,540 147,487 147,487 147,487 10 48,867 147,487 147,487 148,773 15 62,368 147,487 147,487 201,127 20 79,599 147,487 147,487 259,778 25 101,591 147,487 147,487 348,397 30 129,658 147,487 147,487 498,421 35 165,480 147,487 147,487 744,664 40 211,200 147,487 147,487 1,079,326 45 269,550 147,487 147,487 1,664,273 50 344,022 147,487 160,646 2,615,116 55 439,069 147,487 190,974 4,109,200 60 560,376 147,487 218,378 6,210,918 65 715,197 147,487 257,035 9,662,751
END OF CASH VALUE NET SURRENDER VALUE POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.44% (NET) 4.56% (NET) 10.56% (NET) -1.44% (NET) 4.56% (NET) 10.56% (NET) 1 28,982 30,746 32,511 26,057 27,821 29,586 2 27,999 31,511 35,231 25,149 28,661 32,381 3 27,049 32,295 38,180 24,274 29,520 35,405 4 26,131 33,099 41,375 23,431 30,399 38,675 5 25,244 33,922 44,838 22,844 31,522 42,438 6 24,388 34,766 48,590 22,288 32,666 46,490 7 23,560 35,631 52,657 21,760 33,831 50,857 8 22,761 36,518 57,064 21,561 35,318 55,864 9 21,988 37,426 61,839 21,388 36,826 61,239 10 21,242 38,357 67,015 21,242 38,357 67,015 15 18,792 45,599 105,302 18,792 45,599 105,302 20 16,625 54,207 165,464 16,625 54,207 165,464 25 14,708 64,441 259,998 14,708 64,441 259,998 30 13,011 76,606 408,541 13,011 76,606 408,541 35 11,511 91,068 641,952 11,511 91,068 641,952 40 10,183 108,261 1,008,716 10,183 108,261 1,008,716 45 9,009 128,699 1,585,022 9,009 128,699 1,585,022 50 7,970 152,996 2,490,587 7,970 152,996 2,490,587 55 7,050 181,880 3,913,524 7,050 181,880 3,913,524 60 6,237 216,216 6,149,423 6,237 216,216 6,149,423 65 5,518 257,035 9,662,751 5,518 257,035 9,662,751
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 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 the 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. 70 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY HYPOTHETICAL ILLUSTRATIONS MALE ISSUE AGE 35 Initial Specified Amount $147,487 Select, Non-Tobacco Use Class Initial Premium $30,000 Death Benefit Without Rider Using Guaranteed Cost of Insurance Rates
DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS AND NET END OF PREMIUMS ANNUAL INVESTMENT RETURN OF POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS) YEAR AT 5% -1.44% (NET) 4.56% (NET) 10.56% (NET) 1 31,500 147,487 147,487 147,487 2 33,075 147,487 147,487 147,487 3 34,729 147,487 147,487 147,487 4 36,465 147,487 147,487 147,487 5 38,288 147,487 147,487 147,487 6 40,203 147,487 147,487 147,487 7 42,213 147,487 147,487 147,487 8 44,324 147,487 147,487 147,487 9 46,540 147,487 147,487 147,487 10 48,867 147,487 147,487 147,487 15 62,368 147,487 147,487 186,395 20 79,599 147,487 147,487 235,585 25 101,591 147,487 147,487 309,462 30 129,658 * 147,487 433,466 35 165,480 * 147,487 631,974 40 211,200 * 147,487 894,098 45 269,550 * * 1,352,671 50 344,022 * * 2,062,772 55 439,069 * * 3,095,757 60 560,376 * * 4,504,749 65 715,197 * * 6,990,489
END OF CASH VALUE NET SURRENDER VALUE POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.44% (NET) 4.56% (NET) -10.56% (NET) -1.44% (NET) 4.56% (NET) 10.56% (NET) 1 28,782 30,541 32,300 25,857 27,616 29,375 2 27,592 31,086 34,787 24,742 28,236 31,937 3 26,427 31,631 37,472 23,652 28,856 34,697 4 25,283 32,176 40,374 22,583 29,476 37,674 5 24,159 32,719 43,509 21,759 30,319 41,109 6 23,051 33,257 46,895 20,951 31,157 44,795 7 21,955 33,798 50,556 20,155 31,989 48,756 8 20,870 34,313 54,513 19,670 33,113 53,313 9 19,793 34,829 58,794 19,193 34,229 58,194 10 18,720 35,332 63,426 18,720 35,332 63,426 15 14,053 39,581 97,589 14,053 39,581 97,589 20 8,437 43,489 150,054 8,437 43,489 150,054 25 692 46,121 230,942 692 46,121 230,942 30 * 45,806 355,300 * 45,806 355,300 35 * 38,955 544,805 * 38,955 544,805 40 * 17,223 835,606 * 17,223 835,606 45 * * 1,288,258 * * 1,288,258 50 * * 1,964,545 * * 1,964,545 55 * * 2,948,340 * * 2,948,340 60 * * 4,460,148 * * 4,460,148 65 * * 6,990,489 * * 6,990,489
*The net surrender value shown would in fact be equal to the cash value since, under the terms of the Policy, the surrender charge will be waived if a cost of insurance charge were to be deducted. 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 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 the 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. 71 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY HYPOTHETICAL ILLUSTRATIONS MALE AND FEMALE ISSUE AGES 55 Initial Specified Amount $109,579 Select, Non-Tobacco Use Class Initial Premium $30,000 Death Benefit Without Rider Using Current Cost of Insurance Rates
DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS AND NET END OF PREMIUMS ANNUAL INVESTMENT RETURN OF POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS) YEAR AT 5% -1.44% (NET) 4.56% (NET) 10.56% (NET) 1 31,500 109,579 109,579 109,579 2 33,075 109,579 109,579 109,579 3 34,729 109,579 109,579 109,579 4 36,465 109,579 109,579 109,579 5 38,288 109,579 109,579 109,579 6 40,203 109,579 109,579 109,579 7 42,213 109,579 109,579 109,579 8 44,324 109,579 109,579 109,579 9 46,540 109,579 109,579 109,579 10 48,867 109,579 109,579 109,579 15 62,368 109,579 109,579 131,676 20 79,599 109,579 109,579 195,687 25 101,591 109,579 109,579 309,384 30 129,658 109,579 109,579 498,457 35 165,480 109,579 113,926 803,079 40 211,200 109,579 133,574 1,244,575 45 269,550 109,579 161,202 1,985,318
END OF CASH VALUE NET SURRENDER VALUE POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.44% (NET) 4.56% (NET) 10.56% (NET) -1.44% (NET) 4.56% (NET) 10.56% (NET) 1 29,128 30,901 32,674 26,203 27,976 29,749 2 28,280 31,828 35,586 25,430 28,978 32,736 3 27,458 32,784 38,758 24,683 30,009 35,983 4 26,659 33,768 42,212 23,959 31,068 39,512 5 25,884 34,782 45,975 23,484 32,382 43,575 6 25,131 35,826 50,072 23,031 33,726 47,972 7 24,400 36,902 54,535 22,600 35,102 52,735 8 23,691 38,010 59,396 22,491 36,810 58,196 9 23,002 39,151 64,690 22,402 38,551 64,090 10 22,333 40,327 70,456 22,333 40,327 70,456 15 20,258 49,154 113,513 20,258 49,154 113,513 20 18,375 59,914 182,885 18,375 59,914 182,885 25 16,668 73,029 294,651 16,668 73,029 294,651 30 15,119 89,015 474,721 15,119 89,015 474,721 35 13,714 108,501 764,837 13,714 108,501 764,837 40 12,440 132,252 1,232,252 12,440 132,252 1,232,252 45 11,284 161,202 1,985,318 11,284 161,202 1,985,318
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 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 the 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. 72 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY HYPOTHETICAL ILLUSTRATIONS MALE AND FEMALE ISSUE AGES 55 Initial Specified Amount $109,579 Select, Non-Tobacco Use Class Initial Premium $30,000 Death Benefit Without Rider Using Guaranteed Cost of Insurance Rates
DEATH BENEFIT ASSUMING HYPOTHETICAL GROSS AND NET END OF PREMIUMS ANNUAL INVESTMENT RETURN OF POLICY ACCUMULATED 0% (GROSS) 6% (GROSS) 12% (GROSS) YEAR AT 5% -1.44% (NET) 4.56% (NET) 10.56% (NET) 1 31,500 109,579 109,579 109,579 2 33,075 109,579 109,579 109,579 3 34,729 109,579 109,579 109,579 4 36,465 109,579 109,579 109,579 5 38,288 109,579 109,579 109,579 6 40,203 109,579 109,579 109,579 7 42,213 109,579 109,579 109,579 8 44,324 109,579 109,579 109,579 9 46,540 109,579 109,579 109,579 10 48,867 109,579 109,579 109,579 15 62,368 109,579 109,579 129,286 20 79,599 109,579 109,579 190,662 25 101,591 * 109,579 289,689 30 129,658 * 109,579 471,977 35 165,480 * * 733,089 40 211,200 * * 1,098,188 45 269,550 * * 1,749,590
END OF CASH VALUE NET SURRENDER VALUE POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF 0% (GROSS) 6% (GROSS) 12% (GROSS) 0% (GROSS) 6% (GROSS) 12% (GROSS) -1.44% (NET) 4.56% (NET) 10.56% (NET) -1.44% (NET) 4.56% (NET) 10.56% (NET) 1 29,123 30,897 32,670 26,198 27,972 29,745 2 28,263 31,810 35,568 25,413 28,960 32,718 3 27,415 32,740 38,713 24,640 29,965 35,938 4 26,577 33,684 42,128 23,877 30,984 39,428 5 25,745 34,641 45,833 23,345 32,241 43,433 6 24,915 35,606 49,854 22,815 33,506 47,754 7 24,081 36,578 54,219 22,281 34,778 52,419 8 23,237 37,550 58,596 22,037 36,350 57,756 9 22,372 38,516 64,099 21,772 37,916 63,499 10 21,476 39,469 69,684 21,476 39,469 69,684 15 17,010 46,050 111,453 17,010 46,050 111,453 20 8,481 51,207 178,188 8,481 51,207 178,188 25 * 50,929 284,465 * 50,929 284,465 30 * 34,540 449,502 * 34,540 449,502 35 * * 698,180 * * 698,180 40 * * 1,087,315 * * 1,087,315 45 * * 1,749,590 * * 1,749,590
*The net surrender value shown would in fact be equal to the cash value since, under the terms of the Policy, the surrender charge will be waived if a cost of insurance charge were to be deducted. 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 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 the 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. 73 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 1998. 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 73-year period: investments of $1.00 in these assets would have grown to $2,350.89 and $5,116.65, respectively, by year-end 1998. 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 $44.18. The lowest-risk strategy over the past 73 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 - 1998 period. 74 [GRAPHIC OMITTED] COMPOUND ANNUAL RATES OF RETURN BY DECADE
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s** 1989-98 Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 17.9% 19.2% Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 13.6 13.2 Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 10.3 10.9 Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 11.0 11.7 Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 8.3 8.7 Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 5.0 5.3 Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 3.0 3.1
- ---------------- * Based on the period 1926-1929. ** Based on the period 1990-1998. Used with permission. /copyright/1999 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from copyrighted works of Roger G. Ibbotson and Rex Sinquefield.] 75 APPENDIX C SURRENDER CHARGE TABLE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MALE (SINGLE LIFE)
YEAR ------------------------------------------------------------------------------------------------ AGE 1 2 3 4 5 6 7 8 9 10+ - ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ 0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00% 75 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.84% 4.00% 2.00% 0.00% 76 9.75% 9.50% 9.25% 9.00% 8.00% 6.69% 5.49% 4.00% 2.00% 0.00% 77 9.75% 9.50% 9.25% 9.00% 7.89% 6.30% 5.18% 4.00% 2.00% 0.00% 78 9.75% 9.50% 9.25% 9.00% 7.44% 5.95% 4.89% 4.00% 2.00% 0.00% 79 9.75% 9.50% 9.25% 9.00% 7.03% 5.61% 4.62% 3.87% 2.00% 0.00% 80 9.75% 9.50% 9.25% 8.65% 6.64% 5.31% 4.36% 3.66% 2.00% 0.00% 81 9.75% 9.50% 9.25% 8.18% 6.28% 5.02% 4.12% 3.46% 2.00% 0.00% 82 9.75% 9.50% 9.25% 7.74% 6.94% 4.75% 3.90% 3.26% 2.00% 0.00% 83 9.75% 9.50% 9.25% 7.33% 5.62% 4.49% 3.68% 3.07% 2.00% 0.00% 84 9.75% 9.50% 9.25% 6.94% 5.32% 4.24% 3.47% 2.88% 2.00% 0.00% 85 9.75% 9.50% 9.15% 6.58% 5.03% 4.00% 3.25% 2.67% 2.00% 0.00% 86 9.75% 9.50% 8.68% 6.22% 4.75% 3.75% 3.02% 2.46% 1.99% 0.00% 87 9.75% 9.50% 8.21% 5.87% 4.46% 3.49% 2.78% 2.22% 1.76% 0.00% 88 9.75% 9.50% 7.75% 5.52% 4.15% 3.21% 2.51% 1.96% 1.51% 0.00% 89 9.75% 9.50% 7.28% 5.14% 3.82% 2.90% 2.22% 1.68% 1.25% 0.00% 90 9.75% 9.50% 6.78% 4.72% 3.45% 2.56% 1.90% 1.39% 0.99% 0.00%
FEMALE (SINGLE LIFE)
YEAR ------------------------------------------------------------------------------------------------ AGE 1 2 3 4 5 6 7 8 9 10+ - ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ 0-78 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00% 79 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 5.75% 4.00% 2.00% 0.00% 80 9.75% 9.50% 9.25% 9.00% 8.00% 6.56% 5.32% 4.00% 2.00% 0.00% 81 9.75% 9.50% 9.25% 9.00% 7.70% 6.08% 4.93% 4.00% 2.00% 0.00% 82 9.75% 9.50% 9.25% 9.00% 7.14% 5.63% 4.56% 3.77% 2.00% 0.00% 83 9.75% 9.50% 9.25% 8.75% 6.62% 5.22% 4.22% 3.47% 2.00% 0.00% 84 9.75% 9.50% 9.25% 8.13% 6.15% 4.83% 3.89% 3.18% 2.00% 0.00% 85 9.75% 9.50% 9.25% 7.55% 5.69% 4.46% 3.57% 2.90% 2.00% 0.00% 86 9.75% 9.50% 9.25% 7.00% 5.26% 4.10% 3.26% 2.62% 2.00% 0.00% 87 9.75% 9.50% 9.19% 6.48% 4.84% 3.75% 2.95% 2.33% 1.84% 0.00% 88 9.75% 9.50% 8.51% 5.97% 4.43% 3.39% 2.63% 2.03% 1.55% 0.00% 89 9.75% 9.50% 7.84% 5.46% 4.01% 3.02% 2.29% 1.72% 1.27% 0.00% 90 9.75% 9.50% 7.18% 4.95% 3.58% 2.64% 1.94% 1.41% 1.01% 0.00%
76 JOINT AND LAST SURVIVOR PLAN: AGE IS BASED ON THE OLDER OF THE INSUREDS
YEAR ------------------------------------------------------------------------------------------------ AGE 1 2 3 4 5 6 7 8 9 10+ - ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ 0-74 9.75% 9.50% 9.25% 9.00% 8.00% 7.00% 6.00% 4.00% 2.00% 0.00% 75 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00% 76 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00% 77 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00% 78 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00% 79 9.75% 9.50% 9.25% 9.00% 7.25% 5.00% 3.50% 2.50% 1.75% 0.00% 80 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00% 81 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00% 82 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00% 83 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00% 84 9.75% 9.50% 9.25% 6.75% 4.25% 2.75% 1.75% 1.00% 0.75% 0.00% 85 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00% 86 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00% 87 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00% 88 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00% 89 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00% 90 9.75% 9.50% 6.50% 3.50% 1.75% 1.00% 0.50% 0.00% 0.00% 0.00%
Surrender charge percentages not interpolated for off-anniversary surrenders. 77 INDEX TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WRL SERIES LIFE ACCOUNT: Statement of Assets and Liabilities at March 31, 1999 (unaudited). Statement of Operations for the period ended March 31, 1999 (unaudited). Statement of Changes in Net Assets for the periods ended March 31, 1999 and December 31, 1998 (unaudited). Financial Highlights for the period ended March 31, 1999, and for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 (unaudited). Notes to the Financial Statements (unaudited). Report of Independent Accountants dated January 29, 1999. Statement of Assets and Liabilities at December 31, 1998. Statement of Operations for the year ended December 31, 1998. Statement of Changes in Net Assets for the years ended December 31, 1998 and 1997. Financial Highlights for the years ended December 31, 1998, 1997, 1996, 1995 and 1994. Notes to the Financial Statements. WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Statutory-Basis Balance Sheet as of March 31, 1999 (unaudited). Statutory-Basis Statement of Operations for the three months ended March 31, 1999 (unaudited). Statutory-Basis Statement of Changes in Capital and Surplus for the three months ended March 31, 1999 (unaudited). Statutory-Basis Statement of Cash Flows for the three months ended March 31, 1999 (unaudited). Notes to Statutory-Basis Financial Statements for the three months ended March 31, 1999 (unaudited). Report of Independent Auditors dated February 19, 1999. Statutory-Basis Balance Sheets at December 31, 1998 and 1997. Statutory-Basis Statements of Operations for the years ended December 31, 1998, 1997 and 1996. Statutory-Basis Statements of Changes in Capital and Surplus for the years ended December 31, 1998, 1997 and 1996. Statutory-Basis Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996. Notes to Statutory-Basis Financial Statements. Statutory-Basis Financial Statement Schedules. 78 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT MARCH 31, 1999 ALL AMOUNTS (EXCEPT PER UNIT VALUES) IN THOUSANDS (UNAUDITED)
MONEY MARKET BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 34,643 2,221 13,545 ======= ======= ======== Cost ............................................... $34,643 $25,388 $444,200 ======= ======= ======== Investment, at net asset value ...................... $34,643 $25,309 $950,951 Transfers receivable from depositor ................. 0 112 81 ------- ------- -------- Total assets ....................................... 34,643 25,421 951,032 ------- ------- -------- LIABILITIES: Accrued expenses .................................... 1 1 23 Transfers payable to depositor ...................... 413 0 0 ------- ------- -------- Total liabilities .................................. 414 1 23 ------- ------- -------- Net assets ......................................... $34,229 $25,420 $951,009 ======= ======= ======== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $34,229 $25,420 $951,009 Depositor's equity .................................. 0 0 0 ------- ------- -------- Net assets applicable to units outstanding ......... $34,229 $25,420 $951,009 ======= ======= ======== Policy Owners' units ................................ 2,016 1,128 8,838 Depositor's units ................................... 0 0 0 ------- ------- -------- Units outstanding .................................. 2,016 1,128 8,838 ======= ======= ======== Accumulation unit value ............................ $ 16.98 $ 22.55 $ 107.60 ======= ======= ========
STRATEGIC EMERGING GLOBAL TOTAL RETURN GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 10,137 5,991 9,998 ======== ======== ======== Cost ............................................... $197,731 $ 81,847 $186,771 ======== ======== ======== Investment, at net asset value ...................... $258,693 $100,586 $307,394 Transfers receivable from depositor ................. 0 0 0 -------- -------- -------- Total assets ....................................... 258,693 100,586 307,394 -------- -------- -------- LIABILITIES: Accrued expenses .................................... 6 2 8 Transfers payable to depositor ...................... 25 67 631 -------- -------- -------- Total liabilities .................................. 31 69 639 -------- -------- -------- Net assets ......................................... $258,662 $100,517 $306,755 ======== ======== ======== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $258,662 $100,517 $306,755 Depositor's equity .................................. 0 0 0 -------- -------- -------- Net assets applicable to units outstanding ......... $258,662 $100,517 $306,755 ======== ======== ======== Policy Owners' units ................................ 10,498 4,790 8,423 Depositor's units ................................... 0 0 0 -------- -------- -------- Units outstanding .................................. 10,498 4,790 8,423 ======== ======== ======== Accumulation unit value ............................ $ 24.64 $ 20.98 $ 36.42 ======== ======== ========
AGGRESSIVE GROWTH & GROWTH BALANCED INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 8,258 1,246 1,331 ======== ======= ======= Cost ............................................... $136,560 $14,735 $16,536 ======== ======= ======= Investment, at net asset value ...................... $210,085 $16,019 $15,034 Transfers receivable from depositor ................. 1,101 0 3 -------- ------- ------- Total assets ....................................... 211,186 16,019 15,037 -------- ------- ------- LIABILITIES: Accrued expenses .................................... 5 0 0 Transfers payable to depositor ...................... 0 3 0 -------- ------- ------- Total liabilities .................................. 5 3 0 -------- ------- ------- Net assets ......................................... $211,181 $16,016 $15,037 ======== ======= ======= NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $211,181 $16,016 $15,037 Depositor's equity .................................. 0 0 0 -------- ------- ------- Net assets applicable to units outstanding ......... $211,181 $16,016 $15,037 ======== ======= ======= Policy Owners' units ................................ 7,000 1,043 996 Depositor's units ................................... 0 0 0 -------- ------- ------- Units outstanding .................................. 7,000 1,043 996 ======== ======= ======= Accumulation unit value ............................ $ 30.17 $ 15.36 $ 15.09 ======== ======= =======
TACTICAL ASSET ALLOCATION SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 2,998 ======= Cost ............................................... $39,233 ======= Investment, at net asset value ...................... $39,380 Transfers receivable from depositor ................. 0 ------- Total assets ....................................... 39,380 ------- LIABILITIES: Accrued expenses .................................... 1 Transfers payable to depositor ...................... 40 ------- Total liabilities .................................. 41 ------- Net assets ......................................... $39,339 ======= NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $39,339 Depositor's equity .................................. 0 ------- Net assets applicable to units outstanding ......... $39,339 ======= Policy Owners' units ................................ 2,394 Depositor's units ................................... 0 ------- Units outstanding .................................. 2,394 ======= Accumulation unit value ............................ $ 16.43 =======
See notes to the financial statements. 79 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT MARCH 31, 1999 ALL AMOUNTS (EXCEPT PER UNIT VALUES) IN THOUSANDS (UNAUDITED)
C.A.S.E. INTERNATIONAL U.S. THIRD AVENUE GROWTH VALUE EQUITY EQUITY EQUITY VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 1,423 1,990 533 1,170 312 ======= ======= ====== ======= ====== Cost ............................................... $20,167 $26,936 $6,257 $16,011 $2,980 ======= ======= ====== ======= ====== Investment, at net asset value ...................... $21,093 $24,577 $6,450 $17,747 $2,628 Transfers receivable from depositor ................. 0 0 0 45 0 ------- ------- ------ ------- ------ Total assets ....................................... 21,093 24,577 6,450 17,792 2,628 ------- ------- ------ ------- ------ LIABILITIES: Accrued expenses .................................... 1 1 0 0 0 Transfers payable to depositor ...................... 0 17 230 0 2 ------- ------- ------ ------- ------ Total liabilities .................................. 1 18 230 0 2 ------- ------- ------ ------- ------ Net assets ......................................... $21,092 $24,559 $6,220 $17,792 $2,626 ======= ======= ====== ======= ====== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $21,092 $24,559 $6,220 $17,792 $2,459 Depositor's equity .................................. 0 0 0 0 167 ------- ------- ------ ------- ------ Net assets applicable to units outstanding ......... $21,092 $24,559 $6,220 $17,792 $2,626 ======= ======= ====== ======= ====== Policy Owners' units ................................ 1,481 1,835 522 1,105 294 Depositor's units ................................... 0 0 0 0 20 ------- ------- ------ ------- ------ Units outstanding .................................. 1,481 1,835 522 1,105 314 ======= ======= ====== ======= ====== Accumulation unit value ............................ $ 14.25 $ 13.38 $11.92 $ 16.09 $ 8.35 ======= ======= ====== ======= ======
REAL ESTATE SECURITIES SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 66 ===== Cost ............................................... $ 603 ===== Investment, at net asset value ...................... $ 541 Transfers receivable from depositor ................. 0 ----- Total assets ....................................... 541 ----- LIABILITIES: Accrued expenses .................................... 0 Transfers payable to depositor ...................... 0 ----- Total liabilities .................................. 0 ----- Net assets ......................................... $ 541 ===== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $ 216 Depositor's equity .................................. 325 ----- Net assets applicable to units outstanding ......... $ 541 ===== Policy Owners' units ................................ 27 Depositor's units ................................... 40 ----- Units outstanding .................................. 67 ===== Accumulation unit value ............................ $8.12 =====
See notes to the financial statements. 80 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1999 ALL AMOUNTS IN THOUSANDS (UNAUDITED)
MONEY MARKET BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 337 $ 0 $ 0 Capital gain distributions .............................................. 0 0 0 ------ ------ -------- Total investment income ................................................ 337 0 0 EXPENSES: Mortality and expense risk .............................................. 66 56 1,895 ------ ------ -------- Net investment income (loss) ........................................... 271 (56) (1,895) ------ ------ -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities....................... 0 167 5,428 Change in unrealized appreciation (depreciation) ....................... 0 (481) 132,715 ------ ------ -------- Net gain (loss) on investment securities ............................... 0 (314) 138,143 ------ ------ -------- Net increase (decrease) in net assets resulting from operations ....... $ 271 $ (370) $136,248 ====== ====== ========
STRATEGIC EMERGING GLOBAL TOTAL RETURN GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 0 $ 0 $ 0 Capital gain distributions .............................................. 0 0 0 ------- ------ -------- Total investment income ................................................ 0 0 0 EXPENSES: Mortality and expense risk .............................................. 544 220 614 ------- ------ -------- Net investment income (loss) ........................................... (544) (220) (614) ------- ------ -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities....................... 1,018 609 2,964 Change in unrealized appreciation (depreciation) ....................... 17,080 1,719 34,927 ------- ------ -------- Net gain (loss) on investment securities ............................... 18,098 2,328 37,891 ------- ------ -------- Net increase (decrease) in net assets resulting from operations ....... $17,554 $2,108 $ 37,277 ======= ====== ========
AGGRESSIVE GROWTH BALANCED GROWTH & INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 0 $ 0 $ 0 Capital gain distributions .............................................. 0 0 0 ------- ------ -------- Total investment income ................................................ 0 0 0 EXPENSES: Mortality and expense risk .............................................. 424 34 35 ------- ------ -------- Net investment income (loss) ........................................... (424) (34) (35) ------- ------ -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities....................... 1,797 90 18 Change in unrealized appreciation (depreciation) ....................... 22,540 293 (1,325) ------- ------ -------- Net gain (loss) on investment securities ............................... 24,337 383 (1,307) ------- ------ -------- Net increase (decrease) in net assets resulting from operations ....... $23,913 $ 349 $ (1,342) ======= ====== ========
TACTICAL ASSET ALLOCATION SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 0 Capital gain distributions .............................................. 0 ------- Total investment income ................................................ 0 EXPENSES: Mortality and expense risk .............................................. 88 ------- Net investment income (loss) ........................................... (88) ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities....................... 172 Change in unrealized appreciation (depreciation) ....................... (826) ------- Net gain (loss) on investment securities ............................... (654) ------- Net increase (decrease) in net assets resulting from operations ....... $ (742) =======
See notes to the financial statements. 81 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1999 ALL AMOUNTS IN THOUSANDS (UNAUDITED)
C.A.S.E. GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 0 $ 0 Capital gain distributions .............................................. 0 0 ------ -------- Total investment income ................................................ 0 0 EXPENSES: Mortality and expense risk .............................................. 44 55 ------ -------- Net investment income (loss) ........................................... (44) (55) ------ -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities....................... 72 71 Change in unrealized appreciation (depreciation) ....................... 2,450 400 ------ -------- Net gain (loss) on investment securities ............................... 2,522 471 ------ -------- Net increase (decrease) in net assets resulting from operations ....... $2,478 $ 416 ====== ========
INTERNATIONAL U.S. THIRD AVENUE EQUITY EQUITY VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 0 $ 0 $ 0 Capital gain distributions .............................................. 0 0 0 ------- ------ -------- Total investment income ................................................ 0 0 0 EXPENSES: Mortality and expense risk .............................................. 14 35 6 ------- ------ -------- Net investment income (loss) ........................................... (14) (35) (6) ------- ------ -------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities....................... (64) 130 (35) Change in unrealized appreciation (depreciation) ....................... 74 668 (249) ------- ------ -------- Net gain (loss) on investment securities ............................... 10 798 (284) ------- ------ -------- Net increase (decrease) in net assets resulting from operations ....... $ (4) $ 763 $ (290) ======= ====== ========
REAL ESTATE SECURITIES SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 0 Capital gain distributions .............................................. 0 ------- Total investment income ................................................ 0 EXPENSES: Mortality and expense risk .............................................. 1 ------- Net investment income (loss) ........................................... (1) ------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investment securities....................... (38) Change in unrealized appreciation (depreciation) ....................... 14 ------- Net gain (loss) on investment securities ............................... (24) ------- Net increase (decrease) in net assets resulting from operations ....... $ (25) =======
See notes to the financial statements. 82 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED ALL AMOUNTS IN THOUSANDS (UNAUDITED)
MONEY MARKET SUB-ACCOUNT March 31, December 31, ------------------------- 1999 1998 ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ 217 $ 919 Net gain (loss) on investment securities .............................. 0 0 ---------- -------- Net increase (decrease) in net assets resulting from operations ....... 217 919 ---------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 11,897 12,763 ---------- -------- Less cost of units redeemed: Administrative charges ............................................... 731 3,123 Policy loans ......................................................... 120 1,163 Surrender benefits ................................................... 1,656 1,250 Death benefits ....................................................... 8 10 ---------- -------- 2,515 5,546 ---------- -------- Increase (decrease) in net assets from capital unit transactions ..... 9,382 7,217 ---------- -------- Net increase (decrease) in net assets ................................ 9,653 8,136 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of period.................................................... 24,576 16,440 ---------- -------- End of period.......................................................... $ 34,229 $ 24,576 ========== ======== UNIT ACTIVITY: Units outstanding - beginning of period................................ 1,460 1,020 Units issued .......................................................... 3,551 11,339 Units redeemed ........................................................ (2,995) (10,899) ---------- -------- Units outstanding - end of period...................................... 2,016 1,460 ========== ========
BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT March 31, December 31, March 31, December 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (56) $ 1,002 $ (1,895) $ 1,103 Net gain (loss) on investment securities .............................. (314) 713 138,143 295,459 ---------- -------- ----------- ---------- Net increase (decrease) in net assets resulting from operations ....... (370) 1,715 136,248 296,562 ---------- -------- ----------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 1,920 9,472 45,286 140,684 ---------- -------- ----------- ---------- Less cost of units redeemed: Administrative charges ............................................... 631 2,292 12,813 44,910 Policy loans ......................................................... 178 594 7,169 18,083 Surrender benefits ................................................... 251 865 8,147 22,312 Death benefits ....................................................... 4 159 423 4,185 ---------- -------- ----------- ---------- 1,064 3,910 28,552 89,490 ---------- -------- ----------- ---------- Increase (decrease) in net assets from capital unit transactions ..... 856 5,562 16,734 51,194 ---------- -------- ----------- ---------- Net increase (decrease) in net assets ................................ 486 7,277 512,982 347,756 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of period.................................................... 24,934 17,657 798,027 450,271 ---------- -------- ---------- ---------- End of period.......................................................... $ 25,420 $ 24,934 $ 951,009 $ 798,027 ========== ======== ========== ========== UNIT ACTIVITY: Units outstanding - beginning of period................................ 1,090 836 8,668 7,972 Units issued .......................................................... 270 1,030 722 2,967 Units redeemed ........................................................ (232) (776) (552) (2,271) ---------- -------- ---------- ---------- Units outstanding - end of period...................................... 1,128 1,090 8,838 8,668 ========== ======== ========== ==========
GLOBAL SUB-ACCOUNT March 31, December 31, ------------------------- 1999 1998 ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (544) $ 7,425 Net gain (loss) on investment securities .............................. 18,098 38,427 ---------- -------- Net increase (decrease) in net assets resulting from operations ....... 17,554 45,852 ---------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 17,388 72,962 ---------- -------- Less cost of units redeemed: Administrative charges ............................................... 5,761 19,369 Policy loans ......................................................... 1,619 4,953 Surrender benefits ................................................... 2,120 5,662 Death benefits ....................................................... 36 591 ---------- -------- 9,536 30,575 ---------- -------- Increase (decrease) in net assets from capital unit transactions ..... 7,852 42,387 ---------- -------- Net increase (decrease) in net assets ................................ 25,406 88,239 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of period.................................................... 233,256 145,017 ---------- -------- End of period.......................................................... $ 258,662 $233,256 ========== ======== UNIT ACTIVITY: Units outstanding - beginning of period................................ 10,167 8,145 Units issued .......................................................... 1,242 5,610 Units redeemed ........................................................ (911) (3,588) ---------- -------- Units outstanding - end of period...................................... 10,498 10,167 ========== ========
STRATEGIC TOTAL RETURN EMERGING GROWTH SUB-ACCOUNT SUB-ACCOUNT March 31, December 31, March 31, December 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (220) $ 3,284 $ (614) $ 6,894 Net gain (loss) on investment securities .............................. 2,328 4,347 37,891 59,514 ---------- -------- ----------- ---------- Net increase (decrease) in net assets resulting from operations ....... 2,108 7,631 37,277 66,408 ---------- -------- ----------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 2,910 24,191 17,341 64,824 ---------- -------- ----------- ---------- Less cost of units redeemed: Administrative charges ............................................... 2,110 7,696 5,708 19,612 Policy loans ......................................................... 597 2,319 2,093 5,601 Surrender benefits ................................................... 700 2,587 2,670 7,688 Death benefits ....................................................... 20 1,047 57 368 ---------- -------- ----------- ---------- 3,427 13,649 10,528 33,269 ---------- -------- ----------- ---------- Increase (decrease) in net assets from capital unit transactions ..... (517) 10,542 6,813 31,555 ---------- -------- ----------- ---------- Net increase (decrease) in net assets ................................ 1,591 18,173 44,090 97,963 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of period.................................................... 98,926 80,753 262,665 164,702 ---------- -------- ---------- ---------- End of period.......................................................... $ 100,517 $ 98,926 $ 306,755 $ 262,665 ========== ======== ========== ========== UNIT ACTIVITY: Units outstanding - beginning of period................................ 4,814 4,270 8,218 7,013 Units issued .......................................................... 405 1,946 972 4,099 Units redeemed ........................................................ (429) (1,402) (767) (2,894) ---------- -------- ---------- ---------- Units outstanding - end of period...................................... 4,790 4,814 8,423 8,218 ========== ======== ========== ==========
See notes to the financial statements. 83 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED ALL AMOUNTS IN THOUSANDS (UNAUDITED)
AGGRESSIVE GROWTH SUB-ACCOUNT March 31, December 31, ------------------------- 1999 1998 ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (424) $ 7,851 Net gain (loss) on investment securities .............................. 24,337 44,348 ---------- -------- Net increase (decrease) in net assets resulting from operations ....... 23,913 52,199 ---------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 17,157 53,159 ---------- -------- Less cost of units redeemed: Administrative charges ............................................... 4,213 13,960 Policy loans ......................................................... 1,272 3,522 Surrender benefits ................................................... 2,238 4,423 Death benefits ....................................................... 23 248 ---------- -------- 7,746 22,153 ---------- -------- Increase (decrease) in net assets from capital unit transactions ..... 9,411 31,006 ---------- -------- Net increase (decrease) in net assets ................................ 33,324 83,205 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of period.................................................... 177,857 94,652 ---------- -------- End of period.......................................................... $ 211,181 $177,857 ========== ======== UNIT ACTIVITY: Units outstanding - beginning of period................................ 6,669 5,230 Units issued .......................................................... 968 3,797 Units redeemed ........................................................ (637) (2,358) ---------- -------- Units outstanding - end of period...................................... 7,000 6,669 ========== ========
BALANCED GROWTH & INCOME SUB-ACCOUNT SUB-ACCOUNT March 31, December 31, March 31, December 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (34) $ 227 $ (35) $ 644 Net gain (loss) on investment securities .............................. 383 576 (1,307) (269) ---------- -------- ----------- ---------- Net increase (decrease) in net assets resulting from operations ....... 349 803 (1,342) 375 ---------- -------- ----------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 1,451 5,658 1,101 8,963 ---------- -------- ----------- ---------- Less cost of units redeemed: Administrative charges ............................................... 442 1,423 559 1,633 Policy loans ......................................................... 94 279 94 218 Surrender benefits ................................................... 111 596 116 431 Death benefits ....................................................... 1 15 0 72 ---------- -------- ----------- ---------- 648 2,313 769 2,354 ---------- -------- ----------- ---------- Increase (decrease) in net assets from capital unit transactions ..... 803 3,345 332 6,609 ---------- -------- ----------- ---------- Net increase (decrease) in net assets ................................ 1,152 4,148 (1,010) 6,984 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of period.................................................... 14,864 10,716 16,047 9,063 ---------- -------- ---------- ---------- End of period.......................................................... $ 16,016 $ 14,864 $ 15,037 $ 16,047 ========== ======== ========== ========== UNIT ACTIVITY: Units outstanding - beginning of period................................ 990 756 976 563 Units issued .......................................................... 170 578 187 966 Units redeemed ........................................................ (117) (344) (167) (553) ---------- -------- ---------- ---------- Units outstanding - end of period...................................... 1,043 990 996 976 ========== ======== ========== ==========
TACTICAL ASSET ALLOCATION SUB-ACCOUNT March 31, December 31, ------------------------- 1999 1998 ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (88) $ 3,419 Net gain (loss) on investment securities .............................. (654) (1,087) ---------- -------- Net increase (decrease) in net assets resulting from operations ....... (742) 2,332 ---------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 1,577 13,703 ---------- -------- Less cost of units redeemed: Administrative charges ............................................... 981 3,421 Policy loans ......................................................... 210 748 Surrender benefits ................................................... 195 925 Death benefits ....................................................... 14 160 ---------- -------- 1,400 5,254 ---------- -------- Increase (decrease) in net assets from capital unit transactions ..... 177 8,449 ---------- -------- Net increase (decrease) in net assets ................................ (565) 10,781 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of period.................................................... 39,904 29,123 ---------- -------- End of period.......................................................... $ 39,339 $ 39,904 ========== ======== UNIT ACTIVITY: Units outstanding - beginning of period................................ 2,383 1,867 Units issued .......................................................... 293 1,377 Units redeemed ........................................................ (282) (861) ---------- -------- Units outstanding - end of period...................................... 2,394 2,383 ========== ========
C.A.S.E. GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT March 31, December 31, March 31, December 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (44) $ 1,475 $ (55) $ 2,021 Net gain (loss) on investment securities .............................. 2,522 (1,114) 471 (4,683) ---------- -------- ----------- ---------- Net increase (decrease) in net assets resulting from operations ....... 2,478 361 416 (2,662) ---------- -------- ----------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 1,869 8,731 (907) 6,086 ---------- -------- ----------- ---------- Less cost of units redeemed: Administrative charges ............................................... 728 2,433 740 2,846 Policy loans ......................................................... 92 520 157 643 Surrender benefits ................................................... 163 295 136 401 Death benefits ....................................................... 2 60 0 165 ---------- -------- ----------- ---------- 985 3,308 1,033 4,055 ---------- -------- ----------- ---------- Increase (decrease) in net assets from capital unit transactions ..... 884 5,423 (1,940) 2,031 ---------- -------- ----------- ---------- Net increase (decrease) in net assets ................................ 3,362 5,784 (1,524) (631) Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of period.................................................... 17,730 11,946 26,083 26,714 ---------- -------- ---------- ---------- End of period.......................................................... $ 21,092 $ 17,730 $ 24,559 $ 26,083 ========== ======== ========== ========== UNIT ACTIVITY: Units outstanding - beginning of period................................ 1,417 969 1,982 1,916 Units issued .......................................................... 351 1,317 303 1,748 Units redeemed ........................................................ (287) (869) (450) (1,682) ---------- -------- ---------- ---------- Units outstanding - end of period...................................... 1,481 1,417 1,835 1,982 ========== ======== ========== ==========
See notes to the financial statements. 84 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED ALL AMOUNTS IN THOUSANDS (UNAUDITED)
INTERNATIONAL EQUITY U.S. EQUITY SUB-ACCOUNT SUB-ACCOUNT March 31, December 31, March 31, December 31, ------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (14) $ (32) $ (35) $ 434 Net gain (loss) on investment securities .............................. 10 369 798 1,411 ---------- -------- ----------- ---------- Net increase (decrease) in net assets resulting from operations ....... (4) 337 763 1,845 ---------- -------- ----------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 659 3,972 3,561 10,178 ---------- -------- ----------- ---------- Less cost of units redeemed: Administrative charges ............................................... 159 433 439 862 Policy loans ......................................................... 48 196 117 159 Surrender benefits ................................................... 55 35 60 113 Death benefits ....................................................... 0 107 0 63 ---------- -------- ----------- ---------- 262 771 616 1,197 ---------- -------- ----------- ---------- Increase (decrease) in net assets from capital unit transactions ..... 397 3,201 2,945 8,981 ---------- -------- ----------- ---------- Net increase (decrease) in net assets ................................ 393 3,538 3,708 10,826 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of period.................................................... 5,827 2,289 14,084 3,258 ---------- -------- ---------- ---------- End of period.......................................................... $ 6,220 $ 5,827 $ 17,792 $ 14,084 ========== ======== ========== ========== UNIT ACTIVITY: Units outstanding - beginning of period................................ 489 215 919 259 Units issued .......................................................... 254 767 374 1,266 Units redeemed ........................................................ (221) (493) (188) (606) ---------- -------- ---------- ---------- Units outstanding - end of period...................................... 522 489 1,105 919 ========== ======== ========== ==========
THIRD AVENUE VALUE REAL ESTATE SECURITIES SUB-ACCOUNT SUB-ACCOUNT March 31, December 31, March 31, December 31, ------------------------- ------------------------- 1999 1998(a) 1999 1998(b) ------------ ------------ ------------ ------------ OPERATIONS: Net investment income (loss) .......................................... $ (6) $ (11) $ (1) $ (4) Net gain (loss) on investment securities .............................. (284) (142) (24) (112) ---------- -------- ----------- ---------- Net increase (decrease) in net assets resulting from operations ....... (290) (153) (25) (116) ---------- -------- ----------- ---------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 191 2,932 (139) 472 ---------- -------- ----------- ---------- Less cost of units redeemed: Administrative charges ............................................... 53 138 4 4 Policy loans ......................................................... 5 8 0 43 Surrender benefits ................................................... 24 26 0 0 Death benefits ....................................................... 0 0 0 0 ---------- -------- ----------- ---------- 82 172 4 47 ---------- -------- ----------- ---------- Increase (decrease) in net assets from capital unit transactions ..... 109 2,760 (143) 425 ---------- -------- ----------- ---------- Net increase (decrease) in net assets ................................ (181) 2,607 (168) 309 Depositor's equity contribution (redemption) .......................... 0 200 0 400 NET ASSETS: Beginning of period.................................................... 2,807 0 709 0 ---------- -------- ---------- ---------- End of period.......................................................... $ 2,626 $ 2,807 $ 541 $ 709 ========== ======== ========== ========== UNIT ACTIVITY: Units outstanding - beginning of period................................ 304 0 84 0 Units issued .......................................................... 74 495 10 113 Units redeemed ........................................................ (64) (191) (27) (29) ---------- -------- ---------- ---------- Units outstanding - end of period...................................... 314 304 67 84 ========== ======== ========== ==========
(a) The inception date of this Sub-Account was January 2, 1998. (b) The inception date of this Sub-Account was May 1, 1998. See notes to the financial statements. 85 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE PERIOD ENDED (UNAUDITED)
MONEY MARKET SUB-ACCOUNT March 31, December 31, ----------- ----------------------------------------------- -------- 1999 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- -------- Accumulation unit value, beginning of period ................ $ 16.83 $ 16.13 $ 15.45 $ 14.83 $ 14.19 13.84 Income from operations: Net investment income (loss) .............................. 0.15 0.70 0.68 0.62 0.64 0.35 Net realized and unrealized gain (loss) on investment ..... 0.00 0.00 0.00 0.00 0.00 0.00 ------- ------- ------- ------- ------- ----- Net income (loss) from operations ........................ 0.15 0.70 0.68 0.62 0.64 0.35 ------- ------- ------- ------- ------- ----- Accumulation unit value, end of period ...................... $ 16.98 $ 16.83 $ 16.13 $ 15.45 $ 14.83 $ 14.19 ======= ======= ======= ======= ======= ======= Total return (a) ............................................ 0.92% 4.36% 4.37% 4.17% 4.49% 2.58% Ratios and supplemental data: Net assets at end of period (in thousands) ................. $34,229 $24,576 $16,440 $12,740 $10,759 $ 9,706 Ratios of net investment income (loss) to average net assets (b) ............................................... 3.72% 4.24% 4.28% 4.07% 4.37% 2.66%
BOND SUB-ACCOUNT March 31, December 31, 1999 1998 1997 1996 1995 1994 ----------- ----------- ------------ ----------- ---------- ---------- Accumulation unit value, beginning of period ............... $ 22.89 $ 21.12 $ 19.53 $ 19.67 $ 16.14 17.50 Income from operations: Net investment income (loss) ............................. (0.05) 1.01 1.01 0.99 1.05 0.89 Net realized and unrealized gain (loss) on investment .... (0.29) 0.76 0.58 (1.13) 2.48 (2.25) ------- ------- -------- -------- ------- --------- Net income (loss) from operations ....................... (0.34) 1.77 1.59 (0.14) 3.53 (1.36) ------- ------- -------- -------- ------- --------- Accumulation unit value, end of period ..................... $ 22.55 $ 22.89 $ 21.12 $ 19.53 $ 19.67 $ 16.14 ======= ======= ======== ======== ======= ========= Total return (a) ........................................... (1.49)% 8.34% 8.18% (0.75)% 21.89% (7.77)% Ratios and supplemental data: Net assets at end of period (in thousands) ................ $25,420 $24,934 $ 17,657 $ 11,585 $10,066 $ 6,259 Ratios of net investment income (loss) to average net assets (b) .............................................. (0.90)% 4.58% 5.06% 5.34% 5.80% 5.57%
GROWTH SUB-ACCOUNT March 31, December 31, ----------- -------------------------------------------------------- 1999 1998 1997 1996 1995 1994 ----------- ---------- ----------- ----------- --------- --------- Accumulation unit value, beginning of period ............... $ 92.07 $ 56.48 $ 48.48 $ 41.47 $ 28.44 31.30 Income from operations: Net investment income (loss) ............................. (0.22) 0.13 5.83 2.88 3.89 0.04 Net realized and unrealized gain (loss) on investment .... 15.75 35.46 2.17 4.13 9.14 (2.90) -------- -------- -------- -------- -------- ------- Net income (loss) from operations ....................... 15.53 35.59 8.00 7.01 13.03 (2.86) -------- -------- -------- -------- -------- ------- Accumulation unit value, end of period ..................... $ 107.60 $ 92.07 $ 56.48 $ 48.48 $ 41.47 $ 28.44 ======== ======== ======== ======== ======== ======= Total return (a) ........................................... 16.87% 63.01% 16.50% 16.91% 45.81% (9.13)% Ratios and supplemental data: Net assets at end of period (in thousands) ................ $951,009 $798,027 $450,271 $349,491 $262,467 $161,490 Ratios of net investment income (loss) to average net assets (b) .............................................. (0.90)% 0.19% 10.84% 6.41% 11.05% 0.16%
See notes to the financial statements. 86 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE PERIOD ENDED (UNAUDITED)
GLOBAL SUB-ACCOUNT March 31, December 31, ----------- ----------------------------------------------- --------- 1999 1998 1997 1996 1995 1994(c) ----------- ---------- ------------ ----------- --------- --------- Accumulation unit value, beginning of period ................ $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80 10.00 Income from operations: Net investment income (loss) .............................. (0.05) 0.82 2.30 1.50 0.45 0.71 Net realized and unrealized gain (loss) on investment ..... 1.75 4.32 0.37 1.68 1.70 (0.91) -------- -------- -------- ------- ------- ------- Net income (loss) from operations ........................ 1.70 5.14 2.67 3.18 2.15 (0.20) -------- -------- -------- ------- ------- ------- Accumulation unit value, end of period ...................... $ 24.64 $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80 ======== ======== ======== ======= ======= ======= Total return (a) ............................................ 7.40% 28.86% 17.69% 26.60% 21.96% (2.02)% Ratios and supplemental data: Net assets at end of period (in thousands) ................. $258,662 $233,256 $145,017 $83,159 $37,049 $21,672 Ratios of net investment income (loss) to average net assets (b) ............................................... (0.90)% 3.92% 13.39% 11.09% 4.25% 8.86%
STRATEGIC TOTAL RETURN SUB-ACCOUNT March 31, December 31, ----------------------------------------------------- ---------- 1999 1998 1997 1996 1995 1994 ----------- ------- --------- ----------- -------- ---------- Accumulation unit value, beginning of period ................. $ 20.55 $ 18.91 $ 15.66 $ 13.74 $ 11.12 $ 11.28 Income from operations: Net investment income (loss) ............................... (0.05) 0.71 1.56 0.82 0.68 0.18 Net realized and unrealized gain (loss) on investment ...... 0.48 0.93 1.69 1.10 1.94 (0.34) -------- ------- ------- ------- ------- -------- Net income (loss) from operations ......................... 0.43 1.64 3.25 1.92 2.62 (0.16) -------- ------- ------- ------- ------- -------- Accumulation unit value, end of period ....................... $ 20.98 $ 20.55 $ 18.91 $ 15.66 $ 13.74 $ 11.12 ======== ======= ======= ======= ======= ======== Total return (a) ............................................. 2.12% 8.66% 20.77% 13.97% 23.55% (1.42)% Ratios and supplemental data: Net assets at end of period (in thousands) .................. $100,517 $98,926 $80,753 $55,900 $39,648 $ 23,649 Ratios of net investment income (loss) to average net assets (b) ................................................. (0.90)% 3.67% 8.89% 5.76% 5.47% 1.93%
EMERGING GROWTH SUB-ACCOUNT March 31, December 31, ----------- ------------------------------------------------ --------- 1999 1998 1997 1996 1995 1994 ----------- ------------ ------------ ----------- ---------- --------- Accumulation unit value, beginning of period ................ $ 31.96 $ 23.48 $ 19.51 $ 16.56 $ 11.38 $ 12.40 Income from operations: Net investment income (loss) .............................. (0.07) 0.91 2.20 0.82 0.65 (0.09) Net realized and unrealized gain (loss) on investment ..... 4.53 7.57 1.77 2.13 4.53 (0.93) -------- -------- -------- -------- ------- ------- Net income (loss) from operations ........................ 4.46 8.48 3.97 2.95 5.18 (1.02) -------- -------- -------- -------- ------- ------- Accumulation unit value, end of period ...................... $ 36.42 $ 31.96 $ 23.48 $ 19.51 $ 16.56 $ 11.38 ======== ======== ======== ======== ======= ======= Total return (a) ............................................ 13.94% 36.11% 20.37% 17.82% 45.49% (8.18)% Ratios and supplemental data: Net assets at end of period (in thousands) ................. $306,755 $262,665 $164,702 $107,925 $67,905 $36,687 Ratios of net investment income (loss) to average net assets (b) ............................................... (0.90)% 3.44% 10.18% 4.51% 4.66% (0.86)%
See notes to the financial statements. 87 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE PERIOD ENDED (UNAUDITED)
AGGRESSIVE GROWTH SUB-ACCOUNT March 31, December 31, ---------- --------------------------------------------------------- 1999 1998 1997 1996 1995 1994(c) ---------- ------------ ----------- ----------- ---------- --------- Accumulation unit value, beginning of period .............. $ 26.67 $ 18.10 $ 14.70 $ 13.43 $ 9.82 $10.00 Income from operations: Net investment income (loss) ............................ (0.06) 1.33 1.75 0.36 0.37 (0.06) Net realized and unrealized gain (loss) on investment ... 3.56 7.24 1.65 0.91 3.24 (0.12) -------- -------- ------- ------- ------- ------ Net income (loss) from operations ...................... 3.50 8.57 3.40 1.27 3.61 (0.18) -------- -------- ------- ------- ------- ------ Accumulation unit value, end of period .................... $ 30.17 $ 26.67 $ 18.10 $ 14.70 $ 13.43 9.82 ======== ======== ======= ======= ======= ====== Total return (a) .......................................... 13.13% 47.36% 23.14% 9.46% 36.79% (1.85)% Ratios and supplemental data: Net assets at end of period (in thousands) ............... $211,181 $177,857 $94,652 $54,408 $32,904 $8,909 Ratios of net investment income (loss) to average net assets (b) .............................................. (0.90)% 6.20% 10.26% 2.65% 2.93% (0.72)%
BALANCED SUB-ACCOUNT March 31, December 31, ----------- ---------------------------------------------------------- 1999 1998 1997 1996 1995 1994(c) ----------- ----------- ----------- ----------- ----------- --------- Accumulation unit value, beginning of period ............. $ 15.02 $ 14.17 $ 12.21 $ 11.13 $ 9.37 $ 10.00 Income from operations: Net investment income (loss) ........................... (0.03) 0.25 1.55 0.36 0.37 0.22 Net realized and unrealized gain (loss) on investment .. 0.37 0.60 0.41 0.72 1.39 (0.85) ------- ------- ------- ------- -------- --------- Net income (loss) from operations ..................... 0.34 0.85 1.96 1.08 1.76 (0.63) ------- ------- ------- ------- -------- --------- Accumulation unit value, end of period ................... $ 15.36 $ 15.02 $ 14.17 $ 12.21 $ 11.13 $ 9.37 ======= ======= ======= ======= ======== ========= Total return (a) ......................................... 2.26% 5.98% 16.06% 9.73% 18.73% (6.29)% Ratios and supplemental data: Net assets at end of period (in thousands) .............. $16,016 $14,864 $10,716 $ 6,418 $ 3,795 $ 2,145 Ratios of net investment income (loss) to average net assets (b) ............................................ (0.90)% 1.76% 11.62% 3.18% 3.59% 3.06%
GROWTH & INCOME SUB-ACCOUNT March 31, December 31, ----------- --------------------------------------------------------- 1999 1998 1997 1996 1995 1994(c) ----------- --------- ----------- ---------- ---------- ----------- Accumulation unit value, beginning of period ................. $ 16.44 $ 16.09 $ 13.03 $ 11.77 $ 9.49 $ 10.00 Income from operations: Net investment income (loss) ............................... (0.03) 0.77 2.61 0.76 0.49 0.29 Net realized and unrealized gain (loss) on investment ...... (1.32) (0.42) 0.45 0.50 1.79 (0.80) ------- ------- -------- -------- -------- -------- Net income (loss) from operations ......................... (1.35) 0.35 3.06 1.26 2.28 (0.51) ------- ------- -------- -------- -------- -------- Accumulation unit value, end of period ....................... $ 15.09 $ 16.44 $ 16.09 $ 13.03 $ 11.77 $ 9.49 ======= ======= ======== ======== ======== ======== Total return (a) ............................................. (8.19)% 2.13% 23.54% 10.64% 24.14% (5.15)% Ratios and supplemental data: Net assets at end of period (in thousands) .................. $15,037 $16,047 $ 9,063 $ 5,501 $ 2,631 $ 1,215 Ratios of net investment income (loss) to average net assets (b) ................................................. (0.90)% 4.83% 18.50% 6.38% 4.57% 3.71%
See notes to the financial statements. 88 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED (UNAUDITED)
TACTICAL ASSET ALLOCATION SUB-ACCOUNT March 31, December 31, ----------- ---------------------------------------------- 1999 1998 1997 1996 1995(d) ----------- ---------- ----------- ----------- ----------- C> Accumulation unit value, beginning of period ................. $ 16.74 $ 15.60 $ 13.50 $ 11.90 $ 10.00 Income from operations: Net investment income (loss) ............................... (0.04) 1.58 1.20 0.53 0.61 Net realized and unrealized gain (loss) on investment ...... (0.27) (0.44) 0.90 1.07 1.29 ------- ------- ------- ------- -------- Net income (loss) from operations ......................... (0.31) 1.14 2.10 1.60 1.90 ------- ------- ------- ------- -------- Accumulation unit value, end of period ....................... $ 16.43 $ 16.74 $ 15.60 $ 13.50 $ 11.90 ======= ======= ======= ======= ======== Total return (a) ............................................. (1.85)% 7.36% 15.55% 13.40% 19.03% Ratios and supplemental data: Net assets at end of period (in thousands) .................. $39,339 $39,904 $29,123 $17,946 $ 9,446 Ratios of net investment income (loss) to average net assets (b) ................................................. (0.90)% 9.69% 8.14% 4.35% 5.47%
C.A.S.E. GROWTH SUB-ACCOUNT March 31, December 31, ----------- --------------------------------------- 1999 1998 1997 1996(e) ----------- ----------- ----------- ----------- Accumulation unit value, beginning of period .......................... $ 12.51 $ 12.32 $ 10.81 $ 10.00 Income from operations: Net investment income (loss) ........................................ (0.03) 1.24 1.51 0.37 Net realized and unrealized gain (loss) on investment ............... 1.77 (1.05) 0.00 0.44 ------- ------- ------- ------- Net income (loss) from operations .................................. 1.74 0.19 1.51 0.81 ------- ------- ------- ------- Accumulation unit value, end of period ................................ $ 14.25 $ 12.51 $ 12.32 $ 10.81 ======= ======= ======= ======= Total return (a) ...................................................... 13.83% 1.56% 14.00% 8.09% Ratios and supplemental data: Net assets at end of period (in thousands) ........................... $21,092 $17,730 $11,946 $ 4,466 Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% 10.21% 12.65% 6.11%
VALUE EQUITY SUB-ACCOUNT March 31, December 31, ----------- --------------------------------------- 1999 1998 1997 1996(e) ----------- ----------- ----------- ----------- Accumulation unit value, beginning of period .......................... $ 13.16 $ 13.94 $ 11.25 $ 10.00 Income from operations: Net investment income (loss) ........................................ (0.03) 0.95 0.14 0.05 Net realized and unrealized gain (loss) on investment ............... 0.25 (1.73) 2.55 1.20 ------- -------- ------- -------- Net income (loss) from operations .................................. 0.22 (0.78) 2.69 1.25 ------- -------- ------- -------- Accumulation unit value, end of period ................................ 13.38 $ 13.16 $ 13.94 $ 11.25 ======= ======== ======= ======== Total return (a) ...................................................... 1.70% (5.63)% 23.93% 12.51% Ratios and supplemental data: Net assets at end of period (in thousands) ........................... $24,559 $ 26,083 $26,714 $ 8,887 Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% 6.84% 1.05% 0.77%
See notes to the financial statements. 89 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED (UNAUDITED)
INTERNATIONAL EQUITY SUB-ACCOUNT March 31, December 31, ----------- ----------------------- 1999 1998 1997(f) ----------- ----------- ----------- Accumulation unit value, beginning of period .......................... $ 11.92 $10.65 $10.00 Income from operations: Net investment income (loss) ........................................ (0.03) (0.09) (0.03) Net realized and unrealized gain (loss) on investment ............... 0.03 1.36 0.68 ------- ------- ------- Net income (loss) from operations .................................. 0.00 1.27 0.65 ------- ------- ------- Accumulation unit value, end of period ................................ $11.92 $11.92 $10.65 ======= ======= ======= Total return (a) ...................................................... (0.01)% 11.84% 6.54% Ratios and supplemental data: Net assets at end of period (in thousands) ........................... $6,220 $5,827 $2,289 Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% (0.81)% (0.28)%
U.S. EQUITY SUB-ACCOUNT March 31, December 31, ----------- ----------------------- 1999 1998 1997(f) ----------- ----------- ----------- Accumulation unit value, beginning of period .......................... $ 15.33 $ 12.59 $ 10.00 Income from operations: Net investment income (loss) ........................................ (0.03) 0.73 0.99 Net realized and unrealized gain (loss) on investment ............... 0.79 2.01 1.60 ------- ------- -------- Net income (loss) from operations .................................. 0.76 2.74 2.59 ------- ------- -------- Accumulation unit value, end of period ................................ $ 16.09 $ 15.33 $ 12.59 ======= ======= ======== Total return (a) ...................................................... 4.99% 21.78% 25.89% Ratios and supplemental data: Net assets at end of period (in thousands) ........................... $17,792 $14,084 $ 3,258 Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% 5.30% 8.28%
THIRD AVENUE VALUE REAL ESTATE SECURITIES SUB-ACCOUNT SUB-ACCOUNT March 31, December 31, March 31, December 31, ----------- -------------- ----------- ------------- 1999 1998(g) 1999 1998(h) ----------- -------------- ----------- ------------- Accumulation unit value, beginning of period .......................... $ 9.23 $ 10.00 $ 8.46 $ 10.00 Income from operations: Net investment income (loss) ........................................ (0.02) (0.05) (0.02) (0.05) Net realized and unrealized gain (loss) on investment ............... (0.86) (0.72) (0.32) (1.49) ------- -------- ------- ------- Net income (loss) from operations .................................. (0.88) (0.77) (0.34) (1.54) ------- -------- ------- ------- Accumulation unit value, end of period ................................ $ 8.35 $ 9.23 $ 8.12 $ 8.46 ======= ======== ======= ======= Total return (a) ...................................................... (9.55)% (7.67)% (3.96)% (15.44)% Ratios and supplemental data: Net assets at end of period (in thousands) ........................... $2,626 $ 2,807 $ 541 $ 709 Ratios of net investment income (loss) to average net assets (b) ..... (0.90)% (0.52)% (0.90)% (0.90)%
* Per unit information has been computed using average units outstanding throughout each period. NOTES TO FINANCIAL HIGHLIGHTS: (a) Not annualized for periods less than one year. (b) Annualized for periods less than one year. (c) The inception date of this Sub-Account was March 1, 1994. (d) The inception date of this Sub-Account was January 3, 1995. (e) The inception date of this Sub-Account was May 1, 1996. (f) The inception date of this Sub-Account was January 2, 1997. (g) The inception date of this Sub-Account was January 2, 1998. (h) The inception date of this Sub-Account was May 1, 1998. See notes to the financial statements. 90 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1999 (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") and is registered as a unit investment trust ("Trust") under the Investment Company Act of 1940, as amended. The Life Account contains sixteen investment options referred to as sub-accounts. Each sub-account invests in the corresponding Portfolio of the WRL Series Fund, Inc. (collectively referred to as the "Fund" and individually as a "Portfolio"), a registered management investment company under the Investment Company Act of 1940, as amended. The Fund has entered into annually renewable investment advisory agreements for each Portfolio with WRL Investment Management, Inc. ("WRL Management") as investment adviser. Costs incurred in connection with the advisory services rendered by WRL Management are paid by each Portfolio. WRL Management has entered into sub-advisory agreements with various management companies, some of which are affiliates of WRL. Each sub-adviser is compensated directly by WRL Management. 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 generally accepted accounting principles, have been consistently applied in the preparation of the Trust's financial statements. The preparation of financial statements required management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS Investments in the Fund's shares are stated at the closing net asset value ("NAV") per share as determined by the Fund. Investment transactions are accounted for on the trade date at the Fund NAV next determined after receipt of sale or redemption orders without sales charges. Dividend income and capital gains distributions are recorded on the ex-dividend date. The cost of investments sold is determined on a first-in, first-out basis. B. FEDERAL INCOME TAXES The operations of the 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 sub-accounts. Thereafter, monthly administrative and cost of insurance charges are deducted from the policies. Contingent surrender charges also apply. Under the other forms of the Policies, such "front-end" and other administrative charges are deducted prior to allocation of the initial premium payment but may be subject to contingent surrender charges. 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 and 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. DIVIDENDS AND 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. 91 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) MARCH 31, 1999 NOTE 4. SECURITIES TRANSACTIONS Securities transactions for the period ended March 31, 1999 are as follows (in thousands):
PURCHASE PROCEEDS SUB-ACCOUNT: OF SECURITIES OF SECURITIES - --------------------------------------- --------------- -------------- Money Market ...................... $22,453 $12,282 Bond .............................. 2,961 2,263 Growth ............................ 22,396 7,383 Global ............................ 9,743 2,279 Strategic Total Return ............ 1,215 1,842 Emerging Growth ................... 12,221 5,266 Aggressive Growth ................. 11,297 3,336 Balanced .......................... 1,152 379 Growth & Income ................... 1,019 714 Tactical Asset Allocation ......... 1,172 1,027 C.A.S.E. Growth ................... 1,952 1,099 Value Equity ...................... 510 2,470 International Equity .............. 2,023 1,407 U.S. Equity ....................... 3,758 887 Third Avenue Value ................ 397 286 Real Estate Securities ............ 61 204
NOTE 5. SUBSEQUENT EVENT Effective May 1, 1999, the names of the Life Account sub-accounts will be changed as follows:
WRL J.P. Morgan Money Market (formerly Money Market) WRL AEGON Bond (formerly Bond) WRL Janus Growth (formerly Growth) WRL Janus Global (formerly Global) WRL LKCM Strategic Total Return (formerly Strategic Total Return) WRL VKAM Emerging Growth (formerly Emerging Growth) WRL Alger Aggressive Growth (formerly Aggressive Growth) WRL AEGON Balanced (formerly Balanced) WRL Federated Growth & Income (formerly Growth & Income) WRL Dean Asset Allocation (formerly Tactical Asset Allocation) WRL C.A.S.E. Growth (formerly C.A.S.E. Growth) WRL NWQ Value Equity (formerly Value Equity) WRL GE/Scottish Equitable International Equity (formerly International Equity) WRL GE U.S. Equity (formerly U.S. Equity) WRL Third Avenue Value (formerly Third Avenue Value) WRL J.P. Morgan Real Estate Securities (formerly Real Estate Securities)
92 REPORT OF INDEPENDENT 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 statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the Sub-Accounts constituting the WRL Series Life Account (a separate account of Western Reserve Life Assurance Co. of Ohio, hereafter referred to as the "Life Account") at December 31, 1998, the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Life Account's management, our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Boston, Massachusetts January 29, 1999 93 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
MONEY MARKET BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 24,472 2,150 13,310 ======= ======= ======== Cost ............................................... $24,472 $24,523 $423,759 ======= ======= ======== Investment, at net asset value ...................... $24,472 $24,925 $797,795 Transfers receivable from depositor ................. 104 9 232 ------- ------- -------- Total assets ....................................... 24,576 24,934 798,027 ------- ------- -------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 ------- ------- -------- Total liabilities .................................. 0 0 0 ------- ------- -------- Net assets ......................................... $24,576 $24,934 $798,027 ======= ======= ======== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $24,576 $24,934 $798,027 Depositor's equity .................................. 0 0 0 ------- ------- -------- Net assets applicable to units outstanding ......... $24,576 $24,934 $798,027 ======= ======= ======== Policy Owners' units ................................ 1,460 1,090 8,668 Depositor's units ................................... 0 0 0 ------- ------- -------- Units outstanding .................................. 1,460 1,090 8,668 ======= ======= ======== Accumulation unit value ............................ $ 16.83 $ 22.89 $ 92.07 ======= ======= ========
STRATEGIC EMERGING GLOBAL TOTAL RETURN GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 9,833 6,028 9,752 ======== ======= ======== Cost ............................................... $189,249 $81,865 $176,852 ======== ======= ======== Investment, at net asset value ...................... $233,131 $98,885 $262,548 Transfers receivable from depositor ................. 125 41 117 -------- ------- -------- Total assets ....................................... 233,256 98,926 262,665 -------- ------- -------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 -------- ------- -------- Total liabilities .................................. 0 0 0 -------- ------- -------- Net assets ......................................... $233,256 $98,926 $262,665 ======= ======== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $233,256 $98,926 $262,665 Depositor's equity .................................. 0 0 0 -------- ------- -------- Net assets applicable to units outstanding ......... $233,256 $98,926 $262,665 ======== ======= ======== Policy Owners' units ................................ 10,167 4,814 8,218 Depositor's units ................................... 0 0 0 -------- ------- -------- Units outstanding .................................. 10,167 4,814 8,218 ======== ======= ======== Accumulation unit value ............................ $ 22.94 $ 20.55 $ 31.96 ======== ======= ========
The notes to the financial statements are an integral part of this report. 94 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
AGGRESSIVE GROWTH & GROWTH BALANCED INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 7,923 1,185 1,306 ======== ======= ======= Cost ............................................... $126,802 $13,872 $16,213 ======== ======= ======= Investment, at net asset value ...................... $177,787 $14,863 $16,036 Transfers receivable from depositor ................. 70 1 11 -------- ------- ------- Total assets ....................................... 177,857 14,864 16,047 -------- ------- ------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 -------- ------- ------- Total liabilities .................................. 0 0 0 -------- ------- ------- Net assets ......................................... $177,857 $14,864 $16,047 ======== ======= ======= NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $177,857 $14,864 $16,047 Depositor's equity .................................. 0 0 0 -------- ------- ------- Net assets applicable to units outstanding ......... $177,857 $14,864 $16,047 ======== ======= ======= Policy Owners' units ................................ 6,669 990 976 Depositor's units ................................... 0 0 0 -------- ------- ------- Units outstanding .................................. 6,669 990 976 ======== ======= ======= Accumulation unit value ............................ $ 26.67 $ 15.02 $ 16.44 ======== ======= =======
TACTICAL ASSET C.A.S.E. ALLOCATION GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 2,988 1,364 2,152 ===== ===== ===== Cost ............................................... $38,916 $19,242 $28,825 ======= ======= ======= Investment, at net asset value ...................... $39,889 $17,718 $26,066 Transfers receivable from depositor ................. 15 12 17 ------- ------- ------- Total assets ....................................... 39,904 17,730 26,083 ------- ------- ------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 ------- ------- ------- Total liabilities .................................. 0 0 0 ------- ------- ------- Net assets ......................................... $39,904 $17,730 $26,083 ======= ======= ======= NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $39,904 $17,730 $26,083 Depositor's equity .................................. 0 0 0 ------- ------- ------- Net assets applicable to units outstanding ......... $39,904 $17,730 $26,083 ======= ======= ======= Policy Owners' units ................................ 2,383 1,417 1,982 Depositor's units ................................... 0 0 0 ------- ------- ------- Units outstanding .................................. 2,383 1,417 1,982 ======= ======= ======= Accumulation unit value ............................ $ 16.74 $ 12.51 $ 13.16 ======= ======= =======
The notes to the financial statements are an integral part of this report. 95 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
INTERNATIONAL U.S. THIRD AVENUE EQUITY EQUITY VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 483 976 302 ====== ======= ====== Cost ............................................... $5,705 $13,010 $2,904 ====== ======= ====== Investment, at net asset value ...................... $5,824 $14,078 $2,801 Transfers receivable from depositor ................. 3 6 6 ------ ------- ------ Total assets ....................................... 5,827 14,084 2,807 ------ ------- ------ LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 ------ ------- ------ Total liabilities .................................. 0 0 0 ------ ------- ------ Net assets ......................................... $5,827 $14,084 $2,807 ====== ======= ====== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $5,827 $14,084 $2,622 Depositor's equity .................................. 0 0 185 ------ ------- ------ Net assets applicable to units outstanding ......... $5,827 $14,084 $2,807 ====== ======= ====== Policy Owners' units ................................ 489 919 284 Depositor's units ................................... 0 0 20 ------ ------- ------ Units outstanding .................................. 489 919 304 ====== ======= ====== Accumulation unit value ............................ $11.92 $ 15.33 $ 9.23 ====== ======= ======
REAL ESTATE SECURITIES SUB-ACCOUNT ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 83 ===== Cost ............................................... $ 784 ===== Investment, at net asset value ...................... $ 708 Transfers receivable from depositor ................. 1 ----- Total assets ....................................... 709 ----- LIABILITIES: Accrued expenses .................................... 0 Transfers payable to depositor ...................... 0 ----- Total liabilities .................................. 0 ----- Net assets ......................................... $ 709 ===== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $ 371 Depositor's equity .................................. 338 ----- Net assets applicable to units outstanding ......... $ 709 ===== Policy Owners' units ................................ 44 Depositor's units ................................... 40 ----- Units outstanding .................................. 84 ===== Accumulation unit value ............................ $8.46 =====
The notes to the financial statements are an integral part of this report. 96 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ALL AMOUNTS IN THOUSANDS
MONEY MARKET BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $1,113 $1,196 $ 1,180 Capital gain distributions .............................................. 0 0 5,200 ------ ------ -------- Total investment income ................................................ 1,113 1,196 6,380 EXPENSES: Mortality and expense risk .............................................. 194 194 5,277 ------ ------ -------- Net investment income (loss) ........................................... 919 1,002 1,103 ------ ------ -------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 0 642 12,232 Change in unrealized appreciation (depreciation) ....................... 0 71 283,227 ------ ------ -------- Net gain (loss) on investment securities ............................... 0 713 295,459 ------ ------ -------- Net increase (decrease) in net assets resulting from operations ....... $ 919 $1,715 $296,562 ====== ====== ========
STRATEGIC EMERGING GLOBAL TOTAL RETURN GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 1,092 $2,240 $ 0 Capital gain distributions .............................................. 8,026 1,844 8,683 ------- ------ ------- Total investment income ................................................ 9,118 4,084 8,683 EXPENSES: Mortality and expense risk .............................................. 1,693 800 1,789 ------- ------ ------- Net investment income (loss) ........................................... 7,425 3,284 6,894 ------- ------ ------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 3,529 1,097 4,995 Change in unrealized appreciation (depreciation) ....................... 34,898 3,250 54,519 ------- ------ ------- Net gain (loss) on investment securities ............................... 38,427 4,347 59,514 ------- ------ ------- Net increase (decrease) in net assets resulting from operations ....... $45,852 $7,631 $66,408 ======= ====== =======
The notes to the financial statements are an integral part of this report. 97 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ALL AMOUNTS IN THOUSANDS
AGGRESSIVE GROWTH BALANCED GROWTH & INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $ 356 $329 $ 651 Capital gain distributions .............................................. 8,627 13 112 ------- ---- ------ Total investment income ................................................ 8,983 342 763 EXPENSES: Mortality and expense risk .............................................. 1,132 115 119 ------- ---- ------ Net investment income (loss) ........................................... 7,851 227 644 ------- ---- ------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 2,395 262 390 Change in unrealized appreciation (depreciation) ....................... 41,953 314 (659) ------- ---- ------ Net gain (loss) on investment securities ............................... 44,348 576 (269) ------- ---- ------ Net increase (decrease) in net assets resulting from operations ....... $52,199 $803 $ 375 ======= ==== ======
TACTICAL ASSET C.A.S.E. ALLOCATION GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ....................................................... $ 1,115 $ 1,514 $ 530 Capital gain distributions ............................................ 2,619 90 1,755 -------- -------- -------- Total investment income .............................................. 3,734 1,604 2,285 EXPENSES: Mortality and expense risk ............................................ 315 129 264 -------- -------- -------- Net investment income (loss) ......................................... 3,419 1,475 2,021 -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions ................ 429 175 1,254 Change in unrealized appreciation (depreciation) ..................... (1,516) (1,289) (5,937) -------- -------- -------- Net gain (loss) on investment securities ............................. (1,087) (1,114) (4,683) -------- -------- -------- Net increase (decrease) in net assets resulting from operations ..... $ 2,332 $ 361 $ (2,662) ======== ======== ========
The notes to the financial statements are an integral part of this report. 98 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ALL AMOUNTS IN THOUSANDS
INTERNATIONAL U.S. THIRD AVENUE EQUITY EQUITY BOND VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT(A) INVESTMENT INCOME: Dividend income ......................................................... $ 3 $ 413 $ 8 Capital gain distributions .............................................. 0 94 0 ----- ------ ------ Total investment income ................................................ 3 507 8 EXPENSES: Mortality and expense risk .............................................. 35 73 19 ----- ------ ------ Net investment income (loss) ........................................... (32) 434 (11) ----- ------ ------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 147 358 (39) Change in unrealized appreciation (depreciation) ....................... 222 1,053 (103) ----- ------ ------ Net gain (loss) on investment securities ............................... 369 1,411 (142) ----- ------ ------ Net increase (decrease) in net assets resulting from operations ....... $ 337 $1,845 $ (153) ===== ====== ======
REAL ESTATE SECURITIES SUB-ACCOUNT(B) INVESTMENT INCOME: Dividend income ....................................................... $ 0 Capital gain distributions ............................................ 0 ------ Total investment income .............................................. 0 EXPENSES: Mortality and expense risk ............................................ 4 ------ Net investment income (loss) ......................................... (4) ------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions ................ (36) Change in unrealized appreciation (depreciation) ..................... (76) ------ Net gain (loss) on investment securities ............................. (112) ------ Net increase (decrease) in net assets resulting from operations ..... $ (116) ======
(a) The inception date of this Sub-Account was January 2, 1998. (b) The inception date of this Sub-Account was May 1, 1998. The notes to the financial statements are an integral part of this report. 99 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED ALL AMOUNTS IN THOUSANDS
MONEY MARKET SUB-ACCOUNT December 31, ----------------------- 1998 1997 ------------ ---------- OPERATIONS: Net investment income (loss) .......................................... $ 919 $ 639 Net gain (loss) on investment securities .............................. 0 0 ---------- -------- Net increase (decrease) in net assets resulting from operations ....... 919 639 ---------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 12,763 7,719 ---------- -------- Less cost of units redeemed: Administrative charges ............................................... 3,123 3,108 Policy loans ......................................................... 1,163 687 Surrender benefits ................................................... 1,250 854 Death benefits ....................................................... 10 9 ---------- -------- 5,546 4,658 ---------- -------- Increase (decrease) in net assets from capital unit transactions ..... 7,217 3,061 ---------- -------- Net increase (decrease) in net assets ................................ 8,136 3,700 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 16,440 12,740 ---------- -------- End of year ........................................................... $ 24,576 $ 16,440 ========== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 1,020 825 Units issued .......................................................... 11,339 9,509 Units redeemed ........................................................ (10,899) (9,314) ---------- -------- Units outstanding - end of year ....................................... 1,460 1,020 ========== ======== BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, ---------------------- ------------------------ 1998 1997 1998 1997 ----------- ---------- ----------- ------------ OPERATIONS: Net investment income (loss) .......................................... $ 1,002 $ 661 $ 1,103 $ 44,206 Net gain (loss) on investment securities .............................. 713 418 295,459 15,238 ------- ------- -------- -------- Net increase (decrease) in net assets resulting from operations ....... 1,715 1,079 296,562 59,444 ------- ------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 9,472 7,506 140,684 106,236 ------- ------- -------- -------- Less cost of units redeemed: Administrative charges ............................................... 2,292 1,633 44,910 37,231 Policy loans ......................................................... 594 428 18,083 11,212 Surrender benefits ................................................... 865 437 22,312 15,746 Death benefits ....................................................... 159 15 4,185 711 ------- ------- -------- -------- 3,910 2,513 89,490 64,900 ------- ------- -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 5,562 4,993 51,194 41,336 ------- ------- -------- -------- Net increase (decrease) in net assets ................................ 7,277 6,072 347,756 100,780 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of year ..................................................... 17,657 11,585 450,271 349,491 ------- ------- -------- -------- End of year ........................................................... $24,934 $17,657 $798,027 $450,271 ======= ======= ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 836 593 7,972 7,208 Units issued .......................................................... 1,030 568 2,967 2,877 Units redeemed ........................................................ (776) (325) (2,271) (2,113) ------- ------- -------- -------- Units outstanding - end of year ....................................... 1,090 836 8,668 7,972 ======= ======= ======== ========
GLOBAL SUB-ACCOUNT December 31, ------------------------ 1998 1997 ----------- ------------ OPERATIONS: Net investment income (loss) .......................................... $ 7,425 $ 15,859 Net gain (loss) on investment securities .............................. 38,427 805 -------- -------- Net increase (decrease) in net assets resulting from operations ....... 45,852 16,664 -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 72,962 64,272 -------- -------- Less cost of units redeemed: Administrative charges ............................................... 19,369 12,590 Policy loans ......................................................... 4,953 2,948 Surrender benefits ................................................... 5,662 3,391 Death benefits ....................................................... 591 149 -------- -------- 30,575 19,078 -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 42,387 45,194 -------- -------- Net increase (decrease) in net assets ................................ 88,239 61,858 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 145,017 83,159 -------- -------- End of year ........................................................... $233,256 $145,017 ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 8,145 5,497 Units issued .......................................................... 5,610 5,205 Units redeemed ........................................................ (3,588) (2,557) -------- -------- Units outstanding - end of year ....................................... 10,167 8,145 ======== ======== STRATEGIC TOTAL RETURN EMERGING GROWTH SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, ----------------------- ------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ------------ OPERATIONS: Net investment income (loss) .......................................... $ 3,284 $ 6,101 $ 6,894 $ 13,841 Net gain (loss) on investment securities .............................. 4,347 6,521 59,514 10,932 -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations ....... 7,631 12,622 66,408 24,773 -------- -------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 24,191 22,072 64,824 54,392 -------- -------- -------- -------- Less cost of units redeemed: Administrative charges ............................................... 7,696 6,025 19,612 14,518 Policy loans ......................................................... 2,319 1,624 5,601 3,692 Surrender benefits ................................................... 2,587 2,044 7,688 3,986 Death benefits ....................................................... 1,047 148 368 192 -------- -------- -------- -------- 13,649 9,841 33,269 22,388 -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 10,542 12,231 31,555 32,004 -------- -------- -------- -------- Net increase (decrease) in net assets ................................ 18,173 24,853 97,963 56,777 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of year ..................................................... 80,753 55,900 164,702 107,925 -------- -------- -------- -------- End of year ........................................................... $ 98,926 $ 80,753 $262,665 $164,702 ======== ======== ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 4,270 3,570 7,013 5,532 Units issued .......................................................... 1,946 1,809 4,099 4,085 Units redeemed ........................................................ (1,402) (1,109) (2,894) (2,604) -------- -------- -------- -------- Units outstanding - end of year ....................................... 4,814 4,270 8,218 7,013 ======== ======== ======== ========
The notes to the financial statements are an integral part of this report. 100 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED ALL AMOUNTS IN THOUSANDS
AGGRESSIVE GROWTH SUB-ACCOUNT December 31, ----------------------- 1998 1997 ----------- ----------- OPERATIONS: Net investment income (loss) .......................................... $ 7,851 $ 7,795 Net gain (loss) on investment securities .............................. 44,348 6,524 -------- -------- Net increase (decrease) in net assets resulting from operations ....... 52,199 14,319 -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 53,159 40,282 -------- -------- Less cost of units redeemed: Administrative charges ............................................... 13,960 9,888 Policy loans ......................................................... 3,522 1,926 Surrender benefits ................................................... 4,423 2,485 Death benefits ....................................................... 248 58 -------- -------- 22,153 14,357 -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 31,006 25,925 -------- -------- Net increase (decrease) in net assets ................................ 83,205 40,244 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 94,652 54,408 -------- -------- End of year ........................................................... $177,857 $ 94,652 ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 5,230 3,702 Units issued .......................................................... 3,797 3,540 Units redeemed ........................................................ (2,358) (2,012) -------- -------- Units outstanding - end of year ....................................... 6,669 5,230 ======== ======== BALANCED GROWTH & INCOME SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, --------------------- --------------------- 1998 1997 1998 1997 ---------- ---------- ----------- --------- OPERATIONS: Net investment income (loss) .......................................... $ 227 $ 992 $ 644 $1,214 Net gain (loss) on investment securities .............................. 576 226 (269) 283 ------- ------- ------- ------ Net increase (decrease) in net assets resulting from operations ....... 803 1,218 375 1,497 ------- ------- ------- ------ CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 5,658 4,373 8,963 3,232 ------- ------- ------- ------ Less cost of units redeemed: Administrative charges ............................................... 1,423 958 1,633 733 Policy loans ......................................................... 279 179 218 163 Surrender benefits ................................................... 596 153 431 260 Death benefits ....................................................... 15 3 72 11 ------- ------- ------- ------ 2,313 1,293 2,354 1,167 ------- ------- ------- ------ Increase (decrease) in net assets from capital unit transactions ..... 3,345 3,080 6,609 2,065 ------- ------- ------- ------ Net increase (decrease) in net assets ................................ 4,148 4,298 6,984 3,562 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of year ..................................................... 10,716 6,418 9,063 5,501 ------- ------- ------- ------ End of year ........................................................... $14,864 $10,716 $16,047 $9,063 ======= ======= ======= ====== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 756 526 563 422 Units issued .......................................................... 578 472 966 352 Units redeemed ........................................................ (344) (242) (553) (211) ------- ------- ------- ------ Units outstanding - end of year ....................................... 990 756 976 563 ======= ======= ======= ======
TACTICAL ASSET ALLOCATION SUB-ACCOUNT December 31, ----------------------- 1998 1997 ----------- ----------- OPERATIONS: Net investment income (loss) .......................................... $ 3,419 $ 1,913 Net gain (loss) on investment securities .............................. (1,087) 1,362 -------- ------- Net increase (decrease) in net assets resulting from operations ....... 2,332 3,275 -------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 13,703 11,386 -------- ------- Less cost of units redeemed: Administrative charges ............................................... 3,421 2,219 Policy loans ......................................................... 748 463 Surrender benefits ................................................... 925 742 Death benefits ....................................................... 160 60 -------- ------- 5,254 3,484 -------- ------- Increase (decrease) in net assets from capital unit transactions ..... 8,449 7,902 -------- ------- Net increase (decrease) in net assets ................................ 10,781 11,177 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 29,123 17,946 -------- ------- End of year ........................................................... $ 39,904 $29,123 ======== ======= UNIT ACTIVITY: Units outstanding - beginning of year ................................. 1,867 1,330 Units issued .......................................................... 1,377 1,163 Units redeemed ........................................................ (861) (626) -------- ------- Units outstanding - end of year ....................................... 2,383 1,867 ======== ======= C.A.S.E. GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, ----------------------- ----------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- OPERATIONS: Net investment income (loss) .......................................... $ 1,475 $ 994 $ 2,021 $ 183 Net gain (loss) on investment securities .............................. (1,114) (252) (4,683) 3,038 -------- ------- -------- ------- Net increase (decrease) in net assets resulting from operations ....... 361 742 (2,662) 3,221 -------- ------- -------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 8,731 8,029 6,086 17,023 -------- ------- -------- ------- Less cost of units redeemed: Administrative charges ............................................... 2,433 970 2,846 1,257 Policy loans ......................................................... 520 146 643 542 Surrender benefits ................................................... 295 144 401 388 Death benefits ....................................................... 60 6 165 0 -------- ------- -------- ------- 3,308 1,266 4,055 2,187 -------- ------- -------- ------- Increase (decrease) in net assets from capital unit transactions ..... 5,423 6,763 2,031 14,836 -------- ------- -------- ------- Net increase (decrease) in net assets ................................ 5,784 7,505 (631) 18,057 Depositor's equity contribution (redemption) .......................... 0 (25) 0 (230) NET ASSETS: Beginning of year ..................................................... 11,946 4,466 26,714 8,887 -------- ------- -------- ------- End of year ........................................................... $ 17,730 $11,946 $ 26,083 $26,714 ======== ======= ======== ======= UNIT ACTIVITY: Units outstanding - beginning of year ................................. 969 413 1,916 790 Units issued .......................................................... 1,317 931 1,748 1,772 Units redeemed ........................................................ (869) (375) (1,682) (646) -------- ------- -------- ------- Units outstanding - end of year ....................................... 1,417 969 1,982 1,916 ======== ======= ======== =======
The notes to the financial statements are an integral part of this report. 101 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED ALL AMOUNTS IN THOUSANDS
INTERNATIONAL EQUITY U.S. EQUITY SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, --------------------- -------------------- 1998 1997(a) 1998 1997(a) ---------- ---------- ---------- --------- OPERATIONS: Net investment income (loss) ....................................... $ (32) $ (4) $ 434 $ 107 Net gain (loss) on investment securities ........................................................ 369 31 1,411 96 ------ ------ ------- ------ Net increase (decrease) in net assets resulting from operations..... 337 27 1,845 203 ------ ------ ------- ------ CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ............................. 3,972 2,458 10,178 3,208 ------ ------ ------- ------ Less cost of units redeemed: Administrative charges ............................................ 433 117 862 91 Policy loans ...................................................... 196 59 159 56 Surrender benefits ................................................ 35 14 113 9 Death benefits .................................................... 107 0 63 0 ------ ------ ------- ------ 771 190 1,197 156 ------ ------ ------- ------ Increase (decrease) in net assets from capital unit transactions ................................................ 3,201 2,268 8,981 3,052 ------ ------ ------- ------ Net increase (decrease) in net assets ............................. 3,538 2,295 10,826 3,255 Depositor's equity contribution (redemption) ....................... 0 (6) 0 3 NET ASSETS: Beginning of year .................................................. 2,289 0 3,258 0 ------ ------ ------- ------ End of year ........................................................ $5,827 $2,289 $14,084 $3,258 ====== ====== ======= ====== UNIT ACTIVITY: Units outstanding - beginning of year .............................. 215 0 259 0 Units issued ....................................................... 767 484 1,266 393 Units redeemed ..................................................... (493) (269) (606) (134) ------ ------ ------- ------ Units outstanding - end of year .................................... 489 215 919 259 ====== ====== ======= ====== THIRD AVENUE REAL ESTATE VALUE SECURITIES SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, 1998(b) 1998(c) -------------- ------------- OPERATIONS: Net investment income (loss) ....................................... $ (11) $ (4) Net gain (loss) on investment securities ........................................................ (142) (112) ------ ------- Net increase (decrease) in net assets resulting from operations..... (153) (116) ------ ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ............................. 2,932 472 ------ ------- Less cost of units redeemed: Administrative charges ............................................ 138 4 Policy loans ...................................................... 8 43 Surrender benefits ................................................ 26 0 Death benefits .................................................... 0 0 ------ ------- 172 47 ------ ------- Increase (decrease) in net assets from capital unit transactions ................................................ 2,760 425 ------ ------- Net increase (decrease) in net assets ............................. 2,607 309 Depositor's equity contribution (redemption) ....................... 200 400 NET ASSETS: Beginning of year .................................................. 0 0 ------ ------- End of year ........................................................ $2,807 $ 709 ====== ======= UNIT ACTIVITY: Units outstanding - beginning of year .............................. 0 0 Units issued ....................................................... 495 113 Units redeemed ..................................................... (191) (29) ------ ------- Units outstanding - end of year .................................... 304 84 ====== =======
(a) The inception date of this Sub-Account was January 2, 1997. (b) The inception date of this Sub-Account was January 2, 1998. (c) The inception date of this Sub-Account was May 1, 1998. The notes to the financial statements are an integral part of this report. 102 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
MONEY MARKET SUB-ACCOUNT December 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................... $ 16.13 $ 15.45 Income from operations: Net investment income (loss) ........................................... 0.70 0.68 Net realized and unrealized gain (loss) on investment .................. 0.00 0.00 ------- ------- Net income (loss) from operations ..................................... 0.70 0.68 ------- ------- Accumulation unit value, end of year ..................................... $ 16.83 $ 16.13 ======= ======= Total return (a) ......................................................... 4.36% 4.37% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $24,576 $16,440 Ratios of net investment income (loss) to average net assets (b) ........ 4.24% 4.28% MONEY MARKET SUB-ACCOUNT December 31, ----------------------------------- 1996 1995 1994 ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 14.83 $ 14.19 $ 13.84 Income from operations: Net investment income (loss) ........................................... 0.62 0.64 0.35 Net realized and unrealized gain (loss) on investment .................. 0.00 0.00 0.00 ------- ------- ------- Net income (loss) from operations ..................................... 0.62 0.64 0.35 ------- ------- ------- Accumulation unit value, end of year ..................................... $ 15.45 $ 14.83 $ 14.19 ======= ======= ======= Total return (a) ......................................................... 4.17% 4.49% 2.58% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $12,740 $10,759 $ 9,706 Ratios of net investment income (loss) to average net assets (b) ........ 4.07% 4.37% 2.66%
BOND SUB-ACCOUNT December 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................ $ 21.12 $ 19.53 Income from operations: Net investment income (loss) ........................................ 1.01 1.01 Net realized and unrealized gain (loss) on investment ............... 0.76 0.58 ------- ------- Net income (loss) from operations .................................. 1.77 1.59 ------- ------- Accumulation unit value, end of year .................................. $ 22.89 $ 21.12 ======= ======= Total return (a) ...................................................... 8.34% 8.18% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $24,934 $17,657 Ratios of net investment income (loss) to average net assets (b) ..... 4.58% 5.06% BOND SUB-ACCOUNT December 31, ----------------------------------- 1996 1995 1994 ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 19.67 $ 16.14 $ 17.50 Income from operations: Net investment income (loss) ........................................ 0.99 1.05 0.89 Net realized and unrealized gain (loss) on investment ............... (1.13) 2.48 (2.25) -------- ------- --------- Net income (loss) from operations .................................. (0.14) 3.53 (1.36) -------- ------- --------- Accumulation unit value, end of year .................................. $ 19.53 $ 19.67 $ 16.14 ======== ======= ========= Total return (a) ...................................................... (0.75)% 21.89% (7.77)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $ 11,585 $10,066 $ 6,259 Ratios of net investment income (loss) to average net assets (b) ..... 5.34% 5.80% 5.57%
GROWTH SUB-ACCOUNT December 31, ------------------------- 1998 1997 ------------ ------------ Accumulation unit value, beginning of year ............................ $ 56.48 $ 48.48 Income from operations: Net investment income (loss) ........................................ 0.13 5.83 Net realized and unrealized gain (loss) on investment ............... 35.46 2.17 -------- -------- Net income (loss) from operations .................................. 35.59 8.00 -------- -------- Accumulation unit value, end of year .................................. $ 92.07 $ 56.48 ======== ======== Total return (a) ...................................................... 63.01% 16.50% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $798,027 $450,271 Ratios of net investment income (loss) to average net assets (b) ..... 0.19% 10.84% GROWTH SUB-ACCOUNT December 31, -------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Accumulation unit value, beginning of year ............................ $ 41.47 $ 28.44 $ 31.30 Income from operations: Net investment income (loss) ........................................ 2.88 3.89 0.04 Net realized and unrealized gain (loss) on investment ............... 4.13 9.14 (2.90) -------- -------- -------- Net income (loss) from operations .................................. 7.01 13.03 (2.86) -------- -------- -------- Accumulation unit value, end of year .................................. $ 48.48 $ 41.47 $ 28.44 ======== ======== ======== Total return (a) ...................................................... 16.91% 45.81% (9.13)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $349,491 $262,467 $161,490 Ratios of net investment income (loss) to average net assets (b) ..... 6.41% 11.05% 0.16%
The notes to the financial statements are an integral part of this report. 103 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
GLOBAL SUB-ACCOUNT December 31, ------------------------------------------------------------ 1998 1997 1996 1995 1994(c) ------------ ------------ ----------- ----------- ---------- Accumulation unit value, beginning of year .......................... $ 17.80 $ 15.13 $ 11.95 $ 9.80 $ 10.00 Income from operations: Net investment income (loss) ...................................... 0.82 2.30 1.50 0.45 0.71 Net realized and unrealized gain (loss) on investment ............. 4.32 0.37 1.68 1.70 (0.91) -------- -------- ------- ------- -------- Net income (loss) from operations ................................ 5.14 2.67 3.18 2.15 (0.20) -------- -------- ------- ------- -------- Accumulation unit value, end of year ................................ $ 22.94 $ 17.80 $ 15.13 $ 11.95 $ 9.80 ======== ======== ======= ======= ======== Total return (a) .................................................... 28.86% 17.69% 26.60% 21.96% (2.02)% Ratios and supplemental data: Net assets at end of year (in thousands) ........................... $233,256 $145,017 $83,159 $37,049 $ 21,672 Ratios of net investment income (loss) to average net assets (b) ... 3.92% 13.39% 11.09% 4.25% 8.86%
STRATEGIC TOTAL RETURN SUB-ACCOUNT December 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................ $ 18.91 $ 15.66 Income from operations: Net investment income (loss) ........................................ 0.71 1.56 Net realized and unrealized gain (loss) on investment ............... 0.93 1.69 ------- ------- Net income (loss) from operations .................................. 1.64 3.25 ------- ------- Accumulation unit value, end of year .................................. $ 20.55 $ 18.91 ======= ======= Total return (a) ...................................................... 8.66% 20.77% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $98,926 $80,753 Ratios of net investment income (loss) to average net assets (b) ..... 3.67% 8.89% STRATEGIC TOTAL RETURN SUB-ACCOUNT December 31, ----------------------------------- 1996 1995 1994 ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 13.74 $ 11.12 $ 11.28 Income from operations: Net investment income (loss) ........................................ 0.82 0.68 0.18 Net realized and unrealized gain (loss) on investment ............... 1.10 1.94 (0.34) ------- ------- -------- Net income (loss) from operations .................................. 1.92 2.62 (0.16) ------- ------- -------- Accumulation unit value, end of year .................................. $ 15.66 $ 13.74 $ 11.12 ======= ======= ======== Total return (a) ...................................................... 13.97% 23.55% (1.42)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $55,900 $39,648 $ 23,649 Ratios of net investment income (loss) to average net assets (b) ..... 5.76% 5.47% 1.93%
EMERGING GROWTH SUB-ACCOUNT December 31, ------------------------- 1998 1997 ------------ ------------ Accumulation unit value, beginning of year .......................... $ 23.48 $ 19.51 Income from operations: Net investment income (loss) ...................................... 0.91 2.20 Net realized and unrealized gain (loss) on investment ............. 7.57 1.77 -------- -------- Net income (loss) from operations ................................ 8.48 3.97 -------- -------- Accumulation unit value, end of year ................................ $ 31.96 $ 23.48 ======== ======== Total return (a) .................................................... 36.11% 20.37% Ratios and supplemental data: Net assets at end of year (in thousands) ........................... $262,665 $164,702 Ratios of net investment income (loss) to average net assets (b) ... 3.44% 10.18% EMERGING GROWTH SUB-ACCOUNT December 31, ------------------------------------ 1996 1995 1994 ------------ ----------- ----------- Accumulation unit value, beginning of year .......................... $ 16.56 $ 11.38 $ 12.40 Income from operations: Net investment income (loss) ...................................... 0.82 0.65 (0.09) Net realized and unrealized gain (loss) on investment ............. 2.13 4.53 (0.93) -------- ------- ------- Net income (loss) from operations ................................ 2.95 5.18 (1.02) -------- ------- ------- Accumulation unit value, end of year ................................ $ 19.51 $ 16.56 $ 11.38 ======== ======= ======= Total return (a) .................................................... 17.82% 45.49% (8.18)% Ratios and supplemental data: Net assets at end of year (in thousands) ........................... $107,925 $67,905 $36,687 Ratios of net investment income (loss) to average net assets (b) ... 4.51% 4.66% (0.86)%
The notes to the financial statements are an integral part of this report. 104 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
AGGRESSIVE GROWTH SUB-ACCOUNT December 31, ------------------------ 1998 1997 ------------ ----------- Accumulation unit value, beginning of year ............................ $ 18.10 $ 14.70 Income from operations: Net investment income (loss) ........................................ 1.33 1.75 Net realized and unrealized gain (loss) on investment ............... 7.24 1.65 -------- ------- Net income (loss) from operations .................................. 8.57 3.40 -------- ------- Accumulation unit value, end of year .................................. $ 26.67 $ 18.10 ======== ======= Total return (a) ...................................................... 47.36% 23.14% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $177,857 $94,652 Ratios of net investment income (loss) to average net assets (b) ..... 6.20% 10.26% AGGRESSIVE GROWTH SUB-ACCOUNT December 31, ----------------------------------- 1996 1995 1994(c) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 13.43 $ 9.82 $10.00 Income from operations: Net investment income (loss) ........................................ 0.36 0.37 (0.06) Net realized and unrealized gain (loss) on investment ............... 0.91 3.24 (0.12) ------- ------- ------ Net income (loss) from operations .................................. 1.27 3.61 (0.18) ------- ------- ------ Accumulation unit value, end of year .................................. $ 14.70 $ 13.43 $ 9.82 ======= ======= ====== Total return (a) ...................................................... 9.46% 36.79% (1.85)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $54,408 $32,904 $8,909 Ratios of net investment income (loss) to average net assets (b) ..... 2.65% 2.93% (0.72)%
BALANCED SUB-ACCOUNT December 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................ $ 14.17 $ 12.21 Income from operations: Net investment income (loss) ........................................ 0.25 1.55 Net realized and unrealized gain (loss) on investment ............... 0.60 0.41 ------- ------- Net income (loss) from operations .................................. 0.85 1.96 ------- ------- Accumulation unit value, end of year .................................. $ 15.02 $ 14.17 ======= ======= Total return (a) ...................................................... 5.98% 16.06% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $14,864 $10,716 Ratios of net investment income (loss) to average net assets (b) ..... 1.76% 11.62% BALANCED SUB-ACCOUNT December 31, ----------------------------------- 1996 1995 1994(c) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 11.13 $ 9.37 $ 10.00 Income from operations: Net investment income (loss) ........................................ 0.36 0.37 0.22 Net realized and unrealized gain (loss) on investment ............... 0.72 1.39 (0.85) ------- -------- --------- Net income (loss) from operations .................................. 1.08 1.76 (0.63) ------- -------- --------- Accumulation unit value, end of year .................................. $ 12.21 $ 11.13 $ 9.37 ======= ======== ========= Total return (a) ...................................................... 9.73% 18.73% (6.29)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $ 6,418 $ 3,795 $ 2,145 Ratios of net investment income (loss) to average net assets (b) ..... 3.18% 3.59% 3.06%
GROWTH & INCOME SUB-ACCOUNT December 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................ $ 16.09 $ 13.03 Income from operations: Net investment income (loss) ........................................ 0.77 2.61 Net realized and unrealized gain (loss) on investment ............... (0.42) 0.45 ------- -------- Net income (loss) from operations .................................. 0.35 3.06 ------- -------- Accumulation unit value, end of year .................................. $ 16.44 $ 16.09 ======= ======== Total return (a) ...................................................... 2.13% 23.54% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $16,047 $ 9,063 Ratios of net investment income (loss) to average net assets (b) ..... 4.83% 18.50% GROWTH & INCOME SUB-ACCOUNT December 31, ----------------------------------- 1996 1995 1994(c) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 11.77 $ 9.49 $ 10.00 Income from operations: Net investment income (loss) ........................................ 0.76 0.49 0.29 Net realized and unrealized gain (loss) on investment ............... 0.50 1.79 (0.80) -------- -------- --------- Net income (loss) from operations .................................. 1.26 2.28 (0.51) -------- -------- --------- Accumulation unit value, end of year .................................. $ 13.03 $ 11.77 $ 9.49 ======== ======== ========= Total return (a) ...................................................... 10.64% 24.14% (5.15)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $ 5,501 $ 2,631 $ 1,215 Ratios of net investment income (loss) to average net assets (b) ..... 6.38% 4.57% 3.71%
The notes to the financial statements are an integral part of this report. 105 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
TACTICAL ASSET ALLOCATION SUB-ACCOUNT December 31, ----------------------------------------------- 1998 1997 1996 1995(d) ----------- ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 15.60 $ 13.50 $ 11.90 $ 10.00 Income from operations: Net investment income (loss) ........................................... 1.58 1.20 0.53 0.61 Net realized and unrealized gain (loss) on investment .................. (0.44) 0.90 1.07 1.29 ------- ------- ------- -------- Net income (loss) from operations ..................................... 1.14 2.10 1.60 1.90 ------- ------- ------- -------- Accumulation unit value, end of year ..................................... $ 16.74 $ 15.60 $ 13.50 $ 11.90 ======= ======= ======= ======== Total return (a) ......................................................... 7.36% 15.55% 13.40% 19.03% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $39,904 $29,123 $17,946 $ 9,446 Ratios of net investment income (loss) to average net assets (b) ........ 9.69% 8.14% 4.35% 5.47%
C.A.S.E. GROWTH SUB-ACCOUNT December 31, --------------------------------------- 1998 1997 1996(e) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 12.32 $ 10.81 $ 10.00 Income from operations: Net investment income (loss) ........................................... 1.24 1.51 0.37 Net realized and unrealized gain (loss) on investment .................. (1.05) 0.00 0.44 ------- ------- ------- Net income (loss) from operations ..................................... 0.19 1.51 0.81 ------- ------- ------- Accumulation unit value, end of year ..................................... $ 12.51 $ 12.32 $ 10.81 ======= ======= ======= Total return (a) ......................................................... 1.56% 14.00% 8.09% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $17,730 $11,946 $ 4,466 Ratios of net investment income (loss) to average net assets (b) ........ 10.21% 12.65% 6.11%
VALUE EQUITY SUB-ACCOUNT December 31, --------------------------------------- 1998 1997 1996(e) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 13.94 $ 11.25 $ 10.00 Income from operations: Net investment income (loss) ........................................... 0.95 0.14 0.05 Net realized and unrealized gain (loss) on investment .................. (1.73) 2.55 1.20 -------- ------- -------- Net income (loss) from operations ..................................... (0.78) 2.69 1.25 -------- ------- -------- Accumulation unit value, end of year ..................................... $ 13.16 $ 13.94 $ 11.25 ======== ======= ======== Total return (a) ......................................................... (5.63)% 23.93% 12.51% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $ 26,083 $26,714 $ 8,887 Ratios of net investment income (loss) to average net assets (b) ........ 6.84% 1.05% 0.77%
The notes to the financial statements are an integral part of this report. 106 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
INTERNATIONAL EQUITY U.S. EQUITY SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, ----------------------- ------------------------- 1998 1997(f) 1998 1997(f) ---------- ---------- ----------- ----------- Accumulation unit value, beginning of year ............................... $10.65 $10.00 $ 12.59 $ 10.00 Income from operations: Net investment income (loss) ........................................... (0.09) (0.03) 0.73 0.99 Net realized and unrealized gain (loss) on investment .................. 1.36 0.68 2.01 1.60 ------- ------- ------- -------- Net income (loss) from operations ..................................... 1.27 0.65 2.74 2.59 ------- ------- ------- -------- Accumulation unit value, end of year ..................................... $11.92 $10.65 $ 15.33 $ 12.59 ======= ======= ======= ======== Total return (a) ......................................................... 11.84% 6.54% 21.78% 25.89% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $5,827 $2,289 $14,084 $ 3,258 Ratios of net investment income (loss) to average net assets (b) ........ (0.81)% (0.28)% 5.30% 8.28%
THIRD AVENUE REAL ESTATE VALUE SECURITIES SUB-ACCOUNT SUB-ACCOUNT December 31, December 31, 1998(g) 1998(h) -------------- ------------- Accumulation unit value, beginning of year ....................... $ 10.00 $ 10.00 Income from operations: Net investment income (loss) ................................... (0.05) (0.05) Net realized and unrealized gain (loss) on investment .......... (0.72) (1.49) -------- -------- Net income (loss) from operations ............................. (0.77) (1.54) -------- -------- Accumulation unit value, end of year ............................. $ 9.23 $ 8.46 ======== ======== Total return (a) ................................................. (7.67)% (15.44)% Ratios and supplemental data: Net assets at end of year (in thousands) ........................ $ 2,807 $ 709 Ratios of net investment income (loss) to average net assets (b) (0.52)% (0.90)%
NOTES TO FINANCIAL HIGHLIGHTS: * Per unit information has been computed using average units outstanding throughout each period. (a) Not annualized for periods less than one year. (b) Annualized for periods less than one year. (c) The inception date of this Sub-Account was March 1, 1994. (d) The inception date of this Sub-Account was January 3, 1995. (e) The inception date of this Sub-Account was May 1, 1996. (f) The inception date of this Sub-Account was January 2, 1997. (g) The inception date of this Sub-Account was January 2, 1998. (h) The inception date of this Sub-Account was May 1, 1998. The notes to the financial statements are an integral part of this report. 107 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 1998 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") and is registered as a unit investment trust ("Trust") under the Investment Company Act of 1940, as amended. The Life Account contains sixteen investment options referred to as sub-accounts. Each sub-account invests in the corresponding Portfolio of the WRL Series Fund, Inc. (collectively referred to as the "Fund" and individually as a "Portfolio"), a registered management investment company under the Investment Company Act of 1940, as amended. The Fund has entered into annually renewable investment advisory agreements for each Portfolio with WRL Investment Management, Inc. ("WRL Management") as investment adviser. Costs incurred in connection with the advisory services rendered by WRL Management are paid by each Portfolio. WRL Management has entered into sub-advisory agreements with various management companies, some of which are affiliates of WRL. Each sub-adviser is compensated directly by WRL Management. On January 2, 1998 and May 1, 1998, WRL made initial contributions totaling $600,000 to the Life Account. The respective amounts of the contributions and units received are as follows: SUB-ACCOUNT CONTRIBUTION UNITS - ----------- -------------- ------- Third Avenue Value ............. $200,000 20,000 Real Estate Securities ......... $400,000 40,000 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 generally accepted accounting principles, have been consistently applied in the preparation of the Trust's financial statements. The preparation of financial statements required management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS Investments in the Fund's shares are stated at the closing net asset value ("NAV") per share as determined by the Fund. Investment transactions are accounted for on the trade date at the Fund NAV next determined after receipt of sale or redemption orders without sales charges. Dividend income and capital gains distributions are recorded on the ex-dividend date. The cost of investments sold is determined on a first-in, first-out basis. 108 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1998 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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 sub-accounts. Thereafter, monthly administrative and cost of insurance charges are deducted from the policies. Contingent surrender charges also apply. Under the other forms of the Policies, such "front-end" and other administrative charges are deducted prior to allocation of the initial premium payment but may be subject to contingent surrender charges. 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 and 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. DIVIDENDS AND 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. 109 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1998 NOTE 4. SECURITIES TRANSACTIONS Securities transactions for the year ended December 31, 1998 are as follows (in thousands):
PURCHASE PROCEEDS SUB-ACCOUNT: OF SECURITIES OF SECURITIES - ------------ --------------- ---------------- Money Market ....................... $54,231 $46,140 Bond ............................... 14,451 7,857 Growth ............................. 72,758 20,484 Global ............................. 59,238 9,357 Strategic Total Return ............. 17,619 3,754 Emerging Growth .................... 49,088 10,679 Aggressive Growth .................. 44,611 5,689 Balanced ........................... 4,604 1,017 Growth & Income .................... 10,694 3,411 Tactical Asset Allocation .......... 14,060 2,009 C.A.S.E. Growth .................... 9,433 2,525 Value Equity ....................... 13,179 9,081 International Equity ............... 6,220 3,048 U.S. Equity ........................ 12,496 3,076 Third Avenue Value (a) ............. 3,849 906 Real Estate Securities (b) ......... 1,047 226
(a) The inception date of this Sub-Account was January 2, 1998. (b) The inception date of this Sub-Account was May 1, 1998. 110 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1998 NOTE 5. OTHER MATTERS At December 31, 1998 net unrealized appreciation (depreciation) on investments was as follows (in thousands):
SUB-ACCOUNT - ----------- Money Market ...................... $ 0 Bond .............................. 402 Growth ............................ 374,036 Global ............................ 43,882 Strategic Total Return ............ 17,020 Emerging Growth ................... 85,696 Aggressive Growth ................. 50,985 Balanced .......................... 991 Growth & Income ................... (177) Tactical Asset Allocation ......... 973 C.A.S.E. Growth ................... (1,524) Value Equity ...................... (2,759) International Equity .............. 119 U.S. Equity ....................... 1,068 Third Avenue Value ................ (103) Real Estate Securities ............ (76)
111 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO BALANCE SHEET - STATUTORY BASIS AS OF MARCH 31, 1999 (IN THOUSANDS)(UNAUDITED) ADMITTED ASSETS Cash and invested assets: Cash and short-term investments $ 28,797 Bonds 169,409 Common stock, at market 4,317 Mortgage loans on real estate 9,864 Home office properties, at cost less accumulated Depreciation 34,866 Investment real estate 11,276 Policy loans 126,519 ---------- Total cash and invested assets 385,048 Premiums deferred and uncollected 972 Accrued investment income 2,778 Transfers from separate accounts 379,070 Cash surrender value of life insurance policies 45,972 Other assets 15,817 Separate account assets 7,868,017 ---------- Total admitted assets $8,697,674 ========== 112 LIABILITIES AND CAPITAL AND SURPLUS Liabilities: Aggregate reserves for policies and contracts: Life $ 244,711 Annuity 264,042 Policy and contract claim reserves 9,077 Other policyholders' funds 30,682 Remittances and items not allocated 20,913 Federal income taxes payable 4,326 Asset valuation reserve 5,951 Interest maintenance reserve 9,669 Payable to affiliate 42,704 Other liabilities 47,736 Separate account liabilities 7,866,790 ---------- Total liabilities 8,546,601 Capital and surplus: Common stock, $1.00 par value, 1,500 shares Authorized, issued and outstanding 1,500 Paid-in surplus 120,107 Unassigned surplus 29,466 ---------- Total capital and surplus 151,073 ---------- Total liabilities and capital and surplus $8,697,674 ========== 113 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENT OF OPERATIONS - STATUTORY BASIS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS)(UNAUDITED) Revenues: Premiums and other considerations, net of reinsurance Life $ 127,436 Annuity 229,954 Net investment income 10,546 Amortization of interest maintenance reserve 479 Commissions and expense allowances on Reinsurance ceded 7,053 Other income 33,428 --------- 408,896 Benefits and expenses: Benefits paid or provided for: Life 8,134 Surrender benefits 168,890 Other benefits 7,374 Increase (decrease) in aggregate reserves for policies and contracts: Life 13,115 Annuity (1,376) Other (1,851) --------- 194,286 Insurance expenses: Commissions 56,843 General insurance expenses 27,550 Taxes, licenses and fees 4,577 Transfer to separate accounts 114,019 Other expenses (29) --------- 202,960 --------- 397,246 --------- Gain from operations before federal income tax expense and realized capital losses on investments 11,650 Federal income tax expense 4,078 --------- Gain from operations before realized capital losses on investments 7,572 Net realized capital losses on investments (net of related federal income tax and amounts transferred to interest maintenance reserve) (57) --------- Net gain $ 7,515 ========= 114
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 1,1999 $1,500 $120,107 $21,973 $143,580 Net gain 0 0 7,515 7,515 Net unrealized gains 0 0 3,229 3,229 Change in non-admitted assets 0 0 (148) (148) Change in asset valuation reserve 0 0 (3,102) (3,102) Change in surplus in separate accounts 0 0 510 510 Other adjustments 0 0 (511) (511) ------ -------- ------- -------- Balance at March 31, 1999 $1,500 $120,107 $29,466 $151,073 ====== ======== ======= ========
115 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENT OF CASH FLOW - STATUTORY BASIS FOR THE THREE MONTHS ENDED MARCH 31,1999 (IN THOUSANDS)(UNAUDITED) OPERATING ACTIVITIES Premiums and other considerations, net of reinsurance $ 398,349 Net investment income 10,276 Life and accident and health claims (8,137) Surrender benefits to policyholders (168,890) Other benefits to policyholders (7,859) Commissions, other expenses and other taxes (86,407) Federal income taxes, excluding tax on capital gains (5,716) Other, net (663) Net transfers to separate accounts (133,940) --------- Net cash used in operating activities (2,987) INVESTING ACTIVITIES Proceeds from investments sold, matured or repaid: Bonds and preferred stocks 23,658 Mortgage loans on real estate 51 --------- 23,709 Cost of investments acquired: Bonds and preferred stocks 7,677 Real estate 283 Policy loans 13,573 --------- 21,533 --------- Net cash provided by investing activities 2,176 --------- FINANCING ACTIVITIES Borrowed money (44,200) --------- Net cash used in financing activities (44,200) Decrease in cash and short-term investments (45,011) Cash and short-term investments at beginning of year 73,808 --------- Cash and short-term investments at end of year $ 28,797 ========= 116 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS)(UNAUDITED) 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 three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the accompanying statutory basis financial statements and notes thereto for the year ended December 31, 1998. 117 REPORT OF INDEPENDENT AUDITORS The Board of Directors Western Reserve Life Assurance Co. of Ohio We have audited the accompanying statutory-basis balance sheets of Western Reserve Life Assurance Co. of Ohio as of December 31, 1998 and 1997, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the statutory-basis financial statement schedules required by Regulation S-X, Article 7. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the "Separate Account Assets" and "Separate Account Liabilities" in the balance sheets of the Company. The Separate Account financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the data included for the Separate Account, is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio, which practices differ from generally accepted accounting principles. The variances between such practices and generally accepted accounting principles are also described in Note 1. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material. In our opinion, because of the effects of the matters described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of Western Reserve Life Assurance Co. of Ohio at December 31, 1998 and 1997, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 1998. However, in our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Western Reserve Life Assurance Co. of Ohio at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic statutory-basis financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Des Moines, Iowa February 19, 1999 118 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO BALANCE SHEETS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------------- 1998 1997 ------------ ------------ ADMITTED ASSETS Cash and invested assets: Cash and short-term investments .............................. $ 73,808 $ 13,896 Bonds ........................................................ 184,697 255,919 Common stocks: Affiliated entities (cost: 1998 - $243; 1997 - $150)......... 704 319 Other (cost: 1998 and 1997 - $302)........................... 384 428 Mortgage loans on real estate ................................ 9,916 4,824 Home office properties ...................................... 34,583 19,964 Investment properties ....................................... 11,594 -- Policy loans ................................................ 112,982 76,741 Other invested assets ....................................... 396 -- ---------- ---------- Total cash and invested assets ................................ 429,064 372,091 Premiums deferred and uncollected ............................. 900 1,928 Accrued investment income ..................................... 2,867 4,088 Transfers from separate accounts .............................. 350,633 279,958 Cash surrender value of life insurance policies ............... 45,445 -- Other assets .................................................. 9,239 5,221 Separate account assets ....................................... 6,999,290 4,814,594 ---------- ---------- Total admitted assets ......................................... $7,837,438 $5,477,880 ========== ==========
SEE ACCOMPANYING NOTES. 119 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO BALANCE SHEETS -- STATUTORY BASIS (CONTINUED) (DOLLARS IN THOUSANDS)
DECEMBER 31, ----------------------------- 1998 1997 ------------- ------------- LIABILITIES AND CAPITAL AND SURPLUS Liabilities: Aggregate reserves for policies and contracts: Life ............................................ $ 231,596 $ 186,523 Annuity ......................................... 265,418 296,290 Policy and contract claim reserves ............... 9,233 10,929 Other policyholders' funds ....................... 38,080 3,877 Remittances and items not allocated .............. 20,569 9,184 Federal income taxes payable ..................... 5,716 2,283 Asset valuation reserve .......................... 2,848 2,436 Interest maintenance reserve ..................... 9,684 9,134 Short-term note payable to affiliate ............. 44,200 8,200 Payable to affiliate ............................. 37,907 1,925 Other liabilities ................................ 31,151 19,257 Separate account liabilities ..................... 6,997,456 4,812,979 ---------- ---------- Total liabilities ................................. 7,693,858 5,363,017 Commitments and contingencies Capital and surplus: Common stock, $1.00 par value, 1,500 shares authorized, issued and outstanding ............. 1,500 1,500 Paid-in surplus .................................. 120,107 88,015 Unassigned surplus ............................... 21,973 25,348 ---------- ---------- Total capital and surplus ......................... 143,580 114,863 ---------- ---------- Total liabilities and capital and surplus ......... $7,837,438 $5,477,880 ========== ==========
SEE ACCOMPANYING NOTES. 120 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF OPERATIONS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, ----------------------------------------- 1998 1997 1996 ------------- ------------- ------------- Revenues: Premiums and other considerations, net of reinsurance: Life ................................................................. $ 476,053 $ 394,370 $ 293,590 Annuity .............................................................. 794,841 822,149 740,125 Net investment income ................................................. 36,315 40,013 36,067 Amortization of interest maintenance reserve .......................... 744 1,576 1,335 Commissions and expense allowances on reinsurance ceded ............... 15,333 11 11 Other income .......................................................... 67,751 3,016 13,398 ---------- ---------- ---------- 1,391,037 1,261,135 1,084,526 Benefits and expenses: Benefits paid or provided for: Life ................................................................. 42,982 28,060 21,256 Surrender benefits ................................................... 551,528 431,939 286,406 Other benefits ....................................................... 31,280 28,112 23,270 Increase (decrease) in aggregate reserves for policies and contracts: Life ................................................................ 42,940 29,485 80,139 Annuity ............................................................. (30,872) (35,940) 12,877 Other ............................................................... 32,178 794 422 ---------- ---------- ---------- 670,036 482,450 424,370 Insurance expenses: Commissions .......................................................... 205,939 179,106 140,261 General insurance expenses ........................................... 102,611 70,546 47,406 Taxes, licenses and fees ............................................. 15,545 13,101 10,848 Net transfer to separate accounts .................................... 402,618 519,214 452,471 Other expenses ....................................................... 59 21 60 ---------- ---------- ---------- 726,772 781,988 651,046 ---------- ---------- ---------- 1,396,808 1,264,438 1,075,416 ---------- ---------- ---------- Gain (loss) from operations before federal income taxes (benefit) and realized capital gains (losses) on investments ........................ (5,771) (3,303) 9,110 Federal income tax expense (benefit) ................................... (347) 469 9,297 ---------- ---------- ---------- Loss from operations before realized capital gains (losses) on investments ............................................... (5,424) (3,772) (187) Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to interest maintenance reserve) .................................................. 1,494 747 (811) ---------- ---------- ---------- Net loss ............................................................... $ (3,930) $ (3,025) $ (998) ========== ========== ==========
SEE ACCOMPANYING NOTES. 121 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
TOTAL CAPITAL COMMON PAID-IN UNASSIGNED AND STOCK SURPLUS SURPLUS SURPLUS -------- ----------- ------------ ------------ Balance at January 1, 1996 .............................. $1,500 $ 68,015 $ 28,424 $ 97,939 Net loss for 1996 ...................................... -- -- (998) (998) Net unrealized capital gains ........................... -- -- 1,294 1,294 Change in non-admitted assets .......................... -- -- 199 199 Change in asset valuation reserve ...................... -- -- (120) (120) Change in surplus in separate accounts ................. -- -- 237 237 Change in reserve valuation ............................ -- -- (2,995) (2,995) ------ -------- -------- -------- Balance at December 31, 1996 ............................ 1,500 68,015 26,041 95,556 Net loss for 1997 ...................................... -- -- (3,025) (3,025) Change in non-admitted assets .......................... -- -- (702) (702) Change in asset valuation reserve ...................... -- -- 3,274 3,274 Change in surplus in separate accounts ................. -- -- (2,115) (2,115) Change in reserve valuation ............................ -- -- (1,872) (1,872) Capital contribution ................................... -- 20,000 -- 20,000 Tax effect of capital loss carry-forward utilized by affiliates ........................................... -- -- 3,747 3,747 ------ -------- -------- -------- Balance at December 31, 1997 ............................ 1,500 88,015 25,348 114,863 Net loss for 1998 ...................................... -- -- (3,930) (3,930) Net unrealized capital gains ........................... -- -- 248 248 Change in non-admitted assets .......................... -- -- (1,815) (1,815) Change in asset valuation reserve ...................... -- -- (412) (412) Change in surplus in separate accounts ................. -- -- (341) (341) Change in reserve valuation ............................ -- -- (2,132) (2,132) Capital contribution ................................... -- 32,092 -- 32,092 Settlement of prior period tax returns ................. -- -- 353 353 Tax benefits on stock options exercised ................ -- -- 4,654 4,654 ------ -------- -------- -------- Balance at December 31, 1998 ............................ $1,500 $120,107 $ 21,973 $143,580 ====== ======== ======== ========
SEE ACCOMPANYING NOTES. 122 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF CASH FLOWS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, ----------------------------------------- 1998 1997 1996 ------------- ------------- ------------- OPERATING ACTIVITIES Premiums and other considerations, net of reinsurance ...... $1,356,732 $1,223,898 $1,046,548 Net investment income ...................................... 38,294 43,802 38,666 Life and accident and health claims ........................ (44,426) (26,005) (20,655) Surrender benefits and other fund withdrawals .............. (551,528) (431,939) (286,406) Other benefits to policyholders ............................ (31,231) (28,147) (22,129) Commissions, other expenses and other taxes ................ (326,080) (262,901) (196,373) Net transfers to separate accounts ......................... (461,982) (596,347) (658,326) Federal income taxes received (paid) ....................... 11,956 5,006 (9,449) Interest paid .............................................. -- (731) -- Other, net ................................................. (7,109) (14,901) 28,325 ---------- ---------- ---------- Net cash used in operating activities ...................... (15,374) (88,265) (79,799) INVESTING ACTIVITIES Proceeds from investments sold, matured or repaid: Bonds and preferred stocks ................................ 143,449 146,963 122,820 Mortgage loans on real estate ............................. 221 2,116 132 Real estate ............................................... -- -- 4,304 Other ..................................................... -- -- 175 ---------- ---------- ---------- 143,670 149,079 127,431 Cost of investments acquired ............................... Bonds and preferred stocks ................................ (68,202) (40,418) (26,826) Common stocks ............................................. (93) (150) (4) Mortgage loans on real estate ............................. (5,313) (891) -- Real estate ............................................... (26,213) (12,002) (7,837) Policy loans .............................................. (36,241) (24,137) (15,479) Other ..................................................... (414) -- (5) ---------- ---------- ----------- (136,476) (77,598) (50,151) ---------- ---------- ---------- Net cash provided by investing activities .................. 7,194 71,481 77,280 FINANCING ACTIVITIES Issuance of short-term note payable to affiliate ........... 36,000 8,200 -- Capital contribution ....................................... 32,092 20,000 -- ---------- ---------- ---------- Net cash provided by financing activities .................. 68,092 28,200 -- ---------- ---------- ---------- Increase (decrease) in cash and short-term investments ..... 59,912 11,416 (2,519) Cash and short-term investments at beginning of year ....... 13,896 2,480 4,999 ---------- ---------- ---------- Cash and short-term investments at end of year ............. $ 73,808 $ 13,896 $ 2,480 ========== ========== ==========
SEE ACCOMPANYING NOTES. 123 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS (DOLLARS IN THOUSANDS) DECEMBER 31, 1998 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON"). AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company organized under the laws of The Netherlands. NATURE OF BUSINESS The Company operates predominantly in the variable universal life and variable annuity areas of the life insurance business. The Company is licensed in 49 states, District of Columbia, Puerto Rico and Guam. Sales of the Company's products are through financial planners, independent representatives, financial institutions and stockbrokers. The majority of the Company's new life insurance written and a substantial portion of new annuities written is done through one marketing organization; the Company expects to maintain this relationship for the foreseeable future. BASIS OF PRESENTATION The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio ("Insurance Department"), which practices differ from generally accepted accounting principles. The more significant of these differences are as follows: (a) bonds are generally reported at amortized cost rather than segregating the portfolio into held-to-maturity (reported at amortized cost), available-for-sale (reported at fair value), and trading (reported at fair value) classifications; (b) acquisition costs of acquiring new business are expensed as incurred rather than deferred and amortized over the life of the policies; (c) policy reserves on traditional life products are based on statutory mortality rates and interest which may differ from reserves based on reasonable assumptions of expected mortality, interest, and withdrawals which include a provision for possible unfavorable deviation from such assumptions; (d) policy reserves on certain investment products use discounting methodologies utilizing statutory interest rates rather than full 124 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) account values; (e) reinsurance amounts are netted against the corresponding asset or liability rather than shown as gross amounts on the balance sheet; (f) deferred income taxes are not provided for the difference between the financial statement amounts and income tax bases of assets and liabilities; (g) net realized gains or losses attributed to changes in the level of interest rates in the market are deferred and amortized over the remaining life of the bond or mortgage loan, rather than recognized as gains or losses in the statement of operations when the sale is completed; (h) declines in the estimated realizable value of investments are provided for through the establishment of a formula-determined statutory investment reserve (reported as a liability) changes to which are charged directly to surplus, rather than through recognition in the statement of operations for declines in value, when such declines are judged to be other than temporary; (i) certain assets designated as "non-admitted assets" have been charged to surplus rather than being reported as assets; (j) revenues for universal life and investment products consist of the entire premiums received rather than policy charges for the cost of insurance, policy administration charges, amortization of policy initiation fees and surrender charges assessed; (k) pension expense is recorded as amounts are paid rather than accrued and expensed during the periods in which the employers provide service; and (l) the financial statements of wholly-owned affiliates are not consolidated with those of the Company. The effects of these variances have not been determined by the Company, but are presumed to be material. In 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles ("Codification"). Codification will likely change, to some extent, prescribed statutory accounting practices and may result in changes to the accounting practices that the Company uses to prepare its statutory-basis financial statements. Codification will require adoption by the various states before it becomes the prescribed statutory basis of accounting for insurance companies domesticated within those states. Accordingly, before Codification becomes effective for the Company, the State of Ohio must adopt Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results to the Insurance Department. At this time it is unclear whether the State of Ohio will adopt Codification. However, based on current guidance, management believes that the impact of Codification will not be material to the Company's statutory-basis financial statements. 125 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Other 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 include shares of mutual funds (money market and other), and the related unrealized capital gains/(losses) are reported in unassigned surplus without any adjustment for federal income taxes. Common stocks of the Company's wholly-owned affiliates are recorded at the equity in net assets. Home office and investment properties are reported at cost less allowances for depreciation. Depreciation is computed principally by the straight-line method. Policy loans are reported at unpaid principal. Other "admitted assets" are valued, principally at cost, as required or permitted by Ohio Insurance Laws. Realized capital gains and losses are determined on the basis of specific identification and are recorded net of related federal income taxes. The Asset Valuation Reserve (AVR) is established by the Company to provide for anticipated losses in the event of default by issuers of certain invested assets. These amounts are determined using a formula prescribed by the NAIC and are reported as a liability. The formula for the AVR provides for a corresponding adjustment for realized gains and losses. Under a formula prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve (IMR), the portion of realized gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the security. During 1998, 1997 and 1996, net realized capital gains of $1,294, $3,259 and $2,394, respectively, were credited to the IMR rather than being immediately recognized in the statements of operations. Amortization of these net gains aggregated $744, $1,576 and $1,335 for the years ended December 31, 1998, 1997 and 1996, respectively. Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or 126 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) which are delinquent more than twelve months, or real estate where rent is in arrears for more than three months. Further, income is not accrued when collection is uncertain. No investment income due and accrued has been excluded for the years ended December 31, 1998, 1997 and 1996, with respect to such practices. AGGREGATE RESERVES FOR POLICIES Life and annuity reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum required by law. The aggregate policy reserves for life insurance policies are based principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality Tables. The reserves are calculated using interest rates ranging from 2.25 to 5.50 percent and are computed principally on the Net Level Premium Valuation and the Commissioners' Reserve Valuation Methods. Reserves for universal life policies are based on account balances adjusted for the Commissioners' Reserve Valuation Method. Deferred annuity reserves are calculated according to the Commissioners' Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest. Reserves for immediate annuities and supplementary contracts with life contingencies are equal to the present value of future payments assuming interest rates ranging from 5.75 to 8.75 percent and mortality rates, where appropriate, from a variety of tables. POLICY AND CONTRACT CLAIM RESERVES Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the statement date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available. SEPARATE ACCOUNTS Assets held in trust for purchases of variable universal life and variable annuity contracts and the Company's corresponding obligation to the contract owners are shown separately in the balance sheets. The assets in the separate accounts are valued at market. Income and gains and losses with respect to the assets in the separate accounts accrue to the 127 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) benefit of the policyholders and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The separate accounts do not have any minimum guarantees and the investment risks associated with market value changes are borne entirely by the policyholders. The Company received variable contract premiums of $1,240,858, $1,164,013 and $997,513 in 1998, 1997 and 1996, respectively. All variable account contracts are subject to discretionary withdrawal by the policyholder at the market value of the underlying assets less the current surrender charge. Separate account contractholders have no claim against the assets of the general account. STOCK OPTION PLAN AEGON N.V. sponsors a stock option plan for eligible employees of the Company. Under this plan, certain employees have indicated a preference to immediately sell shares received as a result of their exercise of the stock options; in these situations, AEGON N.V. has settled such options in cash rather than issuing stock to these employees. These cash settlements are paid by the Company and AEGON N.V. subsequently reimburses the Company for such payments. Under statutory accounting principles, the Company does not record any expense related to this plan, as the expense is recognized by AEGON N.V. However, the Company is allowed to record a deduction in the consolidated tax return filed by the Company and certain affiliates. The tax benefit of this deduction has been credited directly to surplus. RECLASSIFICATIONS Certain reclassifications have been made to the 1997 and 1996 financial statements to conform to the 1998 presentation. 2. FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value information about financial instruments, whether or not recognized in the statutory-basis balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement of Financial Accounting Standards No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements and allows companies to forego the disclosures when those estimates can only be made at excessive cost. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. 128 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED) The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the statutory-basis balance 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. 129 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED) The following sets forth a comparison of the fair values and carrying values of the Company's financial instruments subject to the provisions of Statement of Financial Accounting Standards No. 107:
DECEMBER 31, --------------------------------------------------- 1998 1997 ------------------------- ------------------------- CARRYING CARRYING VALUE FAIR VALUE VALUE FAIR VALUE ------------ ------------ ------------ ------------ ADMITTED ASSETS Cash and short-term investments .......... $ 73,808 $ 73,808 $ 13,896 $ 13,896 Bonds .................................... 184,697 192,556 255,919 267,763 Common stocks, other than affiliates ..... 384 384 428 428 Mortgage loans on real estate ............ 9,916 10,390 4,824 5,143 Policy loans ............................. 112,982 112,982 76,741 76,741 Separate account assets .................. 6,999,290 6,999,290 4,814,594 4,814,594 LIABILITIES Investment contract liabilities .......... 297,349 294,105 280,121 276,113 Separate account annuities ............... 5,096,680 5,038,296 3,615,255 3,565,557
130 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 3. INVESTMENTS The carrying value and estimated fair value of investments in debt securities are as follows:
GROSS GROSS ESTIMATED CARRYING UNREALIZED UNREALIZED FAIR VALUE GAINS LOSSES VALUE ---------- ------------ ------------ ---------- DECEMBER 31, 1998 Bonds: United States Government and agencies ..... $ 4,749 $ 83 $ -- $ 4,832 State, municipal and other government ..... 3,234 117 -- 3,351 Public utilities .......................... 18,792 818 251 19,359 Industrial and miscellaneous .............. 96,332 6,685 577 102,440 Mortgage-backed securities ................ 61,590 1,235 251 62,574 -------- ------- ------ -------- Total bonds ................................ $184,697 $ 8,938 1,079 $192,556 ======== ======= ====== ======== DECEMBER 31, 1997 Bonds: United States Government and agencies ..... $ 3,675 $ 9 $ 30 $ 3,654 State, municipal and other government ..... 3,855 360 -- 4,215 Public utilities .......................... 15,794 904 403 16,295 Industrial and miscellaneous .............. 121,513 7,700 710 128,503 Mortgage-backed securities ................ 111,082 4,198 184 115,096 -------- ------- ------ -------- Total bonds ................................ $255,919 $13,171 $1,327 $267,763 ======== ======= ====== ========
The carrying value and fair value of bonds at December 31, 1998 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
ESTIMATED CARRYING FAIR VALUE VALUE ---------- ---------- Due in one year or less ............................ $ 2,706 $ 2,743 Due one through five years ......................... 61,340 64,696 Due five through ten years ......................... 43,233 45,352 Due after ten years ................................ 15,828 17,191 -------- -------- 123,107 129,982 Mortgage and other asset backed securities ......... 61,590 62,574 -------- -------- $184,697 $192,556 ======== ========
131 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 3. INVESTMENTS--(CONTINUED) A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- Interest on bonds ....................................... $ 17,150 $ 25,723 $ 33,969 Dividends on equity investments from subsidiary ......... 13,233 10,855 -- Interest on mortgage loans .............................. 499 478 559 Rental income on real estate ............................ 2,839 1,371 919 Interest on policy loans ................................ 6,241 4,656 3,339 Other investment income ................................. 540 26 9 -------- -------- -------- Gross investment income ................................. 40,502 43,109 38,795 Investment expenses ..................................... (4,187) (3,096) (2,728) -------- -------- -------- Net investment income ................................... $ 36,315 $ 40,013 $ 36,067 ======== ======== ========
Proceeds from sales and maturities of debt securities and related gross realized gains and losses were as follows:
YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Proceeds ........................................ $143,449 $146,963 $122,820 ======== ======== ======== Gross realized gains ............................ $ 4,641 $ 3,921 $ 2,984 Gross realized losses ........................... 899 626 791 -------- -------- -------- Net realized gains .............................. $ 3,742 $ 3,295 $ 2,193 ======== ======== ========
At December 31, 1998, bonds with an aggregate carrying value of $4,297 were on deposit with certain state regulatory authorities or were restrictively held in bank custodial accounts for benefit of such state regulatory authorities, as required by statute. 132 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 3. INVESTMENTS--(CONTINUED) Realized investment gains (losses) and changes in unrealized gains (losses) for investments are summarized below:
REALIZED --------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Debt securities ................................... $ 3,742 $ 3,295 $ 2,193 Real estate ....................................... -- -- (606) Other invested assets ............................. (18) -- (4) -------- -------- --------- 3,724 3,295 1,583 Tax expense ....................................... (936) (711) -- Transfer to interest maintenance reserve .......... (1,294) (3,259) (2,394) -------- -------- -------- Net realized gains (losses) ....................... $ 1,494 $ 747 $ (811) ======== ======== ========
CHANGE IN UNREALIZED ---------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------- 1998 1997 1996 ------------ ---------- ------------ Debt securities ................................... $ (3,985) $ (896) $ (14,442) Common stock ...................................... 248 -- (66) -------- ------ --------- Change in unrealized appreciation (depreciation) .. $ (3,737) $ (896) $ (14,508) ======== ====== =========
Gross unrealized gains (losses) on common stocks were as follows:
REALIZED --------------------------- YEAR ENDED DECEMBER 31, --------------------------- 1998 1997 1996 -------- ------ ------- Unrealized gains .................................. $ 579 $295 $295 Unrealized losses ................................. (36) -- -- ----- ---- ---- Net unrealized gains .............................. $ 543 $295 $295 ===== ==== ====
During 1998, the Company issued one mortgage loan with an interest rate of 6.71%. The maximum percentage of any one mortgage loan to the value of the underlying real estate at origination was 75%. The Company requires all mortgagees to carry fire insurance equal to the value of the underlying property. During 1998, 1997 and 1996, no mortgage loans were foreclosed and transferred to real estate. During 1998 and 1997, the Company held a mortgage loan loss reserve in the asset valuation reserve of $112 and $54, respectively. At December 31, 1998, the Company had no investments (excluding U. S. Government guaranteed or insured issues) which individually represented more than ten percent of capital and surplus and the asset valuation reserve. 133 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 4. REINSURANCE The Company reinsures portions of certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligations under the reinsurance treaty.
1998 1997 1996 ------------- ------------- ------------- Direct premiums .............. $1,345,752 $1,219,271 $1,034,757 Reinsurance assumed .......... 461 2,389 2,063 Reinsurance ceded ............ (75,319) (5,141) (3,105) ---------- ---------- ---------- Net premiums earned .......... $1,270,894 $1,216,519 $1,033,715 ---------- ---------- ----------
The Company received reinsurance recoveries in the amount of $5,260, $2,288 and $2,156 during 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $1,003 and $2,721, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 1998 and 1997 of $2,849 and $1,369, respectively. 5. INCOME TAXES For federal income tax purposes, the Company joins in a consolidated tax return filing with certain affiliated companies. Under the terms of a tax-sharing agreement between the Company and its affiliates, the Company computes federal income tax expense as if it were filing a separate income tax return, except that tax credits and net operating loss carryforwards are determined on the basis of the consolidated group. Additionally, the alternative minimum tax is computed for the consolidated group and the resulting tax, if any, is allocated back to the separate companies on the basis of the separate companies' alternative minimum taxable income. 134 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 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 income taxes (benefit) and realized capital gains (losses) on investments for the following reasons:
1998 1997 1996 ------------ ------------ --------- Computed tax (benefit) at federal statutory rate (35%) .......... $ (2,019) $ (1,156) $3,189 Deferred acquisition costs -- tax basis ......................... 9,672 9,164 7,172 Tax reserve valuation ........................................... 1,513 (194) (696) Excess tax depreciation ......................................... (442) (127) (65) Amortization of IMR ............................................. (260) (552) (467) Dividend received deduction ..................................... (6,657) (5,326) -- Prior year over-accrual ......................................... (2,322) (1,541) (9) Other, net ...................................................... 168 201 173 -------- -------- ------ Federal income tax expense (benefit) ............................ $ (347) $ 469 $9,297 -------- -------- ------
Federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to realized gains (losses) due to the differences in book and tax asset bases at the time certain investments are sold. Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959, a portion of statutory income was not subject to current taxation, but was accumulated for income tax purposes in a memorandum account referred to as the policyholders' surplus account. No federal income taxes have been provided for in the financial statements on income deferred in the policyholders' surplus account ($293 at December 31, 1998). To the extent dividends are paid from the amount accumulated in the policyholders' surplus account, net earnings would be reduced by the amount of tax required to be paid. Should the entire amount in the policyholders' surplus account become taxable, the tax thereon computed at current rates would amount to approximately $103. At December 31, 1996, the Company had capital loss carryforwards of approximately $10,705, which were utilized by the Company's affiliates in the consolidated tax return filing in 1997. This transaction resulted in a receipt from the Company's affiliate of $3,747, which was credited directly to unassigned surplus. In 1998, the Company reached a final settlement with the Internal Revenue Service for 1994 and 1995 resulting in a tax refund of $300 and interest received of $53. 135 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 6. POLICY AND CONTRACT ATTRIBUTES A portion of the Company's policy reserves and other policyholders' funds relate to liabilities established on a variety of the Company's products, primarily separate accounts, that are not subject to significant mortality or morbidity risk; however, there may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on these products, by withdrawal characteristics are summarized as follows:
DECEMBER 31, ---------------------------------------------- 1998 1997 ----------------------- ---------------------- PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL ------------ ---------- ------------ --------- Subject to discretionary withdrawal with market value adjustment ......................................... $ 12,810 $ 13,812 1% Subject to discretionary withdrawal at book value less surrender charge ................................... 76,289 1% 68,376 2 Subject to discretionary withdrawal at market value .. 5,096,680 94 3,615,255 91 Subject to discretionary withdrawal at book value (minimal or no charges or adjustments) ............. 210,270 4 201,457 5 Not subject to discretionary withdrawal provision .... 15,681 1 16,572 1 ---------- -- ---------- -- 5,411,730 100% 3,915,472 100% === === Less reinsurance ceded ............................... 1,131 -- ---------- ---------- Total policy reserves on annuities and deposit fund liabilities ........................................ $5,410,599 $3,915,472 ========== ==========
A reconciliation of the amounts transferred to and from the separate accounts is presented below:
1998 1997 1996 ------------- ------------- ------------- Transfers as reported in the summary of operations of the separate accounts statement: Transfers to separate accounts ............................. $1,240,858 $1,164,013 $ 997,513 Transfers from separate accounts ........................... 847,507 646,477 339,523 ---------- ---------- ---------- Net transfers to separate accounts .......................... 393,351 517,536 657,990 Reconciling adjustments -- change in accruals for investment management, administration fees and contract guarantees, and separate account surplus ......... 9,267 1,678 (205,519) ---------- ---------- ---------- Transfers as reported in the summary of operations of the life, accident and health annual statement ................ $ 402,618 $ 519,214 $ 452,471 ========== ========== ==========
136 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED) Reserves on the Company's traditional life products are computed using mean reserving methodologies. These methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policy's paid-through date to the policy's next anniversary date. At December 31, 1998 and 1997, these assets (which are reported as premiums deferred and uncollected) and the amounts of the related gross premiums and loadings, are as follows:
GROSS LOADING NET --------- --------- --------- DECEMBER 31, 1998 Ordinary direct renewal business ............ $1,101 $201 $ 900 ------ ---- ------ $1,101 $201 $ 900 ====== ==== ====== DECEMBER 31, 1997 Ordinary direct first year business ......... $ 2 $ 1 $ 1 Ordinary direct renewal business ............ 1,350 140 1,210 Group life direct business .................. 717 -- 717 ------ ---- ------ $2,069 $141 $1,928 ====== ==== ======
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for contracts that require immediate payment of claims upon proof of death of the insured. Companies were allowed to grade the effects of the change in reserving methodologies over five years. A direct charge to surplus of $2,132, $1,872 and $2,995 was made for the years ended December 31, 1998, 1997 and 1996, respectively, related to the change in reserve methodology. 7. DIVIDEND RESTRICTIONS The Company is subject to limitations, imposed by the State of Ohio, on the payment of dividends to its parent company. Generally, dividends during any twelve month period may not be paid; without prior regulatory approval, in excess of the lesser of (a) 10 percent of statutory capital and surplus as of the preceding December 31, or (b) statutory gain from operations for the preceding year. Subject to the availability of unassigned surplus at the time of such dividend, the maximum payment which may be made in 1999, without the prior approval of insurance regulatory authorities, is $14,657. 8. RETIREMENT AND COMPENSATION PLANS The Company's employees participate in a qualified benefit plan sponsored by AEGON. The Company has no legal obligation for the plan. The Company recognizes pension expense equal to its allocation from AEGON. The pension expense is allocated among the participating companies based on the FASB Statement No. 87 expense as a percent of salaries. The benefits are based on years of service and the employee's 137 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 8. RETIREMENT AND COMPENSATION PLANS--(CONTINUED) compensation during the highest five consecutive years of employment. Pension expense aggregated $917, $659 and $581 for the years ended December 31, 1998, 1997 and 1996, respectively. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. The Company's employees also participate in a contributory defined contribution plan sponsored by AEGON which is qualified under Section 401(k) of the Internal Revenue Service Code. Employees of the Company who customarily work at least 1,000 hours during each calendar year and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to fifteen percent of their salary to the plan. The Company will match an amount up to three percent of the participant's salary. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. Pension expense related to this plan was $632, $448 and $184 for the years ended December 31, 1998, 1997 and 1996, respectively. AEGON sponsors supplemental retirement plans to provide the Company's senior management with benefits in excess of normal pension benefits. The plans are noncontributory and benefits are based on years of service and the employee's compensation level. The plans are unfunded and nonqualified under the Internal Revenue Code. In addition, AEGON has established incentive deferred compensation plans for certain key employees of the Company. AEGON also sponsors an employee stock option plan for individuals employed at least three years and a stock purchase plan for its producers, with the participating affiliated companies establishing their own eligibility criteria, producer contribution limits and company matching formula. These plans have been accrued for or funded as deemed appropriate by management of AEGON and the Company. In addition to pension benefits, the Company participates in plans sponsored by AEGON that provide postretirement medical, dental and life insurance benefits to employees meeting certain eligibility requirements. Portions of the medical and dental plans are contributory. The expenses of the postretirement plans calculated on the pay-as-you-go basis are charged to affiliates in accordance with an intercompany cost sharing arrangement. The Company expensed $157, $99 and $98 for the years ended December 31, 1998, 1997 and 1996, respectively. 9. RELATED PARTY TRANSACTIONS The Company shares certain officers, employees and general expenses with affiliated companies. The Company receives data processing, investment advisory and management, marketing and administration services from certain affiliates. During 1998, 1997 and 1996, 138 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 9. RELATED PARTY TRANSACTIONS--(CONTINUED) the Company paid $12,763, $10,040 and $10,038, respectively, for such services, which approximates their costs to the affiliates. The Company provides office space, marketing and administrative services to certain affiliates. During 1998, 1997 and 1996, the Company received $5,125, $4,395 and $3,271, respectively, for such services, which approximates their cost. The Company had a net payable with affiliates of $33,449 and $1,925 at December 31, 1998 and 1997, respectively. Payable to affiliates and intercompany borrowings bear interest at the thirty-day commercial paper rate of 4.74% at December 31, 1998. During 1998, 1997 and 1996, the Company paid net interest of $1,090, $364 and $138, respectively, to affiliates. The Company received capital contributions of $32,092 and $20,000 from its parent in 1998 and 1997, respectively. At December 31, 1998 and 1997, the Company had short-term note payables to an affiliate of $44,200 and $8,200, respectively. Interest on these notes ranged from 5.13% to 5.54% at December 31, 1998 and was 5.60% at December 31. 1997. During 1998, the Company purchased life insurance policies covering the lives of certain employees of the Company. Premiums of $43,500 were paid to an affiliate for these policies. At December 31, 1998, the cash surrender value of these policies is $45,445. 10. COMMITMENTS AND CONTINGENCIES The Company is a party to legal proceedings incidental to its business. Although such litigation sometimes includes substantial demands for compensatory and punitive damages in addition to contract liability, it is management's opinion, after consultation with counsel and a review of available facts, that damages arising from such demands will not be material to the Company's financial position. The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company except where right of offset against other taxes paid is allowed by law; amounts available for future offsets are recorded as an asset on the Company's balance sheet. The future obligation has been based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Association. Potential future obligations for unknown insolvencies are not determinable by the Company. The Company has established a reserve of $3,489 and $4,007 and an offsetting premium tax benefit of $828 and $1,070 at December 31, 1998 and 1997, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund expense (credit) was $(74), $0 and $212 at December 31, 1998, 1997 and 1996, respectively. 139 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 11. YEAR 2000 (UNAUDITED) The term Year 2000 Issue generally refers to the improper processing of dates and incorrect date calculations that might occur in computer software and hardware and embedded systems as the Year 2000 is approached. The use of computer programs that rely on two-digit date fields to perform computations and decision-making functions may cause systems to malfunction when processing information involving dates after 1999. For example, any computer software that has date-sensitive coding might recognize a code of 00 as the year 1900 rather than the year 2000. The Company has developed a Year 2000 Project Plan (the Plan) to address the Year 2000 issue as it affects the Company's internal IT and non-IT systems, and to assess Year 2000 issues relating to third parties with whom the Company has critical relationships. The Plan for addressing internal systems generally includes an assessment of internal IT and non-IT systems and equipment affected by the Year 2000 issue; definition of strategies to address affected systems and equipment; remediation of identified systems and equipment; internal testing and certification that each internal system is Year 2000 compliant; and a review of existing and revised business resumption and contingency plans to address potential Year 2000 issues. The Company has remediated and tested substantially all of its mission-critical internal IT systems as of December 31, 1998. The Company continues to remediate and test certain non-critical internal IT systems, internal non-IT systems and will continue with a revalidation testing program throughout 1999. The Company's Year 2000 issues are more complex because a number of its systems interface with other systems not under the Company's control. The Company's most significant interfaces and uses of third-party vendor systems are in the bank, financial services and trust areas. The Company utilizes various banks to handle numerous types of financial and sales transactions. Several of these banks also provide trustee and custodial services for the Company's investment holdings and transactions. These services are critical to a financial services company such as the Company as its business centers around cash receipts and disbursements to policyholders and the investment of policyholder funds. The Company has received written confirmation from its vendor banks regarding their status on Year 2000. The banks indicate their dedication to resolving any Year 2000 issues related to their systems and services prior to December 31, 1999. The Company anticipates that a considerable effort will be necessary to ensure that its corrected or new systems can properly interface with those business partners with whom it transmits and receives data and other information (external systems). The Company has undertaken specific testing regimes with these third-party business partners and expects to continue working with its business partners on any interfacing of systems. However, the timing of external system compliance cannot currently be predicted with accuracy because the implementation of Year 2000 readiness will vary from one company to another. The Company does have some exposure to date sensitive embedded technology such as micro-controllers, but the Company views this exposure as minimal. Unlike other 140 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 11. YEAR 2000 (UNAUDITED)--(CONTINUED) industries that may be equipment intensive, like manufacturing, the Company is a life insurance and financial services organization providing insurance, annuities and pension products to its customers. As such, the primary equipment and electronic devices in use are computers and telephone related equipment. This type of hardware can have date sensitive embedded technology which could have Year 2000 problems. Because of this exposure, the Company has reviewed its computer hardware and telephone systems, with assistance from the applicable vendors, and has upgraded, or replaced, or is in the process of replacing any equipment that will not properly process date sensitive data in the Year 2000 or beyond. For the Company, a reasonably likely worst case scenario might include one or more of the Company's significant policyholder systems being non-compliant. Such an event could result in a material disruption of the Company's operations. Specifically, a number of the Company's operations could experience an interruption in the ability to collect and process premiums or deposits, process claim payments, accurately maintain policyholder information, accurately maintain accounting records, and or perform adequate customer service. Should the worst case scenario occur, it could, dependent upon its duration, have a material impact on the Company's business and financial condition. Simple failures can be repaired and returned to production within a matter of hours with no material impact. Unanticipated failures with a longer service disruption period could have a more serious impact. For this reason, the Company is placing significant emphasis on risk management and Year 2000 business resumption contingency planning in 1999 by modifying its existing business resumption and disaster recovery plans to address potential Year 2000 issues. The actions taken by management under the Year 2000 Project Plans are intended to significantly reduce the Company's risk of a material business interruption based on the Year 2000 issues. It should be noted that the Year 2000 computer problem, and its resolution, is complex and multifaceted, and any company's success cannot be conclusively known until the Year 2000 is reached. In spite of its efforts or results, the Company's ability to function unaffected to and through the Year 2000 may be adversely affected by actions (or failure to act) of third parties beyond our knowledge or control. It is anticipated that there may be problems that will have to be resolved in the ordinary course of business on and after the Year 2000. However, the Company does not believe that the problems will have a material adverse affect on the Company's operations or financial condition. 141 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME The following table reconciles capital and surplus and net income as reported in the Annual Statement filed with the Insurance Department of the State of Ohio, to the amounts reported in the accompanying financial statements:
YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 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) ======== ========
142 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES (DOLLARS IN THOUSANDS) DECEMBER 31, 1998 SCHEDULE I
AMOUNT AT WHICH SHOWN IN THE TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET - ------------------ ------------ ----------- ---------------- FIXED MATURITIES Bonds: United States Government and government agencies and authorities ................................ $ 19,899 $ 20,673 $ 19,899 States, municipalities and political subdivisions ......... 6,676 6,930 6,676 Public utilities .......................................... 18,792 19,359 18,792 All other corporate bonds ................................. 139,330 145,594 139,330 --------- -------- --------- Total fixed maturities ..................................... 184,697 192,556 184,697 EQUITY SECURITIES Common stocks: Affiliated entities ....................................... 243 704 Industrial, miscellaneous and all other ................... 302 384 --------- --------- Total equity securities .................................... 545 1,088 Mortgage loans on real estate .............................. 9,916 9,916 Real estate ................................................ 34,583 34,583 Policy loans ............................................... 112,982 112,982 Other invested assets ...................................... 396 396 Cash and short-term investments ............................ 73,808 73,808 Investment properties ...................................... 11,594 11,594 --------- --------- Total investments .......................................... $ 429,655 $ 429,064 ========= =========
- ---------------- (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. 143 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, 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 ========= ======== =========== ======== ========= ========= YEAR ENDED DECEMBER 31, 1996 Individual life ................ $ 145,964 $ 7,017 $ 289,375 $ 8,228 $ 125,861 $ 124,181 Group life and health .......... 9,202 713 4,215 3,940 3,828 2,818 Annuity ........................ 332,230 854 740,125 23,899 294,681 71,576 --------- -------- ----------- -------- --------- --------- $ 487,396 $ 8,584 $ 1,033,715 $ 36,067 $ 424,370 $ 198,575 ========= ======== =========== ======== ========= =========
- ---------------- * 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. 144 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, 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 2389 3,918 61.0 Annuity ....................... 822,149 -- -- 822,149 0.0 ------------ ----------- ----------- ------------ ---- $ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2% ============ =========== =========== ============ ==== YEAR ENDED DECEMBER 31, 1996 Life insurance in force ........ $ 28,168,880 $ 4,463,986 $ 2,210,601 $ 25,915,495 8.5% ============ =========== =========== ============ ==== Premiums: Individual life ............... $ 292,239 $ 2,863 $ -- $ 289,376 0.0% Group life and health ......... 2,393 242 2,063 4,214 49.0 Annuity ....................... 740,125 -- -- 740,125 0.0 ------------ ----------- ----------- ------------ ---- $ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2% ============ =========== =========== ============ ====
145 PART II. OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. REPRESENTATION PURSUANT TO SECTION 26(E) (2) (A) Western Reserve Life Assurance Co. of Ohio ("Western Reserve") hereby represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Western Reserve. STATEMENT WITH RESPECT TO INDEMNIFICATION Provisions exist under the Ohio General Corporation Law, the Second Amended Articles of Incorporation of Western Reserve and the Amended Code of Regulations of Western Reserve whereby Western Reserve may indemnify certain persons against certain payments incurred by such persons. The following excerpts contain the substance of these provisions. OHIO GENERAL CORPORATION LAW SECTION 1701.13 AUTHORITY OF CORPORATION. (E)(1) A corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any of the following: II-1 (a) Any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; (b) Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under divisions (E)(1) and (2) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in divisions (E)(1) and (2) of this section. Such determination shall be made as follows: (a) By a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (b) If the quorum described in division (E)(4)(a) of this section is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years; (c) By the shareholders; (d) By the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under division (E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this section shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under division (E)(2) of this section, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5)(a) Unless at the time of a director's act or omission that is the subject of an action, suit or proceeding referred to in divisions (E)(1) and (2) of this section, the articles or the regulations of a corporation state by specific reference to this division that the provisions of this division do not apply to the corporation and unless the only liability asserted against a director in an action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section is pursuant to section 1701.95 of the Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit, or proceeding shall be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following: (i) Repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation; II-2 (ii) Reasonably cooperate with the corporation concerning the action, suit, or proceeding. (b) Expenses, including attorneys' fees incurred by a director, trustee, officer, employee, or agent in defending any action, suit, or proceeding referred to in divisions (E)(1) and (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is entitled to be indemnified by the corporation. (6) The indemnification authorized by this section shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) A corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance on behalf of or for any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. Insurance may be purchased from or maintained with a person in which the corporation has a financial interest. (8) The authority of a corporation to indemnify persons pursuant to divisions (E)(1) and (2) of this section does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions (E)(1) and (2) of this section do not create any obligation to repay or return payments made by the corporation pursuant to divisions (E)(5), (6), or (7). (9) As used in this division, references to "corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, shall stand in the same position under this section with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE ARTICLE EIGHTH EIGHTH: (1) The corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was II-3 unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (2) The corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper. (3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in sections (1) and (2) of this article, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (4) Any indemnification under sections (1) and (2) of this article, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in sections (1) and (2) of this article. Such determination shall be made (a) by a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with any such action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation, or any person to be indemnified within the past five years, or (c) by the shareholders, or (d) by the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under section (4)(a) or by independent legal counsel under section (4)(b) of this article shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under section (2) of this article, and within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (5) Expenses, including attorneys' fees incurred in defending any action, suit, or proceeding referred to in sections (1) and (2) of this article, may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the directors in the specific case upon receipt of a written undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this article. If a majority vote of a quorum of disinterested directors so directs by resolution, said written undertaking need not be submitted to the corporation. Such a determination that a written undertaking need not be submitted to the corporation shall in no way affect the entitlement of indemnification as authorized by this article. II-4 (6) The indemnification provided by this article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles or the regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (8) As used in this section, references to "the corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation (including a subsidiary of this corporation), domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise shall stand in the same position under this article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. (9) The foregoing provisions of this article do not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of this corporation. The corporation may indemnify such named fiduciaries of its employee benefit plans against all costs and expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by or imposed upon said named fiduciary in connection with or arising out of any claim, demand, action, suit or proceeding in which the named fiduciary may be made a party by reason of being or having been a named fiduciary, to the same extent it indemnifies an agent of the corporation. To the extent that the corporation does not have the direct legal power to indemnify, the corporation may contract with the named fiduciaries of its employee benefit plans to indemnify them to the same extent as noted above. The corporation may purchase and maintain insurance on behalf of such named fiduciary covering any liability to the same extent that it contracts to indemnify. AMENDED CODE OF REGULATIONS OF WESTERN RESERVE ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS Each Director, officer and member of a committee of this Corporation, and any person who may have served at the request of this Corporation as a Director, officer or member of a committee of any other corporation in which this Corporation owns shares of capital stock or of which this Corporation is a creditor (and his heirs, executors and administrators) shall be indemnified by the Corporation against all expenses, costs, judgments, decrees, fines or penalties as provided by, and to the extent allowed by, Article Eighth of the Corporation's Articles of Incorporation, as amended. RULE 484 UNDERTAKING Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and II-5 Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet The Prospectus, consisting of 145 pages The undertaking to file reports Representation pursuant to Section 26(e)(2)(A) The statement with respect to indemnification The Rule 484 undertaking The signatures Written consent of the following persons: (a) Alan Yaeger (b) Thomas E. Pierpan, Esq. (c) Sutherland Asbill & Brennan LLP (d) Ernst & Young LLP (e) PricewaterhouseCoopers LLP The following exhibits: 1. The following exhibits correspond to those required by paragraph A to the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of the Board of Directors of Western Reserve establishing the Series Account (1) (2) Not Applicable (3) Distribution of Policies: (a) Master Service and Distribution Compliance Agreement (2) (b) Amendment to Master Service and Distribution Compliance Agreement (5) (c) Form of Broker/Dealer Supervisory and Service Agreement (5) (d) Principal Underwriting Agreement (5) (e) First Amendment to Principal Underwriting Agreement (5) (4) Not Applicable (5) Specimen Modified Single Premium Variable Life Insurance Policies(6) (a) Individual Policy Form (VL10)(6) (b) Joint Policy Form (JL10)(6) (c) Guaranteed Minimum Death Benefit Rider (GDB01) (d) Dollar Cost Averaging Endorsement (ESI02) (e) Asset Rebalancing Program Endorsement (ESI04) (f) Preferred Loan Endorsement (ESI01) (6) (a) Second Amended Articles of Incorporation of Western Reserve (2) (b) Amended Code of Regulations (By-Laws) of Western Reserve (2) (7) Not Applicable (8) (a) Investment Advisory Agreement with the Fund (1) (b) Sub-Advisory Agreement (1) (9) Not Applicable II-6 (10) Application for Modified Single Premium Variable Life Insurance Policy (11) Memorandum describing issuance, transfer and redemption procedures 2. See Exhibit 1.A. 3. Opinion of counsel as to the legality of the securities being registered 4. No financial statement will be omitted from the Prospectus pursuant to Instruction 1(b) or (c) of Part I 5. Not Applicable 6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to the securities being registered 7. Consent of Thomas E. Pierpan, Esq. 8. Consent of Sutherland Asbill & Brennan LLP 9. Consent of Ernst & Young LLP 10. Consent of PricewaterhouseCoopers LLP 11. (a) Powers of Attorney (3) (b) Power of Attorney - James R. Walker (4) - ---------------------------------------- (1) This exhibit was previously filed on Post-Effective Amendment No. 28 to Form S-6 Registration Statement dated April 28, 1997 (File No. 33-507) and is incorporated herein by reference. (2) This exhibit was previously filed on Post-Effective Amendment No. 11 to Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49556) and is incorporated herein by reference. (3) This exhibit was previously filed on Post-Effective Amendment No. 16 to Form S-6 Registration Statement dated April 21, 1998 (File No. 33-31140) and is incorporated herein by reference. (4) This exhibit was previously filed on Post-Effective Amendment No. 13 to Form S-6 Registration Statement dated December 24, 1996 (File No. 33-31140) and is incorporated herein by reference. (5) This exhibit was previously filed on Post-Effective Amendment No. 4 to Form S-6 Registration Statement dated April 21, 1999 (File No. 333-23359) and is incorporated herein by reference. (6) This exhibit was previously filed on the Initial Registration Statement on Form S-6 dated December 4, 1998 (File No. 333-68367) and is incorporated herein by reference. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant, WRL Series Life Account has duly caused this Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of St. Petersburg, County of Pinellas, Florida on this 11th day of June, 1999. (SEAL) WRL SERIES LIFE ACCOUNT Registrant WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Depositor ATTEST: /s/ THOMAS E. PIERPAN BY: /s/ JOHN R. KENNEY - ---------------------- ------------------- Thomas E. Pierpan John R. Kenney Vice President, Assistant Chairman of the Board, Secretary and General Chief Executive Officer Counsel and President (SEAL) Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 1 to this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE AND TITLE DATE - ------------------- ---- /s/ JOHN R. KENNEY June 11, 1999 - --------------------------------- John R. Kenney, Chairman of the Board, Chief Executive Officer and President /s/ ALLAN J. HAMILTON June 11, 1999 - ---------------------------------- Allan J. Hamilton, Vice President, Treasurer and Controller /s/ ALAN M. YAEGER June 11, 1999 - ----------------------------------- Alan M. Yaeger, Executive Vice President, Actuary and Chief Financial Officer* - --------------- *Principal Financial Officer /s/ PATRICK S. BAIRD June 11, 1999 - --------------------------------- Patrick S. Baird, Director **/ /s/ JAMES R. WALKER June 11, 1999 - --------------------------------- James R. Walker, Director **/ /s/ LYMAN H. TREADWAY June 11, 1999 - --------------------------------- Lyman H. Treadway, Director **/ /s/ JACK E. ZIMMERMAN June 11, 1999 - --------------------------------- Jack E. Zimmerman, Director **/ **/ /s/ THOMAS E. PIERPAN - --------------------------------- Signed by: Thomas E. Pierpan As Attorney-in-fact EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------- 1.A.(5)(c) Guaranteed Minimum Death Benefit Rider (GDB01) 1.A.(5)(d) Dollar Cost Averaging Endorsement (ESI02) 1.A.(5)(e) Asset Rebalancing Program Endorsement (ESI04) 1.A.(5)(f) Preferred Loan Endorsement (ESI01) 1.A.(10) Application for Modified Single Premium Variable Life Insurance Policy 1.A.(11) Memorandum describing issuance, transfer and redemption procedures 3. Opinion of counsel as to the legality of the securities being registered 6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to the securities being registered 7. Consent of Thomas E. Pierpan, Esq. 8. Consent of Sutherland Asbill & Brennan LLP 9. Consent of Ernst & Young LLP 10. Consent of PricewaterhouseCoopers LLP EX-99.A9 2 Exhibit 1.A.(5)(c) Guaranteed Minimum Death Benefit Rider (GDB01) ================================================================================ WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ================================================================================ GUARANTEED MINIMUM DEATH BENEFIT RIDER - -------------------------------------------------------------------------------- IN THIS RIDER, the Insured will be referred to as YOU or YOUR. If issued to Joint Insureds, YOU or YOUR refers to the younger Joint Insured covered under the Policy. Western Reserve Life Assurance Co. of Ohio will be referred to as WE, OUR or US. GENERAL This Rider is part of the Policy. It is subject to all the terms of this Rider and the Policy. This Rider has no Cash Value. BENEFIT If the Net Surrender Value on any Monthiversary is not sufficient to cover the monthly deductions on such day, then coverage will be provided as indicated below, and no grace period will begin, provided no policy loans have been taken under the Policy. If a death benefit is payable due to the provisions of this Rider, then the following minimum death benefit is applicable: During the first fifteen policy years, or before the Anniversary next following Your 75th birthday, if sooner, the minimum death benefit payable will be as provided in the Death Benefit Provisions of the Policy to which this Rider is attached. After the first fifteen policy years, or on or after the Anniversary next following Your 75th birthday, if sooner, the minimum death benefit payable will be the Initial Premium, reduced by any partial withdrawals. However, in no event will this minimum death benefit ever be less than $1,000. CONSIDERATION This Rider is issued in consideration of: 1. the application for this Rider; and 2. payment of the Initial Premium. INCONTESTABILITY This Rider shall be incontestable after it has been In Force while You are still alive, for two years after the effective date of this Rider. SUICIDE This Rider is issued on the same date as the Policy and the Suicide Provision of the Policy is applicable to this Rider. TERMINATION This Rider will terminate on the earliest of: 1. the date the Policy terminates; 2. the date any policy loan is taken under the Policy; 3. the Monthiversary on which this Rider is terminated by written request from the Owner. MONTHLY CHARGE On the Policy Date and each Monthiversary thereafter, a monthly charge will be deducted from the Policy Cash Value for this Rider. The monthly charge will be equal to: 1. 0.02% multiplied by the sum of the Subaccount Values, if any, on the Valuation Date of each Monthiversary; plus 2. 0.02% multiplied by the Fixed Account value on the Valuation Date of each monthly deduction. EFFECTIVE DATE This Rider is effective as of the Policy Date. WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO /s/ WILLIAM H. GEIGER --------------------- Secretary EX-99.A9-1 3 Exhibit 1.A.(5)(d) Dollar Cost Averaging Endorsement (ESI02) ================================================================================ WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ================================================================================ ENDORSEMENT - -------------------------------------------------------------------------------- This Endorsement is made a part of the Policy to which it is attached. DOLLAR COST We will automatically transfer pre-determined amounts from AVERAGING the designated Account to any other Subaccount in accordance with the Owner's current allocation instructions. The transfers will be made on a monthly basis and under the following conditions: 1. We must receive proper written election of this option on a form provided by Us; 2. The entire Initial Premium must be allocated to the designated Dollar Cost Averaging Account; 3. No less than the designated amount for this option on the date Dollar Cost Averaging begins may be transferred each month. The first transfer will occur on the Monthiversary following the Policy Date. Each transfer which occurs under the Dollar Cost Averaging option will be without charge and will not be counted toward the number of transfers allowed without charge under the Policy. Dollar Cost Averaging will terminate if We receive: 1. Written instruction from the Owner for cancellation; 2. Election to participate in any Asset Rebalancing Program; or 3. Notification of election to participate in any asset allocation service provided by a third party. We reserve the right to discontinue, modify or suspend Dollar Cost Averaging at any time following prior written notification to all policyowners. Except as otherwise set forth above, this Endorsement is subject to the exclusions, definitions and provisions of the Policy. Signed for Us at Our Office in Clearwater, Florida. /s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY - ----------------------------- ------------------------- Secretary President EX-99.A9-2 4 Exhibit 1.A.(5)(e) Asset Rebalancing Program Endorsement (ESI04) ================================================================================ WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ================================================================================ ENDORSEMENT - -------------------------------------------------------------------------------- The following provision is added to this Policy, effective as of the date We receive Your written request to participate in the Asset Rebalancing Program. ASSET REBALANCING The Owner may instruct Us to automatically transfer Cash PROGRAM Values among the Subaccounts for purposes of maintaining a particular percentage allocation among the Subaccounts. The 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 pro-rata match the Owner's current Subaccount allocation schedule. 1. We must receive written election of this option on a form provided by Us; 2. Asset Rebalancing is only available prior to the Maturity Date; 3. Cash Values in the Fixed Account are not eligible for Asset Rebalancing. The Owner may elect for rebalancing to occur on each quarter, semi-annual or annual Anniversary. Following receipt of written request, the initial rebalancing will occur on the next such Anniversary, and will occur in accordance with the current Premium allocation. Asset Rebalancing is not available and will terminate if: 1. Dollar Cost Averaging is elected; 2. The Owner participates in any asset allocation service provided by a third party; 3. We receive a request to discontinue participation; or 4. A transfer is made to, or from, any Subaccount other than under a scheduled rebalancing. Each reallocation which occurs under Asset Rebalancing will be counted towards the number of transfers allowed without charge. We reserve the right to limit re-entry into the Asset Rebalancing Program following termination to once per Policy Year. We reserve the right to discontinue, modify or suspend the Asset Rebalancing Program at any time, following proper written notification to all policyholders. Signed for Us at Our Office in Clearwater, Florida. /s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY - ----------------------------- ------------------------- Secretary President EX-99.A9-3 5 Exhibit 1.A.(5)(f) Preferred Loan Endorsement (ESI01) ================================================================================ WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ================================================================================ ENDORSEMENT - -------------------------------------------------------------------------------- This Endorsement is made a part of the Policy to which it is attached. The Policy Loans Provision of the Policy Value Provisions is hereby expanded by adding the following: PREFERRED LOANS While this Policy is In Force, the Owner may borrow against this Policy an amount which is equal to the amount of the Cash Value in excess of total premiums paid, less any outstanding policy loans and less accrued loan interest. This amount, if any, will be processed as a Preferred Loan. Interest credited to Preferred Loans will be at the same rate as the policy loan interest rate, payable annually in arrears. Any existing loan, other than an existing Preferred Loan, will not be eligible for a Preferred Loan rate. We reserve the right to discontinue, modify, or suspend Preferred Loans at any time, following prior written notification to all policyowners. Except as otherwise set forth above, this Endorsement is subject to the exclusions, definitions and provisions of the Policy. Signed for Us at Our Office in Clearwater, Florida. /s/ WILLIAM H. GEIGER /s/ JOHN R. KENNEY - ----------------------------- ------------------------- Secretary President EX-99.APP 6 Exhibit 1.A(10) Application for Modified Single Premium Variable Life Insurance Policy THE WRL FREEDOM NAVIGATOR Western Reserve Life Assurance Co. of Ohio - -------------------------------------------------------------------------------- APPLICATION FOR LIFE INSURANCE Western Reserve Life Assurance Co. of Ohio Cedar Rapids, Iowa 6200VL R1198 NOTICE TO PROPOSED INSURED - -------------------------------------------------------------------------------- Thank you for your application. We appreciate your efforts in completing each part of the application truthfully, accurately, and completely. Once we receive your application, we will begin an evaluation process called underwriting to determine whether you are eligible for insurance and, if so, the rate you should pay for that insurance. We may find that we are unable to give you the insurance you have applied for or that we are able to give it to you only on a modified basis or at a rate greater than our lowest rate. For example, if you have ever used any kind of tobacco or any other nicotine product, you may not be eligible for our lowest rate. Your application will be our primary source of information; therefore, it must be true, complete, and accurate. You must inform us of a change to any answer in any part of your application before accepting delivery of a policy; in fact, you agree to do so when you sign your application. We may seek information from other sources to help us evaluate the information you give us on your application. - -------------------------------------------------------------------------------- CONTESTABILITY - -------------------------------------------------------------------------------- We strongly urge you to review the completed application closely for accuracy. During the first two policy years, a claim may be denied or your coverage may be rescinded or contested by a lawsuit if the application is incomplete or if it contains false statements, misrepresentations, acts, omissions, or is procured by fraud. If the policy is rescinded or the lawsuit is successful, the policy will be void and coverage will be lost. Any policy that is delivered to you will indicate when and under what circumstances it may be contested. Please be aware that if the application contains false or deceptive statements and you submitted it with the intent to defraud or to facilitate fraud against us, you may also be guilty of insurance fraud. - -------------------------------------------------------------------------------- REPLACEMENT OF EXISTING COVERAGE - -------------------------------------------------------------------------------- If you intend to replace existing coverage, tell the agent of your intention and answer "yes" to the replacement question in the application; state law may require the agent to give you information that will help you compare the policy you are applying for with the policy you intend to replace. If you are undecided about keeping existing coverage, indicating an intention to replace existing coverage may help you get the information you need to make a decision. If you do replace existing coverage, the new policy may contain new suicide and contestable periods. The following would be considered replacement; you stop paying premiums for the insurance for which you are applying. State laws define replacement to include other situations. Please ask your agent if you are unsure. - -------------------------------------------------------------------------------- INSURANCE INFORMATION PRACTICES - -------------------------------------------------------------------------------- We will rely primarily on information provided by you. We may supplement that information with information from other sources such as medical professionals who have treated you. In some cases, we may ask a consumer reporting agency to collect information and submit an investigative consumer report to us as explained in this Notice under Federal Fair Credit Reporting Act. You may request to be interviewed in connection with the preparation of this report. You have the right to be told about, and to see and copy if you wish, items of personal information about you that appear in our files, including information contained in investigate consumer reports. You also have the right to seek correction of information you believe to be inaccurate. We will send you a more detailed explanation of our information practices if you send us a written request. You may send your request to the Director of Underwriting, P.O. Box 3183, Cedar Rapids, Iowa 52406-3183. - -------------------------------------------------------------------------------- FAIR CREDIT REPORTING PRE-NOTICE - -------------------------------------------------------------------------------- A routine investigative consumer report may possibly be made regarding your general reputation, character, mode of living, and personal characteristics. This information may be obtained through personal interviews with your friends, neighbors and associates. Should you desire additional information on the nature and scope of such a report, you may write the underwriting department, P.O. Box 3183, Cedar Rapids, Iowa 52406-3183. You have the right to request additional information concerning the nature and scope of the investigation to be performed. A summary of your rights is set forth on the attached signature page of the application. To make this request, you must write the Underwriting Department, P.O. Box 3183, Cedar Rapids, Iowa 52406-3183. - -------------------------------------------------------------------------------- MIB DISCLOSURE NOTICE - -------------------------------------------------------------------------------- Information regarding your insurability will be treated as confidential. The Company or its reinsurers may, however, make a brief report to the Medical Information Bureau, a non-profit membership organization of life insurance companies, which operates an information exchange on behalf of its members. If you apply to another Bureau member for life or health insurance coverage, or a claim for benefits is submitted to such a Company, the Bureau, upon request, will supply such company with the information in its file. Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. If you question the accuracy of the information in the Bureau's file, you may contact the Bureau and seek a correction in accordance with the procedures set forth in the Federal Fair Credit Reporting Act. The address of the Bureau's information office is Post Office Box 105, Essex Station, Boston, Massachusetts 02122, telephone number (617) 426-3660. The Company or its reinsurers may also release information in file to other life insurance companies to whom you may apply for life or health insurance or to whom a claim for benefits may be submitted. - -------------------------------------------------------------------------------- 6200VL R1198 Page 2 APPLICATION FOR LIFE INSURANCE WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO - -------------------------------------------------------------------------------- Part I PLAN OF INSURANCE - -------------------------------------------------------------------------------- Plan of Insurance: Premium Amount: $ Face Amount: $ - -------------------------------------------------------------------------------- Part II PRIMARY INSURED INFORMATION - -------------------------------------------------------------------------------- Name: Social Security Number: Sex: [ ] Male [ ] Female - -------------------------------------------------------------------------------- Street Address: Date of Birth: Age: - -------------------------------------------------------------------------------- City: Place of Birth (State or County): - -------------------------------------------------------------------------------- State: ZIP Code: Occupation: - -------------------------------------------------------------------------------- Beneficiary: Relationship to Insured: - -------------------------------------------------------------------------------- Contingent Beneficiary: Relationship to Insured: - -------------------------------------------------------------------------------- Will this policy replace or change any existing life insurance or annuity policy(ies)? [ ] Yes [ ] No - -------------------------------------------------------------------------------- If yes, indicate policy number(s) and Company names(s)? - -------------------------------------------------------------------------------- Is this intended to be a 1035 Exchange? [ ] Yes [ ] No Indicate Exchange amount: - -------------------------------------------------------------------------------- If this policy will replace an existing policy, complete required replacement forms. - -------------------------------------------------------------------------------- Part IIA JOINT INSURED INFORMATION - -------------------------------------------------------------------------------- Name: Social Security Number: Sex: [ ] Male [ ] Female - -------------------------------------------------------------------------------- Street Address: Date of Birth: Age: - -------------------------------------------------------------------------------- City: Place of Birth (State or County): - -------------------------------------------------------------------------------- State: ZIP Code: Occupation: - -------------------------------------------------------------------------------- Part III CONTACT INFORMATION - -------------------------------------------------------------------------------- Insured's Home Telephone Business Telephone Fax: - -------------------------------------------------------------------------------- Preferred Place to call: [ ] Home [ ] Business Best time to call: [ ] A.M. [ ] P.M. - -------------------------------------------------------------------------------- Special Comments: - -------------------------------------------------------------------------------- Part IV OWNER INFORMATION: (if other than proposed insured) - -------------------------------------------------------------------------------- Name: - -------------------------------------------------------------------------------- Street Address: Date of Birth: - -------------------------------------------------------------------------------- City: State: ZIP Code: - -------------------------------------------------------------------------------- Relationship To Insured: Social Security Or Tax ID Number: - -------------------------------------------------------------------------------- Part V BASIC HEALTH QUESTIONS - -------------------------------------------------------------------------------- A. Primary Insured: Height: Weight: Joint Insured: Height: Weight: - -------------------------------------------------------------------------------- B. Within the last 5 years, has any Proposed Insured been treated for or been told by a member of the medical profession that you had heart disease or circulatory problems, stroke, cancer, diabetes, kidney or liver disorder, lung or respiratory disorder, Alzheimer's Disease, mental or psychiatric disorder, alcohol or drug abuse? If yes, please circle the applicable ailment(s). [ ] Yes [ ] No - -------------------------------------------------------------------------------- C. Within the last 10 years, has any Proposed Insured been diagnosed by a member of the medical profession as having AIDS (Acquired Immune Deficiency Syndrome), or have you tested positive for HIV (Human Immunodeficiency Virus)? [ ] Yes [ ] No - -------------------------------------------------------------------------------- D. Within the past 12 months, has any Proposed Insured, smoked cigarettes, cigars, pipes or used chewing tobacco? [ ] Yes [ ] No If "yes", please circle applicable insured: Primary Insured Joint Insured - -------------------------------------------------------------------------------- E. Within the past 12 months, has any Proposed Insured been admitted to a hospital or nursing home? [ ] Yes [ ] No - -------------------------------------------------------------------------------- F. Has any Proposed Insured ever been declined, rated or postponed for insurance or reinstatement of life, accident or sickness insurance or has a policy ever been cancelled or renewal refused? [ ] Yes [ ] No - -------------------------------------------------------------------------------- Part VI SPECIAL REQUEST - -------------------------------------------------------------------------------- If this life insurance cannot be issued, do you want to apply for an annuity policy? [ ] Yes [ ] No - -------------------------------------------------------------------------------- 6200VL R1198 Page 3 - -------------------------------------------------------------------------------- MEDICAL QUESTIONNAIRE - -------------------------------------------------------------------------------- NOTE: QUESTIONS APPLY TO EACH PERSON PROPOSED FOR INSURANCE. YES NO A. To the best of your knowledge, has any Proposed Insured within the last 10 years had or been told by a member of the medical profession that he or she had: 1. Heart murmur, high blood pressure, chest pain, heart attack, stroke, or other disorder of the heart or circulatory system? ..........................................[ ] [ ] 2. Asthma, Emphysema, Chronic Bronchitis or any other Respiratory disorder, colitis, ulcer, or any other gastrointestinal disorder; hepatitis, liver or kidney disorder? ....................................................[ ] [ ] 3. Cancer, tumor, polyp, breast, prostate or any other reproductive disorder; or any thyroid or endocrine disorder? ....................................................[ ] [ ] 4. Brain, mental, nervous or seizure disorder; or any paralysis or suicide attempt? ..........................................[ ] [ ] 5. Diabetes, sugar, albumin, blood or pus in the urine?..........[ ] [ ] B. To the best of your knowledge has any Proposed Insured within the last 10 years had or been told by a member of the medical profession that he or she had: ..................................[ ] [ ] 1. Used amphetamines, heroin, cocaine, marijuana or any other illegal or controlled substance except as prescribed by a physician? ...................................................[ ] [ ] 2. Been on or are now on prescribed medication or diet? .........[ ] [ ] 3. Had or been advised to have any hospitalization, surgery or any diagnostic test including, but not limited to, electrocardiograms, blood studies, scans, MRI's or other test? ........................................................[ ] [ ] 4. An examination, treatment, or consultation with a doctor other than above? ............................................[ ] [ ] 5. Have or have had a parent, brother or sister who has/had coronary artery death or disease prior to age 60? ............[ ] [ ] 6. Sought or been advised to seek treatment, limit or discontinue use of alcohol? ..............................................[ ] [ ] C. To the best of your knowledge have you or any Proposed Insured in the last 10 years: 1. Ever piloted a plane, helicopter or glider, or have any intentions of piloting an aircraft? ..........................[ ] [ ] 2. Ever participated in any sport, avocation or hobby such as skin-diving, skydiving, automobile or motorcycle racing, mountain climbing, or have you any intention to do so? .......[ ] [ ] 3. Has any Proposed Insured had their driver's license restricted, revoked, or been cited for a moving violation? ...............[ ] [ ] Give reason, Driver's License Number and Licensed State. D. Has any Proposed insured ever been convicted of a misdemeanor or felony? .........................................................[ ] [ ] E. Is there an application for life, accident or sickness insurance now pending or contemplated on any proposed insured with this or any other company? ..............................................[ ] [ ] DETAILS OF "YES" ANSWERS. Include: a. Identity of person, b. Question number, c. Diagnosis and treatment, d. Results, e. Dates and durations, f. Names and addresses of all attending physicians and medical facilities. I represent that the above statements and answers are full, complete and true to the best of my knowledge and belief. I also agree that the above Medical Questionnaire is part of the application and as such is subject to all terms and conditions contained in the application. - ------------------------------------ -------------------------------------- Date Signature of Proposed Insured -------------------------------------- Signature of Joint Insured - -------------------------------------------------------------------------------- 6200VL R1198 Page 3A - ---------------------------------------------------------------------------------------------------------------- Part VII PERSONAL FINANCIAL STATEMENT Part VIII ADDITIONAL BENEFITS - PRIMARY INSURED ONLY - ---------------------------------------------------------------------------------------------------------------- A) Gross Income Current Yr $____ ____ ____ [ ] Asset Rebalancing B) Gross Income Previous Yr $____ ____ ____ [ ] Dollar Cost Averaging C) Net Worth $____ ____ ____ [ ] Guaranteed Death Benefit Rider For over $1 million applied coverage complete a separate financial questionnaire - ---------------------------------------------------------------------------------------------------------------- Part IX SUITABILITY FOR VARIABLE LIFE INSURANCE POLICY - COMPLETE FOR ALL VARIABLE PLANS - ---------------------------------------------------------------------------------------------------------------- A) Have you, the Proposed Insured, and Purchaser, if other than the Proposed Insured, received the current Prospectus for the policy? [ ] Yes [ ] No B) DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR (EXCLUSIVE OF ANY OPTIONAL BENEFITS), THE AMOUNT OF DEATH BENEFIT AND THE ENTIRE AMOUNT OF THE POLICY CASH VALUE MAY INCREASE OR DECREASE DEPENDING UPON THE INVESTMENT EXPERIENCE? [ ] Yes [ ] No C) With this in mind, is the policy in accord with your insurance objectives and your anticipated financial needs? [ ] Yes [ ] No - ---------------------------------------------------------------------------------------------------------------- Part X TO BE COMPLETED BY APPLICANT/OWNER - ---------------------------------------------------------------------------------------------------------------- Telephone Transfer Authorization: (See Prospectus for telephone transfer procedures.) Your policy applied for, if issued, will automatically receive telephone transfer privileges described in the applicable prospectus unless instructions to the contrary are indicated below. These privileges allow you to give the registered representative/agent of record for this policy authority to make telephone transfers and to change the allocation future payments among the Sub-Accounts and the Fixed Account on your behalf according to your instructions. [ ] I do NOT want telephone transfer privileges. Western Reserve Life will not be liable for complying with telephone instructions it reasonably believes to be authentic, nor for any loss, damage, costs or expenses in acting on such telephone instructions, and Policyowners will bear the risk of any such loss. Western Reserve Life will employ reasonable procedures to confirm that telephone instructions genuine. If Western Reserve Life does not employ such procedures, it may be liable for losses due to unauthorized or fraudulent instructions. Such procedures may include, among others, requiring forms of personal identification prior to acting upon such telephone instruction, providing written confirmation of such transactions to Policyowners and/or tape recording of telephone transfer request instructions received. - ---------------------------------------------------------------------------------------------------------------- Part XI ACCOUNT ALLOCATIONS - (FOR VARIABLE PLANS ONLY) MUST EQUAL A WHOLE NUMBER AND TOTAL 100% - ---------------------------------------------------------------------------------------------------------------- MONEY MARKET ______% VALUE EQUITY ______% AGGRESSIVE GROWTH ______% GROWTH FUND ______% US EQUITY ______% GROWTH AND INCOME ______% EMERGING GROWTH ______% REAL ESTATE SECURITIES ______% CASE GROWTH ______% GLOBAL ACCOUNT ______% BOND FUND ______% INTERNATIONAL EQUITY ______% BALANCED FUND ______% THIRD AVENUE VALUE ______% FIXED ACCOUNT ______% TACTICAL ASSET ALLO. ______% STRATEGIC TOTAL RETURN ______% OTHER ______% - ---------------------------------------------------------------------------------------------------------------- Part XII INVESTMENT OBJECTIVE - ---------------------------------------------------------------------------------------------------------------- [ ] Safety of Principal [ ] Income [ ] Long-Term Growth [ ] Trading Profits [ ] Other ____________________________ - ----------------------------------------------------------------------------------------------------------------
6200VL R1198 Page 4 - -------------------------------------------------------------------------------- TAXPAYER IDENTIFICATION NUMBER STATEMENT - -------------------------------------------------------------------------------- Taxpayer Identification Number (of) policyowner:________________________________ Social Security Number or Taxpayer Identification Number - -------------------------------------------------------------------------------- Check the box if you ARE NOT subject to Check the box if you ARE subject to backup withholding under the provisions backup withholding under the of section 3406(a)(1)(C) of the Internal provisions of section 3406(a)(1)(C) Revenue Code...................[ ] of the Internal Revenue Code.....[ ] - -------------------------------------------------------------------------------- The Internal Revenue Service does not require your consent to any provision of this document other than the following certification required to avoid backup withholding. - -------------------------------------------------------------------------------- Under penalties of perjury, I hereby certify (1) that the Social Security or Taxpayer I.D. number listed above is correct and (2) that my current status regarding backup withholding is correct. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- I agree that: (1) If the receipt is issued in return for the full first premium, the Company's liability will be as set forth in such receipt. If the receipt has not been issued, the Company shall incur liability under this application only when a policy has been delivered and the full first premium specified in the policy has been paid during the lifetime and continued insurability of the Persons to be insured, as determined by the Company from this application. (2) No modification may be made to the policy or no right of the Company waived unless agreed to in writing and signed by: (A) The President; (B) The Vice President; or (C) The Secretary of the Company. The Proposed Insured acknowledges receipt of the MIB Disclosure Notice and Fair Credit Reporting Pre-Notice. I represent that all the statements and answers in this application are complete and true to the best of my knowledge and belief. I agree that the statements and answers given in this application, and any amendments or application supplements to it will be the basis of any insurance issued. Unless we have been notified of a community or marital property interest in this policy, we will rely on our good faith belief that no such interest exists and will assume no responsibility for inquiry. AUTHORIZATION: I hereby authorize any licensed physician, medical practitioner, hospital, clinic or medically related facility, insurance company, the Medical Information Bureau, consumer reporting agency, or other organization, employer, institution or person that has any records or knowledge of me or my health (or of additional insured(s), if included in the coverage applied for), to give to the Company, or its reinsurers, any such information. This includes information about drugs and alcohol and about diagnosis, treatment and prognosis of any physical or mental condition, as well as any other non-medical information. A photographic copy of this authorization shall be as valid as the original. The authorization will be valid from the date signed for a period of two and one half years. I also hereby authorize the Company to provide its affiliated companies any and all information provided herein and obtained hereafter on me. This authorization shall be valid from the date signed below until affirmatively withdrawn in writing by myself. - -------------------------------------------------------------------------------- Signed at: (City and State) Date: - -------------------------------------------------------------------------------- Signature of Proposed Primary Insured - -------------------------------------------------------------------------------- Signature of Owner (if other than Proposed Insured) - -------------------------------------------------------------------------------- Signature of Proposed Joint Insured - -------------------------------------------------------------------------------- TO BE COMPLETED BY AGENT - -------------------------------------------------------------------------------- Do you have reason to believe the policy applied for is to replace or change any existing annuity or insurance owned by the applicant? [ ] Yes [ ] No (If Yes, include state replacement forms if applicable) - -------------------------------------------------------------------------------- If yes, indicate policy number(s) and Company name(s): - -------------------------------------------------------------------------------- Did you give the "MIB Disclosure Notice" to the Proposed Insured? [ ] Yes [ ] No - -------------------------------------------------------------------------------- Did you comply with all requirements relative to obtaining Informed Consent for HIV and AIDS testing? [ ] Not required [ ] Yes [ ] No - -------------------------------------------------------------------------------- Signature of Agent Agent's State License Number: - -------------------------------------------------------------------------------- Agent's Social Security Number: - -------------------------------------------------------------------------------- Print Agent's Name: Telephone Number: - -------------------------------------------------------------------------------- 6200VL R1198 Page 5 FRAUD WARNING - -------------------------------------------------------------------------------- The following states require that insurance applicants (owners) acknowledge a fraud warning statement. If you reside in one of the states listed below, please refer to the applicable fraud warning. - -------------------------------------------------------------------------------- For applicants (owners)in ARKANSAS, NEW MEXICO AND PENNSYLVANIA - -------------------------------------------------------------------------------- Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information or conceals for the purpose of misleading information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties. Applicant's Signature Date ________________________________________________________________________________ - -------------------------------------------------------------------------------- For applicants (owners) in COLORADO - -------------------------------------------------------------------------------- It is unlawful to knowingly provide false, incomplete, or misleading facts or information to an insurance company for the purpose of defrauding or attempting to defraud the company. Penalties may include imprisonment, fines denial of insurance, and civil damages. Any insurance company or agent or an insurance company who knowingly provides false, incomplete, or misleading facts or information to the policyholder or claimant for the purpose of defrauding or attempting to defraud the policyholder or claimant with regard to a settlement or award payable from insurance proceeds shall be reported to the Colorado Division of Insurance within the Department of Regulatory Agencies. Applicant's Signature Date ________________________________________________________________________________ - -------------------------------------------------------------------------------- For applicants (owners) in FLORIDA - -------------------------------------------------------------------------------- Any person who knowingly and with intent to injure, defraud, or deceive any insurer files a statement of claim or an application containing any false, incomplete, or misleading information is guilty of a felony in the third degree. Applicant's Signature Date ________________________________________________________________________________ - -------------------------------------------------------------------------------- For applicants (owners) in KENTUCKY AND OHIO - -------------------------------------------------------------------------------- Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance containing any materially false information or conceals, for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime. Applicant's Signature Date ________________________________________________________________________________ - -------------------------------------------------------------------------------- For applicants (owners) in NEW JERSEY - -------------------------------------------------------------------------------- Any person who includes any false or misleading information on an application for an insurance policy is subject to criminal and civil penalties. Applicant's Signature Date ________________________________________________________________________________ - -------------------------------------------------------------------------------- For applicants (owners) in VIRGINIA - -------------------------------------------------------------------------------- Any person who, with the intent to defraud or knowing that he is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement may have violated state law. Applicant's Signature Date ________________________________________________________________________________ - -------------------------------------------------------------------------------- 6200VL R1198 Page 6 CONDITIONAL RECEIPT (DO NOT COMPLETE AND GIVE TO APPLICANT UNLESS PAYMENT IS MADE) - -------------------------------------------------------------------------------- CONDITIONS UNDER WHICH THIS PAYMENT SHALL CAUSE CONDITIONAL COVERAGE TO TAKE EFFECT - -------------------------------------------------------------------------------- (1) Each and every person proposed for insurance must be insurable and acceptable to the Company under its underwriting rules for the amount, plan and risk classification applied for on the later of: (A) the date of application, or (B) the date of completion of all medical tests and examinations required by the Company. (2) Any check given for payment must be honored on first presentation. (This receipt and all coverages applied for on the application are void if check or draft received for payment of the initial premium is not honored for payment on its first presentation.) - -------------------------------------------------------------------------------- AMOUNT OF CONDITIONAL LIFE INSURANCE COVERAGE - -------------------------------------------------------------------------------- If conditional coverage becomes effective under the terms of this receipt, then the amount of conditional life insurance coverage on any person proposed for insurance is the lesser of: (1) the amount of life insurance applied for on such person, or (2) $300,000 reduced by the amounts payable under all other life insurance or accidental death benefits then in force or pending with the Company. - -------------------------------------------------------------------------------- WHEN CONDITIONAL COVERAGE BEGINS - -------------------------------------------------------------------------------- If the conditions listed above are fulfilled, then the amount of conditional coverage specified above shall take effect on the later of (1) the date of the application, or (2) the date of the completion of all medical tests and examinations required by the Company. All conditional coverages for each and every person proposed for insurance will be deemed void if the application contains material misrepresentations or is fraudulently completed. Benefits under this conditional receipt coverage will be denied if any person proposed for insurance commits suicide. - -------------------------------------------------------------------------------- WHEN CONDITIONAL COVERAGE ENDS - -------------------------------------------------------------------------------- Conditional coverage shall terminate automatically, without notice, on the earliest of the following dates: (1) the date the Company approves the policy as applied for; (2) 10 days following any counter offer by the Company to offer insurance to any person proposed for insurance under a different plan or at an increased premium or on a different rate class; (3) at the end of the fraction of a year which the payment bears to the premium required to provide one month of insurance coverage in the amount as described above; or (4) at the beginning of the 60th day following the date of this receipt. - -------------------------------------------------------------------------------- CONDITIONAL RECEIPT - -------------------------------------------------------------------------------- The Insurance Company has received from ________________________________________ this _____day of _____________, __________________a premium deposit of $________ in connection with an application for life insurance. Unless the conditions stated above this receipt are fulfilled, no conditional coverage shall take effect and this payment will be refunded. All premium checks must be made payable to the Insurance Company indicated above. Do not make checks payable to the agent or leave payee blank. Date ____________________ Signature of Owner ___________________________________ Date ____________________ Signature of Agent ___________________________________ NOTE: If you do not receive a policy or refund of the amount you paid within 60 days from the date of this receipt please notify: Western Reserve Life Assurance Co. of Ohio Cedar Rapids, Iowa P.O. Box 3183, Cedar Rapids 52406-3183 - -------------------------------------------------------------------------------- 6200VL R1198 Page 7 Western Reserve Life Assurance Co. of Ohio Cedar Rapids, Iowa P.O. Box 3183, Cedar Rapids 52406-3183 EX-99.ITR 7 Exhibit 1.A(11) Memorandum describing issuance, transfer and redemption procedures DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES FOR INDIVIDUAL AND JOINT SURVIVORSHIP MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES ISSUED BY WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO This document sets forth the administrative procedures, as required by Rule 6e-3(T)(b)(12)(iii), that will be followed by Western Reserve Life Assurance Co. of Ohio (the "Company" or "Western Reserve") in connection with the issuance of WRL Freedom Navigator, its individual and joint survivorship modified single premium variable life insurance policy ("Policy" or "Policies") and acceptance of payments thereunder, the transfer of assets held thereunder, and the redemption by owners of the Policy ("owners") of their interests in those Policies. Terms used herein have the same definition as in the prospectus for the Policy that is included in the current registration statement on Form S-6 for the Policy (File No. 333-68367) as filed with the Securities and Exchange Commission ("Commission" or "SEC"). I. PROCEDURES RELATING TO PURCHASE AND ISSUANCE OF THE POLICIES AND ACCEPTANCE OF PREMIUMS A. OFFER OF THE POLICIES, APPLICATION, INITIAL PREMIUM, AND ISSUANCE OFFER OF THE POLICIES. The Policies are offered and issued for a single premium pursuant to underwriting standards in accordance with state insurance laws. The initial premium for the Policies is not the same for all owners with the same specified amount. Insurance is based on the principle of pooling and distribution of mortality risks, which assumes that each owner pays an initial premium commensurate with the insured's (or joint insureds') mortality risk as actuarially determined utilizing factors such as age, gender, and rate class of the insured (or joint insureds). Uniform premiums for all insureds would discriminate unfairly in favor of those insureds representing greater risk. Although there is no uniform premium for all insureds, there is a uniform premium for all insureds of the same rate class, age, and gender and same specified amount. APPLICATION. Persons wishing to purchase a Policy must complete an application and submit it to the Company or through any licensed life insurance agent who is also a registered representative of a broker-dealer having a selling agreement with the principal underwriter for the Policy. The application must specify the name of the insured(s) and provide certain required information about the insured(s). The application must be accompanied by an initial premium, designate premium allocation percentages, and name the beneficiary. The minimum initial premium is $20,000. The Company determines the specified amount for a Policy based on the initial premium paid and other characteristics of the proposed insured (or joint insureds), such as age, gender and rate class. The Company bases the minimum initial premium for the owner Policy on the guideline single premium established under federal tax laws given the age, gender and rate class of the insured (or joint insured). RECEIPT OF APPLICATION AND UNDERWRITING. Upon receipt of the initial premium and a completed application in good order from an applicant, the Company will follow either simplified or expanded insurance underwriting procedures for life insurance designed to determine whether the proposed insured is insurable. This process may involve such verification procedures as medical examinations and may require that further information be provided about the proposed insured (or joint insured) before a determination can be made. Generally, Policies issued within the simplified issue age and premium limits will be underwritten on a simplified issue basis. Policies outside the simplified issue age limits or for premium amounts that exceed the simplified issue premium limit will be underwritten on an expanded underwriting basis. For a single life Policy the simplified issue age and premium limits are as follows: Issue Ages 35 - 49 $50,000 Issue Ages 50 - 80 $100,000 If the Policy is issued from ages 18- 34 or 81 -90 or if the Policy is issued for an amount that exceeds the simplified issue premium limit, then the Policy will be underwritten on an expanded underwriting basis. For Joint Policies, the same basic requirements apply, but some additional conditions are required for simplified issue. These include: the insureds must be spouses, the minimum age for both insureds is 45, and the difference in age between the two insureds cannot exceed 20 years. The premium limit for a Joint Policy is based on the age of the younger insured. If the Policy fails to meet these requirements, it will be subject to expanded underwriting. The underwriting process determines the rate class to which the insured is assigned if the application is accepted. The Company currently places insureds in the following rate classes, based on the Company's underwriting: a male or female rate class, and a standard tobacco use or a select non-tobacco use rate class. This original rate class applies to the initial specified amount. The Company reserves the right to reject an application for any reason permitted by law. If an application is rejected, any premium received will be returned, without interest. ISSUANCE OF POLICY. When the underwriting procedure has been completed, the application has been approved, and an initial premium of sufficient amount has been received, the Policy is issued. This is the Policy date. The Policy date is the date when our underwriting process is complete, full life insurance coverage goes into effect, the Company issues the Policy, and the Company begins to deduct the daily and monthly insurance charges. The Policy date is shown on the schedule page of the Policy. It is also the date when, depending on the owner's state of residence, the Company will allocate the initial premium either to the reallocation account or to the subaccounts and fixed account options selected on the application. We measure Policy months, years, and anniversaries from the Policy date. INITIAL PREMIUM AND CONDITIONAL COVERAGE . An applicant must pay an initial premium with the application. If the insured qualifies for simplified underwriting, conditional coverage becomes effective as of the date the Company receives the initial premium of at least $20,000 and a completed application. If the insured does not qualify for simplified underwriting, conditional coverage begins on the date all medical tests and exams are completed. Conditional coverage is limited to the lesser of the specified amount applied for or $300,000 (reduced by all amounts payable under other life insurance or accidental death benefits that the insured (or joint insured) has in force or pending with the Company. Conditional coverage continues until the application is approved or other conditions specified in the prospectus are met. FAXED APPLICATION AND PAYMENT BY WIRE TRANSFER. The Company will accept the initial premium by wire transfer and Policy applications by fax under the following conditions: o If the owner wishes to make payments by wire transfer, the owner should instruct his or her bank to wire federal funds to the Company. o If the owner sends the initial premium by wire transfer, the owner must, at the same time, send a completed application by faxed transmission and send the signed application to the Company's office. o If the Company accepts the initial premium payment by wire transfer accompanied by a faxed application, the Company will allocate the premium on the Policy date (or reallocation date if the owner resides in a state that requires the full refund of premium during the free look period) according to the owner's instructions once the application is received. o If the owner sends the initial premium by wire transfer but does not send the faxed application simultaneously, or if the application is incomplete, the Company will keep the initial premium for up to 5 business days. If the Company cannot obtain the faxed application or necessary information within 5 business days, the Company will return the initial premium to the owner, unless the owner allows the Company to keep it until the faxed application or necessary information is received by the Company. o When the Company receives the original signed application and if the allocation instructions are different from those in the faxed application, then the Company will reallocate the Policy's cash value in accordance with the instructions on the original signed application on the first valuation date following receipt of the original signed application. TAX-FREE EXCHANGES (1035 EXCHANGES). The Company will accept as part of the initial premium money from one contract that qualified for a tax-free exchange under Section 1035 of the Internal Revenue Code. The Company will permit the owner to make one additional cash payment within three business days of receipt of the proceeds from the 1035 exchange before determining the Policy's specified amount. B. ADDITIONAL PREMIUMS ADDITIONAL PREMIUMS PERMITTED. The owner has limited flexibility to add additional premiums to the Policy since the Company requires that the initial premium equal the maximum amount that can be applied to the Policy at issue. In general, the owner may not pay any additional premiums on the Policy for several years in order for the Policy to continue to qualify as a life insurance contract as defined in federal tax laws and regulations. At the time the Policy allows for the payment of additional premiums, the Company reserves the right to limit or refund any premium if: the amount is below our current minimum additional premium requirement; OR the premium would increase the death benefit by more than the amount of the premium; OR accepting the premium would disqualify the Policy as a life insurance contract as defined in federal tax laws and regulations. An owner may pay premiums by any method the Company deems acceptable. The Company will treat any payment made as a loan repayment unless it is clearly marked as a premium payment. C. CREDITING PREMIUMS INITIAL PREMIUM. The initial premium will be credited to the Policy on the Policy date. Once the Company determines that the insured(s) meets its underwriting requirements, full insurance coverage begins, the Company issues the Policy, and begins to deduct monthly and daily insurance charges from the premium. On the Policy date, the Company will allocate the initial premium to the subaccounts and fixed account options the owner elected on the application, provided the owner lives in a state that does not require a refund of full premium during the free look period. If the owner's state requires a return of the full premium in the event the owner exercises his or her free look right, the Company will place the initial premium in the reallocation account until the reallocation date. On any day that the Company credits premiums or transfers cash value to a subaccount, the Company will convert the dollar amount of the premium (or transfer) into subaccount units at the unit value for that subaccount, determined at the end of that valuation date. We will credit amounts to the subaccounts only on a valuation date, that is, on a date the New York Stock Exchange is open for trading. REALLOCATION ACCOUNT. If the owner's state requires the Company to return the initial premium in the event the owner exercises his or her free-look right, the Company will allocate the initial premium on the Policy date to the reallocation account. While held in the reallocation account, the premium will earn interest at the current rates for the standard fixed account. The premium will remain in the reallocation account for the number of days in the applicable state free look period plus five days. On the first valuation date on or after the reallocation date, the Company will reallocate all cash value from the reallocation account to the subaccounts and fixed account options the owner selected on the application. If the owner requested either fixed or standard dollar cost averaging, the Company will reallocate the cash value to the fixed DCA account or the money market subaccount, respectively, on the reallocation date. For states that do not require a full refund of the initial premium, the reallocation date is the same as the Policy date and the Company will allocate the initial premium on the Policy date to the subaccounts and the fixed account options in accordance with the instructions on the application. D. PREMIUMS DURING A GRACE PERIOD AND PREMIUMS UPON REINSTATEMENT If the net surrender value is less than the amount of the monthly deduction due on any Monthiversary, and the Guaranteed Minimum Death Benefit rider is not in effect, the Policy will be in default and a grace period will begin. If the Guaranteed Minimum Death Benefit rider is in effect, the Policy will remain in force, regardless of the sufficiency of the net surrender value. The grace period will end 61 days after the date on which the Company sends a grace period notice stating the amount required to be paid and the final date by which the Company must receive the payment. The notice will be sent to the owner's last known address and to any assignee of record. The Policy does not lapse, and the insurance coverage continues, until the expiration of this grace period. If the grace period ends and the Guaranteed Minimum Death Benefit rider is not in effect, all coverage under the Policy will terminate without value. The owner may reinstate the Policy only if the owner resides in a state that provides for reinstatement, the insured (or joint insureds) meets the Company's insurability requirements and the owner pays an amount large enough to cover any monthly deductions due at the time of termination and upon restatement; plus one monthly deduction; plus the repayment of any outstanding loan amount, including interest due. E. ALLOCATIONS OF INITIAL PREMIUM AMONG THE SUBACCOUNTS AND THE FIXED ACCOUNT OPTIONS THE SEPARATE ACCOUNT. An owner may allocate premiums to one or more of the subaccounts of the WRL Series Life Account (the "separate account"). The separate account currently consists of 23 subaccounts, the assets of which are used to purchase shares of a designated corresponding investment portfolio of a fund. The fund is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Additional subaccounts may be added from time to time to invest in other portfolios of the fund or any other investment company. When an owner allocates an amount to a subaccount (either by premium allocation, transfer of cash value or repayment of a Policy loan), the Policy is credited with units in that subaccount. The number of units is determined by dividing the amount allocated, transferred or repaid to the subaccount by the subaccount's unit value for the valuation date when the allocation, transfer or repayment is effected. A subaccount's unit value is determined for each valuation period by multiplying the value of a unit for a subaccount for the prior valuation period by the net investment factor for the subaccount for the current valuation period. The unit value for each subaccount was arbitrarily set as $10 at the time the subaccount commenced operations. The net investment factor is an index used to measure the investment performance of a subaccount from one valuation period to the next. THE FIXED ACCOUNT OPTIONS. Owners also may allocate premiums to the fixed account options-- the standard fixed account and the fixed dollar cost averaging ("fixed DCA") account - both of which guarantee principal and a minimum fixed rate of interest. Money allocated or transferred to the STANDARD fixed account option will earn interest at a current interest rate in effect at that time. The interest rate will equal at least 3%. At the time of purchase, the owner may place a minimum of $5,000 in the fixed DCA account. Money placed in the fixed DCA account will earn interest for six months at an annual rate of at least 3%. Money will be transferred out of the fixed DCA account over the year in 6 equal monthly installments and placed in the subaccounts and standard fixed option according to the owner's allocation instructions. ALLOCATIONS PREMIUM AMONG THE SEPARATE ACCOUNT AND THE FIXED ACCOUNT OPTIONS. Premiums are allocated to the subaccounts and the fixed account options in accordance with the following procedures: GENERAL. In the application for the Policy, the owner will specify the percentage of premium to be allocated to each subaccount of the separate account and/or the fixed account options. The percentage of each premium that may be allocated to any subaccount or the standard fixed account must be a whole number, and the sum of the allocation percentages must be 100%. If the owner selects the fixed DCA account, the entire initial premium must be allocated to that account at the time of application. If the owner selects standard dollar cost averaging, then the owner must allocate at least $5,000 to the money market subaccount. Allocation percentages may be changed at any time by the owner submitting a written notice or telephone instructions to the Company's office. In the future, the Company may decide that the minimum amount that can be allocated to a particular subaccount is 1.00% of each premium payment. ALLOCATION TO THE REALLOCATION ACCOUNT. If the owner lives in a state that requires a refund of full premium during the free look period, then on the Policy date the Company will allocate the initial premium to the reallocation account until the reallocation date. The reallocation account is the standard fixed account. While held in the reallocation account, premium will earn interest at the current rates for the standard fixed account. The premium will remain in the reallocation account for the number of days in the applicable state's free look period, plus five days. This is the reallocation date. On the first valuation date on or after the reallocation date, the cash value will be reallocated to the subaccounts or fixed account options selected by the owner on the application. ALLOCATION AFTER THE REALLOCATION DATE. Additional premiums received after the reallocation date will be credited to the Policy and allocated to the subaccounts or standard fixed account in accordance with the allocation percentages in effect on the valuation date that the premium is received at the Company's office. Allocation percentages can be changed at any time. F. LOAN REPAYMENTS AND INTEREST PAYMENTS REPAYING LOAN AMOUNT. The owner may repay all or part of the loan amount at any time while the Policy is in force and the insured is living. The loan amount is equal to the sum of all outstanding Policy loans including both principal plus any accrued interest. Loan repayments must be sent to the Company's office and will be credited as of the date received. If the death benefit becomes payable while a Policy loan is outstanding, the loan amount will be deducted in calculating the death benefit. ALLOCATION FOR REPAYMENT OF POLICY LOANS. On the date the Company receives a repayment of all or part of a loan, the Company will compare the amount of the outstanding loan to the amount in the loan reserve. Any amount in excess of the amount of the outstanding loan amount will be transferred from the loan reserve to the subaccounts and the standard fixed account and allocated in the same manner as current premiums are allocated, or as directed by the owner. INTEREST ON LOAN RESERVE. The amount in the loan reserve will be credited with interest at a minimum guaranteed annual effective rate of 3%. See "Policy Loans" below. Any interest earned that is in excess to the amount of the outstanding loan amount will be transferred on the Policy anniversary to the subaccounts and the standard fixed account in accordance with the instructions for premium allocations then in effect. II. TRANSFERS A. TRANSFERS AMONG THE SUBACCOUNTS AND THE FIXED ACCOUNT The owner may transfer cash value between and among the subaccounts of the separate account and, subject to certain special rules, to and from the fixed account options. In any Policy year, the owner may make an unlimited number of transfers; however, the Company reserves the right to impose an excess transfer charge of $10 for each transfer in excess of 12 during any Policy year. For purposes of the transfer charge, all transfer requests made in one day are considered one transfer, regardless of the number of subaccounts affected by the transfer. Any unused "free" transfers do not carry over to the next year. There is no minimum amount that may be transferred from each subaccount or the standard fixed account option and there is no minimum amount that must remain in a subaccount or the fixed account options following a transfer. Money in the fixed DCA account may be transferred entirely after the first Policy month. Requests to transfer from the standard fixed account must be received by the Company during the 30-day period following the end of each Policy year unless the owner has selected fixed dollar cost averaging, and only one such transfer may be made in a Policy year. The maximum transfer amount from the standard fixed account to the subaccounts in any Policy year is the greater of 25% of the cash value in the standard fixed account on the date of the transfer, or the amount transferred from the standard fixed account in the immediately prior Policy year (excluding transfers from the fixed DCA account). The Policy, as applied for and issued, will automatically receive telephone transfer privileges unless the owner provides other instructions. The telephone transfer privileges allow the owner to give authority to the registered representative or agent of record for the Policy to make telephone transfers and to change the allocation of future payments among the subaccounts and the standard fixed account on the owner's behalf according to the owner's instructions. The Company reserves the right to modify, restrict, suspend, or eliminate the transfer privileges (including telephone transfer privileges) at any time and for any reason. B. STANDARD DOLLAR COST AVERAGING The standard dollar cost averaging program permits owners to systematically transfer on a monthly basis a set dollar amount from the subaccount investing in the money market portfolio to any combination of subaccounts. Owners may elect to participate in the dollar cost averaging program at any time by sending the Company a written request. To use the dollar cost averaging program, owners must have at least $5,000 in the money market subaccount. At the beginning of dollar cost averaging, the owner must choose the time period (12, 24, or 36 months) over which the entire amount in the money market subaccount will be transferred in equal monthly installments. There is no additional charge for dollar cost averaging. A transfer under this program is not considered a transfer for purposes of assessing a transfer charge. The Company reserves the right to discontinue offering the dollar cost averaging program at any time and for any reason. Dollar cost averaging is not available while owners are participating in the asset rebalancing program. C. FIXED DOLLAR COST AVERAGING To be eligible for fixed dollar cost averaging, the owner must elect the fixed DCA account on the application and put the entire initial premium in the fixed DCA account. Money placed in the fixed DCA account will earn interest at rates we declare from time to time. Money will be transferred out of the fixed DCA account in 6 equal monthly installments with the first transfer occurring on the first Monthiversary after the Policy date or reallocation date. Interest accrued on the initial premium will be transferred in the last month of the fixed DCA account term. Money in the fixed DCA account may be transferred entirely to other subaccounts or the standard fixed account after one month . There is no charge for participating in the fixed DCA account. Transfers from the fixed DCA account do not count as transfers for purposes of the transfer charge. The Company reserves the right to stop offering the fixed DCA account at any time for any reason. The Company may offer a higher 30-day interest rate guaranteed for one month. D. ASSET REBALANCING An owner may instruct the Company to automatically rebalance (on a quarterly, semi-annual or annual basis) the Policy's cash value to return to the percentages specified in the owner's currently effective allocation instructions. An owner may elect to participate in the asset rebalancing program at any time by sending the Company a written request to the Company's office. The percentage allocations must be in whole percentages. Subsequent changes to the percentage allocations may be made at any time by written or telephone instructions to the Company's office. Once elected, asset rebalancing remains in effect until the owner instructs the Company to discontinue asset rebalancing. There is no additional charge for using asset rebalancing, and an asset rebalancing transfer is not considered a transfer for purposes of assessing a transfer charge. The Company reserves the right to discontinue offering the asset rebalancing program at any time and for any reason. Portfolio rebalancing is not available while an owner is participating in the fixed or standard dollar-cost averaging program. Asset rebalancing will cease if the owner makes any transfer to or from any subaccount other than on a scheduled basis. E. TRANSFER ERRORS In accordance with industry practice, the Company will establish procedures to address and to correct errors in amounts transferred among the subaccounts and the fixed account, except for de minimis amounts. The Company will correct non-de minimis errors it makes and will assume any risk associated with the error. owners will not be penalized in any way for errors made by the Company. The Company will take any gain resulting from the error. III. "REDEMPTION" PROCEDURES A. "FREE-LOOK" RIGHTS The Policy provides for an initial free-look right during which an owner may cancel the Policy by returning it to the Company or to an agent of the Company before the end of 10 days after the Policy is delivered. The free-look period may be longer in some states. Upon returning the Policy to the Company or to an authorized agent for forwarding to the Company's office, the Policy will be deemed void from the beginning. Within seven days after the Company's office receives the cancellation request and Policy, the Company will pay a refund. In most states, the refund will be equal to the sum of: o any monthly deductions or other charges we deducted from amounts allocated to the subaccounts and the fixed account options; PLUS o the cash value to the subaccounts and the fixed account options on the date the Company (or its agent) receives the returned Policy, except that amounts allocated to the fixed DCA account will be treated as if they had been allocated to the standard fixed account. If any state law prohibits the calculation above, the Company will refund, without interest, the total of all premiums paid for the Policy. In such states, the initial premium will be allocated to the reallocation account on the Policy date and remain in the reallocation account until the reallocation date. B. SURRENDERS REQUESTS FOR NET SURRENDER VALUE. The owner may surrender the Policy at any time for its net surrender value. The net surrender value on any valuation date is the cash value, minus any applicable surrender charge, and minus any applicable loan amount. The net surrender value will be determined by the Company on the valuation date the Company's office receives all required documents, including a satisfactory written request signed by the owner. The Company will cancel the Policy as of the date the written request is received at the Company's office and the Company will ordinarily pay the net surrender value within seven days following receipt of the written request and all other required documents. The Policy cannot be reinstated after it is surrendered. SURRENDER OF POLICY -- SURRENDER CHARGE. If the Policy is surrendered during the first 9 Policy years, the Company will deduct a surrender charge from cash value and pay the remaining cash value (less any outstanding loan amounts) to the owner. The surrender charge is 9.75% of the initial premium if the Policy is surrendered before the end of the first Policy year, and then declines gradually to 0% after the ninth Policy year. The rate at which the surrender charge declines depends on the insured's (or joint insureds') age, gender and whether the Policy is a single life or joint policy. C. PARTIAL WITHDRAWALS WHEN WITHDRAWALS ARE PERMITTED. After the first Policy year, the owner may withdraw a portion of the cash value, subject to the following conditions: o The owner must make partial withdrawal requests in writing. o Only one partial withdrawal is allowed during a 12-month period. o The most that can be withdrawn is earnings, that is, cash value MINUS total outstanding loans, MINUS any interest owed on the Policy loans, and MINUS total premiums paid. o The owner can specify the subaccount(s) and the standard fixed account from which the withdrawal will be taken. Otherwise, the Company will deduct the amount from the separate account and the fixed account in accordance with the current allocation instructions. o The Company generally will pay a partial withdrawal request within seven days following the valuation date on which the withdrawal request is received. o There is no charge for a partial withdrawal. The Company may delay making a payment if: (1) the disposal or valuation of the separate account's assets is not reasonably practicable because the New York Stock Exchange is closed for other than a regular holiday or weekend, trading is restricted by the SEC, or the SEC declares that an emergency exists; or (2) the SEC by order permits postponement of payment to protect the Policy owners. The Company also may defer making payments attributable to a check that has not cleared, and may defer payment of proceeds from the fixed account for a withdrawal, surrender or Policy loan request for up to six months from the date the request is received. The Company will not defer payment of a withdrawal or Policy loan requested to pay a premium due on a policy issued by the Company. EFFECT OF WITHDRAWAL ON DEATH BENEFIT. A partial withdrawal will reduce the cash value by the amount of the partial withdrawal. A partial withdrawal will reduce the specified amount by an amount equal to the amount of the partial withdrawal multiplied by the ratio of the initial specified amount to the initial premium. A partial withdrawal will also reduce the Guaranteed Minimum Death Benefit by an amount equal to the amount of the partial withdrawal multiplied by the ratio of the initial specified amount to the initial premium. D. LAPSES If a sufficient premium has not been received by the 61st day after a grace period notice is sent, the Policy will lapse without value and no amount will be payable to the owner. E. MONTHLY DEDUCTION AND DAILY CHARGE On each Monthiversary, redemptions in the form of deductions will be made from cash value for the monthly deduction, which is a charge compensating the Company for the services and benefits provided, costs and expenses incurred, and risks assumed by the Company in connection with the Policy. The monthly deduction consists of three components: (a) the cost of insurance charge, if any; (b) a monthly Policy charge ; and (c) any charges for additional benefits added by riders to the Policy. THE MONTHLY DEDUCTION. A monthly deduction will be deducted from each subaccount and the fixed account on the Policy date and on each Monthiversary 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, the Company 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). The monthly deduction is equal to: o the monthly Policy charge based on the Policy's separate account assets; PLUS o the monthly Policy charge based on the Policy's fixed account assets; PLUS o the monthly cost of insurance charge for the Policy, if any; PLUS o the monthly charge for any benefits provided by riders attached to the Policy (currently, only the Guaranteed Minimum Death Benefit rider). COST OF INSURANCE CHARGE. The Company reserves the right to deduct a cost of insurance charge. The cost of insurance charges are calculated monthly, and depend on a number of variables, including the age, gender and rate class of the insured. The charge varies from Policy to Policy and from Monthiversary to Monthiversary. The charge is calculated each month for the specified amount at issue. MONTHLY POLICY CHARGE. The monthly Policy charge based on the separate account's assets is equal to: (1) the separate account monthly deduction charge divided by 12; multiplied by (2) the sum of the Policy's subaccount values on the Monthiversary of each monthly deduction. The monthly Policy charge based on the fixed account's assets is equal to: (1) the fixed account monthly deduction charge divided by 12; multiplied by (2) the fixed account value on the Monthiversary of each monthly deduction, minus any outstanding loans. DAILY CHARGE. Each valuation date, the Company deducts a daily charge at the annual rate of 0.50% from assets in the subaccounts as part of the calculation of the unit value for each subaccount. GUARANTEED MINIMUM DEATH BENEFIT RIDER CHARGE. If the owner selects the Guaranteed Minimum Death Benefit rider at application, the Company will deduct a monthly charge on the Policy date and on each Monthiversary equal to 0.02% multiplied by the sum of the subaccount values, if any, on the valuation date of each monthly deduction; plus 0.02% multiplied by the fixed account value on the valuation date of each monthly deduction. F. DEATH BENEFITS PAYMENT OF DEATH BENEFIT PROCEEDS. As long as the Policy remains in force, the Company will pay the death benefit proceeds to the beneficiary upon receipt at the Company's office of due proof of the insured's (or surviving insured's) death. The death benefit proceeds is equal to: The death benefit will be paid to the beneficiary in a lump sum generally within seven days after the valuation date by which the Company has received at the Company's office all materials necessary to constitute due proof of death. If a payment option is elected, the death benefit will be applied to the option within seven days after the valuation date by which the Company received due proof of death and payments will begin under that option when provided by the option. THE DEATH BENEFIT PROCEEDS. The death benefit proceeds will equal: o the death benefit (described below); MINUS o any past due monthly deductions if the insured (or surviving insured) dies during the grace period; MINUS o any outstanding Policy loan on the date of death; MINUS o any interest owed on the Policy loan(s). If all or part of the death benefit proceeds are paid in one sum, we will pay interest on this sum as required by applicable state law from the date we receive due proof of the insured's death to the date the Company makes payment. THE DEATH BENEFIT. The death benefit is determined at the end of the valuation period in which the insured (or surviving insured) dies. The death benefit is equal to: o the current specified amount; or o a specified percentage, called the limitation percentage, multiplied by the cash value on the insured's (or surviving insured's) date of death. THE GUARANTEED MINIMUM DEATH BENEFIT RIDER. If the owner purchases the Guaranteed Minimum Death Benefit rider at the time of application and the rider is in effect upon the insured's (or surviving insured's) death, the Company guarantees to provide a death benefit as described in the current prospectus for the Policy. G. POLICY LOANS POLICY LOANS. The owner may obtain a Policy loan from the Company at any time by submitting a written, faxed, or telephone request to the Company's office. The maximum loan amount is 90% of the Policy's cash value at the time of the loan. Policy loans will be processed as of the valuation date the request is received and loan proceeds generally will be sent to the owner within seven days thereafter. Taking a Policy loan will terminate the Guaranteed Minimum Death Benefit rider, if any. COLLATERAL FOR POLICY LOANS. When a Policy loan is made, an amount equal to the loan proceeds is transferred from the cash value in the subaccounts or standard fixed account to the loan reserve. This withdrawal is made based on the owner's current premium allocation instructions, unless the owner directs a different allocation when requesting the loan. INTEREST ON POLICY LOANS. The Company charges interest daily on any outstanding Policy loan at an effective annual interest rate of 6%. Interest is due and payable at the end of each Policy anniversary. On each Policy anniversary, any unpaid amount of loan interest accrued since the last Policy anniversary becomes part of the outstanding loan. An amount equal to the unpaid amount of interest is transferred to the loan reserve from each subaccount and the standard fixed account based on the owner's current premium allocation instructions, unless the owner directs otherwise. EFFECT ON DEATH BENEFIT. If the death benefit becomes payable while a Policy loan is outstanding, the loan amount will be deducted in calculating the death benefit. The Company will send the owner, and any assignee of record, notice of the default. The owner will have a 61-day grace period to submit a sufficient payment to avoid lapse. I. LUMP SUM PAYMENTS BY THE COMPANY Lump sum payments of withdrawals, surrenders or death benefits from the subaccounts will be ordinarily made within seven days of the valuation date on which the Company receives the request and all required documentation at the Company's office. The Company may postpone the processing of any such transactions for any of the following reasons: 1. If the disposal or valuation of the separate account's assets is not reasonably practicable because the New York Stock Exchange ("NYSE") is closed for trading other than for customary holiday or the weekend closings, or trading on the NYSE is otherwise restricted, or an emergency exists, as determined by the Securities and Exchange Commission ("SEC"). 2. When the SEC by order permits a delay for the protection of owners. 3. If the payment is attributable to a check that has not cleared. The Company may defer for up to six months after the date the Company receives the request, the payment of any proceeds from the fixed account for a transfer, partial withdrawal, or surrender request. J. CONVERSION RIGHT The owner has the right to transfer all of the subaccount value to the standard fixed account. During the first 24 Policy months, such a transfer is not counted for purposes of determining whether a transfer charge applies. K. REDEMPTION ERRORS In accordance with industry practice, the Company will establish procedures to address and to correct errors in amounts redeemed from the subaccounts and the fixed account, except for de minimus amounts. The Company will assume the risk of any non de minimus errors caused by the Company. L. MISSTATEMENT OF AGE OR SEX If the insured's (or either joint insured's) age or gender has been misstated in the application or any other supplemental application, then the death benefit under the Policy will be adjusted based on what the initial premium would have purchased based on the insured(s)' correct age and gender. M. INCONTESTABILITY The Policy limits the Company's right to contest the Policy as issued or as increased, for reasons of material misstatements contained in the application, after it has been in force during the insured's lifetime (or while both joint insureds are still alive) for a minimum period, generally for two years from the Policy date of the Policy or effective date of a reinstatement. If the Policy is purchased as a joint policy, at the end of the second Policy year, the Company will send the owner a notice asking whether either joint insured has died. The Company can contest the Policy's validity if the owner does not notify the Company that a joint insured has died and if the Policy is still in force. N. LIMITED DEATH BENEFIT The Policy limits the death benefit if the insured dies by suicide generally within two years after the Policy date of the Policy (or reinstatement date, if provided by state law). EX-99.C6 8 Exhibit 3 Opinion of counsel as to the legality of the securities being registered WRL Letterhead June 11, 1999 Board of Directors Western Reserve Life Assurance Co. of Ohio WRL Series Life Account 570 Carillon Parkway St. Petersburg, Florida 33716 Gentlemen: In my capacity as Vice President, Assistant Secretary and Associate General Counsel of Western Reserve Life Assurance Co. of Ohio ("WRL"), I have participated in the preparation and review of this Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File No. 333-68367) filed with the Securities and Exchange Commission under the Securities Act of 1933 for the registration of both individual and joint survivorship modified single premium variable life insurance policies (the "Policies") to be issued with respect to the WRL Series Life Account (the "Account"). The Account was established on July 16, 1985, by the Board of Directors of WRL as a separate account for assets applicable to the Policies, pursuant to the provisions of Section 3907.15 of the Ohio Revised Code and Rule 3901-1-12 of the Administrative Code of Ohio. I am of the following opinion: 1. WRL has been duly organized under the laws of Ohio and is a validly existing corporation. 2. The Account has been duly created and is validly existing as a separate account pursuant to the aforesaid provision of Ohio law. 3. Section 3907.15 of the Ohio Revised Code provides that the portion of the assets of the Account equal to the reserves and other liabilities for variable benefits under the Policies is not chargeable with liabilities arising out of any other business WRL may conduct. Assets allocated to the fixed account under the Policies, however, are part of WRL's general account and are subject to WRL's general liabilities from business operations. 4. The Policies, when issued as contemplated by the Registration Statement, will be legal and binding obligations of WRL in accordance with their terms. In arriving at the foregoing opinion, I have made such examination of law and examined such records and other documents as I judged to be necessary or appropriate. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ THOMAS E. PIERPAN - --------------------- Thomas E. Pierpan Vice President, Assistant Secretary and Associate General Counsel EX-99.C6.1 9 Exhibit 6 Opinion and consent of Alan Yaeger as to actuarial matters pertaining to the securities being registered WRL LETTERHEAD June 11, 1999 Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 RE: REGISTRATION NO. 333-68367 Gentlemen: This opinion is furnished in connection with the Pre-Effective Amendment No. 1 registration by Western Reserve Life Assurance Co. of Ohio of both individual and joint survivorship modified single premium variable life insurance policies ("Policies") under the Securities Act of 1933. The prospectus included in the Registration Statement on Form S-6 describes the Policies. The forms of Policies were prepared under my direction, and I am familiar with the Registration Statement and exhibits thereof. In my opinion, the illustrations of death benefits, cash values and net surrender values included in the section entitled "Appendix A - Illustrations" of the prospectus, based on the assumptions stated in the illustrations, are consistent with the provisions of the respective forms of the Policies. I hereby consent to use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Experts" in the prospectus. Very truly yours, /s/ ALAN YAEGER - --------------- Alan Yaeger Executive Vice President, Actuary and Chief Financial Officer EX-99.2 10 Exhibit 7 Consent of Thomas E. Pierpan, Esq. WRL Letterhead June 11, 1999 Western Reserve Life Assurance Co. of Ohio 570 Carillon Parkway St. Petersburg, Florida 33716 Gentlemen: I hereby consent to the reference to my name under the caption "Legal Matters" in the Prospectus contained in Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File No. 333-68367) for the WRL Series Life Account filed by Western Reserve Life Assurance Co. of Ohio with the Securities and Exchange Commission. /s/ THOMAS E. PIERPAN - --------------------- Thomas E. Pierpan Vice President, Associate General Counsel and Assistant Secretary EX-99.2.A 11 Exhibit 8 Consent of Sutherland Asbill & Brennan LLP S.A.B. Letterhead June 11, 1999 Board of Directors Western Reserve Life Assurance Co. of Ohio WRL Series Life Account 570 Carillon Parkway St. Petersburg, Florida 33716 RE: WRL Series Life Account FILE NO. 333-68367 Gentlemen: We hereby consent to the use of our name under the caption "Legal Matters" in the prospectus for the WRL Freedom Navigator contained in Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 (File No. 333-68367) of the WRL Series Life Account filed by Western Reserve Life Assurance Co. of Ohio with the Securities and Exchange Commission. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Very truly yours, SUTHERLAND ASBILL & BRENNAN LLP By: /s/ STEPHEN E. ROTH -------------------- Stephen E. Roth EX-99.C1 12 Exhibit 9 Consent of Ernst & Young LLP CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 19, 1999, with respect to the statutory-basis financial statements and schedules of Western Reserve Life Assurance Co. of Ohio included in Pre-Effective Amendment No. 1 to the Registration Statement (Form S-6 No. 333-68367) and related prospectus of WRL Series Life Account. ERNST & YOUNG LLP Des Moines, Iowa June 11, 1999 EX-99.C1-A 13 Exhibit 10 Consent of PricewaterhouseCoopers LLP CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the prospectus constituting part of the WRL Freedom Navigator Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 of our report dated January 29, 1999, relating to the financial statements and financial highlights of the sub-accounts comprising the WRL Series Life Account, which appears in such prospectus. We also consent to the reference to us under the heading "Experts" in such prospectus. PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts June 11, 1999 -----END PRIVACY-ENHANCED MESSAGE-----