As filed with the Securities and Exchange
Commission on April 5, 2001
Registration File Nos. _________________/811-4420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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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)
Kimberly A. Scouller, Esq.
Vice President and Senior 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
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
hereby elects to register an indefinite amount of securities being offered.
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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.
P R O S P E C T U S
, 2001
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WRL FREEDOM ELITE BUILDER(SM)
issued through
WRL Series Life Account
by
Western Reserve Life Assurance Co.
of Ohio
570 Carillon Parkway
St. Petersburg, Florida 33716
1-800-851-9777
(727) 299-1800
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AN INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Consider carefully the risk factors beginning
on page 11 of this prospectus.
An investment in this Policy is not a bank
deposit. The Policy is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
The Securities and Exchange
it Commission has not approved If you already own a life insurance policy,
or disapproved these securities may not be to your advantage to buy
or passed upon the adequacy additional insurance or to replace your policy
of this prospectus. Any with the Policy described in this prospectus.
representation to the contrary
is a crinial offense. Prospectuses for the portfolios of:
AEGON/Transamerica Series Fund, Inc.;
Variable Insurance Products Fund (VIP);
Variable Insurance Products Fund II (VIP II);
and Variable Insurance Products Fund III (VIP
III) must accompany this prospectus.
Certain portfolios may not be available in
all states. Please read these documents
before investing and save them for future
reference.
Table of Contents
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Glossary ................................................................. 1
Policy Summary ........................................................... 5
Risk Summary ............................................................. 11
Portfolio Annual Expense Table ........................................... 15
Western Reserve and the Fixed Account .................................... 17
Western Reserve ...................................................... 17
The Fixed Account .................................................... 17
The Separate Account and the Portfolios .................................. 18
The Separate Account ................................................. 18
The Funds ............................................................ 18
Addition, Deletion, or Substitution of Investments ................... 22
Your Right to Vote Portfolio Shares .................................. 23
The Policy ............................................................... 23
Purchasing a Policy .................................................. 23
Underwriting Standards ............................................... 24
When Insurance Coverage Takes Effect ................................. 25
Backdating a Policy .................................................. 26
Ownership Rights ..................................................... 27
Canceling a Policy ................................................... 28
Premiums ................................................................. 29
Premium Flexibility .................................................. 29
Planned Periodic Payments ............................................ 29
Minimum Monthly Guarantee Premium .................................... 29
No Lapse Period ...................................................... 30
Premium Limitations .................................................. 30
Making Premium Payments .............................................. 30
Allocating Premiums .................................................. 31
Policy Values ............................................................ 32
Cash Value ........................................................... 32
Net Surrender Value .................................................. 33
Subaccount Value ..................................................... 33
Subaccount Unit Value ................................................ 33
Fixed Account Value .................................................. 34
Transfers ................................................................ 34
General .............................................................. 34
Fixed Account Transfers .............................................. 36
Conversion Rights .................................................... 37
Dollar Cost Averaging ................................................ 37
Asset Rebalancing Program ............................................ 38
Third Party Asset Allocation Services ................................ 39
Charges and Deductions ................................................... 39
Premium Charges ...................................................... 40
Monthly Deduction .................................................... 40
Mortality and Expense Risk Charge .................................... 43
This Policy is not available in the State of New York.
i
Surrender Charge ...................................................... 43
Decrease Charge ....................................................... 45
Transfer Charge ....................................................... 46
Change in Net Premium Allocation Charge ............................... 46
Cash Withdrawal Charge ................................................ 46
Taxes ................................................................. 46
Portfolio Expenses .................................................... 47
Death Benefit ............................................................. 47
Death Benefit Proceeds ................................................ 47
Death Benefit ......................................................... 48
Effects of Cash Withdrawals on the Death Benefit ...................... 50
Choosing Death Benefit Options ........................................ 50
Changing the Death Benefit Option ..................................... 50
Increasing/Decreasing the Specified Amount ............................ 50
Payment Options ....................................................... 52
Surrenders and Cash Withdrawals ........................................... 52
Surrenders ............................................................ 52
Cash Withdrawals ...................................................... 52
Loans ..................................................................... 54
General ............................................................... 54
Interest Rate Charged ................................................. 55
Loan Reserve Interest Rate Credited ................................... 55
Effect of Policy Loans ................................................ 55
Policy Lapse and Reinstatement ............................................ 56
Lapse ................................................................. 56
No Lapse Period ....................................................... 56
Reinstatement ......................................................... 57
Federal Income Tax Considerations ......................................... 57
Tax Status of the Policy .............................................. 57
Tax Treatment of Policy Benefits ...................................... 58
Special Rules for 403(b) Arrangements ................................. 61
Other Policy Information .................................................. 61
Our Right to Contest the Policy ....................................... 61
Suicide Exclusion ..................................................... 62
Misstatement of Age or Gender ......................................... 62
Modifying the Policy .................................................. 62
Tax-Free "Section 1035" Exchanges ..................................... 62
Benefits at Maturity .................................................. 63
Payments We Make ...................................................... 63
Settlement Options .................................................... 64
Reports to Owners ..................................................... 65
Records ............................................................... 65
Policy Termination .................................................... 66
Supplemental Benefits (Riders) ............................................ 66
Children's Insurance Rider ............................................ 66
Accidental Death Benefit Rider ........................................ 66
Other Insured Rider ................................................... 67
Disability Waiver Rider ............................................... 67
Disability Waiver and Income Rider .................................... 67
ii
Primary Insured Rider ("PIR") and Primary Insured
Rider Plus ("PIR Plus") ........................................... 67
Living Benefit Rider (an Accelerated Death Benefit) .................. 68
IMSA ..................................................................... 69
Performance Data ......................................................... 69
Rates of Return ...................................................... 69
Hypothetical Illustrations Based on Subaccount Performance ........... 72
Other Performance Data in Advertising Sales Literature ............... 85
Western Reserve's Published Ratings .................................. 86
Additional Information ................................................... 86
Sale of the Policies ................................................. 86
Legal Matters ........................................................ 87
Legal Proceedings .................................................... 87
Variations in Policy Provisions ...................................... 88
Experts .............................................................. 88
Financial Statements ................................................. 88
Additional Information about Western Reserve ......................... 88
Western Reserve's Directors and Officers ............................. 89
Additional Information about the Separate Account .................... 93
Appendix A -- Illustrations .............................................. 94
Appendix B -- Wealth Indices of Investments in the U.S. Capital Market ... 98
Appendix C -- Surrender Charge Per Thousand (Based on the gender and
rate class of the insured) ................................. 100
Index to Financial Statements ............................................ 102
WRL Series Life Account .............................................. 103
Western Reserve Life Assurance Co. of Ohio ........................... 140
iii
Glossary
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accounts The options to which you can allocate your money. The
accounts include the fixed account and the subaccounts in the
separate account.
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attained age The issue age of the person insured, plus the number of
completed years since the Policy date (for the initial
specified amount) or the date of each increase in specified
amount.
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Base Policy The WRL Freedom Elite Builder variable life insurance policy
without any supplemental riders.
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beneficiary(ies) The person or persons you select to receive the death benefit
from this Policy. You name the primary beneficiary and
contingent beneficiaries.
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cash value The sum of your Policy's value in the subaccounts and the
fixed account. If there is a Policy loan outstanding, the
cash value includes any amounts held in our fixed account to
secure the Policy loan.
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death benefit The amount we will pay to the beneficiary(ies) on the
proceeeds insured's death. We will reduce the death benefit proceeds by
the amount of any outstanding loan amount, and any due and
unpaid monthly deductions.
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decrease charge Surrender charge that may be imposed upon a decrease in
specified amount during the first 15 Policy years (or during
the 15 years subsequent to an increase in specified amount).
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fixed account An option to which you may allocate premiums and cash value.
We guarantee that any amounts you allocate to the fixed
account will earn interest at a declared rate. The fixed
account option may not be available in all states.
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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.
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funds Investment companies which are registered with the U.S.
Securities and Exchange Commission. The Policy allows you to
invest in the portfolios of the funds through our
subaccounts. We reserve the right to add other registered
investment companies to the Policy in the future.
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in force While coverage under the Policy is active and the insured's
life remains insured.
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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.
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insured The person whose life is insured by this Policy.
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1
issue age The insured's age on his or her birthday nearest to the
Policy date. When you increase the Base Policy's specified
amount of insurance coverage, the issue age for the new
segment of specified amount coverage is the insured's age on
his or her birthday nearest the date that the increase in
specified amount takes effect. This age may be different from
the attained age on other segments of specified amount
coverage.
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lapse When life insurance coverage ends because you do not have
enough cash value in the Policy to pay the monthly deduction,
the surrender charge and any outstanding loan amount, and you
have not made a sufficient payment by the end of a grace
period.
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loan amount The total amount of all outstanding Policy loans, including
both principal and interest due.
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loan reserve A part of the fixed account to which amounts are transferred
as collateral for Policy loans.
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maturity date The Policy anniversary nearest the insured's 100th birthday
if the insured is living and the Policy is still in force. It
is the date when life insurance coverage under this Policy
ends. You may continue coverage, at your option, under the
Policy's extended maturity date benefit provision.
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minimum The amount shown on your Policy schedule page that we use
monthly during the no lapse period to determine whether a grace
guarantee period will begin. We will adjust the minimum monthly
premium guarantee premium if you change death benefit options,
increase or decrease the specified amount, or add, increase
or decrease a rider. A grace period will begin whenever your
net surrender value is not enough to meet monthly deductions.
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Monthiversary This is the day of each month when we determine Policy
charges and deduct them from cash value. It is the same date
each month as the Policy date. If there is no valuation date
in the calendar month that coincides with the Policy date,
the Monthiversary is the next valuation date.
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monthly The monthly Policy charge, plus the monthly cost of
deduction insurance, plus the monthly charge for any riders added to
your Policy, plus, if any, the decrease charge incurred as a
result of a decrease in your specified amount.
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net premium The part of your premium that we allocate to the fixed
account or the subaccounts. The net premium is equal to the
premium you paid minus the premium expense charges and the
premium collection charge.
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net surrender The amount we will pay you if you surrender the Policy while
value it is in force. 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.
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no lapse date For a Policy issued to any insured ages 0-60, the no lapse
date is either the anniversary on which the insured's
attained age is 65 or the twentieth Policy anniversary,
whichever is less. For a Policy issued to an insured ages
61-85, the no lapse date is the fifth Policy anniversary. The
no lapse date is specified in your Policy.
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2
no lapse period The period of time between the Policy date and the no lapse
date during which the Policy will not lapse if certain
conditions are met.
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office Our administrative office and mailing address is P.O. Box
5068, Clearwater, Florida 33758-5068. Our street address is
570 Carillon Parkway, St. Petersburg, Florida 33716. Our
phone number is 1-800-851-9777, extension 6539. Our hours are
Monday - Friday from 8:00 a.m. - 7:00 p.m. Eastern time.
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planned periodic A premium payment you make in a level amount at a fixed
premium interval over a specified period of time.
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Policy date The date when our underwriting process is complete, full life
insurance coverage goes into effect, the initial premium
payment has been received, and we begin to make the monthly
deductions. The Policy date is shown on the schedule page of
your Policy. If you request, we may backdate a Policy by
assigning a Policy date earlier than the date the Policy is
issued. We measure Policy months, years, and anniversaries
from the Policy date.
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portfolio One of the separate investment portfolios of a fund.
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premiums All payments you make under the Policy other than loan
repayments.
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reallocation The fixed account.
account
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reallocation The date we reallocate all cash value held in the
date reallocation account to the fixed account and subaccounts 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 those states the reallocation date is the record
date, plus the number of days in your state's free-look
period, plus five days. In all other states, the reallocation
date is the record date.
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record date The date we record your Policy on our books as an in force
Policy. The record date is generally the Policy date, unless
the Policy is backdated. The record date is the date when,
depending on the laws of the state governing your Policy
(usually the state where you live), we allocate your premium
either to the reallocation account or to the fixed account
and the subaccounts you selected on your application.
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separate account The WRL Series Life Account. It is a separate investment
account that is divided into subaccounts. We established the
separate account to receive and invest net premiums under the
Policy and other variable life insurance policies we issue.
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3
specified amount The minimum death benefit we will pay under the Policy
provided the Policy is in force. The initial specified amount
is the amount shown on the Base Policy's schedule page that
you receive when the Policy is issued. The specified amount
in force is the initial specified amount, adjusted for any
increases or decreases in the Base Policy's specified amount.
Events such as a request to increase or decrease the
specified amount, a change in death benefit option, or a cash
withdrawal (if you choose Option A death benefit) may affect
the specified amount in force.
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subaccount A subdivision of the separate account that invests
exclusively in shares of one investment portfolio of a fund.
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surrender charge If, during the first 15 Policy years (or during the 15 year
period subsequent to an increase in specified amount), you
fully surrender the Policy, we will deduct a surrender charge
from the cash value.
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termination When the insured's life is no longer insured under the
Policy.
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valuation date Each day the New York Stock Exchange is open for trading.
Western Reserve is open for business whenever the New York
Stock Exchange is open.
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valuation period The period of time over which we determine the change in the
value of the subaccounts. Each valuation period begins at the
close of normal trading on the New York Stock Exchange
(currently 4:00 p.m. Eastern time on each valuation date) and
ends at the close of normal trading of the New York Stock
Exchange on the next valuation date.
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we, us, our
(Western Western Reserve Life Assurance Co. of Ohio
Reserve)
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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.
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you, your
(owner or The person entitled to exercise all rights as owner under the
policyowner) Policy.
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4
Policy Summary WRL Freedom Elite Builder(SM)
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This summary provides only a brief overview of the more important features
of the Policy. More detailed information about the Policy appears later in this
prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS CAREFULLY.
THE POLICY IN GENERAL
The WRL Freedom Elite Builder(SM) is an individual flexible premium
variable life insurance policy.
The Policy is designed to be long-term in nature in order to provide
significant life insurance benefits for you. However, purchasing this Policy
involves certain risks. (See Risk Summary p. 11.) You should consider the
Policy in conjunction with other insurance you own. THE POLICY IS NOT SUITABLE
AS A SHORT-TERM SAVINGS VEHICLE.
A few of the Policy features listed below are not available in all states,
may vary depending upon when your Policy was issued and may not be suitable for
your particular situation. Certain states place restrictions on access to the
fixed account and on other Policy features. Please consult your agent and refer
to your Policy for details.
PREMIUMS
o You select a payment plan but are not required to pay premiums according to
the plan. You can vary the frequency and amount, within limits, and can skip
premium payments.
o Unplanned premiums may be made, within limits.
o Premium payments must be at least $50 if paid monthly and $600 if paid
annually.
o You increase your risk of lapse if you do not regularly pay premiums at
least as large as the current minimum monthly guarantee premium.
o Until the no lapse date shown on your Policy schedule page, we guarantee
that your Policy will not lapse, so long as you have paid total premiums
(MINUS any withdrawals, MINUS any outstanding loan amount, and MINUS any
decrease charge) that equal or exceed the sum of the minimum monthly
guarantee premiums in effect for each month since the Policy date up to and
including the current month. If you take a withdrawal, a loan, or if you
increase or decrease your specified amount, you may need to pay additional
premiums in order to keep the no lapse guarantee in place.
o The minimum monthly guarantee premium on the Policy date is shown on your
Policy schedule page. We will adjust the minimum monthly guarantee premium
if you change death benefit options, increase or decrease the specified
amount, or add, increase or decrease a rider.
o Under certain circumstances, extra premiums may be required to prevent
lapse.
o Once we deliver your Policy, the FREE-LOOK PERIOD begins. You may return the
Policy during this period and receive a refund. Depending on the laws of the
state governing your Policy (usually the state where you live), we will
either allocate your premium to
5
the accounts you indicated on your application, or we will place your
premium in the reallocation account until the reallocation date as shown
on your Policy schedule page. See Reallocation Account p. 32.
DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR THE FIXED
ACCOUNT
o For the first ten Policy years: 6.0% premium expense charge for Policies
with a specified amount in force of less than $250,000; 4.0% for Policies
with a specified amount in force of $250,000 - $499,999.
o After the tenth Policy year: 2.5% premium expense charge for Policies with a
specified amount in force of less than $500,000.
o There is no premium expense charge for Policies with a specified amount in
force of $500,000 or higher.
o A premium collection charge of $3.00 from each premium payment for Policies
on direct pay notice. This charge does not apply to Policies under an
electronic funds transfer program.
INVESTMENT OPTIONS
SUBACCOUNTS. You may direct the money in your Policy to a total of 12
subaccounts of the WRL Series Life Account, a separate account. For
administrative reasons, we currently limit the number of subaccounts that you
can invest in at any one time to 12 active subaccounts. Each subaccount invests
exclusively in one investment portfolio of a fund. THE MONEY YOU PLACE IN THE
SUBACCOUNTS IS NOT GUARANTEED. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR
DECREASE, DEPENDING ON INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO.
YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
The portfolios available to you are:
AEGON/TRANSAMERICA SERIES FUND, INC.
[ ] Munder Net50 [ ] GE U.S. Equity
[ ] Van Kampen Emerging Growth [ ] Great Companies -- America(SM)
[ ] T. Rowe Price Small Cap [ ] Salomon All Cap
[ ] Pilgrim Baxter Mid Cap Growth [ ] C.A.S.E. Growth
[ ] Alger Aggressive Growth [ ] Dreyfus Mid Cap
[ ] Third Avenue Value [ ] NWQ Value Equity
[ ] Value Line Aggressive Growth [ ] T. Rowe Price Dividend Growth
[ ] GE International Equity [ ] Dean Asset Allocation
[ ] Gabelli Global Growth [ ] LKCM Strategic Total Return
[ ] Great Companies -- Global(2) [ ] J.P. Morgan Real Estate Securities
[ ] Great Companies -- Technology(SM) [ ] Federated Growth & Income
[ ] Janus Growth [ ] AEGON Balanced
[ ] LKCM Capital Growth [ ] AEGON Bond
[ ] Goldman Sachs Growth [ ] J.P. Morgan Money Market
6
VARIABLE INSURANCE PRODUCTS FUND (VIP)
[ ] Fidelity VIP Equity-Income Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
[ ] Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
[ ] Fidelity VIP III Growth Opportunities Portfolio -- Service Class 2
FIXED ACCOUNT. You may also direct the money in your Policy to the fixed
account. Unless otherwise required by state law, we will restrict your
allocations or transfers to the fixed account if the fixed account value
following the allocation or transfer would exceed $500,000. Money you place in
the fixed account is guaranteed, and will earn interest at a current interest
rate declared from time to time. The annual interest rate will equal at least
3.0%. The fixed account may not be available to residents of some states.
CASH VALUE
o Cash value equals the sum of your Policy's value in the subaccounts and the
fixed account. If there is a loan outstanding, the cash value includes any
amounts held in our fixed account to secure the Policy loan.
o Cash value varies from day to day, depending on the investment experience of
the subaccounts you choose, the interest credited to the fixed account, the
charges deducted and any other Policy transactions (such as additional
premium payments, transfers, withdrawals, and Policy loans).
o Cash value is the starting point for calculating important values under the
Policy, such as net surrender value and the death benefit.
o There is no guaranteed minimum cash value. The Policy may lapse if you do
not have sufficient cash value in the Policy to pay the monthly deductions,
the surrender charge and/or any outstanding loan amount(s).
o The Policy will not lapse during the no lapse period so long as you have
paid sufficient premiums. See Minimum Monthly Guarantee Premium p. 29.
TRANSFERS
o You can transfer cash value among the subaccounts and the fixed account. We
charge a $25 transfer processing fee for each transfer after the first 12
transfers in a Policy year.
o You may make transfers in writing, by telephone or by fax.
o Policy loans reduce the amount of cash value available for transfers.
o Dollar cost averaging and asset rebalancing programs are available.
o You may make one transfer per Policy year from the fixed account, and we
must receive your request to transfer from the fixed account within 30 days
after a Policy anniversary unless you select dollar cost averaging from the
fixed account. The amount of your transfer is limited to the greater of:
--> 25% of your value in the fixed account; OR
--> the amount you transferred from the fixed account in the preceding
Policy year.
CHARGES AND DEDUCTIONS
o PREMIUM EXPENSE CHARGE: During the first ten Policy years, we deduct 6.0%
from each premium payment on Policies with a specified amount in force of
less than
7
$250,000 (4.0% on Policies with a specified amount in force of $250,000 -
$499,999). After the tenth Policy year we reduce the charge to 2.5%. There
is no premium expense charge for Policies with a specified amount in force
of $500,000 or higher.
o PREMIUM COLLECTION CHARGE: We deduct $3.00 from each premium payment to
compensate us for billing and collection costs if we send you a bill.
o MONTHLY POLICY CHARGE: We currently deduct $5.00 from your cash value each
month. This charge is guaranteed not to exceed $7.50.
o COST OF INSURANCE CHARGES: Deducted monthly from your cash value. Your
charges vary each month with the insured's issue age on the Policy date,
issue age at the time of any increase in specified amount, length of time
from the Policy date or from the date of any increase in specified amount,
specified amount band, gender, rate class, the specified amount in force,
the death benefit option you choose, and the investment experience of the
portfolios in which you invest. We charge lower cost of insurance rates for
Policies in higher rate bands.
o MORTALITY AND EXPENSE RISK CHARGE: Deducted daily from each subaccount at an
annual rate of 0.90% of your average daily net assets of each subaccount. We
guarantee to reduce this amount to 0.60% after the first 15 Policy years. We
intend to reduce this amount to 0.30% in the 16th Policy year, but we do not
guarantee that we will do so.
o SURRENDER CHARGE: Deducted when a full surrender occurs during the first 15
Policy years (or during the first 15 years following each increase in
specified amount). The initial specified amount has a 15 year surrender
charge period starting on the Policy date and surrender charges that are
based upon the insured's issue age, gender and rate class on the Policy
date. Each increase in specified amount will have its own 15 year surrender
charge period starting on the date of the increase and surrender charges
that are based upon the insured's issue age, gender and rate class at the
time of the increase. The surrender charge that will apply on a full
surrender of the Policy is the total of the surrender charges calculated for
the Base Policy's initial specified amount and the surrender charges
calculated for each increase in specified amount. SURRENDER CHARGES MAY BE
SIGNIFICANT. You may have no net surrender value if you surrender your
Policy in the initial Policy years. The surrender charges that apply for 15
years after any increase in specified amount will likely significantly
reduce your net surrender value.
o DECREASE CHARGE: If you request a decrease in the specified amount during
the first 15 Policy years or during the 15 years following any increase in
specified amount, we will deduct a decrease charge.
o TRANSFER FEE: We deduct $25 for each transfer in excess of 12 per Policy
year.
o RIDER CHARGES: We deduct charges each month for the optional insurance
benefits (riders) you select. Each rider will have its own charge.
o CASH WITHDRAWAL FEE: We deduct a processing fee for cash withdrawals equal
to the lesser of $25 or 2% of the withdrawal.
o PORTFOLIO EXPENSES: The portfolios deduct management fees and expenses from
the amounts you have invested in the portfolios. You pay these fees and
expenses indirectly. Some portfolios also deduct 12b-1 fees from portfolio
assets. These fees and
8
expenses currently range from 0.44% to 1.20% annually, depending on the
portfolio. See Portfolio Annual Expense Table p. 15. See also the fund
prospectuses.
LOANS
o After the first Policy year (as long as your Policy is in force), you may
take a loan against the Policy up to 90% of the cash value, MINUS any
surrender charge and MINUS any outstanding loan amount.
o We may permit a loan prior to the first anniversary for Policies issued
pursuant to 1035 Exchanges.
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 Prior to the 10th Policy year, we currently charge 3.75% interest annually,
payable in arrears, on any outstanding loan amount. This charge is
guaranteed not to exceed 4.0%.
o To secure the loan, we transfer a portion of your cash value to a loan
reserve account. The loan reserve account is part of the fixed account. We
will credit 3.0% interest annually on amounts in the loan reserve account.
o After the 10th Policy year, you may borrow at preferred loan rates an amount
equal to the cash value MINUS total premiums paid (reduced by any cash
withdrawals) and MINUS any outstanding loan amount. We currently charge 3.0%
interest on preferred loans. THIS RATE IS NOT GUARANTEED.
o Federal income taxes and a penalty tax may apply to loans you take against
the Policy.
o There are risks involved in taking a Policy loan. See Risk Summary p. 11.
o The federal tax consequences of loans with preferred rates is uncertain.
DEATH BENEFIT
o You must choose one of three death benefit options. We offer the following:
o Option A is the greater of:
--> the current specified amount, or
--> a specified percentage, multiplied by the Policy's cash value on the
date of the insured's death.
o Option B is the greater of:
--> the current specified amount, plus the Policy's cash value on the
date of the insured's death, or
--> a specified percentage, multiplied by the Policy's cash value on the
date of the insured's death.
o Option C is the greater of:
--> the amount payable under Option A, or
--> the current specified amount, multiplied by an age-based "factor,"
plus the Policy's cash value on the date of the insured's death.
o So long as the Policy does not lapse, the minimum death benefit we pay under
any option will be the current specified amount.
o We offer 4 bands of specified amount coverage. Each band has its own minimum
specified amount and cost of insurance rates. The higher the band of
specified amount
9
you choose, the lower the cost of insurance rates. The minimum specified
amount for band 1 for a Policy for issue ages 0-49 is $100,000. It
declines to $50,000 for issue ages 50-85. We will state the minimum
specified amount in your Policy. You cannot decrease the specified amount
below this minimum.
o We will reduce the death benefit proceeds by any outstanding loan amount,
and any due and unpaid charges.
o We will increase the death benefit proceeds by any additional insurance
benefits you add by rider.
o After the third Policy year and once each Policy year, you may make one of
the following changes: change the death benefit option or increase or
decrease the specified amount. A decrease in specified amount is limited to
20% of the specified amount prior to the decrease. The new specified amount
cannot be less than the minimum specified amount as shown in your Policy.
o Under current tax law, the death benefit should be income tax free to the
beneficiary.
o The death benefit is available in a lump sum or a variety of payout options.
CASH WITHDRAWALS AND SURRENDERS
o You may take one withdrawal of cash value per Policy year after the first
Policy year.
o The amount of the withdrawal must be:
--> at least $500; and
--> no more than 10% of the net surrender value. After the tenth Policy
year, we currently intend to limit the withdrawal amount to no more than
25% of the net surrender value.
o We will deduct a processing fee equal to $25 or 2% of the amount you
withdraw (whichever is less) from the withdrawal, and we will pay you the
balance.
o There is no surrender charge assessed when you take a cash withdrawal.
o A cash withdrawal will reduce the death benefit by at least the amount of
the withdrawal. We will not impose a decrease charge when the specified
amount is decreased as a result of taking a cash withdrawal.
o If you choose death benefit Option A, we will reduce the current specified
amount by the dollar amount of the withdrawal.
o When a cash withdrawal reduces the specified amount in force, we will look
to the reduced specified amount to determine the specified amount band, cost
of insurance rates and the premium expense charge we deduct from subsequent
premium payments.
o Federal income taxes and a penalty tax may apply to cash withdrawals and
surrenders.
o You may fully surrender the Policy at any time before the insured's death or
the maturity date. You will receive the net surrender value (cash value,
MINUS any surrender charge, and MINUS any outstanding loan amount). The
surrender charge will apply during the first 15 Policy years or during the
15 years following any increase in specified amount.
10
COMPENSATION
o We will pay sales commissions to our life insurance agents who are
registered representatives of broker-dealers. Other payments may be made for
other services related to sale of the Policies. For a discussion of these
arrangements, see Sale of the Policies.
INQUIRIES
If you need more information, please contact us at:
Western Reserve Life
P.O. Box 5068
Clearwater, Florida 33758-5068
1-800-851-9777, extension 6539
(Monday - Friday from 8:00 a.m. - 7:00 p.m. Eastern time)
www.westernreserve.com
Risk Summary
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INVESTMENT If you invest your cash value in one or more subaccounts, you
RISK will be subject to the risk that investment performance could
be unfavorable and that the cash value of your Policy would
decrease. YOU COULD LOSE EVERYTHING YOU INVEST, AND YOUR
POLICY COULD LAPSE. If you select the fixed account, your
cash value in the fixed account is credited with a declared
rate of interest, but you assume a risk that the rate may
decrease, although it will never be lower than a guaranteed
minimum annual effective rate of 3.0%.
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RISK OF LAPSE If your Policy fails to meet certain conditions, we will
notify you that the Policy has entered a 61-day grace period
and will lapse unless you make a sufficient payment during
the grace period. Your Policy contains a no lapse period.
Your Policy will not lapse before the no lapse date stated in
your Policy, as long as you pay sufficient minimum monthly
guarantee premiums. If you do not pay these premiums, you
will automatically lose the no lapse guarantee and you will
increase the risk that your Policy will lapse. In addition,
if you take a cash withdrawal, or take a Policy loan, or if
you increase or decrease your specified amount, or if you
add, increase or decrease a rider, you will increase the risk
of losing the no lapse guarantee. We deduct the total amount
of your withdrawals, any outstanding loans and any decrease
charge from your premiums paid when we determine whether your
premiums are high enough to keep the no lapse period in
effect.
11
If you change death benefit options, increase or decrease the
specified amount, or add, increase or decrease a rider, we
will change the amount of the minimum monthly guarantee
premium you must pay to keep the no lapse period in effect.
You will lessen the risk of Policy lapse if you keep the no
lapse period in ef- fect. Before you take a cash withdrawal,
loan, increase or decrease the speci- fied amount or add,
increase or decrease a rider, you should consider carefully
the effect it will have on the no lapse guarantee.
After the no lapse period, your Policy may lapse if loans,
cash withdrawals, the monthly deductions, and insufficient
investment returns reduce the net surrender value to zero.
The Policy will enter a grace period if on any Monthiversary
the net surrender value (that is, the cash value, minus the
surrender charge, and minus any outstanding loan amount) is
not enough to pay the monthly deduction due.
A Policy lapse will have adverse tax consequences. See
Federal Income Tax Considerations p. 57 and Policy Lapse and
Reinstatement p. 56.
You may reinstate this Policy within five years after it has
lapsed (and prior to the maturity date), if the insured meets
the insurability requirements and you pay the amount we
require.
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TAX RISKS We expect that the Policy will generally be deemed a life
(INCOME TAX insurance contract under federal tax law, so that the death
AND MEC) benefit paid to the beneficiary will not be subject to
federal income tax. However, due to lack of guidance, there
is less certainty in this regard with respect to Policies
issued on a substandard basis.
Depending on the total amount of premiums you pay, the Policy
may be treated as a modified endowment contract ("MEC") under
federal tax laws. If a Policy is treated as a MEC, partial
withdrawals, surrenders and loans will be taxable as ordinary
income to the extent there are earnings in the Policy. In
addition, a 10% penalty tax may be imposed on cash
withdrawals, surrenders and loans taken before you reach age
591/2. If a Policy is not treated as a MEC, partial
surrenders and withdrawals will not be subject to tax to the
extent of your investment in the Policy. Amounts in excess of
your investment in the Policy, while subject to tax as
ordinary income, will not be subject to a 10% penalty tax.
You should consult a qualified tax advisor for assistance in
all tax matters involving your Policy.
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LIMITS ON CASH The Policy permits you to take only one cash withdrawal per
WITHDRAWALS Policy year, after the first Policy year has been completed.
The amount you may withdraw is limited to 10% of the net
surrender value. We currently intend to limit the amount you
can withdraw to 25% of the net surrender value after the
tenth Policy year.
12
A cash withdrawal will reduce cash value, so it will increase
the risk that the Policy will lapse. A cash withdrawal may
also increase the risk that the no lapse period will not
remain in effect.
A cash withdrawal will reduce the death benefit. If you
select death benefit Option A, a cash withdrawal will
permanently reduce the specified amount of the Policy by the
amount of the withdrawal. A cash withdrawal also reduces the
death benefit under Options B and C because the cash value is
reduced. In some circumstances, a cash withdrawal may reduce
the death benefit by more than the dollar amount of the
withdrawal.
Federal income taxes and a penalty tax may apply to cash
withdrawals and surrenders.
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LOAN RISKS A Policy loan, whether or not repaid, will affect cash value
over time because we subtract the amount of the loan from the
subaccounts and the fixed account and place that amount in
the loan reserve as collateral. We then credit a fixed
interest rate of 3.0% to the loan collateral. As a result,
the loan collateral does not participate in the investment
results of the subaccounts and may not continue to receive
the current interest rates credited to the unloaned portion
of the fixed account. The longer the loan is outstanding, the
greater the effect is likely to be. Depending on the
investment results of the subaccounts and the interest rates
credited to the fixed account, the effect could be favorable
or unfavorable.
We also currently charge interest on Policy loans at a rate
of 3.75%, payable in arrears. This charge will not exceed
4.0%. Interest is added to the amount of the loan to be
repaid.
A Policy loan affects the death benefit because a loan
reduces the death benefit proceeds and net surrender value by
the loan amount.
A Policy loan could make it more likely that a Policy would
lapse. A Policy loan will increase the risk that the no lapse
period will not remain in effect. There is also a risk that
if the loan, insurance charges and unfavorable investment
experience reduce your net surrender value and the no lapse
period is no longer in effect, then the Policy will lapse.
Adverse tax consequences would result.
If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding
indebtedness will be taxed as if it were a distribution from
the Policy. Moreover, the tax treatment of loans with
preferred rates is uncertain. See Federal Income Tax
Considerations p. 57.
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EFFECTS OF THE The surrender charges under this Policy are significant. It
SURRENDER is likely you will receive no net surrender value if you
CHARGE surrender your Policy in the first few Policy years. In
addition, the surrender charges that apply for 15 years after
any increase in specified amount will significantly reduce
your net surrender value. You should purchase this Policy,
and increase the specified amount,
13
only if you have the financial ability to keep it in force
for a substantial period of time.
Even if you do not ask to surrender your Policy, the
surrender charge plays a role in determining whether your
Policy will lapse. Each month we will use the cash value
(reduced by the surrender charge and reduced by any
outstanding loan amount) to measure whether your Policy will
remain in force or will enter a grace period.
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COMPARISION Like fixed benefit life insurance, the Policy offers a death
WITH OTHER benefit and can provide a cash value, loan privileges and a
INSURANCE value on surrender. However, the Policy differs from a fixed
POLICIES benefit policy because it allows you to place your premiums
in investment subaccounts. The amount and duration of life
insurance protection and of the Policy's cash value will vary
with the investment performance of the amounts you place in
the subaccounts. In addition, the cash value and net
surrender value will always vary with the investment results
of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance
with the Policy.
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ILLUSTRATIONS The illustrations in this prospectus are based on
hypothetical rates of return that are not guaranteed. They
illustrate how the specified amount, Policy charges and
hypothetical rates of return affect death benefit levels,
cash value and net surrender value of the Policy. We may also
illustrate Policy values based on the adjusted historical
performance of the portfolios since the portfolios'
inception, reduced by Policy and subaccount charges. The
hypothetical and adjusted historic portfolio rates
illustrated should not be considered to represent past or
future performance. It is almost certain that actual rates of
return may be higher or lower than those illustrated, so that
the values under your Policy will be different from those in
the illustrations.
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14
PORTFOLIO ANNUAL EXPENSE TABLE
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This table shows the fees and expenses charged by each portfolio. More detail
concerning each portfolio's fees and expenses is contained in the fund
prospectuses.
ANNUAL PORTFOLIO OPERATING EXPENSES(1)
(As a percentage of average portfolio assets after fee waivers and expense
reimbursements)
TOTAL PORTFOLIO
MANAGEMENT OTHER RULE 12B-1 ANNUAL
PORTFOLIO FEES EXPENSES FEES EXPENSES
AEGON/TRANSAMERICA SERIES FUND, INC.(2)(7)
Munder Net50 0.90% 0.10% N/A 1.00%
Van Kampen Emerging Growth 0.80% 0.05% N/A 0.85%
T. Rowe Price Small Cap 0.75% 0.25% N/A 1.00%
Pilgrim Baxter Mid Cap Growth 0.85% 0.07% N/A 0.92%
Alger Aggressive Growth 0.80% 0.06% N/A 0.86%
Third Avenue Value 0.80% 0.12% N/A 0.92%
Value Line Aggressive Growth(4) 0.80% 0.20% N/A 1.00%
GE International Equity(3) 1.00% 0.20% N/A 1.20%
Gabelli Global Growth(8) 1.00% 0.20% N/A 1.20%
Great Companies -- Global2(8) 0.80% 0.20% N/A 1.00%
Great Companies -- Technology(SM)(4) 0.80% 0.20% N/A 1.00%
Janus Growth 0.80% 0.02% N/A 0.82%
LKCM Capital Growth(9) 0.80% 0.20% N/A 1.00%
Goldman Sachs Growth 0.90% 0.10% N/A 1.00%
GE U.S. Equity 0.80% 0.08% N/A 0.88%
Great Companies -- America(SM)(4) 0.80% 0.11% N/A 0.91%
Salomon All Cap 0.90% 0.10% N/A 1.00%
C.A.S.E. Growth 0.80% 0.20% N/A 1.00%
Dreyfus Mid Cap 0.85% 0.15% N/A 1.00%
NWQ Value Equity 0.80% 0.08% N/A 0.88%
T. Rowe Price Dividend Growth 0.90% 0.10% N/A 1.00%
Dean Asset Allocation 0.80% 0.07% N/A 0.87%
LKCM Strategic Total Return 0.80% 0.05% N/A 0.85%
J.P. Morgan Real Estate Securities 0.80% 0.20% N/A 1.00%
Federated Growth & Income 0.75% 0.11% N/A 0.86%
AEGON Balanced 0.80% 0.08% N/A 0.88%
AEGON Bond 0.45% 0.08% N/A 0.53%
J.P. Morgan Money Market 0.40% 0.04% N/A 0.44%
VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio --
Service Class 2(6) 0.48% 0.10% 0.25%(5) 0.83%
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund(R) Portfolio --
Service Class 2(6) 0.57% 0.10% 0.25%(5) 0.92%
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio --
Service Class 2(6) 0.58% 0.12% 0.25%(5) 0.95%
(1) The fee table information relating to the portfolios was provided to
Western Reserve by the funds. Western Reserve has not verified such
information.
(2) Effective January 1, 1997, the Board of the AEGON/Transamerica Series
Fund, Inc. ("Series Fund") authorized the Series Fund to charge each
portfolio of the Series Fund an annual Rule 12b-1 fee of up to 0.15% of
each portfolio's average daily net assets. However, the Series Fund will
not deduct the fee from any portfolio before April 30, 2002. You will
receive advance written notice if a Rule 12b-1 fee is to be deducted. See
the Series Fund prospectus for more details.
(3) The fee table reflects the reduction in the expense limit for this
portfolio to 1.20% effective May 1, 2000.
(4) Because this portfolio did not commence operations until May 1, 2000, the
percentages set forth as "Other Expenses" and "Total Annual Expenses" are
annualized.
15
(5) The 12b-1 fee deducted for the Variable Insurance Products Fund (VIP),
Variable Insurance Products Fund II (VIP II), and Variable Insurance
Products Fund III (VIP III) (the "Fidelity VIP Funds") covers certain
shareholder support services provided by companies selling variable
contracts investing in the Fidelity VIP Funds. The 12b-1 fees assessed
against the Fidelity VIP Funds shares held for the Policies will be
remitted to AFSG, the principal underwriter for the Policies.
(6) Total Portfolio Annual Expenses for Service Class 2 shares were lower than
those shown in the Fee Table because a portion of the brokerage
commissions that the Fidelity VIP Funds paid was used to reduce each
Fund's expenses, and/or because through arrangements with each Fund's
custodian, credits realized as a result of uninvested cash balances were
used to reduce a portion of each Fund's custodian expenses. See the
accompanying Fidelity VIP Funds prospectuses. Actual expenses were:
Fidelity VIP Equity-Income Portfolio -- Service Class 2 -- 0.82%; Fidelity
VIP II Contrafund(R) Portfolio -- Service Class 2 -- 0.90%; and Fidelity
VIP III Growth Opportunities Portfolio -- Service Class 2 -- 0.93%.
(7) AEGON/Transamerica Fund Advisers, Inc. ("AEGON/Transamerica Advisers"),
the Series Fund's investment adviser, has undertaken, until at least April
30, 2002, to pay expenses on behalf of the portfolios of the Series Fund
to the extent normal operating expenses of a portfolio exceed a stated
percentage of each portfolio's average daily net assets. The expense
limit, the amount reimbursed by AEGON/Transamerica Advisers during 2000
and the expense ratio without the reimbursement are listed below for each
portfolio:
EXPENSE RATIO
EXPENSE REIMBURSEMENT WITHOUT
LIMIT AMOUNT REIMBURSEMENT
Munder Net50 1.00% N/A N/A
Van Kampen Emerging Growth 1.00% N/A N/A
T. Rowe Price Small Cap 1.00% 30,189 1.14%
Pilgrim Baxter Mid Cap Growth 1.00% N/A N/A
Alger Aggressive Growth 1.00% N/A N/A
Third Avenue Value 1.00% N/A N/A
Value Line Aggressive Growth 1.00% 22,530 1.86%
GE International Equity 1.20% 125,321 1.66%
Gabelli Global Growth 1.20% 14,606 1.99%
Great Companies -- Global(2) 1.00% 20,105 3.93%
Great Companies -- Technology(SM) 1.00% 5,276 1.05%
Janus Growth 1.00% N/A N/A
LKCM Capital Growth 1.00% N/A N/A
Goldman Sachs Growth 1.00% 51,711 1.37%
GE U.S. Equity 1.00% N/A N/A
Great Companies -- America(SM) 1.00% N/A N/A
Salomon All Cap 1.00% 85,511 1.25%
C.A.S.E. Growth 1.00% N/A N/A
Dreyfus Mid Cap 1.00% 68,550 1.90%
NWQ Value Equity 1.00% N/A N/A
T. Rowe Price Dividend Growth 1.00% 55,887 1.45%
Dean Asset Allocation 1.00% N/A N/A
LKCM Strategic Total Return 1.00% N/A N/A
J.P. Morgan Real Estate Securities 1.00% 58,192 1.71%
Federated Growth & Income 1.00% N/A N/A
AEGON Balanced 1.00% N/A N/A
AEGON Bond 0.70% N/A N/A
J.P. Morgan Money Market 0.70% N/A N/A
(8) Because this portfolio did not commence operations until September 1,
2000, the percentages set forth as "Other Expenses" and "Total Annual
Expenses" are annualized.
(9) Because this portfolio did not commence operations until December 1,
2000, the percentages set forth as "Other Expenses" and "Total Annual
Expenses" are annualized.
The purpose of the preceding table is to help you understand the various
costs and expenses that you will bear directly and indirectly. The table
reflects charges and expenses of the portfolios of the funds for the fiscal
year ended December 31, 2000 (except as noted in the footnotes). Expenses of
the funds may be higher or lower in the future. For more information on the
charges described in this table, see the fund prospectuses which accompany this
prospectus.
16
WESTERN RESERVE AND THE FIXED ACCOUNT
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WESTERN RESERVE
Western Reserve Life Assurance Co. of Ohio is the insurance company
issuing the Policy. Western Reserve was incorporated under Ohio law on October
1, 1957. We have established the separate account to support the investment
options under this Policy and under other variable life insurance policies we
issue. Our general account supports the fixed account under the Policy. Western
Reserve intends to sell this Policy in the District of Columbia, and all
states, except New York.
THE FIXED ACCOUNT
The fixed account is part of Western Reserve's general account. We use
general account assets to support our insurance and annuity obligations other
than those funded by separate accounts. Subject to applicable law, Western
Reserve has sole discretion over the investment of the fixed account's assets.
Western Reserve bears the full investment risk for all amounts contributed to
the fixed account. Western Reserve guarantees that the amounts allocated to the
fixed account will be credited interest daily at an annual 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.
Money you place in the fixed account will earn interest compounded daily
at a current interest rate in effect at the time of your allocation. Unless
otherwise required by state law, we will restrict your allocations and
transfers to the fixed account if the fixed account value following the
allocation or transfer would exceed $500,000. We may declare current interest
rates from time to time. We may declare more than one interest rate for
different money based upon the date of allocation or transfer to the fixed
account. When we declare a higher current interest rate on amounts allocated to
the fixed account, we guarantee the higher rate on those amounts for at least
one year (the "guarantee period") unless those amounts are transferred to the
loan reserve. At the end of the guarantee period we may declare a new current
interest rate on those amounts and any accrued interest thereon. We will
guarantee this new current interest rate for another guarantee period. We
credit interest greater than 3.0% during any guarantee period at our sole
discretion. You bear the risk that interest we credit will not exceed 3.0%.
We allocate amounts from the fixed account for cash withdrawals, transfers
to the subaccounts, or monthly deduction charges on a last in, first out basis
("LIFO") for the purpose of crediting interest.
The fixed account may not be available in all states. This means that
residents of some states may not direct or transfer any premiums or cash value
to the fixed account.
THE FIXED ACCOUNT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
17
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific portfolio of a fund. You may direct the money in your
Policy to a total of 12 active subaccounts of the separate account at any one
time. 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, portfolio or insurance company separate account under the
Policies if, in our judgment, investment in a subaccount or portfolio would no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of owners. No substitution shall take place without notice to
owners and prior approval of the Securities and Exchange Commission ("SEC") and
insurance company regulators, to the extent required by the Investment Company
Act of 1940, as amended (the "1940 Act") and applicable law.
THE FUNDS
The separate account invests in shares of the portfolios. Each portfolio
is an investment division of a fund, which is an open-end management investment
company registered with the SEC. Such registration does not involve supervision
of the management or investment practices or policies of the portfolios by the
SEC.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as
a separate investment fund, and the income or losses of one portfolio has no
effect on the investment performance of any other portfolio. Pending any prior
approval by a state insurance regulatory authority, certain subaccounts and
corresponding portfolios may not be available to residents of some states.
Each portfolio's investment objective(s) and policies are summarized
below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE(S). Certain portfolios may have investment objectives and policies
similar to other portfolios that are managed by the same investment adviser or
sub-adviser. The investment results of the portfolios, however, may be higher
or lower than those of such other portfolios. We do not
18
guarantee or make any representation that the investment results of the
portfolios will be comparable to any other portfolio, even those with the same
investment adviser or manager. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE
PORTFOLIOS, INCLUDING A DESCRIPTION OF RISKS, IN THE FUND PROSPECTUSES. YOU
SHOULD READ THE FUND PROSPECTUSES CAREFULLY.
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
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Munder Net50 --> Munder Capital --> Seeks long-term capital
Management appreciation.
Van Kampen --> Van Kampen --> Seeks capital appreciation by
Emerging Asset Management Inc investing primarily in common
Growth stocks of small and medium-
sized companies.
T. Rowe Price --> T. Rowe Price --> Seeks long-term growth of
Small Cap Associates, Inc. capital by investing primarily in
common stocks of small growth
companies.
Pilgrim Baxter --> Pilgrim Baxter & --> Seeks capital appreciation.
Mid Cap Growth Associates, Ltd.
Alger Aggressive --> Fred Alger --> Seeks long-term capital
Growth Management, Inc. appreciation.
Third Avenue --> EQSF Advisers, Inc. --> Seeks long-term capital
Value appreciation.
Value Line --> Value Line, Inc. --> Seeks to realize capital growth.
Aggressive
Growth
GE International --> GE Asset Management --> Seeks long-term growth of
Equity Incorporated capital.
Gabelli Global --> Gabelli Asset --> Seeks to provide investors with
Growth Management Company appreciation of capital. Current
income is a secondary objective.
Great Companies --> Great Companies, L.L.C. --> Seeks long-term growth of
- -- Global(2) capital in a manner consistent
with preservation of capital.
Great Companies --> Great Companies, L.L.C. --> Seeks long-term growth of
- -- Technology(SM) capital.
Janus Growth --> Janus Capital --> Seeks growth of capital.
Corporation
19
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
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LKCM Capital --> Luther King Capital --> Seeks long-term growth of
Growth Management Corporation capital through a disciplined
investment approach focusing on
companies with superior growth
prospects.
Goldman Sachs --> Goldman Sachs Asset --> Seeks long-term growth of
Growth Management capital.
GE U.S. Equity --> GE Asset Management --> Seeks long-term growth of
Incorporated capital.
Great Companies --> Great Companies, L.L.C. --> Seeks long-term growth of
- -- America(SM) capital.
Salomon --> Salomon Brothers Asset --> Seeks capital appreciation.
All Cap Management Inc
Fidelity VIP II --> Fidelity Management & --> Seeks long-term capital apprecia-
Contrafund(R) Research Company tion by investing primarily in a
Portfolio -- broad variety of common stocks,
Service Class 2 using both growth-oriented and
contrarian disciplines.
C.A.S.E. Growth --> C.A.S.E. --> Seeks annual growth of capital
Management, Inc. through investment in companies
whose management, financial
resources and fundamentals
appear attractive on a scale
measured against each company's
present value.
Dreyfus Mid Cap --> The Dreyfus --> Seeks total investment returns
Corporation (including capital appreciation
and income), which consistently
outperform the S&P 400 Mid
Cap Index.
NWQ Value --> NWQ Investment --> Seeks to achieve maximum,
Equity Management consistent total return with
Company, Inc. minimum risk to principal.
Fidelity VIP --> Fidelity Management & --> Seeks reasonable income by
Equity-Income Research Company investing primarily in income-
Portfolio -- producing equity securities.
Service Class 2
Fidelity VIP III --> Fidelity Management & --> Seeks capital growth by investing
Growth Research Company in a wide range of common
Opportunities domestic and foreign stocks, and
Portfolio -- securities convertible into
Service Class 2 common stocks.
20
PORTFOLIO SUB-ADVISER OR ADVISER INVESTMENT OBJECTIVE
- ------------------- ------------------------ ------------------------------------
T. Rowe Price --> T. Rowe Price --> Seeks to provide an increasing
Dividend Growth Associates, Inc. level of dividend income,
long-term capital appreciation
and reasonable current income
through investments primarily in
dividend paying stocks.
Dean Asset --> Dean Investment --> Seeks preservation of capital and
Allocation Associates competitive investment returns.
LKCM Strategic --> Luther King Capital --> Seeks to provide current income,
Total Return Management long-term growth of income and
Corporation capital appreciation.
J.P. Morgan Real --> J.P. Morgan Investment --> Seeks long-term total return from
Estate Securities Management Inc. investments primarily in equity
securities of real estate
companies. Total return will
consist of realized and unrealized
capital gains and losses plus
income.
Federated Growth --> Federated Investment --> Seeks total return by investing in
& Income Counseling securities that have defensive
characteristics.
AEGON Balanced --> AEGON USA --> Seeks preservation of capital,
Investment reduced volatility, and superior
Management, Inc. long-term risk-adjusted returns.
AEGON Bond --> AEGON USA --> Seeks the highest possible
Investment current income within the
Management, Inc. confines of the primary goal of
insuring the protection of capital.
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.
AEGON/Transamerica Advisers, located at 570 Carillon Parkway, St.
Petersburg, Florida 33716, a wholly-owned subsidiary of Western Reserve, serves
as investment adviser to the Series Fund and manages the Series Fund in
accordance with policies and guidelines established by the Series Fund's Board
of Directors. For certain portfolios, AEGON/Transamerica Advisers has engaged
investment sub-advisers to provide portfolio management services.
AEGON/Transamerica Advisers and each investment sub-adviser are registered
investment advisers under the Investment Advisers Act of 1940, as amended. See
the Series Fund prospectus for more information regarding AEGON/Transamerica
Advisers and the investment sub-advisers.
21
FMR, located at 82 Devonshire Street, Boston, Massachusetts 02109, serves
as investment adviser to the Fidelity VIP Funds and manages the Fidelity VIP
Funds in accordance with policies and guidelines established by the Fidelity
VIP Funds' Board of Trustees. For certain portfolios, FMR has engaged
investment sub-advisers to provide portfolio management services with regard to
foreign investments. FMR and each sub-adviser are registered investment
advisers under the Investment Advisers Act of 1940, as amended. See the
Fidelity VIP Funds prospectuses for more information regarding FMR and the
investment sub-advisers.
In addition to the separate account, shares of the portfolios are also
sold to other separate accounts that we (or our affiliates) establish to
support variable annuity contracts and variable life insurance policies. It is
possible that, in the future, it may become disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the portfolios simultaneously. Neither we nor the funds currently foresee any
such disadvantages, either to variable life insurance policyowners or to
variable annuity contract owners. However, each fund's Board of
Directors/Trustees will monitor events in order to identify any material
conflicts between the interests of such variable life insurance policyowners
and variable annuity contract owners, and will determine what action, if any,
it should take. Such action could include the sale of portfolio shares by one
or more of the separate accounts, which could have adverse consequences.
Material conflicts could result from, for example, (1) changes in state
insurance laws, (2) changes in federal income tax laws, or (3) differences in
voting instructions between those given by variable life insurance policyowners
and those given by variable annuity contract owners.
If a fund's Board of Directors/Trustees were to conclude that separate
funds should be established for variable life insurance and variable annuity
separate accounts, Western Reserve will bear the attendant expenses, but
variable life insurance policyowners and variable annuity contract owners would
no longer have the economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We do not guarantee that each portfolio will always be available for
investment through the Policy. We reserve the right, subject to compliance with
applicable law, to add new portfolios, close existing portfolios, or substitute
portfolio shares that are held by any subaccount for shares of a different
portfolio. New or substitute portfolios may have different fees and expenses
and their availability may be limited to certain classes of purchasers. We will
only add, delete or substitute shares of another portfolio of a fund (or of
another open-end, registered investment company) if the shares of a portfolio
are no longer available for investment, or if in our judgement further
investment in any portfolio would become inappropriate in view of the purposes
of the separate account. We will not add, delete or substitute any shares
attributable to your interest in a subaccount without notice to you and prior
approval of the SEC, to the extent required by the 1940 Act or other applicable
law. We may also decide to purchase for the separate account securities from
other portfolios. We reserve the right to transfer separate account assets to
another separate account that we determine to be associated with the class of
contracts to which the Policy belongs.
22
We also reserve the right to establish additional subaccounts of the
separate account, each of which would invest in a new portfolio of a fund, or
in shares of another investment company, with specified investment objectives.
We may establish new subaccounts when, in our sole discretion, marketing, tax
or investment conditions warrant. We will make any new subaccounts available to
existing owners on a basis we determine. We may also eliminate one or more
subaccounts for the same reasons as stated above.
In the event of any such substitution or change, we may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If we deem it to be in the best interests of persons
having voting rights under the Policies, and when permitted by law, the
separate account may be (1) operated as a management company under the 1940
Act, (2) deregistered under the 1940 Act in the event such registration is no
longer required, (3) managed under the direction of a committee, or (4)
combined with one or more other separate accounts, or subaccounts.
YOUR RIGHT TO VOTE PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
subaccounts, and have the right to vote on all matters submitted to
shareholders of the portfolios, we will vote our shares only as policyowners
instruct, so long as such action is required by law. See Tax Status of the
Policy p. 57.
Before a vote of a portfolio's shareholders occurs, you will receive
voting materials from us. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of portfolio shares that corresponds to the amount of cash
value you have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some policyowners,
we will vote those shares in the same proportion as the timely voting
instructions we receive. Should federal securities laws, regulations and
interpretations change, we may elect to vote portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to policyowners advising you of the action and the reasons we took such
action.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an
initial premium to us through any licensed life insurance agent who is also a
registered representative of a broker-dealer having a selling agreement with
AFSG Securities Corporation, the principal underwriter for the Policy.
23
Our address for applications submitted by World Marketing Alliance
distribution systems is:
Western Reserve
P.O. Box 9009
Clearwater, Florida 33758-9009
All other agents should submit applications to:
Western Reserve
P.O. Box 5068
Clearwater, Florida 33758-5068
You select the specified amount of insurance coverage for your Policy
within the following limits. Our current minimum specified amount for a Policy
for issue ages 0-49 is generally $100,000. It declines to $50,000 for issue
ages 50-85. We currently charge lower cost of insurance rates for Policies with
specified amounts in higher bands of coverage. We offer the following specified
amount bands of coverage:
o band 1: $100,000 - $249,999 ($50,000 - $249,999 for issue ages 50 and
older)
o band 2: $250,000 - $499,999
o band 3: $500,000 - $999,999
o band 4: $1,000,000 and over
We will generally only issue a Policy to you if you provide sufficient
evidence that the insured meets our insurability standards. Your application is
subject to our underwriting rules, and we may reject any application for any
reason permitted by law. We will not issue a Policy to you if the insured is
over age 85. The insured must be insurable and acceptable to us under our
underwriting rules on the later of:
o the date of your application; or
o the date the insured completes all of the medical tests and examinations
that we require.
UNDERWRITING STANDARDS
This Policy uses mortality tables that distinguish between men and women.
As a result, the Policy pays different benefits to men and women of the same
age. Montana prohibits our use of actuarial tables that distinguish between
males and females to determine premiums and policy benefits for policies issued
on the lives of its residents. Therefore, we will base the premiums and
benefits in Policies that we issue in Montana, to insure residents of that
state, on actuarial tables that do not differentiate on the basis of gender.
Your cost of insurance charge will vary by the insured's gender, issue age
on the Policy date, issue age at the time of any increase in specified amount,
rate band, length of time from the Policy date or from the date of any increase
in specified amount, and rate class. We currently place insureds into the
following rate classes:
o ultimate select (preferred) non-tobacco use;
o select (non-preferred) non-tobacco use;
24
o ultimate standard (preferred) tobacco use;
o standard (non-preferred) tobacco use; and
o juvenile - under 18.
We also place insureds in various sub-standard rate classes, which involve
a higher mortality risk and higher charges. We generally charge higher rates
for insureds who use tobacco. We charge lower cost of insurance rates for
insureds who are in an "ultimate class." An ultimate class is only available if
our underwriting guidelines require you to take a blood test because of the
specified amount you have chosen.
WHEN INSURANCE COVERAGE TAKES EFFECT
Insurance coverage under the Policy will take effect only if the
insured(s) is alive and in the same condition of health as described in the
application when the Policy is delivered to the owner, and if the initial
premium required under the Policy as issued is paid.
CONDITIONAL INSURANCE COVERAGE. If you pay the full initial premium listed
in the conditional receipt attached to the application, and we deliver the
conditional receipt to you, the insured will have conditional insurance
coverage under the terms of the conditional receipt. Conditional insurance
coverage is void if the check or draft you gave us to pay the initial premium
is not honored when we first present it for payment.
The amount of o the specified amount applied for; or
conditional insurance o $300,000
coverage is the lesser of: reduced by all amounts payable under all life
insurance applications that the insured has
pending with us.
Conditional life insurance o the date of your application; or
coverage begins on the o the date the insured completes all of the
later of: medical tests and examinations that we
require; or
o the date of issue, if any, requested in the
application.
Conditional life insurance o the date we determine the insured has
coverage terminates satisfied our underwriting requirements and
automatically on the the insurance applied for
earliest of: takes effect (the Policy date); or
o 60 days from the date the application was
completed; or
o the date we determine that any person
proposed for insurance in the application is
not insurable according to our rules, limits
and standards for the plan, amount and rate
class shown in the application; or
o the date we modify the plan, amount, riders
and/or the premium rate class shown in the
application, or any supplemental agreements;
or
25
o the date we mail notice of the ending of
coverage and we refund the first premium to
the applicant at the address shown on the
application.
Special limitations of the o the conditional receipt will be void:
conditional receipt: --> if not signed by an authorized agent of
Western Reserve; or
--> in the event the application contains
any fraud or material misrepresentation;
or
--> if, on the date of the conditional
receipt, the proposed insured is under
15 days of age or over 85 years of age.
o the conditional receipt does not provide
benefits for disability and accidental death
benefits.
o the conditional receipt does not provide
benefits if any proposed insured commits
suicide. In this case, Western Reserve's
liability will be limited to return of the
first premium paid with the application.
FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we
determine that the insured meets our underwriting requirements and you have
paid the initial premium, full insurance coverage will begin and we will begin
to take the monthly deductions from your net premium. This date is the Policy
date. On the Policy date (or on the record date if your Policy is backdated),
we will allocate your initial net premium, minus monthly deductions, to the
fixed account and the subaccounts you selected 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 full premium in the
reallocation account until the reallocation date. While held in the
reallocation account, premium(s) will be credited with interest at the current
fixed account rate. See Reallocation Account p. 32.
On any day we credit net premiums or transfer cash value to a subaccount,
we will convert the dollar amount of the net premium (or transfer) into
subaccount units at the unit value for that subaccount, determined at the end
of the day on which we receive the premium or transaction request at our
office. We will credit amounts to the subaccounts only on a valuation date,
that is, on a date the New York Stock Exchange ("NYSE") is open for trading.
See Policy Values p. 32.
BACKDATING A POLICY
If you request, we may backdate a Policy by assigning a Policy date
earlier than the date the Policy is issued. However, in no event will we
backdate a Policy earlier than the earliest date allowed by state law or by our
underwriting rules. Your request must be in writing and, if we approve the
request, will amend your application.
26
Cost of insurance charges are based in part on the age of the insured on
the Policy date or on the date of any increase in specified amount. Generally,
cost of insurance charges are lower at a younger age. We will deduct the
monthly deduction, including cost of insurance charges, for the period that the
Policy is backdated. THIS MEANS THAT WHILE THE MONTHLY DEDUCTION MAY BE LOWER
THAN WHAT WOULD HAVE BEEN CHARGED HAD WE NOT BACKDATED THE POLICY, YOU WILL BE
PAYING FOR INSURANCE DURING A PERIOD WHEN THE POLICY WAS NOT IN FORCE.
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. The owner is
the insured unless the application specifies a different person as the insured.
If the owner dies before the insured and no contingent owner is named, then
ownership of the Policy will pass to the owner's estate. The owner may exercise
certain rights described below.
Changing the o Change the owner by providing written notice to us at our
Owner office at any time while the insured is alive and the
Policy is in force.
o Change is effective as of the date that the written notice
is accepted by us.
o Changing the owner does not automatically change the
beneficiary.
o Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o Changing the owner may have tax consequences. You should
consult a tax advisor before changing the owner.
o We are not liable for payments we made before we received
the written notice at our office.
Choosing the o The owner designates the beneficiary (the person to
Beneficiary receive the death benefit when the insured dies) in the
application.
o If the owner designates more than one beneficiary, then
each beneficiary shares equally in any death benefit
proceeds unless the beneficiary designation states
otherwise.
o If the beneficiary dies before the insured, then any
contingent beneficiary becomes the beneficiary.
o If both the beneficiary and contingent beneficiary die
before the insured, then the death benefit will be paid to
the owner or the owner's estate upon the insured's death.
27
Changing the o The owner changes the beneficiary by providing written
Beneficiary notice to us at our office.
o Change is effective as of the date the owner signs the
written notice.
o Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o We are not liable for any payments we made before we
received the written notice at our office.
Assigning the o The owner may assign Policy rights while the insured is
Policy alive.
o Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o The owner retains any ownership rights that are not
assigned.
o Assignee may not change the owner or the beneficiary, and
may not elect or change an optional method of payment. Any
amount payable to the assignee will be paid in a lump sum.
o Claims under any assignment are subject to proof of
interest and the extent of the assignment.
o We are not:
--> bound by any assignment unless we receive a written
notice of the assignment;
--> responsible for the validity of any assignment;
--> liable for any payment we made before we received
written notice of the assignment; or
--> bound by any assignment which results in adverse tax
consequences to the owner, insured(s) or
beneficiary(ies).
o Assigning the Policy may have tax consequences. You should
consult a tax advisor before assigning the Policy.
CANCELING A POLICY
You may cancel a Policy for a refund during the "free-look period" by
returning it to our office, to one of our branch offices or to the agent who
sold you the Policy. The free-look period expires 10 days after you receive the
Policy. In some states you may have more than 10 days. If you decide to cancel
the Policy during the free-look period, we will treat the Policy as if it had
never been issued. We will pay the refund within seven days after we receive
the returned Policy at our office. The amount of the refund will be:
o any charges and taxes we deduct from your premiums; plus
o any monthly deductions or other charges we deducted from amounts you
allocated to the subaccounts and the fixed account; plus
o your cash value in the subaccounts and the fixed account on the date we
(or our agent) receive the returned Policy at our office.
28
Some states may require us to refund all of the premiums you paid for the
Policy. See Reallocation Account p. 32.
PREMIUMS
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PREMIUM FLEXIBILITY
You generally have flexibility to determine the frequency and the amount
of the premiums you pay. Unlike conventional insurance policies, you do not
have to pay your premiums according to a rigid and inflexible premium schedule.
Before we issue the Policy to you, we may require you to pay a premium at least
equal to a minimum monthly guarantee premium set forth in your Policy.
Thereafter (subject to the limitations described below), you may make
unscheduled premium payments at any time and in any amount over $50. Under some
circumstances, you may be required to pay extra premiums to prevent a lapse.
Your minimum monthly guarantee premium may change if you request a change in
your Policy. If this happens, we will notify you of the new minimum monthly
guarantee premium.
PLANNED PERIODIC PAYMENTS
You will determine a planned periodic payment schedule which allows you to
pay level premiums at fixed intervals over a specified period of time. You are
not required to pay premiums according to this schedule. You may change the
amount, frequency, and the time period over which you make your planned
periodic payments. Please be sure to notify us or your agent/registered
representative of any address changes so that we may be able to keep your
current address on record.
Even if you make your planned periodic payments on schedule, your Policy
may still lapse. The duration of your Policy depends on the Policy's net
surrender value. If the net surrender value is not high enough to pay the
monthly deduction when due (and your no lapse period has expired) then your
Policy will lapse (unless you make the payment we specify during the 61-day
grace period). See Policy Lapse and Reinstatement p. 56.
MINIMUM MONTHLY GUARANTEE PREMIUM
The full initial premium is the only premium you are required to pay under
the Policy. However, you greatly increase your risk of lapse if you do not
regularly pay premiums at least as large as the current minimum monthly
guarantee premium.
Until the no lapse date shown on your Policy schedule page, we guarantee
that your Policy will not lapse, so long as on any Monthiversary you have paid
total premiums (minus any cash withdrawals, minus any outstanding loan amount,
and minus any decrease charge) that equal or exceed the sum of the minimum
monthly guarantee premium in effect for each month from the Policy date up to
and including the current month. If you take a cash withdrawal, a loan, or if
you increase or decrease your specified amount, you may need to pay additional
premiums in order to keep the no lapse guarantee in place.
29
The initial minimum monthly guarantee premium is shown on your Policy's
schedule page, and depends on a number of factors, including the age, gender,
and rate class of the insured, and the specified amount requested. We will
adjust the minimum monthly guarantee premium if you change death benefit
options, increase or decrease the specified amount, or if any of the riders are
added, increased or decreased. We will notify you of the new minimum monthly
guarantee premium.
AFTER THE NO LAPSE PERIOD ENDS, PAYING THE CURRENT MINIMUM MONTHLY
GUARANTEE PREMIUM EACH MONTH WILL NOT NECESSARILY KEEP YOUR POLICY IN FORCE.
YOU MAY NEED TO PAY ADDITIONAL PREMIUMS TO KEEP THE POLICY IN FORCE.
NO LAPSE PERIOD
Until the no lapse date shown on your Policy schedule page, your Policy
will remain in force and no grace period will begin, even if your net surrender
value is too low to pay the monthly deduction, so long as:
o the total amount of the premiums you paid (minus any cash withdrawals,
outstanding loan amount, and any decrease charge) is equal to or
exceeds:
--> the sum of the minimum monthly guarantee premium in effect for each
month from the Policy date up to and including the current month.
PREMIUM LIMITATIONS
Premium payments must be at least $50 if paid monthly and $600 if paid
annually ($1,000 if by wire). We may return premiums less than $50. We will not
allow you to make any premium payments that would cause the total amount of the
premiums you pay to exceed the current maximum premium limitations which
qualify the Policy as life insurance according to federal tax laws. This
maximum is set forth in your Policy. If you make a payment that would cause
your total premiums to be greater than the maximum premium limitations, we will
return the excess portion of the premium payment. We will not permit you to
make additional premium payments until they are allowed by the maximum premium
limitations. In addition, we reserve the right to refund a premium if the
premium would increase the death benefit by more than the amount of the
premium.
MAKING PREMIUM PAYMENTS
We will consider any payments you make to be premium payments, unless you
clearly mark them as loan repayments. We will deduct certain charges from your
premium payments (see Premium Charges--Premium Expense Charge p. 40). We will
accept premium payments by wire transfer.
30
If you wish to make payments by wire transfer, you should instruct your
bank to wire federal funds as follows:
All First Bank of Baltimore
ABA #052000113
For credit to: Western Reserve Life
Account #: 89539639
Policyowner's Name:
Policy Number:
Attention: General Accounting
TAX-FREE EXCHANGES ("1035 Exchanges"). We will accept part or all of your
initial premium money from one or more contracts insuring the same insured that
qualify for tax-free exchanges under section 1035 of the Internal Revenue Code.
If you contemplate such an exchange, you should consult a competent tax advisor
to learn the potential tax effects of such a transaction.
Subject to our underwriting requirements, we will permit you to make one
additional cash payment within three business days of our receipt of the
proceeds from the 1035 Exchange before we determine your Policy's specified
amount.
ALLOCATING PREMIUMS
You must instruct us on how to allocate your net premium among the
subaccounts and the fixed account. You may allocate your premium to a total of
12 active subaccounts at any one time. The fixed account may not be available
in all states to direct or transfer money into. You must follow these
guidelines:
o allocation percentages must be in whole numbers;
o if you select dollar cost averaging, you must have at least $5,000 in
each subaccount from which we will make transfers and you must transfer
at least a total of $100 monthly;
o if you select asset rebalancing, the cash value of your Policy, if an
existing Policy, or your minimum initial premium, if a new Policy, must
be at least $5,000; and
o unless otherwise required by state law, we will restrict your
allocations to the fixed account if the fixed account value following
the allocation would exceed $500,000.
Currently, you may change the allocation instructions for additional
premium payments without charge at any time by writing us or calling us at
1-800-851-9777, extension 6539 Monday - Friday 8:00 a.m. - 7:00 p.m. Eastern
time. The change will be effective at the end of the valuation date on which we
receive the change. Upon instructions from you, the registered
representative/agent of record for your Policy may also change your allocation
instructions for you. The minimum amount you can allocate to a particular
subaccount is 1.0% of a net premium payment. We reserve the right to limit the
number of premium allocation changes or to charge $25 for each change in excess
of one per Policy year quarter.
31
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 regular business session of the NYSE
(usually at 4:00 p.m. Eastern time). We will credit amounts to the subaccounts
only on a valuation date, that is, on a date the NYSE is open for trading. See
Policy Values below. Your cash value will vary with the investment experience
of the subaccounts in which you invest. YOU BEAR THE INVESTMENT RISK FOR
AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS.
You should periodically review how your cash value is allocated among the
subaccounts and the fixed account because market conditions and your overall
financial objectives may change.
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 record date to the reallocation account as shown on your
Policy schedule page. While held in the fixed account, premium(s) will be
credited with interest at the current fixed account rate and reduced by any
monthly deductions due. The premium will remain in the reallocation account
until the reallocation date. The reallocation date is the record date, plus the
number of days in your state's free-look period, plus five days. 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 fixed account
and the subaccounts you selected on the application. If you requested dollar
cost averaging, on the reallocation date we will reallocate the cash value
either to the fixed account, the WRL J.P. Morgan Money Market subaccount or the
WRL AEGON Bond subaccount (depending on which account you selected on your
application).
For states which do not require a full refund of the initial premium, the
reallocation date is the same as the record date. On the record date, we will
allocate your initial premium, minus monthly deductions, to the fixed account
and the subaccounts in accordance with the instructions you gave us on your
application.
POLICY VALUES
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CASH VALUE
o varies from day to day, depending on the investment experience of the
subaccounts you choose, the interest credited to the fixed account, the
charges deducted and any other Policy transactions (such as additional
premium payments, transfers, withdrawals and Policy loans).
o serves as the starting point for calculating values under a Policy.
o equals the sum of all values in each subaccount and the fixed account.
o is determined on the Policy date and on each valuation date.
32
o has no guaranteed minimum amount and may be more or less than premiums
paid.
o includes any amounts held in the fixed account to secure any outstanding
Policy loan.
NET SURRENDER VALUE
The net surrender value is the amount we pay when you surrender your
Policy. We determine the net surrender value at the end of the valuation period
when we receive your written surrender request at our office.
Net surrender 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 the 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
units in any reallocation date; PLUS
subaccount on o units purchased with additional net premium(s); PLUS
any valuation o units purchased via transfers from another subaccount or
date equals: the fixed account; MINUS
o units redeemed to pay for monthly deductions; MINUS
o units redeemed to pay for cash withdrawals; MINUS
o units redeemed as part of a transfer to another subaccount
or the fixed account; MINUS
o units redeemed to pay partial surrender charges, decrease
charges and transfer charges.
Every time you allocate, transfer or withdraw money to or from a
subaccount, we convert that dollar amount into units. We determine the number
of units we credit to, or subtract from, your Policy by dividing the dollar
amount of the allocation, transfer or cash withdrawal by the unit value for
that subaccount next determined at the end of the valuation period on which the
premium, transfer request or cash withdrawal request is received at our office.
SUBACCOUNT UNIT VALUE
The value (or price) of each subaccount unit will reflect the investment
performance of the portfolio in which the subaccount invests. Unit values will
vary among subaccounts. The
33
unit value of each subaccount was originally established at $10 per unit. The
unit value may increase or decrease from one valuation period to the next.
The unit value o the total value of the portfolio shares held in the
of any subaccount, determined by multiplying the number of
subaccount at portfolio shares owned by the subaccount by the
the end of a portfolio's net asset value per share determined at
valuation the end of the valuation period; minus
period o a charge equal to the daily net assets of the
is calculated as: subaccount 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 reallocation date, the fixed account value is equal to the cash
value allocated to the fixed account.
The fixed account o the sum of net premium(s) allocated to the fixed
value at the end of account; PLUS
any valuation o any amounts transferred from a subaccount to the
period is equal to: fixed account; PLUS
o total interest credited to the fixed account; MINUS
o amounts charged to pay for monthly deductions; MINUS
o amounts withdrawn or surrendered from the fixed
account; MINUS
o amounts transferred from the fixed account to a
subaccount.
The fixed account may not be available to residents of all states.
TRANSFERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL
You or your agent/registered representative of record may make transfers
among a total of 12 active subaccounts or from the subaccounts to the fixed
account. We determine the
34
amount you have available for transfers at the end of the valuation period when
we receive your transfer request at our office. WE MAY MODIFY OR REVOKE THE
TRANSFER PRIVILEGE AT ANY TIME. The following features apply to transfers under
the Policy:
/checkmark/ You may make an unlimited number of "non-substantive"
transfers in a Policy year among the subaccounts, although we
do limit "substantive" transfers, as discussed below.
/check mark/ You may make one transfer from the fixed account in a Policy
year (unless you choose dollar cost averaging from the fixed
account).
/check mark/ Unless otherwise required by state law, we will restrict
transfers to the fixed account, if the fixed account value
following the transfer would exceed $500,000.
/check mark/ You may request transfers in writing (in a form we accept),
by fax or by telephone.
/check mark/ There is no minimum amount that must be transferred.
/check mark/ There is no minimum amount that must remain in a subaccount
after a transfer.
/check mark/ We deduct a $25 charge from the amount transferred for each
transfer in excess of 12 transfers in a Policy year.
/check mark/ We consider all transfers made in any one day to be a single
transfer.
/check mark/ Transfers resulting from loans, conversion rights,
reallocation of cash value immediately after the reallocation
date, and transfers from the fixed account are NOT treated as
transfers for the purpose of the transfer charge.
/check mark/ Transfers under dollar cost averaging and asset rebalancing
are treated as transfers for purposes of the transfer charge.
The Policy's transfer privilege is not intended to afford policyowners a
way to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from J.P. Morgan
Money Market, during any 12-month period. We interpret "substantive" to mean
either a dollar amount large enough to have a negative impact on a portfolio's
operations or a series of movements between portfolios. We currently do not
limit non-substantive transfers.
The Policy you are purchasing was not designed for professional market
timing organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to the underlying
portfolio and increase transaction costs. We reserve the right to reject any
premium payment or transfer request from any person if, in our judgment, the
payment or transfer or series of transfers would have a negative impact on a
portfolio's operations or if a portfolio would reject our purchase order. We
may impose other restrictions on transfers or even prohibit them for any owner
who, in our view, has abused, or appears likely to abuse, the transfer
privilege.
Your Policy, as applied for and issued, will automatically receive
telephone transfer privileges unless you provide other instructions. The
telephone transfer privileges allow you
35
to give authority to the registered representative or agent of record for your
Policy to make telephone transfers and to change the allocation of future
payments among the subaccounts and the fixed account on your behalf according
to your instructions. To make a telephone transfer, you may call us at
1-800-851-9777, extension 6539 Monday - Friday 8:00 a.m. - 7:00 p.m. Eastern
time, or fax your instructions to 727-299-1648.
Please note the following regarding telephone or fax transfers:
--> We will employ reasonable procedures to confirm that telephone
instructions are genuine.
--> If we follow these procedures, we are not liable for any loss, damage,
cost or expense from complying with telephone instructions we
reasonably believe to be authentic. You bear the risk of any such
loss.
--> If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
--> Such procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to owners, and/or tape recording
telephone instructions received from owners.
--> We may also require written confirmation of your order.
--> If you do not want the ability to make telephone transfers, you should
notify us in writing.
--> Telephone or fax orders must be received at our office before 4:00
p.m. Eastern time to assure same-day pricing of the transaction.
--> WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS IF
FAXED TO A NUMBER OTHER THAN 727-299-1648.
--> We will not be responsible for any transmittal problems when you fax
us your order unless you report it to us within five business days and
send us proof of your fax transmittal.
--> We may discontinue this option at any time.
We cannot guarantee that telephone and faxed transactions will always be
available. For example, our offices may be closed during severe weather
emergencies or there may be interruptions in telephone or fax service beyond
our control. If the volume of calls is unusually high, we might not have
someone immediately available to receive your order. Although we have taken
precautions to help our systems handle heavy use, we cannot promise complete
reliability under all circumstances.
We will process any transfer order we receive at our office before the
NYSE closes (usually 4:00 p.m Eastern time) using the subaccount unit value
determined at the end of that session of the NYSE. If we receive the transfer
order after the NYSE closes, we will process the order using the subaccount
unit value determined at the close of the next regular business session of the
NYSE.
FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the fixed account unless
you select dollar cost averaging from the fixed account. We reserve the right
to require that you make
36
the transfer request in writing. We must receive the transfer request no later
than 30 days after a Policy anniversary. We will make the transfer at the end
of the valuation date on which we receive the written request. The maximum
amount you may transfer is limited to the greater of:
--> 25% of the amount in the fixed account, or
--> the amount you transferred from the fixed account in the immediately
prior Policy year.
The fixed account may not be available to residents of some states. This
means that residents of some states may not direct or transfer any money to the
fixed account.
CONVERSION RIGHTS
If, within 24 months of your Policy date, you transfer all of your
subaccount values to the fixed account, then we will not charge you a transfer
fee, even if applicable. You must make your request in writing.
DOLLAR COST AVERAGING
Dollar cost averaging is an investment strategy designed to reduce the
average purchase price per unit. The strategy spreads the allocation of your
premium into the subaccounts over a period of time. This potentially allows you
to reduce the risk of investing most of your premium into the subaccounts at a
time when prices are high. The success of this strategy is not assured and
depends on market trends. You should consider carefully your financial ability
to continue the program over a long enough period of time to purchase units
when their value is low as well as when it is high. We make no guarantee that
dollar cost averaging will result in a profit or protect you against loss.
Under dollar cost averaging, we automatically transfer a set dollar amount
from the WRL J.P. Morgan Money Market subaccount, the WRL AEGON Bond subaccount
or the fixed account to a subaccount that you choose. We will make the
transfers monthly as of the end of the valuation date after the first
Monthiversary after the reallocation date. We will make the first transfer in
the month after we receive your request at our office, provided that we receive
the form by the 25th day of the month.
To start dollar cost --> you must submit a completed form to us at our
averaging: office requesting dollar cost averaging;
--> you must have at least $5,000 in each account
from which we will make transfers;
--> your total transfers each month under dollar cost
averaging must be at least $100; and
--> each month, you may not transfer more than
one-tenth of the amount that was in your fixed
account at the beginning of dollar cost
averaging.
You may request dollar cost averaging at any time. There is no charge for
dollar cost averaging. However, each transfer under dollar cost averaging
counts towards your 12 free transfers each year.
37
Dollar --> we receive your request to cancel your
cost averaging participation;
will terminate if: --> the value in the accounts from which we make the
transfers is depleted;
--> you elect to participate in the asset rebalancing
program; or
--> you elect to participate in any asset allocation
services provided by a third party.
We may modify, suspend, or discontinue dollar cost averaging at any time.
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which you may transfer
amounts periodically to maintain a particular percentage allocation among the
subaccounts you have selected. You cannot have more than 12 active subaccounts
at any one time. Cash value allocated to each subaccount will grow or decline
in value at different rates. The asset rebalancing program automatically
reallocates the cash value in the subaccounts at the end of each period to
match your Policy's currently effective premium allocation schedule. Cash value
in the fixed account and the dollar cost averaging program is not available for
this program. This program does not guarantee gains. A subaccount may still
have losses.
You may elect asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy date. Once we receive the asset rebalancing
request form, we will effect the initial rebalancing of cash value on the next
such anniversary, in accordance with the Policy's current premium allocation
schedule. You may modify your allocations quarterly. We will credit the amounts
transferred at the unit value next determined on the dates the transfers are
made. If a day on which rebalancing would ordinarily occur falls on a day on
which the NYSE is closed, rebalancing will occur on the next day the NYSE is
open.
To start --> you must submit a completed asset rebalancing
asset rebalancing: request form to us at our office before the
maturity date; and
--> you must have a minimum cash value of $5,000 or
make a $5,000 initial premium payment.
There is no charge for the asset rebalancing program. However, each
reallocation we make under the program counts towards your 12 free transfers
each year.
Asset rebalancing --> you elect to participate in the dollar cost
will cease if: 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 participation in the asset rebalancing program at
any time; but we restrict your right to re-enter the program to once each
Policy year. If you wish to
38
resume the asset rebalancing program, you must complete a new request form. We
may modify, suspend, or discontinue the asset rebalancing program at any time.
THIRD PARTY ASSET ALLOCATION SERVICES
We may provide administrative or other support services to independent
third parties you authorize to conduct transfers on your behalf, or who provide
recommendations as to how your subaccount values should be allocated. This
includes, but is not limited to, transferring subaccount values among
subaccounts in accordance with various investment allocation strategies that
these third parties employ. These independent third parties may or may not be
appointed Western Reserve agents for the sale of Policies. WESTERN RESERVE DOES
NOT ENGAGE ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY
TYPE, SO THAT PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM
ANY AGENCY RELATIONSHIP THEY MAY HAVE WITH WESTERN RESERVE FOR THE SALE OF
POLICIES. WESTERN RESERVE THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT
ALLOCATIONS AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR
ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES. Western Reserve
does not currently charge you any additional fees for providing these support
services. Western Reserve reserves the right to discontinue providing
administrative and support services to owners utilizing independent third
parties who provide investment allocation and transfer recommendations.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This section describes the charges and deductions that we make under the
Policy to compensate for: (1) the services and benefits we provide; (2) the
costs and expenses we incur; and (3) the risks we assume.
Services and benefits we o the death benefit, cash and loan benefits;
provide under the Policy: o investment options, including premium
allocations;
o administration of elective options; and
o the distribution of reports to owners.
Costs and expenses o costs associated with processing and
we incur: underwriting applications;
o expenses of issuing and administering the
Policy (including any Policy riders);
o overhead and other expenses for providing
services and benefits and sales and marketing
expenses including compensation paid in
connection with the sale of the Policies; and
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.
39
Risks we assume: o that the charges we may deduct may be
insufficient to meet our actual claims because
insureds die sooner than we estimate; and
o that the costs of providing the services and
benefits under the Policies may exceed the
charges we are allowed to deduct.
PREMIUM CHARGES
Before we allocate the net premiums you make, we will deduct the following
charges.
Premium expense charge o This charge equals:
--> 6.0% of premiums during the first ten Policy
years on Policies with a specified amount in
force of less than $250,000 and 4.0% on
Policies with a specified amount in force of
$250,000 - $499,999; and
--> 2.5% of premiums thereafter on Policies with
a specified amount less than $500,000.
o There is no premium expense charge for Policies
with a specified amount of $500,000 or higher.
o Because certain events (such as increases or
decreases in the specified amount, a change in
death benefit option, or a cash withdrawal if you
choose the Option A death benefit) may affect the
specified amount in force, premium expense
charges will be based on the specified amount in
force for the Base Policy at the time we receive
the premium.
Premium collection o For Policies issued with direct pay notice, this
charge charge equals $3.00 per premium payment.
o This charge compensates us for premium billing
and collection costs.
o We will not increase this charge.
MONTHLY DEDUCTION
We take a monthly deduction from the cash value on the Policy date and on
each Monthiversary. We deduct this charge on a pro rata basis from all accounts
(i.e., in the same proportion that the value in each subaccount and the fixed
account bears to the total cash value on the Monthiversary). Because portions
of the monthly deduction (such as cost of insurance) can vary monthly, the
monthly deduction will also vary.
40
The monthly deduction is o the monthly Policy charge; PLUS
equal to: o the monthly cost of insurance charge for the
Policy; PLUS
o the monthly charge for any benefits provided by
riders attached to the Policy; PLUS
o the decrease charge (if applicable) incurred as
a result of a decrease in the specified amount.
MONTHLY POLICY CHARGE:
o This charge currently equals $5.00 each Policy
month.
o We guarantee this charge will never be more
than $7.50 per month.
o We may waive this charge at issue on additional
policies (not on the original Policy) purchased
naming the same owner and insured.
COST OF INSURANCE CHARGE:
o We deduct this charge each month. It varies
each month and is determined as follows:
1. DIVIDE the death benefit on the
Monthiversary by 1.0024663 (this factor
reduces the net amount at risk, for
purposes of computing the cost of
insurance, by taking into account assumed
monthly earnings at an annual rate of
3.0%);
2. SUBTRACT the cash value on the
Monthiversary after it has been allocated
among the segments of specified amount in
force in the following order: first,
initial specified amount, then, each
increase in specified amount starting with
the oldest increase, then the next oldest,
successively, until all cash value has been
allocated;
3. MULTIPLY each segment provided under 2. by
the appropriate monthly cost of insurance
rate for that segment; and ADD the results
together.
o Your monthly cost of insurance rate depends, in
part, on your specified amount band. The
specified amount bands available are:
--> Band 1: $100,000 - $249,999 ($50,000 -
$249,999 for issue ages 50 and older)
--> Band 2: $250,000 - $499,999
--> Band 3: $500,000 - $999,999
--> Band 4: $1,000,000 and over
41
o Generally, the higher the specified amount band
you choose, the lower the cost of insurance
rates.
o We determine your specified amount band by
referring to the specified amount in force for
the Base Policy (that is, the initial specified
amount on the Policy date, plus any increases,
and minus any decreases). Riders are not
included in determining the Policy's specified
amount band.
OPTIONAL INSURANCE RIDERS:
o The monthly deduction will include charges for
any optional insurance benefits you add to your
Policy by rider (see Supplemental Benefits
(Riders) p. 66).
The cost of insurance rates vary by the insured's issue age on the Policy
date, issue age at the time of any increase in specified amount, specified
amount band, gender, rate class, and the length of time from the Policy date or
from the date of any increase in specified amount.
If you increase the specified amount, different monthly cost of insurance
rates may apply to that segment of specified amount, based on the insured's
attained age and rate class at the time of the increase, gender, and the length
of time since the increase. Increases in specified amount may move the Policy
into a higher specified amount band.
Decreases in specified amount may cause the Policy to drop into a lower
band of specified amount and may result in an increase in cost of insurance
rates and premium expense charge rates. Decreases in specified amount will be
applied on a last-in, first-out basis to the specified amount in force, and
will first reduce the specified amount provided by the most recent increase in
specified amount in force, then reduce the next most recent increases,
successively, and then reduce the initial specified amount.
The actual monthly cost of insurance rates are primarily based on our
expectations as to future mortality experience and expenses. The rates will
never be greater than the guaranteed amount stated in your Policy. These
guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.)
Mortality Tables and the insured's attained age, gender, and rate class. For
standard rate classes, these guaranteed rates will never be greater than the
rates in the C.S.O. tables. We may also guarantee a rate for a specific period
of time (e.g., one year). For a listing of rate classes, see Underwriting
Standards p. 24.
We may issue certain Policies on a simplified or expedited basis. The cost
of insurance rates for Policies we issue on this basis will be no higher than
the guaranteed rates for select, non-tobacco use or standard, tobacco use
categories. However, these rates may be higher or lower than current rates
charged under otherwise identical Policies that are using standard underwriting
criteria.
42
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from your cash value in each subaccount to
compensate us for certain mortality and expense risks we assume. This charge is
equal to:
o your Policy's cash value in each subaccount MULTIPLIED BY
o the daily pro rata portion of the annual mortality and expense risk
charge rate of 0.90%.
The annual rate is equal to 0.90% of the average daily net assets of each
subaccount. We guarantee to reduce this charge to 0.60% after the first 15
Policy years. We intend to reduce this amount to 0.30% in the 16th Policy year,
but we do not guarantee that we will do so, and we reserve the right to
maintain this charge at the 0.60% level after the 15th Policy year.
The mortality risk is that an insured will live for a shorter time than we
project. The expense risk is that the expenses that we incur will exceed the
administrative charge limits we set in the Policy.
SURRENDER CHARGE
If you surrender your Policy completely during the first 15 years (or
during the 15 year period following an increase in specified amount), we deduct
a surrender charge from your cash value and pay the remaining cash value (less
any outstanding loan amount) to you.
The surrender charge is a charge for each $1,000 of specified amount of
the initial specified amount of your Base Policy and of each increase in
specified amount. The surrender charge that will apply on a full surrender of
the Policy is the total of the surrender charge calculated for the initial
specified amount and the surrender charges calculated for each increase in
specified amount unless there has been a reduction in specified amount for
which a decrease charge was applied.
The initial specified amount has a 15 year surrender charge period
starting on the Policy date and surrender charges that are based upon the
insured's issue age, gender and rate class on the Policy date. Each increase in
specified amount has its own 15 year surrender charge period and surrender
charges that are based upon the insured's issue age, gender and rate class at
the time of the increase.
Decreases in specified amount will be applied to the specified amount in
force on a last-in, first-out basis and will first reduce the surrender charge
on the most recent increase in specified amount in force, then, if still
applicable, reduce the surrender charge on the next most recent increases,
successfully, and then reduce the surrender charge on the initial specified
amount.
43
EXAMPLE:
January 1, 2001 Policy issued for $300,000
January 1, 2004 Policy increased by $200,000
January 1, 2005 Policy decreased by $100,000
If the surrender charge on January 1, 2005 (before the decrease) is:
COVERAGE LAYER SURRENDER CHARGE
-------------- ----------------
$300,000 $4,656
$200,000 $3,624
The $200,000 layer is reduced to $100,000 on January 1, 2005 and a
surrender charge of $1,812 is applied.
100 x $3,624 = $1,812
---
200
There is no surrender charge if you wait until the 15th Policy anniversary
to surrender your Policy and you have not increased your specified amount
during the first 15 Policy years. The payment you receive is called the net
surrender value. The formula we use reduces the surrender charge at older ages
in compliance with state laws.
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD EVALUATE THIS CHARGE
CAREFULLY BEFORE YOU CONSIDER A SURRENDER. Under some circumstances the level
of surrender charges might result in no net surrender value available if you
surrender your Policy in the early Policy years. This will depend on a number
of factors, but is more likely if:
o you pay premiums equal to or not much higher than the minimum monthly
guarantee premium shown in your Policy; and/or
o investment performance is too low.
In addition, surrender charges that apply for 15 years after any increase
in specified amount will likely significantly reduce your net surrender value.
The surrender charge for o the SURRENDER CHARGE PER THOUSAND (varies by
each segment of specified issue age, gender and rate class on the Policy
amount is calculated as: date or date of specified amount increase);
multiplied by
o the SURRENDER CHARGE FACTOR.
The SURRENDER CHARGE PER THOUSAND is calculated separately for initial
specified amount and for each increase in specified amount, using the rates
found in Appendix C.
The SURRENDER CHARGE FACTOR is also calculated separately for the initial
specified amount and for each increase in specified amount in force. The
surrender charge factor varies by insured's issue age (on the Policy date or
date of specified amount increase) and number of years since the Policy date or
date of specified amount increase. For insureds issue ages 0-39, the surrender
charge factor is equal to 1.00 during years 1-5. It decreases by 0.10 each year
until the 15th year when it is zero. If you are older than 39 on the Policy
date or on the date of specified amount increase, the factor is less than 1.00
at the end of
44
the first year and decreases to zero at the 15th year. We always determine the
surrender charge factor from the Policy date or date of specified amount
increase to the surrender date, regardless of whether there were any prior
lapses and reinstatements.
SURRENDER CHARGE FACTORS
ISSUE AGES 0 - 39
END OF YEAR* FACTOR
------------ -------
At Issue ......... 1.00
1-5 .............. 1.00
6 ................ .90
7 ................ .80
8 ................ .70
9 ................ .60
10 ............... .50
11 ............... .40
12 ............... .30
13 ............... .20
14 ............... .10
15 ............... 0
16+ .............. 0
* The factor on any date other than a Policy anniversary or anniversary
of an increase in specified amount will be determined proportionately
using the factor at the end of the year prior to surrender and the
factor at the end of the year of surrender.
o SURRENDER CHARGE EXAMPLE: Assume a male tobacco user purchases the
Policy at Issue Age 35 with a specified amount of $100,000. The
Policy is surrendered in Policy year 5. The surrender charge per
thousand is $16.48. This is multiplied by the surrender charge factor
of 1.00
The surrender charge = the surrender charge per thousand ($16.48)
X the number of thousands of initial specified
amount (100) X the surrender charge factor
(1.0)
= $1,648.
The surrender charge helps us recover distribution expenses that we incur
in connection with the Policy, including agent sales commissions and printing
and advertising costs.
DECREASE CHARGE
If you decrease the specified amount during the first 15 Policy years (or
during the 15 year period following an increase in specified amount), we will
deduct a decrease charge from your cash value. Decreases in specified amount
will be applied on a last-in, first-out basis to the current specified amount
in force. The decrease charge will first be calculated based on the current
surrender charge applicable to the most recent increase in specified amount
still in force. If the amount of the decrease in specified amount is greater
than the most recent increase in specified amount, then the charge will also be
calculated based on the surrender charges applicable to the next most recent
increases, successively, and then will also be calculated based on any
remaining surrender charge on the initial specified amount, up to the amount of
the requested decrease.
45
The decrease charge is o the surrender charge as of the date of the
equal to: decrease applicable to that portion of the
segment(s) of the specified amount that is
decreased. See Surrender Charges.
We will not deduct the decrease charge from the cash value when a
specified amount decrease results from:
o a change in the death benefit option; or
o a cash withdrawal (when you select death benefit Option A).
We will determine the decrease charge using the above formula, regardless
of whether your Policy has lapsed and been reinstated, or you have previously
decreased your specified amount. We will not allow a decrease in specified
amount if the decrease charge will cause the Policy to go into a grace period.
A decrease in specified amount will generally decrease the insurance protection
of the Policy.
TRANSFER CHARGE
o We currently allow you to make 12 transfers each year free from charge.
o We charge $25 for each additional transfer.
o For purposes of assessing the transfer charge, all transfers made in
one day, regardless of the number of subaccounts affected by the
transfer, is considered a single transfer.
o We deduct the transfer charge from the amount being transferred.
o Transfers due to loans, exercise of conversion rights, or from the
fixed account do not count as transfers for the purpose of assessing
this charge.
o Transfers under dollar cost averaging and asset rebalancing are
transfers for purposes of this charge.
o We will not increase this charge.
CHANGE IN NET PREMIUM ALLOCATION CHARGE
We currently do not charge you if you change your net premium allocation.
However, in the future we may decide to charge you $25 if you make more than
one change every three months in your allocation schedule. We will notify you
if we decide to impose this charge.
CASH WITHDRAWAL CHARGE
o After the first Policy year, you may take one cash withdrawal per
Policy year.
o When you make a cash withdrawal, we charge a processing fee of $25 or
2% of the amount you withdraw, whichever is less.
o We deduct this amount from the withdrawal, and we pay you the balance.
o We will not increase this charge.
TAXES
We currently do not make any deductions for taxes from the separate
account. We may do so in the future if such taxes are imposed by federal or
state agencies.
46
PORTFOLIO EXPENSES
The portfolios deduct management fees and expenses from the amounts you
have invested in the portfolios. You pay these fees and expenses indirectly.
Some portfolios also deduct 12b-1 fees from portfolio assets. These fees and
expenses currently range from 0.44% to 1.20%. See the Portfolio Annual Expense
Table on p. 13 in this prospectus, and the fund prospectuses.
Our affiliate, AFSG, the principal underwriter for the Policies, will
receive the 12b-1 fees deducted from portfolio assets for providing shareholder
support services to the portfolios. We and our affiliates, including the
principal underwriter for the Policies, may receive compensation from the
investment advisers, administrators, and/or distributors (and an affiliate
thereof) of the portfolios in connection with administrative or other services
and cost savings experienced by the investment advisers, administrators or
distributors. It is anticipated that such compensation will be based on assets
of the particular portfolios attributable to the Policy and may be significant.
Some advisers, administrators, distributors or portfolios may pay us (and our
affiliates) more than others.
DEATH BENEFIT
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DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds
on an individual Policy once we receive satisfactory proof of the insured's
death. We may require return of the Policy. We will pay the death benefit
proceeds to the primary beneficiary(ies), if living, or to a contingent
beneficiary. If each beneficiary dies before the insured and there is no
contingent beneficiary, we will pay the death benefit proceeds to the owner or
the owner's estate. We will pay the death benefit proceeds in a lump sum or
under a payment option. See Payment Options p. 52.
Death benefit o the death benefit (described below); MINUS
proceeds equal: o any monthly deductions due during the grace period (if
applicable); MINUS
o any outstanding loan amount; PLUS
o any additional insurance in force provided by rider.
We may further adjust the amount of the death benefit proceeds if we
contest the Policy or if you misstate the insured's age or gender. See Our
Right to Contest the Policy p. 61; and Misstatement of Age or Gender p. 62.
47
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the insured dies. You must select one
of the three death benefit options we offer in your application. No matter
which death benefit option you choose, we guarantee that, so long as the Policy
does not lapse, the death benefit will never be less than the specified amount
on the date of the insured's death.
Death benefit o the current specified amount; or
Option A equals the o a specified percentage called the "limitation
greater of: percentage," multiplied by
--> the cash value on the insured's date of death.
Under Option A, your death benefit remains level unless the limitation
percentage multiplied by the cash value is greater than the specified amount;
then the death benefit will vary as the cash value varies.
The limitation percentage is the minimum percentage of cash value we must
pay as the death benefit under federal tax requirements. It is based on the
attained age of the insured at the beginning of each Policy year. The following
table indicates the limitation percentages for different ages:
ATTAINED AGE LIMITATION PERCENTAGE
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40 and under 250%
41 to 45 250% of cash value minus 7% for each age over age 40
46 to 50 215% of cash value minus 6% for each age over age 45
51 to 55 185% of cash value minus 7% for each age over age 50
56 to 60 150% of cash value minus 4% for each age over age 55
61 to 65 130% of cash value minus 2% for each age over age 60
66 to 70 120% of cash value minus 1% for each age over age 65
71 to 75 115% of cash value minus 2% for each age over age 70
76 to 90 105%
91 to 95 105% of cash value minus 1% for each age over age 90
96 and older 100%
If the federal tax code requires us to determine the death benefit by
reference to these limitation percentages, the Policy is described as "in the
corridor." An increase in the cash value will increase our risk, and we will
increase the cost of insurance we deduct from the cash value.
OPTION A ILLUSTRATION. Assume that the insured's attained age is under 40,
there have been no withdrawals or decreases in specified amount, and that there
is no outstanding indebtedness. Under Option A, a Policy with a $100,000
specified amount will generally pay $100,000 in death benefits. However,
because the death benefit must be equal to or be greater than 250% of cash
value, any time the cash value of the Policy exceeds $40,000, the death benefit
will exceed the $100,000 specified amount. Each additional dollar added to the
cash value above $40,000 will increase the death benefit by $2.50.
Similarly, so long as the cash value exceeds $40,000, each dollar taken
out of the cash value will reduce the death benefit by $2.50. If at any time
the cash value multiplied
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by the limitation percentage is less than the specified amount, the death
benefit will equal the specified amount of the Policy reduced by the dollar
value of any cash withdrawals.
Death benefit o the current specified amount; PLUS
Option B equals the --> the cash value on the insured's date of death;
greater of: OR
o the limitation percentage, MULTIPLIED BY
--> the cash value on the insured's date of death.
Under Option B, the death benefit always varies as the cash value varies.
OPTION B ILLUSTRATION. Assume that the insured's attained age is under 40
and that there is no outstanding indebtedness. Under Option B, a Policy with a
specified amount of $100,000 will generally pay a death benefit of $100,000
plus cash value. Thus, a Policy with a cash value of $10,000 will have a death
benefit of $110,000 ($100,000 + $10,000). The death benefit, however, must be
at least 250% of cash value. As a result, if the cash value of the Policy
exceeds $66,667, the death benefit will be greater than the specified amount
plus cash value. Each additional dollar of cash value above $66,667 will
increase the death benefit by $2.50.
Similarly, any time cash value exceeds $66,667, each dollar taken out of
cash value will reduce the death benefit by $2.50. If at any time, cash value
multiplied by the limitation percentage is less than the specified amount plus
the cash value, then the death benefit will be the specified amount plus the
cash value of the Policy.
Death benefit o death benefit Option A; or
Option C equals the o the current specified amount, multiplied by
greater of: --> an age-based "factor" equal to the lesser of:
o 1.0 or
o 0.04 times (95 minus insured's attained age
at death) (the "factor" will never be less
than zero); plus
--> the cash value on the insured's date of death.
Under Option C, the death benefit varies with the cash value and the
insured's attained age.
OPTION C -- THREE ILLUSTRATIONS.
1. Assume that the insured is under age 40 and that there is no
outstanding indebtedness. Under Option C, a Policy with a specified amount of
$100,000 and with a cash value of $10,000 will have a death benefit of $110,000
($100,000 x the minimum of (1.0 and (0.04 x (95 - 40))) + $10,000). Until the
insured attains age 71, this benefit is the same as the Option B benefit.
2. Assume that the insured is attained age 75 and that there is no
outstanding indebtedness. Under Option C, a Policy with a specified amount of
$100,000 and with a cash value of $22,000 will have a death benefit of $102,000
($100,000 x the minimum of (1.0 and (0.04 x (95 - 75))) + $22,000).
49
3. Assume that the insured is attained age 75 and that there is no
outstanding indebtedness. Under Option C, a Policy with a specified amount of
$100,000 and with a cash value of $9,000 will have a death benefit equal to the
specified amount of $100,000, since the calculation of $100,000 times the
minimum of (1.0 and (0.04 x (95 - 75))) plus $9,000 is less than the specified
amount.
EFFECTS OF CASH WITHDRAWALS ON THE DEATH BENEFIT
If you choose Option A, a cash withdrawal will reduce the specified amount
by an amount equal to the amount of the cash withdrawal. We will not impose a
decrease charge when the specified amount is decreased as a result of taking a
cash withdrawal. Regardless of the death benefit option you choose, a cash
withdrawal will reduce the death benefit by at least the amount of the
withdrawal.
CHOOSING DEATH BENEFIT OPTIONS
You must choose one death benefit option on your application. This is an
important decision. The death benefit option you choose will have an impact on
the dollar value of the death benefit, on your cash value, and on the amount of
cost of insurance charges you pay.
You may find Option A more suitable for you if your goal is to increase
your cash value through positive investment experience. You may find Option B
more suitable if your goal is to increase your total death benefit. You may
find Option C more suitable if your goal is to increase your total death
benefit before you reach attained age 70, and to increase your cash value
through positive investment experience thereafter.
CHANGING THE DEATH BENEFIT OPTION
After the third Policy year, you may change your death benefit option once
each Policy year if you have not increased or decreased the specified amount
that year. We will notify you of the new specified amount.
o You must make your request in writing.
o The effective date of the change will be the Monthiversary on or
following the date when we receive your request for a change at our
office.
o You may not make a change that would decrease the specified amount
below the minimum specified amount under band 1 shown on your Policy
schedule page.
o There may be adverse federal tax consequences. You should consult a tax
advisor before changing your Policy's death benefit option.
INCREASING/DECREASING THE SPECIFIED AMOUNT
After the Policy has been in force for three years, you may increase or
decrease the specified amount once each Policy year if you have not changed the
death benefit option that year. An increase or decrease in the specified amount
will affect your cost of insurance charge and your minimum monthly guarantee
premium, and may have adverse federal tax consequences.
50
In addition, an increase or decrease in specified amount may move the
Policy into a different specified amount band, so that your overall cost of
insurance rate and premium expense charge rate will change. An increase in
specified amount will be treated as an additional layer of coverage with its
own cost of insurance rates, surrender charges and surrender charge period. If
you increase your specified amount, you will receive a new Policy schedule page
showing your new minimum monthly guarantee premium and surrender charge
schedule. You should consult a tax advisor before increasing or decreasing your
Policy's specified amount.
Conditions for o you must make your request in writing;
decreasing the specified o you may not change your death benefit option or
amount: increase your specified amount in the same
Policy year that you decrease your specified
amount;
o you may not decrease your specified amount
lower than the minimum specified amount under
band 1 shown on your Policy schedule page;
o you may not decrease your specified amount if
it would disqualify your Policy as life
insurance under the Internal Revenue Code;
o we may limit the amount of the decrease to no
more than 20% of the specified amount;
o a decrease in specified amount will take effect
on the Monthiversary on or after we receive
your written request; and
o we will assess a decrease charge against the
cash value if you request a decrease in your
specified amount within the first 15 Policy
years (or during the 15 year period subsequent
to an increase in specified amount).
Conditions for o your request must be applied for on a
increasing the specified supplemental application and must include
amount: evidence of insurability satisfactory to us;
o an increase in specified amount requires our
approval and will take effect on the
Monthiversary on or after we approve your
request;
o we may require your increase in specified
amount to be at least $50,000; and
o you may not change your death benefit option or
decrease your specified amount in the same
Policy year that you increase your specified
amount.
If an increase or decrease to your Policy's specified amount causes your
specified amount band to change, then we will apply the new premium expense
charge and cost of insurance rates to the amounts in the new band as of the
effective date of the increase or decrease in specified amount. The new minimum
monthly guarantee premium is effective on the date of increase or decrease. In
addition, each increase in specified amount will have its
51
own surrender charges that apply for 15 years after any increase. This charge
may significantly reduce your net surrender value.
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. See Settlement
Options p. 62 for information concerning these settlement options.
SURRENDERS AND CASH WITHDRAWALS
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SURRENDERS
You must make a written request containing an original signature to
surrender your Policy for its net surrender value as calculated at the end of
the valuation date on which we receive your request at our office. The insured
must be alive, the Policy must be in force, and it must be before the maturity
date when you make your written request. A surrender is effective as of the
date when we receive your written request. The signature of the owner's spouse
is required if the owner is a resident of: Arizona, California, Idaho, Nevada,
New Mexico, Washington or Wisconsin. You will incur a surrender charge if you
surrender the Policy during the first 15 Policy years (or during the 15 year
period subsequent to an increase in specified amount) (see Charges and
Deductions -- Surrender Charge p. 43). Once you surrender your Policy, all
coverage and other benefits under it cease and cannot be reinstated. We will
normally pay you the net surrender value in a lump sum within seven days or
under a settlement option. A surrender may have tax consequences. See Federal
Income Tax Considerations p. 57.
CASH WITHDRAWALS
After the first Policy year, you may request a cash withdrawal of a
portion of your cash value subject to certain conditions.
Cash o You must make your cash withdrawal request to us in
withdrawal writing and must contain an original signature.
conditions: o Signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
o We only allow one cash withdrawal per Policy year.
52
o We may limit the amount you can withdraw to at least $500,
and to no more than 10% of the net surrender value. We
currently intend to limit the amount you can withdraw to 25%
of the net surrender value after the 10th Policy year.
o The remaining net surrender value after the cash withdrawal
must be at least $500.
o You may not take a cash withdrawal if it will reduce the
specified amount below the minimum specified amount set
forth in the Policy.
o You may specify the subaccount(s) and the fixed account
from which to make the withdrawal. If you do not specify an
account, we will take the withdrawal from each account in
accordance with your current premium allocation
instructions.
o We generally will pay a cash withdrawal request within
seven days following the valuation date we receive the
request.
o We will deduct a processing fee equal to $25 or 2% of the
amount you withdraw, whichever is less. We deduct this
amount from the withdrawal, and we pay you the balance.
o You may not take a cash withdrawal that would disqualify
your Policy as life insurance under the Internal Revenue
Code.
o A cash withdrawal may have tax consequences (see Federal
Income Tax Considerations p. 57).
A cash withdrawal will reduce the cash value by the amount of the cash
withdrawal, and will reduce the death benefit by at least the amount of the
cash withdrawal. When death benefit Option A is in effect, a cash withdrawal
will reduce the specified amount by an amount equal to the amount of the cash
withdrawal. This decrease in specified amount may cause your Policy to be in a
lower specified amount band, so that your cost of insurance rates would be
higher. (See Monthly Deduction p. 40.) You also may have to pay higher minimum
monthly guarantee premiums and premium expense charges. We will not impose a
decrease charge when the specified amount is decreased as a result of taking a
cash withdrawal.
When we incur extraordinary expenses, such as overnight mail expenses or
wire service fees, for expediting delivery of your partial withdrawal or
complete surrender payment, we will deduct that charge from the payment. We
charge $20 for an overnight delivery ($30 for Saturday delivery) and $25 for
wire service.
53
LOANS
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GENERAL
After the first Policy year (as long as the Policy is in force) you may
borrow money from us using the Policy as the only security for the loan. We may
permit a loan prior to the first anniversary for Policies issued pursuant to
1035 Exchanges. A loan that is taken from, or secured by, a Policy may have tax
consequences. See Federal Income Tax Considerations p. 57.
Policy loans are o we may require you to borrow at least $500;
subject to certain o the maximum amount you may borrow is 90% of the cash
conditions: value, minus any surrender charge and minus any
outstanding loan amount; and
o signature of owner's spouse is required if owner is a
resident of: Arizona, California, Idaho, Nevada, New
Mexico, Washington or Wisconsin.
When you take a loan, we will withdraw an amount equal to the requested
loan from each of the subaccounts and the fixed account based on your current
premium allocation instructions (unless you specify otherwise). We will
transfer that amount to the loan reserve. The loan reserve is the portion of
the fixed account used as collateral for a Policy loan.
We normally pay the amount of the loan within seven days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See Payments We Make p. 63.
You may request a loan by telephone by calling us at 1-800-851-9777,
extension 6539 Monday - Friday 8:00 a.m - 7:00 p.m Eastern time. If the loan
amount you request exceeds $50,000 or if the address of record has been changed
within the past 10 days, we may reject your request. If you do not want the
ability to request a loan by telephone, you should notify us in writing. You
will be required to provide certain information for identification purposes
when you request a loan by telephone. We may ask you to provide us with written
confirmation of your request. We will not be liable for processing a loan
request if we believe the request is genuine.
You may also fax your loan request to us at 727-299-1667. We will not be
responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
You can repay a loan at any time while the Policy is in force. WE WILL
CONSIDER ANY PAYMENTS YOU MAKE ON THE POLICY TO BE PREMIUM PAYMENTS UNLESS THE
PAYMENTS ARE CLEARLY SPECIFIED AS LOAN REPAYMENTS.
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
54
or part of the loan, or make a request to borrow an additional amount. At each
such time, if the amount of the outstanding loan exceeds the amount in the loan
reserve, we will withdraw the difference from the subaccounts and the fixed
account and transfer it to the loan reserve, in the same manner as when a loan
is made. If the amount in the loan reserve exceeds the amount of the
outstanding loan, we will withdraw the difference from the loan reserve and
transfer it to the subaccounts and the fixed account in the same manner as
current premiums are allocated. No charge will be imposed for these transfers,
and these transfers are not treated as transfers in calculating the transfer
charge. We reserve the right to require a transfer to the fixed account if the
loans were originally transferred from the fixed account.
INTEREST RATE CHARGED
We currently charge you an annual interest rate on a Policy loan that is
equal to 3.75% (4.0% guaranteed) 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.
After the 10th Policy year, you may borrow at preferred loan rates an amount
equal to the cash value minus total premiums paid (reduced by any cash
withdrawals) and minus any outstanding loan amount. This preferred loan rate is
currently 3.0% and is not guaranteed. The tax consequences of preferred loans
are uncertain. See Federal Income Tax Considerations p. 57.
LOAN RESERVE INTEREST RATE CREDITED
We will credit the amount in the loan reserve with interest at an
effective annual rate of 3.0%.
EFFECT OF POLICY LOANS
A Policy loan reduces the death benefit proceeds and net surrender value
by the amount of any outstanding loan amount. Repaying the loan causes the
death benefit proceeds and net surrender value to increase by the amount of the
repayment. As long as a loan is outstanding, we hold an amount equal to the
loan as of the last Policy anniversary plus any accrued interest net of any
loan payments. This amount is not affected by the separate account's investment
performance and may not be credited with the interest rates accruing on the
unloaned portion of the fixed account. Amounts transferred from the separate
account to the loan reserve will affect the value in the separate account
because we credit such amounts with an interest rate declared by us rather than
a rate of return reflecting the investment results of the separate account.
There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences (see Federal Income Tax Considerations p. 57). You
should consult a tax advisor before taking out a Policy loan.
We will notify you (and any assignee of record) if the sum of your loan
amount 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.
55
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may not necessarily lapse (terminate without value) if you
fail to make a planned periodic payment. However, even if you make all your
planned periodic payments, there is no guarantee that your Policy will not
lapse. This Policy provides a no lapse period. See below. Once your no lapse
period ends, your Policy may lapse (terminate without value) if the net
surrender value on any Monthiversary is less than the monthly deductions due on
that day. Such lapse might occur if unfavorable investment experience, loans
and cash withdrawals cause a decrease in the net surrender value, or you have
not paid sufficient premiums as discussed below to offset the monthly
deductions.
If the net surrender value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and any assignee of record. The
notice will specify the minimum payment you must pay and the final date by
which we must receive the payment to prevent a lapse. We generally require that
you make the payment within 61 days after the date of the notice. This 61-day
period is called the grace period. If we do not receive the specified minimum
payment by the end of the grace period, all coverage under the Policy will
terminate without value.
NO LAPSE PERIOD
This Policy provides a no lapse period. As long as you keep the no lapse
period in effect, your Policy will not lapse and no grace period will begin.
Even if your net surrender value is not enough to pay your monthly deduction,
the Policy will not lapse so long as the no lapse period is in effect. The no
lapse period will not extend beyond the no lapse date stated in your Policy.
Each month we determine whether the no lapse period is still in effect.
No lapse date o For a Policy issued to any insured ages 0-60,
the no lapse date is either the number of years
to attained age 65 or the twentieth Policy
anniversary, whichever is less.
o For a Policy issued to an insured ages 61-85,
the no lapse date is the fifth Policy
anniversary.
o The no lapse date is specified in your Policy.
Early termination of the o The no lapse period coverage will end
no lapse period immediately if you do not pay sufficient
minimum monthly guarantee premiums.
o You must pay total premiums (minus withdrawals,
outstanding loans, and any decrease charge)
that equal at least:
--> the sum of the minimum monthly guarantee
premiums in effect for each month from the
Policy date up to and including the
current month.
56
You will lessen the risk of Policy lapse if you keep the no lapse period
in effect. Before you take a cash withdrawal or a loan or decrease the
specified amount you should consider carefully the effect it will have on the
no lapse period guarantee. See Minimum Monthly Guarantee Premium p. 29.
In addition, if you change death benefit options, increase or decrease the
specified amount, or add, increase or decrease a rider, we will adjust the
minimum monthly guarantee premium. See Minimum Monthly Guarantee Premium p. 29
for a discussion of how the minimum monthly guarantee premium is calculated and
can change.
REINSTATEMENT
We will reinstate a lapsed Policy within five years after the lapse (and
prior to the maturity date). To reinstate the Policy you must:
o submit a written application for reinstatement;
o provide evidence of insurability satisfactory to us;
o make a minimum premium payment sufficient to provide a net premium that
is large enough to cover:
--> three monthly deductions; and
--> any surrender charge calculated from the Policy date to the date
of reinstatement. (Although we do not currently assess this charge,
we reserve the right to do so in the future.)
We will not reinstate any indebtedness. The cash value of the loan reserve on
the reinstatement date will be zero. Your net surrender value on the
reinstatement date will equal the net premiums you pay at reinstatement, minus
one monthly deduction and any surrender charge. The reinstatement date for your
Policy will be the Monthiversary on or following the day we approve your
application for reinstatement. We may decline a request for reinstatement.
FEDERAL INCOME TAX CONSIDERATIONS
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The following summarizes some of the basic federal income tax
considerations associated with a Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Please
consult counsel or other qualified tax advisors for more complete information.
We base this discussion on our understanding of the present federal income tax
laws as they are currently interpreted by the Internal Revenue Service (the
"IRS"). Federal income tax laws and the current interpretations by the IRS may
change.
TAX STATUS OF THE POLICY
A Policy must satisfy certain requirements set forth in the Internal
Revenue Code (the "Code") in order to qualify as a life insurance policy for
federal income tax purposes and
57
to receive the tax treatment normally accorded life insurance policies under
federal tax law. Guidance as to how these requirements are to be applied is
limited. Nevertheless, we believe that a Policy issued on the basis of a
standard rate class should generally satisfy the applicable Code requirements.
Because of the absence of pertinent interpretations of the Code requirements,
there is, however, less certainty about the application of such requirements to
a Policy issued on a substandard basis. If it is subsequently determined that a
Policy does not satisfy the applicable requirements, we may take appropriate
steps to bring the Policy into compliance with such requirements and we reserve
the right to restrict Policy transactions in order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their policies due to their ability to
exercise investment control over those assets. Where this is the case, the
policyowners have been currently taxed on income and gains attributable to the
separate account assets. There is little guidance in this area, and some
features of the Policies, such as your flexibility to allocate premiums and
cash values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over separate
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the separate account assets
supporting the Policy.
In addition, the Code requires that the investments of the separate
account be "adequately diversified" in order to treat the Policy as a life
insurance policy for federal income tax purposes. We intend that the separate
account, through the portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance policy for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. A tax advisor
should be consulted on these consequences.
Generally, you will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by a Policy (e.g., by
assignment), the tax consequences depend on whether the Policy is classified as
a "Modified Endowment Contract" ("MEC").
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance
policies are classified as MECs and receive less favorable tax treatment than
other life insurance policies. The rules are too complex to summarize here, but
generally depend on the amount of premiums paid during the first seven Policy
years. Certain changes in the Policy after it is issued could also cause the
Policy to be classified as a MEC. Due to the Policy's flexibility,
58
each Policy's circumstances will determine whether the Policy is classified as
a MEC. Among other things, a reduction in benefits could in certain
circumstances cause a Policy to become a MEC. If you do not want your Policy to
be classified as a MEC, you should consult a tax advisor to determine the
circumstances, if any, under which your Policy would or would not be classified
as a MEC.
Upon issue of your Policy, we will notify you as to whether or not your
Policy is classified as a MEC based on the initial premium we receive. If your
Policy is not a MEC at issue, then you will also be notified of the maximum
amount of additional premiums you can pay without causing your Policy to be
classified as a MEC. If a payment would cause your Policy to become a MEC, you
and your agent will be notified immediately. At that time, you will need to
notify us if you want to continue your Policy as a MEC. If you notify us that
you do not want to continue your Policy as a MEC, we will refund the dollar
amount of the excess premium that caused the Policy to become a MEC as of the
date we receive the notice. If investment earnings on the excess premium are
positive, we will refund the excess premium, plus the variable earnings; if
investment earnings on the excess premium are negative, we will refund the full
amount of the excess premium out of the Policy's cash value.
Distributions (other than Death Benefits) from Modified Endowment
Contracts. Policies classified as MECs are subject to the following tax rules:
o All distributions other than death benefits from a MEC, including
distributions upon surrender and cash withdrawals, will be treated
first as distributions of gain 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.
o If a Policy becomes a MEC, distributions that occur during the Policy
year will be taxed as distributions from a MEC. In addition,
distributions from a Policy within two years before it becomes a MEC
will be taxed in this manner. This means that a distribution from a
Policy that is not a MEC at the time when the distribution is made
could later become taxable as a distribution from a MEC.
Distributions (other than Death Benefits) from Policies that are not
Modified Endowment Contracts. Distributions from a Policy that is not a MEC are
generally treated
59
first as a recovery of your investment in the Policy, and as taxable income
after the recovery of all investment in the Policy. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance policy for federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole
or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not
treated as distributions. Instead, such loans are treated as indebtedness.
However, the tax consequences associated with Policy loans outstanding after
the first 10 Policy years 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 includible in the owner's income when a taxable
distribution occurs.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally the
sum of the premium payments you made. When a distribution from the Policy
occurs, your investment in the Policy is reduced by the amount of the
distribution that is tax-free.
POLICY LOANS. If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding indebtedness will be
taxed as if it were a distribution.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a
loan from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
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.
LIVING BENEFIT RIDER (AN ACCELERATED DEATH BENEFIT). We believe that the
single-sum payment we make under this rider should be fully excludible from the
gross income of the beneficiary, as long as the beneficiary is an insured under
the Policy. You should consult a tax advisor about the consequences of adding
this rider to your Policy, or requesting a single-sum payment.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the
60
imposition of gift, estate, and generation-skipping transfer taxes. The
individual situation of each owner or beneficiary will determine the extent, if
any, to which federal, state, and local transfer and inheritance taxes may be
imposed and how ownership or receipt of Policy proceeds will be treated for
purposes of federal, state and local estate, inheritance, generation-skipping
and other taxes.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always a possibility that the tax treatment of the
Policies could change by legislation or otherwise. You should consult a tax
advisor with respect to legal developments and their effect on the Policy.
SPECIAL RULES FOR 403(B) ARRANGEMENTS
If this Policy is purchased by public school systems and certain
tax-exempt organizations for their employees, then the federal, state and
estate tax consequences could differ from those stated in the prospectus. A
competent tax advisor should be consulted in connection with such purchase.
Certain restrictions apply. The Policy must be purchased in connection
with a tax-sheltered annuity described in section 403(b) of the Code. Premiums,
distributions, and other transactions in connection with the Policy must be
administered in coordination with the section 403(b) annuity.
The amount of life insurance that may be purchased on behalf of a
participant in a 403(b) plan is limited. The current cost of insurance for the
net amount at risk is treated under the Code as a "current fringe benefit" and
must be included annually in the plan participant's gross income. This cost
(generally referred to as the "P.S. 58" cost) is reported to the participant
annually.
If the plan participant dies while covered by the 403(b) plan and the
Policy proceeds are paid to the participant's beneficiary, then the excess of
the death benefit over the cash value will generally not be taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy.
Policies owned under these types of plans may be subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), which may impose additional
requirements of Policy loans and other Policy provisions. Plan loans must also
satisfy tax requirements in order to be treated as non-taxable. Plan loan
requirements and provisions may differ from the Policy loan provisions stated
in the prospectus. You should consult a qualified advisor regarding ERISA.
OTHER POLICY INFORMATION
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OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for the
insured in the application or in a supplemental application. Therefore, if you
make any material
61
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.
A new two year contestability period shall apply to each increase in
specified amount beginning on the effective date of each increase and will
apply only to statements made in the application for the increase.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime for two years from the Policy date, or if reinstated, for two years
from the date of reinstatement.
SUICIDE EXCLUSION
If the insured commits suicide, while sane or insane, within two years of
the Policy date (or two years from the reinstatement date; if the Policy lapses
and is reinstated), the Policy will terminate and our liability is limited to
an amount equal to the premiums paid, less any outstanding loan amount, and
less any cash withdrawals. We will pay this amount to the beneficiary in one
sum.
If the insured commits suicide, while sane or insane, within two years
from the effective date of any increase in specified amount, our liability with
respect to such increase will be its cost of insurance.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the insured was stated incorrectly in the
application or any supplemental application, then the death benefit will be
adjusted based on what the cost of insurance charge for the most recent monthly
deduction would have purchased based on the insured's correct age and gender.
MODIFYING THE POLICY
Only our President or Secretary may modify this Policy or waive any of our
rights or requirements under this Policy. Any modification or waiver must be in
writing. No agent may bind us by making any promise not contained in this
Policy.
If we modify the Policy, we will provide you notice and we will make
appropriate endorsements to the Policy.
TAX-FREE "SECTION 1035" EXCHANGES
You can generally exchange one life insurance policy for another in a
"tax-free exchange" under Section 1035 of the Internal Revenue Code. Before
making an exchange, you should compare both life insurance policies carefully.
Remember that if you exchange another life insurance policy for the one
described in this prospectus, you might have to pay a surrender charge on your
old policy, there will be a new surrender charge period for this Policy, and
other charges may be higher (or lower) and the benefits may be different. If
the
62
exchange does not qualify for Section 1035 treatment, you may also have to pay
federal income tax on the exchange. You should not exchange another life
insurance policy for this one unless you determine, after knowing all the
facts, that the exchange is in your best interest and not just better for the
person selling you the Policy (that person will generally earn a commission if
you buy this Policy through an exchange or otherwise).
BENEFITS AT MATURITY
If the insured is living and the Policy is in force, the Policy will
mature on the Policy anniversary nearest the insured's 100th birthday. This is
the maturity date. On the maturity date we will pay you the net surrender value
of your Policy.
If requested in writing, 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 and elect one of
the following:
1. If you had previously selected death benefit Option B or C, we will
change the death benefit to Option A. On each valuation date, we will
adjust the specified amount to equal the cash value, and the limitation
percentage will be 100%. We will not permit you to make additional
premium payments unless it is required to prevent the Policy from
lapsing. We will waive all future monthly deductions; or
2. We will automatically extend the maturity date until the next Policy
anniversary. You must submit a written request, between 90 and 180 days
before each subsequent Policy anniversary, stating that you wish to
extend the maturity date for another Policy year. All benefits and
charges will continue as set forth in your Policy. We will charge the
then current cost of insurance rates.
If you choose 2 above, you may change your election to 1 above at any
time. However, if you choose 1 above, then you may not change your election to
2 above.
The tax consequences of extending the maturity date beyond the 100th
birthday of the insured are uncertain. You should consult a tax advisor as to
those consequences.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, cash withdrawal, death
benefit proceeds, or settlement options within seven business days after we
receive all applicable written notices and/or due proofs of death at our
office. However, we can postpone such payments if:
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
63
o the SEC determines that an emergency exists that would make the
disposal of securities held in the separate account or the
determination of their value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, cash withdrawals, death benefit proceeds, or payments
under a settlement option until such check or draft has been honored. We also
reserve the right to defer payment of transfers, cash withdrawals, death
benefit proceeds, or surrenders from the fixed account for up to six months.
SETTLEMENT OPTIONS
If you surrender the Policy, you may elect to receive the net surrender
value in either a lump sum or as a series of regular income payments under one
of the three settlement options described below. In either event, life
insurance coverage ends. Also, when the insured dies, the beneficiary may apply
the lump sum death benefit proceeds to one of the same settlement options. If
the regular payment under a settlement option would be less than $100, we will
instead pay the proceeds in one lump sum. We may make other settlement options
available in the future.
Once we begin making payments under a settlement option, you or the
beneficiary will no longer have any value in the subaccounts or the fixed
account. Instead, the only entitlement will be the amount of the regular
payment for the period selected under the terms of the settlement option
chosen. Depending upon the circumstances, the effective date of a settlement
option is the surrender date or the insured's date of death.
Under any settlement option, the dollar amount of each payment will depend
on four things:
o the amount of the surrender or death benefit proceeds on the surrender
date or insured's date of death;
o the interest rate we credit on those amounts (we guarantee a minimum
annual interest rate of 3.0%);
o the mortality tables we use; and
o the specific payment option(s) you choose.
Option 1 - Equal o We will pay the proceeds, plus interest, in equal
Monthly Installments monthly installments for a fixed period of your
for a Fixed Period choice, but not longer than 240 months.
o We will stop making payments once we have made all
the payments for the period selected.
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Option 2 - Equal At your or the beneficiary's direction, we will make
Monthly Installments equal monthly installments:
for Life (Life Income) o only for the life of the payee, at the end of
which payments will end; or
o for the longer of the payee's life, or for 10
years if the payee dies before the end of the
first 10 years of payments; or
o until the total amount of all payments we have
made equals the proceeds that were applied to
the settlement option.
Option 3 - Equal o We will make equal monthly payments during the
Monthly Installments for joint lifetime of two persons, first to a
the Life of the Payee and chosen payee, and then to a co-payee, if
then to a Designated living, upon the death of the payee.
Survivor (Joint and o Payments to the co-payee, if living, upon the
Survivor) payee's death will equal either:
--> the full amount made to the payee before
the payee's death; or
--> two-thirds of the amount paid to the
payee before the payee's death. All
payments will cease upon the death of the
co-payee.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
policyowners at their last known address a report showing the following
information as of the end of the report period:
/check mark/ the current cash value /check mark/ any activity since the last report
/check mark/ the current net surrender value /check mark/ projected values
/check mark/ the current death benefit /check mark/ investment experience of each subaccount
/check mark/ any outstanding loans /check mark/ any other information required by law
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request including:
premium payments, changes in specified amount, changes in death benefit option,
transfers, partial withdrawals, increases in loan amount, loan interest
payments, loan repayments, lapses and reinstatements. We also will send copies
of the annual and semi-annual report to shareholders for each portfolio in
which you are indirectly invested.
RECORDS
We will maintain all records relating to the separate account and the
fixed account.
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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 dies; o the date the Policy is surrendered.
SUPPLEMENTAL BENEFITS (RIDERS)
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The following supplemental benefits (riders) are available and may be
added to a Policy. Monthly charges for these riders are deducted from cash
value as part of the monthly deduction. The riders available with the Policies
provide fixed benefits that do not vary with the investment experience of the
separate account. For purposes of the riders, the primary insured is the person
insured under the Policy, and the face amount is the level term insurance
amount we pay at death. These riders may not be available in all states. Adding
these supplemental benefits to an existing Policy or canceling them may have
tax consequences and you should consult a tax advisor before doing so.
CHILDREN'S INSURANCE RIDER
This rider provides a face amount on the primary insured's children. Our
current minimum face amount for this rider for issue ages 15 days - 18 years of
age is $5,000. The maximum face amount is $20,000. At the age of 25 or upon the
death of the primary insured, whichever happens first, this rider may be
converted to a new policy with a maximum face amount of up to five times the
face amount of the rider. We will pay a death benefit once we receive proof
that the insured child died while both the rider and coverage were in force for
that child. If the primary insured dies while the rider is in force, we will
terminate the rider 31 days after the death, and we will offer a separate life
insurance policy to each insured child.
ACCIDENTAL DEATH BENEFIT RIDER
Our current minimum face amount for this rider for issue ages 15-59 is
$10,000. The maximum face amount available for this rider is $150,000 (up to
150% of specified amount).
Subject to certain limitations, we will pay a face amount if the primary
insured's death results solely from accidental bodily injury where:
o the death is caused by external, violent, and accidental means;
o the death occurs within 90 days of the accident; and
o the death occurs while the rider is in force.
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The rider will terminate on the earliest of:
o the Policy anniversary nearest the primary insured's 70th birthday;
o the date the Policy terminates; or
o the Monthiversary when the rider terminates at the owner's request.
OTHER INSURED RIDER
This rider insures the spouse or life partner and/or dependent children of
the primary insured. We will pay the rider's face amount when we receive proof
of the other insured's death. On any Monthiversary while the rider is in force,
you may replace it with a new policy on the other insured's life (without
evidence of insurability).
Conditions to o your request must be in writing;
replace the o the rider has not reached the anniversary nearest to the
rider: other insured's 70th birthday;
o the new policy is any permanent insurance plan that we
currently offer;
o subject to the minimum specified amount required for the
new policy, the amount of the insurance under the new
policy will equal the face amount in force under the rider
as long as it meets the minimum face amount requirements
of the original Policy; and
o we will base your premium on the other insured's rate
class under the rider.
DISABILITY WAIVER RIDER
Subject to certain conditions, we will waive the Policy's monthly
deductions while you are disabled. This rider may be purchased if your issue
age is 15-55 years of age. We must receive proof that:
o you are totally disabled;
o the rider was in force when you became disabled;
o you became disabled before the anniversary nearest your 60th birthday;
and
o you are continuously disabled for at least six months.
We will not waive any deduction which becomes due more than one year before we
receive written notice of your claim.
DISABILITY WAIVER AND INCOME RIDER
This rider has the same benefits as the Disability Waiver Rider, but adds
a monthly income benefit for up to 120 months. This rider may be purchased if
your issue age is 15-55 years of age. The minimum income amount for this rider
is $10. The maximum income amount is the lesser of 0.2% of your specified
amount or $300 per month.
PRIMARY INSURED RIDER ("PIR") AND PRIMARY INSURED RIDER PLUS ("PIR PLUS")
Under the PIR and the PIR Plus, we provide term insurance coverage on a
different basis from the coverage in your Policy.
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Features of o the rider increases the Policy's death benefit by the
PIR and PIR rider's face amount;
Plus: o the PIR may be purchased from issue ages 0-85;
o the PIR Plus may be purchased from issue ages 18-85;
o the PIR terminates when the insured turns 95, and the PIR
Plus terminates when the insured turns 90;
o the minimum purchase amount for the PIR and PIR Plus is
$25,000. There is no maximum purchase amount;
o we do not assess any additional surrender charge for PIR
and PIR Plus;
o generally PIR and PIR Plus coverage costs less than the
insurance coverage under the Policy, but has no cash value;
o you may cancel or reduce your rider coverage without
decreasing your Policy's specified amount; and
o you may generally decrease your specified amount without
reducing your rider coverage.
It may cost you less to reduce your PIR or PIR Plus coverage than to
decrease your Policy's specified amount, because we do not deduct a surrender
charge in connection with your PIR or PIR Plus. It may cost you more to keep a
higher specified amount, because the specified amount may have a cost of
insurance that is higher than the cost of the same amount of coverage under
your PIR or PIR Plus.
You should consult your registered representative to determine if you
would benefit from PIR or PIR Plus. We may discontinue offering PIR or PIR Plus
at any time. We may also modify the terms of these riders for new policies.
LIVING BENEFIT RIDER (AN ACCELERATED DEATH BENEFIT)
This rider allows us to pay all or a portion of the death benefit once we
receive satisfactory proof that the insured is ill and has a life expectancy of
one year or less. A doctor must certify the insured's life expectancy.
We will pay a "single-sum benefit" equal to:
o the death benefit on the date we pay the single-sum benefit; multiplied
by
o the election percentage of the death benefit you elect to receive;
divided by
o 1 + i ("i" equals the current yield on 90-day Treasury bills or the
Policy loan interest rate, whichever is greater); minus
o any indebtedness at the time we pay the single-sum benefit, multiplied
by the election percentage.
The maximum terminal illness death benefit used to determine the
single-sum benefit as defined above is equal to:
o the death benefit available under the Policy once we receive
satisfactory proof that the insured is ill; plus
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o the benefit available under any PIR or PIR Plus in force.
o a single-sum benefit may not be greater than $500,000.
The election percentage is a percentage that you select. It may not be
greater than 100% of your Policy's death benefit under the rider.
We will not pay a benefit under the rider if the insured's terminal
condition results from self-inflicted injuries which occur during the period
specified in your Policy's suicide provision.
The rider terminates at the earliest of:
o the date the Policy terminates;
o the date a settlement option takes effect;
o the date we pay a single-sum benefit; or
o the date you terminate the rider.
We do not charge for this rider. This rider may not be available in all
states, or its terms may vary depending on a state's insurance law
requirements.
The tax consequences of adding this rider to an existing Policy or
requesting payment under the rider are uncertain and you should consult a tax
advisor before doing so.
IMSA
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We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales and advertising of
individual life insurance and annuity products. Companies must undergo a
rigorous self and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
PERFORMANCE DATA
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RATES OF RETURN
The rates of return in Table 1 reflect each subaccount's actual investment
performance. The Table shows the historical investment experience of the
subaccounts based on the subaccounts' historical investment experience. This
information does not represent or project future investment performance.
Some portfolios began operation before their corresponding subaccount. For
these portfolios, we have included in Table 2 below adjusted portfolio
performance from the portfolio's inception date. The adjusted portfolio
performance is designed to show the performance that would have resulted if the
subaccount had been in operation during the time the portfolio was in
operation.
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We deduct the annual mortality and expense risk charge, investment
management fees and direct fund expenses.
These rates of return do not reflect other charges that are deducted under
the Policy or from the separate account (such as the premium expense charge,
monthly deduction or the surrender charge). If these charges were deducted,
performance would be significantly lower. These rates of return are not
estimates, projections or guarantees of future performance.
We also show below comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market
performance. The S&P 500 does not reflect any deduction for the expenses of
operating and managing an investment portfolio.
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TABLE 1
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 2000
10 YEARS SUBACCOUNT
OR INCEPTION
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE
- -------------------------------------------- ------------- ----------- ----------- ------------- -----------
WRL Van Kampen Emerging Growth ................. (12.70)% 34.18% 27.93% 24.80% 03/01/93
WRL T. Rowe Price Small Cap .................... (9.27)% N/A N/A 6.87% 07/01/99
WRL Pilgrim Baxter Mid Cap Growth .............. (15.16)% N/A N/A 22.46% 07/01/99
WRL Alger Aggressive Growth .................... (31.94)% 18.88% 17.76% 17.67% 03/01/94
WRL Third Avenue Value ......................... 34.26% N/A N/A 12.47% 01/02/98
WRL Value Line Aggressive Growth(1) ............ N/A N/A N/A (10.24)% 05/01/00
WRL GE International Equity .................... (15.75)% 5.28% N/A 5.60% 01/02/97
WRL Great Companies -- Technology(SM)(1) ......... N/A N/A N/A (33.01)% 05/01/00
WRL Janus Growth(+) ............................ (29.58)% 22.02% 19.86% 18.43% 10/02/86
WRL Goldman Sachs Growth ....................... (8.84)% N/A N/A 1.94% 07/01/99
WRL GE U.S. Equity ............................. (1.67)% 12.01% N/A 15.35% 01/02/97
WRL Great Companies -- America(SM)(1) ............ N/A N/A N/A 13.12% 05/01/00
WRL Salomon All Cap ............................ 17.24% N/A N/A 16.32% 07/01/99
WRL C.A.S.E. Growth ............................ (21.42)% 1.91% N/A 5.86% 05/01/96
WRL Dreyfus Mid Cap ............................ 11.91% N/A N/A 7.93% 07/01/99
WRL NWQ Value Equity ........................... 14.17% 4.85% N/A 10.70% 05/01/96
WRL T. Rowe Price Dividend Growth .............. 8.89% N/A N/A (0.14)% 07/01/99
WRL Dean Asset Allocation ...................... 16.16% 5.26% 8.85% 10.50% 01/03/95
WRL LKCM Strategic Total Return ................ (4.62)% 4.80% 9.64% 10.44% 03/01/93
WRL J.P. Morgan Real Estate Securities ......... 28.46% N/A N/A 1.33% 05/01/98
WRL Federated Growth & Income .................. 28.01% 7.38% 11.09% 10.61% 03/01/94
WRL AEGON Balanced ............................. 4.88% 4.31% 7.65% 7.20% 03/01/94
WRL AEGON Bond(+) .............................. 9.90% 4.63% 4.22% 6.85% 10/02/86
WRL J.P. Morgan Money Market(2)(+) ............. 5.17% 4.48% 4.40% 3.71% 10/02/86
Fidelity VIP Equity-Income Portfolio --
Service Class 2(1) ........................ N/A N/A N/A 9.91% 05/01/00
Fidelity VIP II Contrafund(R) Portfolio --
Service Class 2(1) ........................ N/A N/A N/A (6.16)% 05/01/00
Fidelity VIP III Growth Opportunities
Portfolio -- Service Class 2(1) ........... N/A N/A N/A (14.36)% 05/01/00
S&P 500(+) ................................. (9.10)% 12.25% 18.31% 17.44% 12/31/90
(+) Shows ten year performance.
(1) Not annualized.
(2) Yield more closely reflects the current earnings than its total return. An
investment in this subaccount is not insured or guaranteed by the FDIC.
While this subaccount seeks to preserve its value at $1.00 per share, it
is possible to lose money by investing in this subaccount.
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TABLE 2
ADJUSTED HISTORICAL PORTFOLIO AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 2000
10 YEARS PORTFOLIO
OR INCEPTION
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS INCEPTION DATE
- ------------------------------------------------ ------------- ----------- ----------- ------------- ----------
Van Kampen Emerging Growth ................. (12.70)% 34.18% 27.93% 24.80% 03/01/93
T. Rowe Price Small Cap .................... (9.27)% N/A N/A 14.30% 05/03/99
Pilgrim Baxter Mid Cap Growth .............. (15.16)% N/A N/A 27.66% 05/03/99
Alger Aggressive Growth .................... (31.94)% 18.88% 17.76% 17.67% 03/01/94
Third Avenue Value ......................... 34.26% N/A N/A 12.47% 01/02/98
Value Line Aggressive Growth(2) ............ N/A N/A N/A (10.24)% 05/01/00
GE International Equity .................... (15.75)% 5.28% N/A 5.60% 01/02/97
Great Companies -- Technology(SM)(2) ....... N/A N/A N/A (33.01)% 05/01/00
Janus Growth(+) ............................ (29.58)% 22.02% 19.86% 18.43% 10/02/86
Goldman Sachs Growth ....................... (8.84)% N/A N/A 3.84% 05/03/99
GE U.S. Equity ............................. (1.67)% 12.01% N/A 15.35% 01/02/97
Great Companies -- America(SM)(2) ............ N/A N/A N/A 13.12% 05/01/00
Salomon All Cap ............................ 17.24% N/A N/A 19.60% 05/03/99
C.A.S.E. Growth ............................ (21.43)% 1.91% 7.03% 9.64% 05/01/95
Dreyfus Mid Cap ............................ 11.91% N/A N/A 11.16% 05/03/99
NWQ Value Equity ........................... 14.17% 4.85% N/A 10.70% 05/01/96
T. Rowe Price Dividend Growth .............. 8.89% N/A N/A 0.13% 05/03/99
Dean Asset Allocation ...................... 16.16% 5.26% 8.85% 10.50% 01/03/95
LKCM Strategic Total Return ................ (4.62)% 4.80% 9.64% 10.44% 03/01/93
J.P. Morgan Real Estate Securities ......... 28.46% N/A N/A 1.33% 05/01/98
Federated Growth & Income .................. 28.01% 7.38% 11.09% 10.61% 03/01/94
AEGON Balanced ............................. 4.88% 4.31% 7.65% 7.20% 03/01/94
AEGON Bond(+) .............................. 9.90% 4.63% 4.22% 6.85% 10/02/86
J.P. Morgan Money Market(1)(+) ............. 5.17% 4.48% 4.40% 3.71% 10/02/86
Fidelity VIP Equity-Income Portfolio --
Service Class 2(+) ....................... 7.16% 7.64% 12.38% 16.24% 10/09/86
Fidelity VIP II Contrafund(R) Portfolio --
Service Class 2 ......................... (7.67)% 13.51% 16.66% 20.05% 01/03/95
Fidelity VIP III Growth Opportunities
Portfolio -- Service Class 2 ............ (18.02)% 1.46% 9.53% 12.90% 01/03/95
S&P 500(+) ............................... (9.10)% 12.25% 18.31% 17.44% 12/31/90
(+) Shows ten year performance.
(1) Yield more closely reflects the current earnings than its total return. An
investment in this subaccount is not insured ot guaranteed by the FDIC.
While this subaccount seeks to preserve its value at $1.00 per share, it
is possible to lose money by investing in this subaccount.
(2) Not annualized.
Because the WRL Gabelli Global Growth and WRL Great Companies -- Global(2)
subaccounts commenced operations on September 1, 2000 (and have less than six
months performance) and WRL LKCM Capital Growth subaccount commenced operations
on February 5, 2001, and the WRL Munder Net50 subaccount will commence
operations on May 29, 2001, the above Tables do not reflect rates of return for
these subaccounts.
72
The annualized yield for the WRL J.P. Morgan Money Market subaccount for
the seven days ended December 31, 2000 was 5.34%.
Additional information regarding the investment performance of the
portfolios appears in the fund prospectuses, which accompany this prospectus.
HYPOTHETICAL ILLUSTRATIONS BASED ON SUBACCOUNT PERFORMANCE
This section contains hypothetical illustrations of Policy values based on
the historical experience of the subaccounts. We started selling the Policies
in 1997. The separate account and the Series Fund commenced operations on
October 2, 1986. The rates of return below show the actual investment
experience of each subaccount for the periods shown. The illustrations of cash
value and net surrender value below depict these Policy values as if you had
purchased the Policy on the last valuation date prior to January 1 of the year
after the subaccount began operations and had elected death benefit Option A.
The illustrations are based on the historical investment experience of the
subaccount indicated as of the last valuation date prior to January 1 of the
year after the subaccount began operations. We assumed the rate of return for
each subaccount in each calendar year to be uniformly earned throughout the
year; however, the subaccount's actual performance did and will vary throughout
the year.
In order to demonstrate how the actual investment experience of the
subaccounts could have affected the Option A death benefit, cash value and net
surrender value of the Policy, we provide hypothetical illustrations for a
hypothetical insured. These hypothetical illustrations are designed to show the
performance that could have resulted if the hypothetical insured had held the
Policy during the period illustrated. These illustrations do not represent what
may happen in the future.
The amounts we show for death benefits, cash values, and net surrender
values take into account all charges and deductions from the Policy, the
separate account, and the subaccounts. For each subaccount, we base one
illustration on the guaranteed cost of insurance rates and one on the current
cost of insurance rates for a hypothetical male insured age 35. The insured's
age, gender and rate class, amount and timing of premium payments, cash
withdrawals, and loans would affect individual Policy benefits.
For each subaccount, the illustrations below assume death benefit Option A
was selected based on an annual premium of $5,500 and a specified amount of
$500,000 for a male age 35, non-tobacco use, ultimate select rate class.
73
The following example shows how the hypothetical net return of the WRL Janus
Growth subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1987. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL JANUS GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------- ------------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ ---------- ------------ ---------- -----------
1988 ..................................... $ 5,206 $ 5,206 $ 0 $ 0
1989 ..................................... 11,714 11,587 3,954 3,827
1990 ..................................... 24,098 23,742 16,338 15,982
1991 ..................................... 28,442 27,920 20,682 20,160
1992 ..................................... 52,632 51,576 44,872 43,816
1993 ..................................... 58,054 56,798 51,070 49,814
1994 ..................................... 64,520 63,045 58,332 56,837
1995 ..................................... 62,695 61,135 57,263 55,703
1996 ..................................... 98,087 95,598 93,431 90,942
1997 ..................................... 119,897 116,817 116,017 112,937
1998 ..................................... 144,818 141,101 141,714 137,997
1999 ..................................... 243,607 237,390 241,279 235,062
2000 ..................................... 392,722 382,762 391,170 381,210
2001 ..................................... 279,362 272,258 278,586 271,482
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
74
The following example shows how the hypothetical net return of the WRL AEGON
Bond subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1987. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL AEGON BOND
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------- ------------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ ---------- ------------ ---------- -----------
1988 ..................................... $ 4,430 $ 4,430 $ 0 $ 0
1989 ..................................... 9,762 9,641 2,002 1,881
1990 ..................................... 16,520 16,232 8,760 8,472
1991 ..................................... 22,293 21,812 14,533 14,052
1992 ..................................... 31,724 30,959 23,964 23,199
1993 ..................................... 38,523 37,515 31,539 30,531
1994 ..................................... 48,438 47,087 42,230 40,879
1995 ..................................... 48,758 47,302 43,326 41,870
1996 ..................................... 64,858 62,881 60,202 58,225
1997 ..................................... 68,618 66,487 64,738 62,607
1998 ..................................... 78,780 76,338 75,676 73,234
1999 ..................................... 89,840 87,042 87,512 84,714
2000 ..................................... 90,260 87,402 88,708 85,850
2001 ..................................... 103,596 100,257 102,820 99,481
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
75
The following example shows how the hypothetical net return of the WRL J.P.
Morgan Money Market subaccount would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1987. This example assumes that
net premiums and cash values were in the subaccount for the entire period and
that the values were determined on each Policy anniversary thereafter.
WRL J.P. MORGAN MONEY MARKET
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1988 ..................................... $ 4,963 $ 4,963 $ 0 $ 0
1989 ..................................... 10,182 10,063 2,422 2,303
1990 ..................................... 15,946 15,673 8,186 7,913
1991 ..................................... 21,955 21,485 14,195 13,725
1992 ..................................... 27,736 27,059 19,976 19,299
1993 ..................................... 33,031 32,143 26,047 25,159
1994 ..................................... 38,113 37,003 31,905 30,795
1995 ..................................... 43,674 42,309 38,242 36,877
1996 ..................................... 50,186 48,571 45,530 43,915
1997 ..................................... 56,727 54,867 52,847 50,987
1998 ..................................... 63,531 61,452 60,427 58,348
1999 ..................................... 70,545 68,222 68,217 65,894
2000 ..................................... 77,458 74,866 75,906 73,314
2001 ..................................... 85,584 82,659 84,808 81,883
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Van
Kampen Emerging Growth subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1994. This example assumes
that net premiums and cash values were in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL VAN KAMPEN EMERGING GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------- ------------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ ---------- ------------ ---------- -----------
1995 ..................................... $ 4,285 $ 4,285 $ 0 $ 0
1996 ..................................... 13,237 13,095 5,477 5,335
1997 ..................................... 21,173 20,853 13,413 13,093
1998 ..................................... 31,184 30,609 23,424 22,849
1999 ..................................... 48,903 47,911 41,143 40,151
2000 ..................................... 109,323 107,038 102,339 100,054
2001 ..................................... 99,445 97,283 93,237 91,075
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
76
The following example shows how the hypothetical net return of the WRL LKCM
Strategic Total Return subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1994. This example assumes
that net premiums and cash values were in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL LKCM STRATEGIC TOTAL RETURN
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1995 ..................................... $ 4,627 $ 4,627 $ 0 $ 0
1996 ..................................... 11,601 11,471 3,841 3,711
1997 ..................................... 18,600 18,302 10,840 10,542
1998 ..................................... 28,176 27,625 20,416 19,865
1999 ..................................... 35,674 34,887 27,914 27,127
2000 ..................................... 44,757 43,683 37,773 36,699
2001 ..................................... 46,986 45,763 40,778 39,555
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Alger
Aggressive Growth subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL ALGER AGGRESSIVE GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1996 ..................................... $ 6,572 $ 6,572 $ 0 $ 0
1997 ..................................... 12,364 12,243 4,604 4,483
1998 ..................................... 21,071 20,766 13,311 13,006
1999 ..................................... 38,125 37,464 30,365 29,704
2000 ..................................... 71,953 70,614 64,193 62,854
2001 ..................................... 51,996 50,937 45,012 43,953
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
77
The following example shows how the hypothetical net return of the WRL Dean
Asset Allocation subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL DEAN ASSET ALLOCATION
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1996 ..................................... $ 5,666 $ 5,666 $ 0 $ 0
1997 ..................................... 11,795 11,671 4,035 3,911
1998 ..................................... 19,088 18,794 11,328 11,034
1999 ..................................... 25,525 25,030 17,765 17,270
2000 ..................................... 28,160 27,522 20,400 19,762
2001 ..................................... 38,086 37,136 31,102 30,152
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL
Federated Growth & Income subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that net premiums and cash values were in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL FEDERATED GROWTH & INCOME
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1996 ..................................... $ 5,926 $ 5,926 $ 0 $ 0
1997 ..................................... 11,786 11,664 4,026 3,904
1998 ..................................... 20,426 20,119 12,666 12,359
1999 ..................................... 25,631 25,143 17,871 17,383
2000 ..................................... 28,618 27,980 20,858 20,220
2001 ..................................... 42,609 41,573 35,625 34,589
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
78
The following example shows how the hypothetical net return of the WRL AEGON
Balanced subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1995. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL AEGON BALANCED
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1996 ..................................... $ 5,651 $ 5,651 $ 0 $ 0
1997 ..................................... 11,383 11,262 3,623 3,502
1998 ..................................... 18,696 18,403 10,936 10,643
1999 ..................................... 24,775 24,288 17,015 16,528
2000 ..................................... 30,019 29,337 22,259 21,577
2001 ..................................... 36,295 35,383 29,311 28,3899
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL C.A.S.E.
Growth subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1996. This example assumes that net premiums
and cash values were in the subaccount for the entire period and that the
values were determined on each Policy anniversary thereafter.
WRL C.A.S.E. GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1997 ..................................... $ 5,534 $ 5,534 $ 0 $ 0
1998 ..................................... 11,709 11,584 3,949 3,824
1999 ..................................... 16,639 16,372 8,879 8,612
2000 ..................................... 28,383 27,827 20,623 20,067
2001 ..................................... 25,843 25,246 18,083 17,486
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
79
The following example shows how the hypothetical net return of the WRL GE
U.S. Equity subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL GE U.S. EQUITY
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1998 ..................................... $ 6,016 $ 6,016 $ 0 $ 0
1999 ..................................... 13,122 12,993 5,362 5,233
2000 ..................................... 20,952 20,649 13,192 12,889
2001 ..................................... 25,180 24,712 17,420 16,952
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL NWQ
Value Equity subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL NWQ VALUE EQUITY
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1998 ..................................... $ 5,916 $ 5,916 $ 0 $ 0
1999 ..................................... 9,987 9,875 2,227 2,115
2000 ..................................... 15,705 15,440 7,945 7,680
2001 ..................................... 23,302 22,813 15,542 15,053
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
80
The following example shows how the hypothetical net return of the WRL GE
International Equity subaccount would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1997. This example assumes that
net premiums and cash values were in the subaccount for the entire period and
that the values were determined on each Policy anniversary thereafter.
WRL GE INTERNATIONAL EQUITY
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1998 ..................................... $ 5,031 $ 5,031 $ 0 $ 0
1999 ..................................... 10,916 10,792 3,156 3,032
2000 ..................................... 19,397 19,087 11,637 11,327
2001 ..................................... 20,206 19,788 12,446 12,028
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Third
Avenue Value subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1998. This example assumes that net
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL THIRD AVENUE VALUE
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
1999 ..................................... $ 4,311 $ 4,311 $ 0 $ 0
2000 ..................................... 10,376 10,251 2,616 2,491
2001 ..................................... 20,339 20,007 12,579 12,247
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
81
The following example shows how the hypothetical net return of the WRL J.P.
Morgan Real Estate Securities subaccount would have affected benefits for a
Policy dated on the last valuation date prior to January 1, 1999. This example
assumes that net premiums and cash values were in the subaccount for the entire
period and that the values were determined on each Policy anniversary
thereafter.
WRL J.P. MORGAN REAL ESTATE SECURITIES
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
AST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ----------------------------------------- --------- ------------ --------- -----------
2000 .................................... $ 4,465 $ 4,465 $ 0 $ 0
2001 .................................... 11,869 11,736 4,109 3,976
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of WRL Goldman
Sachs Growth subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 2000. This example assumes that
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL GOLDMAN SACHS GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
2001 ..................................... $4,252 $4,252 $0 $0
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
82
The following example shows how the hypothetical net return of the WRL T. Rowe
Price Dividend Growth subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 2000. This example assumes
that premiums and cash values were in the subaccount for the entire period and
that the values were determined on each Policy anniversary thereafter.
WRL T. ROWE PRICE DIVIDEND GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
2001 ..................................... $4,249 $4,249 $0 $0
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL T. Rowe
Price Small Cap subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 2000. This example assumes that
premiums and cash values were in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL T. ROWE PRICE SMALL CAP
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
2001 ..................................... $4,230 $4,230 $0 $0
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
83
The following example shows how the hypothetical net return of the WRL Salomon
All Cap subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 2000. This example assumes that premiums and
cash values were in the subaccount for the entire period and that the values
were determined on each Policy anniversary thereafter.
WRL SALOMON ALL CAP
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
2001 ..................................... $5,575 $5,575 $0 $0
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Pilgrim
Baxter Mid Cap Growth subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 2000. This example assumes
that premiums and cash values were in the subaccount for the entire period and
that the values were determined on each Policy anniversary thereafter.
WRL PILGRIM BAXTER MID CAP GROWTH
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
2001 ..................................... $3,933 $3,933 $0 $0
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
84
The following example shows how the hypothetical net return of the WRL Dreyfus
Mid Cap subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 2000. This example assumes that premiums and
cash values were in the subaccount for the entire period and that the values
were determined on each Policy anniversary thereafter.
WRL DREYFUS MID CAP
Male Issue Age 35, $5,500 Annual Premium
($500,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
CASH VALUE NET SURRENDER VALUE
------------------------ -----------------------
LAST VALUATION DATE PRIOR TO JANUARY 1*: CURRENT GUARANTEED CURRENT GUARANTEED
- ------------------------------------------ --------- ------------ --------- -----------
2001 ..................................... $5,304 $5,304 $0 $0
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
Because the Fidelity VIP Equity-Income Portfolio -- Service Class 2,
Fidelity VIP II Contrafund(R) Portfolio -- Service Class 2 and Fidelity VIP III
Growth Opportunities Portfolio -- Service Class 2, WRL Great Companies --
America(SM), WRL Great Companies -- Technology(SM), and WRL Value Line
Aggressive Growth subaccounts did not commence operations until May 1, 2000, the
WRL Great Companies -- Global(2) and WRL Gabelli Global Growth subaccounts did
not commence operations until September 1, 2000, the WRL LKCM Capital Growth
subaccount did not commence operations until February 5, 2001, and the WRL
Munder Net50 will not commence operations until May 29, 2001, there are no
hypothetical illustrations for these subaccounts.
OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE
We may compare each subaccount's performance to the performance of:
o other variable life issuers in general;
o variable life insurance policies which invest in mutual funds with
similar investment objectives and policies, as reported by Lipper
Analytical Services, Inc. ("Lipper") and Morningstar, Inc.
("Morningstar"); and other services, companies, individuals, or
industry or financial publications (e.g., Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Kiplinger's Personal Finance,
and Fortune);
--> Lipper and Morningstar rank variable annuity contracts and
variable life policies. Their performance analysis ranks such
policies and contracts on the basis of total return, and assumes
reinvestment of distributions; but it does not show sales
charges, redemption fees or certain expense deductions at the
separate account level.
o the Standard & Poor's Index of 500 Common Stocks, or other widely
recognized indices;
--> unmanaged indices may assume the reinvestment of dividends, but
usually do not reflect deductions for the expenses of operating
or managing an investment portfolio; or
85
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 funds or their portfolios, or to their
performance.
ADDITIONAL INFORMATION
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life
insurance agents and who are also registered representatives of broker-dealers
having written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG is located at 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AFSG is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer, and is a member
of the National Association of Securities Dealers, Inc. ("NASD"). The sales
commission payable to Western Reserve agents or other registered
representatives may vary with the sales agreement, but it is not expected to be
greater than:
o 65% of all premiums you make during the first Policy year, plus
o 2.50% of all premiums you make during Policy years 2 through 10.
We will pay an additional sales commission of up to 0.15% of the Policy's cash
value on the fifth Policy anniversary and each anniversary thereafter where the
cash value (minus amounts attributable to loans) equals at least $5,000. Sales
commissions may also be payable on premiums paid as a result of an increase in
specified amount. The sales commission payable to Western Reserve agents or
other registered representatives may vary with the sales agreement, but it is
not expected to be greater than 65% of all premiums you make during the year
subsequent to an increase. In addition, certain production, persistency and
managerial bonuses may be paid.
86
To the extent permitted by NASD rules, promotional incentives or payments
may also be provided to broker-dealers based on sales volumes, the assumption
of wholesaling functions or other sales-related criteria. Other payments may be
made for other services that do not directly involve the sale of the Policies.
These services may include the recruitment and training of personnel,
production of promotional literatures, and similar services.
We intend to recoup commissions and other sales expenses through: the
premium expense charge, the surrender charge, the cost of insurance charge, the
mortality and expense risk charge, and earnings on amounts allocated under the
Policies to the fixed account and the loan account. Commissions paid on sales
of the Policies, including other sales incentives, are not directly charged to
Policyowners.
AFSG will receive the 12b-1 fees assessed against the Fidelity VIP Funds
shares held for the Policies as compensation for providing certain shareholder
support services. AFSG will also receive an additional fee based on the value
of shares of the Fidelity VIP Funds held for the Policies as compensation for
providing certain recordkeeping services.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws. All matters of Ohio
law pertaining to the Policy have been passed upon by Kimberly A. Scouller,
Vice President and Senior General Counsel of Western Reserve.
LEGAL PROCEEDINGS
Western Reserve, like other life insurance companies, is involved in
lawsuits, including class action lawsuits. In some lawsuits involving insurers,
substantial damages have been sought and/or material settlement payments have
been made. Although the outcome of any litigation cannot be predicted with
certainty, at the present time, it appears that there are no pending or
threatened lawsuits that are likely to have a material adverse impact on the
separate account, on AFSG's ability to perform under its principal underwriting
agreement, or on Western Reserve's ability to meet its obligations under the
Policy.
VARIATIONS IN POLICY PROVISIONS
Certain provisions of the Policy may vary from the descriptions in this
prospectus, depending on when and where the Policy was issued, in order to
comply with different state laws. These variations may include restrictions on
use of the fixed account and different interest rates charged and credited on
Policy loans. Please refer to your Policy, since any variations will be
included in your Policy or in riders or endorsements attached to your Policy.
EXPERTS
The financial statements and financial highlights of WRL Series Life
Account as of December 31, 2000 and for the year then ended, appearing in this
prospectus and registration
87
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein which, as to the
statutory-basis balance sheet at December 31, 1999, is based in part on the
report of PricewaterhouseCoopers LLP, independent auditors. The financial
statements and schedules referred to above are included in reliance upon such
reports given on the authority of such firms as experts in accounting and
auditing.
The statutory-basis financial statements and schedules of Western Reserve
at December 31, 2000 and 1999 and for each of the three years in the period
ended December 31, 2000, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The statement of changes in net assets of the WRL Series Life Account for
the year ended December 31, 1999, included in this prospectus and registration
statement, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent certified public accountants, given on
the authority of said firm as experts in auditing and accounting.
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
Western Reserve's financial statements appear on the following pages.
These financial statements should be distinguished from the separate account's
financial statements and you should consider these financial statements only as
bearing upon Western Reserve's ability to meet our obligations under the
Policies.
Western Reserve's financial statements at December 31, 2000 and 1999 and
for each of the three years in the period ended December 31, 2000, have been
prepared on the basis of statutory accounting principles rather than accounting
principles generally accepted in the United States.
ADDITIONAL INFORMATION ABOUT WESTERN RESERVE
Western Reserve is a stock life insurance company that is wholly-owned by
First AUSA Life Insurance Company, which, in turn, is wholly-owned indirectly
by AEGON USA, Inc. Western Reserve's office is located at 570 Carillon Parkway,
St. Petersburg, Florida 33716-1202 and the mailing address is P.O. Box 5068,
Clearwater, Florida 33758-5068.
Western Reserve was incorporated in 1957 under the laws of Ohio and is
subject to regulation by the Insurance Department of the State of Ohio, as well
as by the insurance departments of all other states and jurisdictions in which
it does business. Western Reserve is licensed to sell insurance in all states
(except New York), Puerto Rico, Guam, and in the District of Columbia. Western
Reserve submits annual statements on its operations and finances to insurance
officials in all states and jurisdictions in which it does business. The
88
Policy described in this prospectus has been filed with, and where required,
approved by, insurance officials in those jurisdictions in which it is sold.
WESTERN RESERVE'S DIRECTORS AND OFFICERS
We are governed by a board of directors. The following table sets forth
the name, address and principal occupation during the past five years of each
of our directors.
BOARD OF DIRECTORS
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
John R. Kenney Chairman of the Board and President (December 1992 -
570 Carillon Parkway Chief Executive Officer December 1999), Director (July
St. Petersburg, Florida 33716 1973 - present) of Western
Reserve; Chairman of the Board
(March 1993 - present),
President (March 1993 - June
2000) of AEGON/Transamerica
Series Fund, Inc.; Chairman of
the Board (1990 - present) of
IDEX Mutual Funds; Chairman
of the Board (September 1996 -
present), President (September
1997 - present) of AEGON/
Transamerica Fund Advisers,
Inc.; Chairman of the Board
(September 1996 - present),
President (September 1997 -
present) of AEGON/
Transamerica Services, Inc.;
Chairman of the Board, Director
and Co-CEO (March 2000 -
present) of Great Companies,
L.L.C. (investment adviser).
89
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
Jerome C. Vahl Director and President Executive Vice President (June
570 Carillon Parkway 1998 - December 1999), Vice
St. Petersburg, Florida 33716 President (December 1995 - June
1998), Assistant Vice President
(1994 - 1995) of Western
Reserve; Executive Vice
President (September 2000 -
present) of IDEX Mutual Funds
(mutual fund); Director (March
2000 - present) of Great
Companies, L.L.C. (investment
adviser); Director (November
1999 - present) of AEGON/
Transamerica Services, Inc.
(transfer agent), and AEGON/
Transamerica Fund Advisers, Inc.
(investment adviser).
Jack E. Zimmerman Director Trustee, IDEX Mutual Funds
507 St. Michel Circle (1987 - present); retired from
Kettering, Ohio 45429 Martin Marietta (1993).
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).
The following table gives the name, address and principal occupation during the
past five years of the principal officers of Western Reserve (other than
officers listed above as directors).
PRINCIPAL OFFICERS
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
Alan M. Yaeger* Executive Vice President, Executive Vice President of AEGON/
Actuary and Chief Transamerica Series Fund, Inc. (1993
Financial Officer - present); Director (September 1996
- present) of AEGON/Transamerica
Fund Advisers, Inc. (investment
adviser); Director (September 1996 -
present) of AEGON/Transamerica,
Services, Inc. (transfer agent).
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202.
90
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
Herb T. Collins* Executive Vice President Executive Vice President (1996 -
present), Chief Administrative Officer
(1996 - July 2000) of Western
Reserve; Vice President, Administra-
tion (1986 - 1996) of Monumental
Life Insurance Company.
William H. Geiger* Senior Vice President, Secretary, Senior Vice President, Secretary,
Corporate Counsel and Group Vice Corporate Counsel, and Group Vice
President -- Compliance President-Compliance (1998 -
present); Senior Vice President,
Secretary, General Counsel and
Group Vice President-Compliance
(1996 - 1998), Senior Vice President,
Secretary, and General Counsel (1990
- 1996) of Western Reserve; Group
Vice President-Compliance and
Corporate Counsel (1996 - present)
of AUSA Life Insurance Company,
Inc., Bankers United Life Assurance
Company, Life Investors Insurance
Company of America, Monumental
Life Insurance Company and
Transamerica Life Insurance
Company (formerly, PFL Life
Insurance Company), subsidiaries of
AEGON USA, Inc.
Allan J. Hamilton* Vice President, Treasurer Vice President and Controller
and Controller (August 1987 - present) Treasurer
(February 1997 - present) of Western
Reserve; Treasurer and Chief
Financial Officer (February 1997 -
present) of AEGON/Transamerica
Series Fund, Inc.; Vice President and
Controller (March 1999 - present) of
AEGON/Transamerica Fund Advis-
ers, Inc. (investment adviser).
Terry L. Garvin* Senior Vice President and Senior Vice President and Chief
Chief Marketing Officer Marketing Officer (September 2000 -
present), Vice President and Chief
Marketing Officer (December 1995-
September 2000) of Western Reserve.
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202.
91
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
Carolyn M. Johnson* Senior Vice President and Senior Vice President and Chief
Chief Operations Officer Operations Officer (September 2000 -
present), Vice President (March 1998
- September 2000) of Western
Reserve; Vice President (August
1998 - present) of Life Investors
Insurance Company of America; Vice
President (June 1998 - present) of
Peoples Benefit Life Insurance
Company; Vice President (November
1997 - present) of Transamerica Life
Insurance Company (formerly, PFL
Life Insurance Company); Vice
President (February 2000 - present)
of Transamerica Occidental Life
Insurance Company; Vice President
(February 2000 - present) of
Transamerica Life Insurance and
Annuity Company; Vice President
(December 1997 - present),
Responsible Officer (September 1999
- present), Illustration Actuary
(September 1999 - November 2000)
of Monumental Life Insurance
Company.
Thomas R. Moriarty* Senior Vice President Vice President (June 1993 -
December 1999) of Western Reserve;
Director, President and Chief
Executive Officer (November 1999 -
present) of AEGON Asset Manage-
ment Services, Inc.; Executive Vice
President, Treasurer and Principal
Financial Officer (September 2000 -
present) of IDEX Mutual Funds
(mutual fund); Vice President (June
1999 - present) of AFSG Securities
Corporation (principal underwriter);
Chairman of the Board, Chief
Executive Officer and President (July
1999 - present), Senior Vice
President (June 1991 - July 1999) of
InterSecurities, Inc. (broker-dealer).
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202.
92
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH WESTERN RESERVE DURING PAST 5 YEARS
Thomas E. Pierpan* Senior Vice President, General Senior Vice President and General
Counsel and Assistant Secretary Counsel (December 1999 - present),
Vice President (December 1993 -
December 1999), Counsel (April
1995 - January 1997), Associate
General Counsel (January 1997 -
December 1999), Assistant Vice
President (November 1992 -
December 1993) of Western Reserve;
Vice President (March 1995 -
present), Assistant Secretary (March
1995 - December 1997 and
December 1999 - present), Associate
General Counsel and Secretary
(December 1997 - December 1999)
of AEGON/Transamerica Series
Fund, Inc. (investment company).
Tim Stonehocker* Senior Vice President Senior Vice President, WMA
Business Unit (2000 - present);
President (1997 - 2000) of Academy
Life Insurance Company; Vice
President (1997 - present) of Life
Investors Insurance Company of
America; Vice President (1997 -
present) of Bankers United Life
Assurance Company; Vice President
(1997 - present) of Transamerica Life
Insurance Company (formerly, PFL
Life Insurance Company, Inc.).
* Located at 570 Carillon Parkway, St. Petersburg, Florida 33716-1202.
Western Reserve holds the assets of the separate account physically
segregated and apart from the general account. Western Reserve maintains
records of all purchases and sales of portfolio shares by each of the
subaccounts. A blanket bond was issued to AEGON USA, Inc. ("AEGON USA") in the
aggregate amount of $12 million, covering all of the employees of AEGON USA and
its affiliates, including Western Reserve. A Stockbrokers Blanket Bond, issued
to AEGON U.S.A. Securities, Inc. providing fidelity coverage, covers the
activities of registered representatives of AFSG to a limit of $10 million.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
Western Reserve established the separate account as a separate investment
account under Ohio law in 1985. We own the assets in the separate account and
are obligated to pay all benefits under the Policies. The separate account is
used to support other life insurance policies of Western Reserve, as well as
for other purposes permitted by law. The separate account is registered with
the SEC as a unit investment trust under the 1940 Act and qualifies as a
"separate account" within the meaning of the federal securities laws.
93
APPENDIX A
ILLUSTRATIONS
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The following illustrations show how certain values under a sample Policy
would change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, cash value, and net surrender value under a Policy issued to an
insured of a given age, would change over time if the premiums indicated were
paid and the return on the assets in the subaccounts were a uniform gross
annual rate (before any expenses) of 0%, 6% or 12%. The tables illustrate
Policy values that would result based on assumptions that you pay the premiums
indicated, you do not change your specified amount, and you do not take any
cash withdrawals or Policy loans. The values under the Policy will be different
from those shown even if the returns averaged 0%, 6% or 12%, but fluctuated
over and under those averages throughout the years shown.
We based the illustration on page 96 on a Policy for an insured who is a
35 year old male in the Ultimate Select, non-tobacco use rate class, annual
premiums of $5,500, a $500,000 specified amount and death benefit Option A. The
illustration on that page also assumes cost of insurance charges based on our
current cost of insurance rates.
The illustration on page 97 is based on the same factors as those on page
96, except that cost of insurance rates are based on the guaranteed cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table).
The amounts we show for the death benefits, cash values and net surrender
values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each subaccount. This charge is equivalent to an
annual charge of 0.90% of the average net assets of the subaccounts during the
first 15 Policy years (we guarantee to reduce this charge to 0.60% after the
first 15 Policy years). We intend to reduce this charge to 0.30% in the 16th
Policy year but we do not guarantee that we will do so, and we reserve the
right to maintain this charge at the 0.60% level after the 15th Policy year.
The following illustrations use 0.30% after the 15th Policy year; (2) estimated
daily expenses equivalent to an effective average annual expense level of 0.92%
of the portfolios' average daily net assets; and (3) all applicable premium
expense charges and cash value charges using the current monthly Policy charge.
The 0.92% average portfolio expense level assumes an equal allocation of
amounts among the 31 subaccounts. We used annualized actual audited expenses
incurred during 2000 as shown in the Portfolio Annual Expense Table for the
portfolios to calculate the average annual expense level.
Taking into account the assumed charges of 1.82%, the gross annual
investment return rates of 0%, 6% and 12% are equivalent to net annual
investment return rates of -1.82%, 4.18%, and 10.18% during the first 15 Policy
years and -1.22%, 4.78% and 10.78% thereafter.
During 2000, AEGON/Transamerica Advisers undertook to pay normal operating
expenses of certain Series Fund portfolios that exceeded a certain stated
percentage of those
94
portfolios' average daily net assets. AEGON/Transamerica Advisers has
undertaken until at least April 30, 2002 to pay expenses to the extent normal
operating expenses of certain portfolios of the Series Fund exceed a stated
percentage of the portfolio's average daily net assets. For details on these
expense limits, the amounts reimbursed by AEGON/Transamerica Advisers during
2000, and the expense ratios without the reimbursements, see the Portfolio
Annual Expense Table on page 15 of this prospectus.
WITHOUT THESE WAIVERS AND REIMBURSEMENTS, TOTAL ANNUAL EXPENSES FOR THE
PORTFOLIOS WOULD HAVE BEEN GREATER, AND THE ILLUSTRATIONS WOULD HAVE ASSUMED
THAT THE ASSETS IN THE PORTFOLIOS WERE SUBJECT TO AN AVERAGE ANNUAL EXPENSE
LEVEL OF 1.22%.
THE HYPOTHETICAL RETURNS SHOWN IN THE TABLES ARE PROVIDED ONLY TO
ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR
FUTURE INVESTMENT RATES OF RETURN. Tax charges that may be attributable to the
separate account are not reflected, because we are not currently making such
charges. In order to produce after tax returns of 0%, 6% or 12% if such charges
are made in the future, the separate account would have to earn a sufficient
amount in excess of 0%, 6% or 12% to cover any tax charges.
The "Premium Accumulated at 5%" column of each table shows the amount
which would accumulate if you invested an amount equal to the premium to earn
interest at 5% per year, compounded annually.
We will furnish, upon request, a comparable illustration reflecting the
proposed insured's age, gender, risk classification and desired Policy
features.
95
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $500,000 Ultimate Select Class
Annual Premium $5,500 Option Type A
Using Current Cost of Insurance Rates
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) YEARS 1-15 4.18% (NET) YEARS 1-15 10.18% (NET) YEARS 1-15
-1.22% (NET) YEARS 16+ 4.78% (NET) YEARS 16+ 10.78% (NET) YEARS 16+
1 5,775 500,000 500,000 500,000
2 11,839 500,000 500,000 500,000
3 18,206 500,000 500,000 500,000
4 24,891 500,000 500,000 500,000
5 31,911 500,000 500,000 500,000
6 39,281 500,000 500,000 500,000
7 47,020 500,000 500,000 500,000
8 55,146 500,000 500,000 500,000
9 63,678 500,000 500,000 500,000
10 72,637 500,000 500,000 500,000
15 124,616 500,000 500,000 500,000
20 190,956 500,000 500,000 500,000
30 (AGE 65) 383,684 500,000 500,000 1,110,503
40 (AGE 75) 697,619 500,000 512,834 2,771,261
50 (AGE 85) 1,208,985 500,000 866,604 7,579,495
60 (AGE 95) 2,041,946 500,000 1,374,867 20,002,384
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)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET)
YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15
-1.22% (NET) 4.78% (NET) 10.78% (NET) -1.22% (NET) 4.78% (NET) 10.78% (NET)
YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+
1 4,607 4,911 5,216 0 0 0
2 9,119 10,016 10,952 1,359 2,256 3,192
3 13,527 15,314 17,252 5,767 7,554 9,492
4 17,839 20,819 24,180 10,079 13,059 16,420
5 22,025 26,507 31,769 14,265 18,747 24,009
6 26,083 32,384 40,084 19,099 25,400 33,100
7 30,008 38,450 49,194 23,800 32,242 42,986
8 33,803 44,714 59,184 28,371 39,282 53,752
9 37,405 51,122 70,084 32,749 46,466 65,428
10 40,845 57,710 82,020 36,965 53,830 78,140
15 55,472 93,449 161,417 55,472 93,449 161,417
20 67,786 138,636 297,715 67,786 138,636 297,715
30 (AGE 65) 85,666 268,722 910,248 85,666 268,722 910,248
40 (AGE 75) 77,539 479,284 2,589,963 77,539 479,284 2,589,963
50 (AGE 85) 6,610 825,338 7,218,566 6,610 825,338 7,218,566
60 (AGE 95) * 1,361,255 19,804,340 * 1,361,255 19,804,340
* In the absence of an additional payment, the Policy would lapse.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual investment rates of return
may be more or less than those shown and will depend on a number of factors,
including the investment allocations by an owner and the different investment
rates for the funds. 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 funds 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 current fund prospectuses.
96
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $500,000 Ultimate Select Class
Annual Premium $5,500 Option Type A
Using Guaranteed Cost of Insurance Rates
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0% (GROSS) 6% (GROSS) 12% (GROSS)
-1.82% (NET) YEARS 1-15 4.18% (NET) YEARS 1-15 10.18% (NET) YEARS 1-15
-1.22 (NET) YEARS 16+ 4.78% (NET) YEARS 16+ 10.78% (NET) YEARS 16+
1 5,775 500,000 500,000 500,000
2 11,839 500,000 500,000 500,000
3 18,206 500,000 500,000 500,000
4 24,891 500,000 500,000 500,000
5 31,911 500,000 500,000 500,000
6 39,281 500,000 500,000 500,000
7 47,020 500,000 500,000 500,000
8 55,146 500,000 500,000 500,000
9 63,678 500,000 500,000 500,000
10 72,637 500,000 500,000 500,000
15 124,616 500,000 500,000 500,000
20 190,956 500,000 500,000 500,000
30 (AGE 65) 383,684 500,000 500,000 1,056,811
40 (AGE 75) 697,619 500,000 500,000 2,569,910
50 (AGE 85) 1,208,985 500,000 611,581 6,819,155
60 (AGE 95) 2,041,946 500,000 939,192 17,033,001
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)
-1.82% (NET) 4.18% (NET) 10.18% (NET) -1.82% (NET) 4.18% (NET) 10.18% (NET)
YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15 YEARS 1-15
-1.22% (NET) 4.78% (NET) 10.78% (NET) -1.22% (NET) 4.78% (NET) 10.78% (NET)
YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+ YEARS 16+
1 4,607 4,911 5,216 0 0 0
2 9,004 9,898 10,830 1,244 2,138 3,070
3 13,275 15,047 16,970 5,515 7,287 9,210
4 17,419 20,364 23,687 9,659 12,604 15,927
5 21,430 25,846 31,034 13,670 18,086 23,274
6 25,306 31,497 39,074 18,322 24,513 32,090
7 29,036 37,313 47,866 22,828 31,105 41,658
8 32,625 43,303 57,493 27,193 37,871 52,061
9 36,062 49,464 68,031 31,406 44,808 63,375
10 39,350 55,805 79,583 35,470 51,925 75,703
15 53,244 90,162 156,452 53,244 90,162 156,452
20 63,709 132,466 287,672 63,709 132,466 287,672
30 (AGE 65) 55,449 234,139 866,238 55,449 234,139 866,238
40 (AGE 75) * 360,929 2,401,785 * 360,929 2,401,785
50 (AGE 85) * 582,458 6,494,434 * 582,458 6,494,434
60 (AGE 95) * 929,893 16,864,357 * 929,893 16,864,357
* In the absence of an additional payment, the Policy would lapse.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future 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 funds. 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 funds 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 current fund prospectuses.
97
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 2000. 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 75-year period: investments of $1.00
in these assets would have grown to $2,586.52 and $6,402.23, respectively, by
year-end 2000. 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
$48.86.
The lowest-risk strategy over the past 75 years (for those with short-term
time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended
to track inflation, the resulting real (inflation-adjusted) returns were near
zero for the entire 1925 - 2000 period.
98
[GRAPH OMITTED]
COMPOUND ANNUAL RATES OF RETURN BY DECADE
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000**
Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 18.2% -9.1%
Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.1 -3.6
Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 8.3 12.9
Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 9.0 21.5
Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 7.2 12.6
Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9 5.9
Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 2.9 3.4
- ----------------
* Based on the period 1926-1929.
** Based on calendar year 2000 only.
Used with permission. (c)2001 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
99
APPENDIX C
SURRENDER CHARGE PER THOUSAND
(BASED ON THE GENDER AND RATE CLASS OF THE INSURED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MALE MALE FEMALE FEMALE
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
0 N/A 11.76 N/A 11.76
1 N/A 8.16 N/A 8.16
2 N/A 8.16 N/A 8.16
3 N/A 7.92 N/A 7.92
4 N/A 7.68 N/A 7.68
5 N/A 7.68 N/A 7.68
6 N/A 7.68 N/A 7.68
7 N/A 7.68 N/A 7.68
8 N/A 7.68 N/A 7.68
9 N/A 7.68 N/A 7.68
10 N/A 7.68 N/A 7.68
11 N/A 7.68 N/A 7.68
12 N/A 7.68 N/A 7.68
13 N/A 7.92 N/A 7.92
14 N/A 8.16 N/A 8.16
15 N/A 8.40 N/A 8.40
16 N/A 8.52 N/A 8.52
17 N/A 8.88 N/A 8.88
18 8.72 9.20 8.72 9.20
19 8.84 9.32 8.84 9.32
20 8.96 9.44 8.96 9.44
21 9.16 9.88 9.16 9.64
22 9.32 10.04 9.32 9.80
23 9.52 10.24 9.52 10.00
24 9.68 10.40 9.68 10.40
25 9.88 10.84 9.88 10.60
26 10.56 11.28 10.32 11.04
27 11.00 11.72 10.76 11.48
28 11.40 12.12 11.16 12.12
29 12.08 12.80 11.84 12.56
30 12.52 13.24 12.28 13.00
31 13.04 14.00 12.80 13.52
32 13.76 14.48 13.52 14.24
33 14.28 15.24 14.04 14.76
34 14.76 15.96 14.52 15.48
35 15.52 16.48 15.28 16.00
100
APPENDIX C -- (CONTINUED)
SURRENDER CHARGE PER THOUSAND
(BASED ON THE GENDER AND RATE CLASS OF THE INSURED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MALE MALE FEMALE FEMALE
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
36 16.20 17.40 15.96 16.92
37 17.20 18.40 16.72 17.92
38 18.12 19.56 17.64 18.60
39 19.08 20.76 18.36 19.56
40 20.28 21.96 19.32 20.52
41 21.64 23.56 20.68 22.12
42 23.08 25.24 22.12 23.80
43 24.44 27.08 23.15 25.40
44 26.04 29.16 23.86 26.96
45 27.44 31.04 24.59 27.83
46 28.72 32.80 25.38 28.76
47 29.84 34.56 26.22 29.73
48 31.00 36.32 27.11 30.75
49 32.24 38.32 28.04 31.84
50 33.56 40.56 29.05 32.99
51 34.98 42.56 30.11 34.20
52 36.49 45.24 31.24 35.48
53 38.10 47.68 32.45 36.84
54 39.83 50.84 33.72 38.28
55 41.68 53.28 35.09 39.79
56 43.63 55.79 36.54 41.39
57 45.74 57.00 38.08 43.06
58 47.98 57.00 39.74 44.88
59 50.38 57.00 41.54 46.85
60 52.97 57.00 43.47 48.97
61 55.74 57.00 45.57 51.26
62 57.00 57.00 47.82 53.73
63 57.00 57.00 50.26 56.41
64 57.00 57.00 52.88 57.00
65 57.00 57.00 55.68 57.00
66 and over 57.00 57.00 57.00 57.00
101
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRL SERIES LIFE ACCOUNT:
Report of Independent Auditors dated January 31, 2001
Report of Independent Certified Public Accountants dated February 16, 2000
Statements of Assets and Liabilities at December 31, 2000
Statements of Operations for the period ended December 31, 2000
Statements of Changes in Net Assets for the periods ended December 31, 2000 and
1999
Financial Highlights for the periods ended December 31, 2000, 1999, 1998, 1997
and 1996
Notes to the Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Report of Independent Auditors dated February 15, 2001
Statutory-Basis Balance Sheets at December 31, 2000 and 1999
Statutory-Basis Statements of Operations for the years ended December 31, 2000,
1999 and 1998
Statutory-Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 2000, 1999 and 1998
Statutory-Basis Statements of Cash Flow for the years ended December 31, 2000,
1999 and 1998
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
AG08205/2001
102
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Policy Owners of the WRL Series Life Account
Western Reserve Life Assurance Company of Ohio
We have audited the accompanying statements of assets and liabilities of
each of the subaccounts constituting the WRL Series Life Account (the "Separate
Account," a separate account of Western Reserve Life Assurance Co. of Ohio) as
of December 31, 2000, and the related statements of operations and changes in
net assets, and financial highlights for the periods in the year ended December
31, 2000 as indicated thereon. These financial statements and financial
highlights are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The accompanying statements of changes
in net assets for the periods ended December 31, 1999 as indicated thereon and
the financial highlights for each of the periods in the four years ended
December 31, 1999 as indicated thereon for each of the subaccounts constituting
the Separate Account, were audited by other auditors whose report dated February
16, 2000, expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of mutual fund shares owned as of December 31, 2000, by
correspondence with the mutual fund's transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective subaccounts constituting the WRL Series Life
Account at December 31, 2000, and the results of their operations and changes in
net assets, and financial highlights for the periods in the year ended December
31, 2000 as indicated thereon, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Des Moines, Iowa
January 31, 2001
103
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Policy Owners of the WRL Series Life Account
Western Reserve Life Assurance Company of Ohio
In our opinion, the accompanying statements of changes in net assets and
the related financial highlights present fairly, in all material respects, the
changes in net assets of each of the Sub-Accounts constituting the WRL Series
Life Account (a separate account of Western Reserve Life Assurance Co. of Ohio
("WRL")) for the year ended December 31, 1999, and the financial highlights for
each of the periods presented through December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of WRL's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
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 our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Tampa, Florida
February 16, 2000
104
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2000
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
WRL
WRL WRL WRL WRL LKCM
J.P. MORGAN AEGON JANUS JANUS STRATEGIC
MONEY MARKET BOND GROWTH GLOBAL TOTAL RETURN
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
Assets:
Investment in securities:
Number of shares ................................... 60,145 2,326 20,304 17,111 6,610
======== ======== ========= ========= ========
Cost ............................................... $ 60,145 $ 26,612 $ 964,237 $ 416,105 $ 97,229
======== ======== ========= ========= ========
Investment, at net asset value ...................... $ 60,145 $ 25,908 $ 961,173 $ 410,156 $ 98,483
Dividend receivable ................................. 277 0 0 0 0
Transfers receivable from depositor ................. 0 27 0 0 0
-------- -------- --------- --------- --------
Total assets ....................................... 60,422 25,935 961,173 410,156 98,483
-------- -------- --------- --------- --------
Liabilities:
Accrued expenses .................................... 0 0 0 0 0
Transfers payable to depositor ...................... 143 0 158 47 17
-------- -------- --------- --------- --------
Total liabilities .................................. 143 0 158 47 17
-------- -------- --------- --------- --------
Net assets ......................................... $ 60,279 $ 25,935 $ 961,015 $ 410,109 $ 98,466
======== ======== ========= ========= ========
Net Assets Consists of:
Policy owners' equity ............................... $ 60,279 $ 25,935 $ 961,015 $ 410,109 $ 98,466
Depositor's equity .................................. 0 0 0 0 0
-------- -------- --------- --------- --------
Net assets applicable to units outstanding ......... $ 60,279 $ 25,935 $ 961,015 $ 410,109 $ 98,466
======== ======== ========= ========= ========
Policy owners' units ................................ 3,278 1,072 9,366 12,899 4,523
Depositor's units ................................... 0 0 0 0 0
-------- -------- --------- --------- --------
Units outstanding .................................. 3,278 1,072 9,366 12,899 4,523
======== ======== ========= ========= ========
Accumulation unit value ............................ $ 18.39 $ 24.19 $ 102.61 $ 31.79 $ 21.77
======== ======== ========= ========= ========
See Notes to the Financial Statements, which is an integral part of this report.
105
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2000
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
WRL WRL WRL WRL
VKAM ALGER WRL FEDERATED DEAN
EMERGING AGGRESSIVE AEGON GROWTH & Asset
Growth Growth Balanced Income Allocation
Subaccount Subaccount Subaccount Subaccount Subaccount
Assets:
Investment in securities:
Number of shares ................................... 19,559 14,318 1,593 2,001 2,601
========= ========= ======== ======== ========
Cost ............................................... $ 873,187 $ 307,884 $ 19,689 $ 24,463 $ 35,227
========= ========= ======== ======== ========
Investment, at net asset value ...................... $ 580,110 $ 280,068 $ 20,950 $ 26,869 $ 34,303
Dividend receivable ................................. 0 0 0 0 0
Transfers receivable from depositor ................. 92 104 2 14 0
--------- --------- -------- -------- --------
Total assets ....................................... 580,202 280,172 20,952 26,883 34,303
--------- --------- -------- -------- --------
Liabilities:
Accrued expenses .................................... 0 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0 90
--------- --------- -------- -------- --------
Total liabilities .................................. 0 0 0 0 90
--------- --------- -------- -------- --------
Net assets ......................................... $ 580,202 $ 280,172 $ 20,952 $ 26,883 $ 34,213
========= ========= ======== ======== ========
Net Assets Consists of:
Policy owners' equity ............................... $ 580,202 $ 280,172 $ 20,952 $ 26,883 $ 34,213
Depositor's equity .................................. 0 0 0 0 0
--------- --------- -------- -------- --------
Net assets applicable to units outstanding ......... $ 580,202 $ 280,172 $ 20,952 $ 26,883 $ 34,213
========= ========= ======== ======== ========
Policy owners' units ................................ 10,226 9,215 1,303 1,349 1,881
Depositor's units ................................... 0 0 0 0 0
--------- --------- -------- -------- --------
Units outstanding .................................. 10,226 9,215 1,303 1,349 1,881
========= ========= ======== ======== ========
Accumulation unit value ............................ $ 56.74 $ 30.40 $ 16.08 $ 19.93 $ 18.19
========= ========= ======== ======== ========
See Notes to the Financial Statements, which is an integral part of this report.
106
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2000
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
WRL WRL
WRL WRL GE WRL THIRD
C.A.S.E. NWQ INTERNATIONAL GE AVENUE
GROWTH VALUE EQUITY EQUITY U.S. EQUITY VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
Assets:
Investment in securities:
Number of shares ................................... 2,169 2,009 768 1,985 1,204
======== ======== ======= ======== ========
Cost ............................................... $ 30,724 $ 27,288 $ 9,683 $ 29,863 $ 15,436
======== ======== ======= ======== ========
Investment, at net asset value ...................... $ 22,336 $ 28,863 $ 7,942 $ 29,734 $ 16,503
Dividend receivable ................................. 0 0 0 0 0
Transfers receivable from depositor ................. 8 25 2 37 232
-------- -------- ------- -------- --------
Total assets ....................................... 22,344 28,888 7,944 29,771 16,735
-------- -------- ------- -------- --------
Liabilities:
Accrued expenses .................................... 0 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0 0
-------- -------- ------- -------- --------
Total liabilities .................................. 0 0 0 0 0
-------- -------- ------- -------- --------
Net assets ......................................... $ 22,344 $ 28,888 $ 7,944 $ 29,771 $ 16,735
======== ======== ======= ======== ========
Net Assets Consists of:
Policy owners' equity ............................... $ 22,344 $ 28,888 $ 7,944 $ 29,771 $ 16,735
Depositor's equity .................................. 0 0 0 0 0
-------- -------- ------- -------- --------
Net assets applicable to units outstanding ......... $ 22,344 $ 28,888 $ 7,944 $ 29,771 $ 16,735
======== ======== ======= ======== ========
Policy owners' units ................................ 1,713 1,797 639 1,683 1,177
Depositor's units ................................... 0 0 0 0 0
-------- -------- ------- -------- --------
Units outstanding .................................. 1,713 1,797 639 1,683 1,177
======== ======== ======= ======== ========
Accumulation unit value ............................ $ 13.04 $ 16.07 $ 12.43 $ 17.69 $ 14.22
======== ======== ======= ======== ========
See Notes to the Financial Statements, which is an integral part of this report.
107
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2000
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
WRL WRL WRL WRL WRL
J.P. MORGAN GOLDMAN GOLDMAN T. ROWE T. ROWE
REAL ESTATE SACHS SACHS PRICE PRICE
SECURITIES GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
Assets:
Investment in securities:
Number of shares ................................... 239 150 76 97 209
======= ======= ======= ====== =======
Cost ............................................... $ 2,364 $ 1,706 $ 861 $ 895 $ 2,897
======= ======= ======= ====== =======
Investment, at net asset value ...................... $ 2,464 $ 1,600 $ 831 $ 985 $ 2,541
Dividend receivable ................................. 0 0 0 0 0
Transfers receivable from depositor ................. 12 27 31 0 27
------- ------- ------- ------ -------
Total assets ....................................... 2,476 1,627 862 985 2,568
------- ------- ------- ------ -------
Liabilities:
Accrued expenses .................................... 0 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0 0
------- ------- ------- ------ -------
Total liabilities .................................. 0 0 0 0 0
------- ------- ------- ------ -------
Net assets ......................................... $ 2,476 $ 1,627 $ 862 $ 985 $ 2,568
======= ======= ======= ====== =======
Net Assets Consists of:
Policy owners' equity ............................... $ 2,476 $ 1,627 $ 862 $ 985 $ 2,568
Depositor's equity .................................. 0 0 0 0 0
------- ------- ------- ------ -------
Net assets applicable to units outstanding ......... $ 2,476 $ 1,627 $ 862 $ 985 $ 2,568
======= ======= ======= ====== =======
Policy owners' units ................................ 239 158 80 99 230
Depositor's units ................................... 0 0 0 0 0
------- ------- ------- ------ -------
Units outstanding .................................. 239 158 80 99 230
======= ======= ======= ====== =======
Accumulation unit value ............................ $ 10.36 $ 10.29 $ 10.80 $ 9.98 $ 11.17
======= ======= ======= ====== =======
See Notes to the Financial Statements, which is an integral part of this report.
108
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2000
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
WRL
WRL WRL WRL WRL GREAT
SALOMON PILGRIM BAXTER DREYFUS VALUE LINE COMPANIES -
ALL CAP MID CAP GROWTH MID CAP AGGRESSIVE GROWTH AMERICA(SM)
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
Assets:
Investment in securities:
Number of shares ............................... 622 2,628 152 118 746
======= ======== ======= ======= =======
Cost ........................................... $ 8,005 $ 56,653 $ 1,832 $ 1,250 $ 7,784
======= ======== ======= ======= =======
Investment, at net asset value .................. $ 8,081 $ 39,577 $ 1,810 $ 1,067 $ 8,486
Dividend receivable ............................. 0 0 0 0 0
Transfers receivable from depositor ............. 0 125 1 0 5
------- -------- ------- ------- -------
Total assets ................................... 8,081 39,702 1,811 1,067 8,491
------- -------- ------- ------- -------
Liabilities:
Accrued expenses ................................ 0 0 0 0 0
Transfers payable to depositor .................. 9 0 0 0 0
------- -------- ------- ------- -------
Total liabilities .............................. 9 0 0 0 0
------- -------- ------- ------- -------
Net assets ..................................... $ 8,072 $ 39,702 $ 1,811 $ 1,067 $ 8,491
======= ======== ======= ======= =======
Net Assets Consists of:
Policy owners' equity ........................... $ 8,072 $ 39,702 $ 1,811 $ 887 $ 8,265
Depositor's equity .............................. 0 0 0 180 226
------- -------- ------- ------- -------
Net assets applicable to units outstanding ..... $ 8,072 $ 39,702 $ 1,811 $ 1,067 $ 8,491
======= ======== ======= ======= =======
Policy owners' units ............................ 643 2,929 159 99 731
Depositor's units ............................... 0 0 0 20 20
------- -------- ------- ------- -------
Units outstanding .............................. 643 2,929 159 119 751
======= ======== ======= ======= =======
Accumulation unit value ........................ $ 12.55 $ 13.56 $ 11.35 $ 8.98 $ 11.31
======= ======== ======= ======= =======
See Notes to the Financial Statements, which is an integral part of this report.
109
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2000
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
WRL WRL WRL
GREAT GREAT GABELLI
COMPANIES - COMPANIES - GLOBAL
TECHNOLOGY(SM) GLOBAL(2) GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
Assets:
Investment in securities:
Number of shares ................................... 413 57 106
======= ====== ======
Cost ............................................... $ 4,089 $ 505 $ 993
======= ====== ======
Investment, at net asset value ...................... $ 2,784 $ 490 $ 960
Dividend receivable ................................. 0 0 0
Transfers receivable from depositor ................. 4 4 11
------- ------ ------
Total assets ....................................... 2,788 494 971
------- ------ ------
Liabilities:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------- ------ ------
Total liabilities .................................. 0 0 0
------- ------ ------
Net assets ......................................... $ 2,788 $ 494 $ 971
======= ====== ======
Net Assets Consists of:
Policy owners' equity ............................... $ 2,654 $ 473 $ 948
Depositor's equity .................................. 134 21 23
------- ------ ------
Net assets applicable to units outstanding ......... $ 2,788 $ 494 $ 971
======= ====== ======
Policy owners' units ................................ 396 55 104
Depositor's units ................................... 20 3 3
------- ------ ------
Units outstanding .................................. 416 58 107
======= ====== ======
Accumulation unit value ............................ $ 6.70 $ 8.52 $ 9.07
======= ====== ======
See Notes to the Financial Statements, which is an integral part of this report.
110
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2000
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
FIDELITY VIP III
GROWTH FIDELITY VIP II FIDELITY VIP
OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
Assets:
Investment in securities:
Number of shares ................................... 32 44 12
====== ======= =======
Cost ............................................... $ 632 $ 1,077 $ 294
====== ======= =======
Investment, at net asset value ...................... $ 562 $ 1,030 $ 307
Dividend receivable ................................. 0 0 0
Transfers receivable from depositor ................. 0 0 0
------ ------- -------
Total assets ....................................... 562 1,030 307
------ ------- -------
Liabilities:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------ ------- -------
Total liabilities .................................. 0 0 0
------ ------- -------
Net assets ......................................... $ 562 $ 1,030 $ 307
====== ======= =======
Net Assets Consists of:
Policy owners' equity ............................... $ 541 $ 1,006 $ 280
Depositor's equity .................................. 21 24 27
------ ------- -------
Net assets applicable to units outstanding ......... $ 562 $ 1,030 $ 307
====== ======= =======
Policy owners' units ................................ 63 107 25
Depositor's units ................................... 3 3 3
------ ------- -------
Units outstanding .................................. 66 110 28
====== ======= =======
Accumulation unit value ............................ $ 8.56 $ 9.38 $ 10.99
====== ======= =======
See Notes to the Financial Statements, which is an integral part of this report.
111
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
ALL AMOUNTS IN THOUSANDS
WRL
WRL WRL WRL WRL LKCM
J.P. MORGAN AEGON JANUS JANUS STRATEGIC
MONEY MARKET BOND GROWTH GLOBAL TOTAL RETURN
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
Investment Income:
Dividend income ................................... $ 2,813 $ 1,372 $ 1,719 $ 14,506 $ 2,080
Capital gain distributions ........................ 0 0 162,879 88,526 6,230
--------- --------- ----------- ---------- ---------
Total investment income .......................... 2,813 1,372 164,598 103,032 8,310
Expenses:
Mortality and expense risk ........................ 424 225 11,702 4,306 895
--------- --------- ----------- ---------- ---------
Net investment income (loss) ..................... 2,389 1,147 152,896 98,726 7,415
--------- --------- ----------- ---------- ---------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investment securities . 0 (316) 57,356 8,214 3,008
Change in unrealized appreciation (depreciation) .. 0 1,538 (612,499) (199,548) (15,305)
--------- --------- ----------- ---------- ---------
Net gain (loss) on investment securities ......... 0 1,222 (555,143) (191,334) (12,297)
--------- --------- ----------- ---------- ---------
Net increase (decrease) in net assets resulting
from operations ............................... $ 2,389 $ 2,369 $ (402,247) $ (92,608) $ (4,882)
========= ========= =========== ========== =========
WRL WRL WRL WRL
VKAM ALGER WRL FEDERATED DEAN
EMERGING AGGRESSIVE AEGON GROWTH & Asset
Growth Growth Balanced Income Allocation
Subaccount Subaccount Subaccount Subaccount Subaccount
Investment Income:
Dividend income ....................................... $ 5,938 $ 5,025 $ 388 $ 1,171 $ 1,367
Capital gain distributions ............................ 169,068 39,418 0 9 1,203
---------- ----------- ---------- ---------- ---------
Total investment income .............................. 175,006 44,443 388 1,180 2,570
Expenses:
Mortality and expense risk ............................ 6,396 3,175 173 179 280
---------- ----------- ---------- ---------- ---------
Net investment income (loss) ......................... 168,610 41,268 215 1,001 2,290
---------- ----------- ---------- ---------- ---------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investment securities ..... 295,543 6,194 285 (440) 28
Change in unrealized appreciation (depreciation) ...... (557,231) (174,941) 457 4,670 2,465
---------- ----------- ---------- ---------- ---------
Net gain (loss) on investment securities ............. (261,688) (168,747) 742 4,230 2,493
---------- ----------- ---------- ---------- ---------
Net increase (decrease) in net assets resulting
from operations ................................... $ (93,078) $ (127,479) $ 957 $ 5,231 $ 4,783
========== =========== ========== ========== =========
See Notes to the Financial Statements, which is an integral part of this report.
112
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
ALL AMOUNTS IN THOUSANDS
WRL WRL
WRL WRL GE WRL THIRD
C.A.S.E. NWQ INTERNATIONAL GE AVENUE
GROWTH VALUE EQUITY EQUITY U.S. EQUITY VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
Investment Income:
Dividend income ....................................... $ 3,732 $ 362 $ 138 $ 214 $ 137
Capital gain distributions ............................ 826 283 1,055 1,108 372
--------- ------- --------- -------- ---------
Total investment income .............................. 4,558 645 1,193 1,322 509
Expenses:
Mortality and expense risk ............................ 237 233 69 251 83
--------- ------- --------- -------- ---------
Net investment income (loss) ......................... 4,321 412 1,124 1,071 426
--------- ------- --------- -------- ---------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investment securities ..... (82) (519) 263 520 1,022
Change in unrealized appreciation (depreciation) ...... (10,339) 3,484 (2,668) (2,166) 677
--------- ------- --------- -------- ---------
Net gain (loss) on investment securities ............. (10,421) 2,965 (2,405) (1,646) 1,699
--------- ------- --------- -------- ---------
Net increase (decrease) in net assets resulting
from operations ................................... $ (6,100) $ 3,377 $ (1,281) $ (575) $ 2,125
========= ======= ========= ======== =========
WRL WRL WRL WRL WRL
J.P. MORGAN GOLDMAN GOLDMAN T. ROWE T. ROWE
REAL ESTATE SACHS SACHS PRICE PRICE
SECURITIES GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
Investment Income:
Dividend income .................................. $ 32 $ 12 $ 14 $ 4 $ 24
Capital gain distributions ....................... 0 8 3 0 0
-------- -------- -------- --------- ---------
Total investment income ......................... 32 20 17 4 24
Expenses:
Mortality and expense risk ....................... 15 13 6 8 19
-------- -------- -------- --------- ---------
Net investment income (loss) .................... 17 7 11 (4) 5
-------- -------- -------- ---------- ---------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investment securities 203 64 24 (17) 84
Change in unrealized appreciation (depreciation) . 142 (220) (51) 104 (496)
-------- -------- -------- --------- ---------
Net gain (loss) on investment securities ........ 345 (156) (27) 87 (412)
-------- -------- -------- --------- ---------
Net increase (decrease) in net assets resulting
from operations .............................. $ 362 $ (149) $ (16) $ 83 $ (407)
======== ======== ======== ========= =========
See Notes to the Financial Statements, which is an integral part of this report.
113
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
ALL AMOUNTS IN THOUSANDS
WRL
WRL WRL WRL WRL GREAT
SALOMON PILGRIM BAXTER DREYFUS VALUE LINE COMPANIES -
ALL CAP MID CAP GROWTH MID CAP AGGRESSIVE GROWTH AMERICA(SM)
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT(1)
Investment Income:
Dividend income ....................................... $ 67 $ 370 $ 28 $ 0 $ 0
Capital gain distributions ............................ 17 0 0 0 0
-------- ---------- ----- ------- -----
Total investment income .............................. 84 370 28 0 0
Expenses:
Mortality and expense risk ............................ 27 289 8 4 28
-------- ---------- ----- ------- -----
Net investment income (loss) ......................... 57 81 20 (4) (28)
-------- ---------- ----- -------- -----
Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investment securities ..... 103 1,394 86 (2) 13
Change in unrealized appreciation (depreciation) ...... 58 (18,254) (46) (183) 702
-------- ---------- ----- ------- -----
Net gain (loss) on investment securities ............. 161 (16,860) 40 (185) 715
-------- ---------- ----- ------- -----
Net increase (decrease) in net assets resulting
from operations ................................... $ 218 $ (16,779) $ 60 $ (189) $ 687
======== ========== ===== ======= =====
WRL WRL WRL
GREAT GREAT GABELLI
COMPANIES - COMPANIES - GLOBAL
TECHNOLOGY(SM) GLOBAL(2) GROWTH
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
Investment Income:
Dividend income ................................... $ 0 $ 0 $ 0
Capital gain distributions ........................ 0 0 0
---------- --------- ------
Total investment income .......................... 0 0 0
Expenses:
Mortality and expense risk ........................ 13 1 1
---------- --------- ------
Net investment income (loss) ..................... (13) (1) (1)
---------- ---------- -------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investment securities . (132) (1) (1)
Change in unrealized appreciation (depreciation) .. (1,305) (15) (33)
---------- --------- ------
Net gain (loss) on investment securities ......... (1,437) (16) (34)
---------- --------- ------
Net increase (decrease) in net assets resulting
from operations ............................... $ (1,450) $ (17) $ (35)
========== ========= ======
See Notes to the Financial Statements, which is an integral part of this report.
114
WRL SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
ALL AMOUNTS IN THOUSANDS
FIDELITY VIP III
GROWTH FIDELITY VIP II FIDELITY VIP
OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
Investment Income:
Dividend income ....................................... $ 0 $ 0 $ 0
Capital gain distributions ............................ 0 0 0
------ ------ ----
Total investment income .............................. 0 0 0
Expenses:
Mortality and expense risk ............................ 2 3 1
------ ------ ----
Net investment income (loss) ......................... (2) (3) (1)
------- ------- -----
Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investment securities ..... (3) (1) 4
Change in unrealized appreciation (depreciation) ...... (70) (47) 13
------ ------ ----
Net gain (loss) on investment securities ............. (73) (48) 17
------ ------ ----
Net increase (decrease) in net assets resulting
from operations ................................... $ (75) $ (51) $ 16
====== ====== ====
See Notes to the Financial Statements, which is an integral part of this report.
115
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL
J.P. MORGAN AEGON
MONEY MARKET BOND
SUBACCOUNT SUBACCOUNT
------------------------- -------------------------
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Operations:
Net investment income (loss) ..................... $ 2,389 $ 1,474 $ 1,147 $ 1,329
Net gain (loss) on investment securities ......... 0 0 1,222 (2,327)
--------- ---------- -------- --------
Net increase (decrease) in net assets
resulting from operations ....................... 2,389 1,474 2,369 (998)
--------- ---------- -------- --------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 12,540 38,977 897 7,560
--------- ---------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 3,274 3,050 2,341 2,538
Policy loans .................................... 1,672 1,775 1,361 954
Surrender benefits .............................. 5,687 4,017 735 846
Death benefits .................................. 87 115 23 29
--------- ---------- -------- --------
10,720 8,957 4,460 4,367
--------- ---------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... 1,820 30,020 (3,563) 3,193
--------- ---------- -------- --------
Net increase (decrease) in net assets ........... 4,209 31,494 (1,194) 2,195
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0
Net Assets:
Beginning of year ................................ 56,070 24,576 27,129 24,934
--------- ---------- -------- --------
End of year ...................................... $ 60,279 $ 56,070 $ 25,935 $ 27,129
========= ========== ======== ========
Unit Activity:
Units outstanding - beginning of year ............ 3,206 1,460 1,232 1,090
Units issued ..................................... 50,376 18,474 427 883
Units redeemed ................................... (50,304) (16,728) (587) (741)
--------- ---------- -------- --------
Units outstanding - end of year .................. 3,278 3,206 1,072 1,232
========= ========== ======== ========
WRL
JANUS
GROWTH
SUBACCOUNT
----------------------------
DECEMBER 31,
----------------------------
2000 1999
------------- --------------
Operations:
Net investment income (loss) ..................... $ 152,896 $ 226,095
Net gain (loss) on investment securities ......... (555,143) 262,161
---------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... (402,247) 488,256
---------- -----------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 168,047 192,993
---------- -----------
Less cost of units redeemed:
Administrative charges .......................... 69,288 57,685
Policy loans .................................... 44,968 33,172
Surrender benefits .............................. 38,262 32,554
Death benefits .................................. 6,224 1,908
---------- -----------
158,742 125,319
---------- -----------
Increase (decrease) in net assets from
capital unit transactions ...................... 9,305 67,674
---------- -----------
Net increase (decrease) in net assets ........... (392,942) 555,930
Depositor's equity contribution
(net redemption) ................................ 0 0
Net Assets:
Beginning of year ................................ 1,353,957 798,027
---------- -----------
End of year ...................................... $ 961,015 $ 1,353,957
========== ===========
Unit Activity:
Units outstanding - beginning of year ............ 9,293 8,668
Units issued ..................................... 2,459 2,854
Units redeemed ................................... (2,386) (2,229)
---------- -----------
Units outstanding - end of year .................. 9,366 9,293
========== ===========
See Notes to the Financial Statements, which is an integral part of this report.
116
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL
WRL LKCM VKAM
JANUS STRATEGIC EMERGING
GLOBAL TOTAL RETURN GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------- --------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------- --------------------------
2000 1999 2000 1999 2000 1999
------------- ------------ ------------ ------------- ------------- ------------
Operations:
Net investment income (loss) ................. $ 98,726 $ 26,538 $ 7,415 $ 8,072 $ 168,610 $ 81,707
Net gain (loss) on investment securities ..... (191,334) 153,543 (12,297) 2,825 (261,688) 217,724
---------- --------- --------- --------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations ................... (92,608) 180,081 (4,882) 10,897 (93,078) 299,431
---------- --------- --------- --------- ---------- ---------
Capital Unit Transactions:
Proceeds from units sold (transferred) ....... 112,253 81,308 10,776 11,792 145,357 94,168
---------- --------- --------- --------- ---------- ---------
Less cost of units redeemed:
Administrative charges ...................... 31,746 25,132 7,939 8,436 35,247 25,202
Policy loans ................................ 15,396 9,284 2,710 3,000 22,735 11,395
Surrender benefits .......................... 12,985 8,537 2,844 3,136 20,687 11,025
Death benefits .............................. 907 194 600 378 1,538 512
---------- --------- --------- --------- ---------- ---------
61,034 43,147 14,093 14,950 80,207 48,134
---------- --------- --------- --------- ---------- ---------
Increase (decrease) in net assets from
capital unit transactions .................. 51,219 38,161 (3,317) (3,158) 65,150 46,034
---------- --------- --------- --------- ---------- ---------
Net increase (decrease) in net assets ....... (41,389) 218,242 (8,199) 7,739 (27,928) 345,465
Depositor's equity contribution
(net redemption) ............................ 0 0 0 0 0 0
Net Assets:
Beginning of year ............................ 451,498 233,256 106,665 98,926 608,130 262,665
---------- --------- --------- --------- ---------- ---------
End of year .................................. $ 410,109 $ 451,498 $ 98,466 $ 106,665 $ 580,202 $ 608,130
========== ========= ========= ========= ========== =========
Unit Activity:
Units outstanding - beginning of year ........ 11,605 10,167 4,674 4,814 9,357 8,218
Units issued ................................. 4,570 4,823 1,327 1,538 11,606 4,977
Units redeemed ............................... (3,276) (3,385) (1,478) (1,678) (10,737) (3,838)
---------- --------- --------- --------- ---------- ---------
Units outstanding - end of year .............. 12,899 11,605 4,523 4,674 10,226 9,357
========== ========= ========= ========= ========== =========
See Notes to the Financial Statements, which is an integral part of this report.
117
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL WRL
ALGER AEGON FEDERATED
AGGRESSIVE GROWTH BALANCED GROWTH & Income
Subaccount Subaccount Subaccount
--------------------------- ----------------------- ------------------------
December 31, December 31, December 31,
--------------------------- ----------------------- ------------------------
2000 1999 2000 1999 2000 1999
------------- ------------- ----------- ----------- ----------- ------------
Operations:
Net investment income (loss) ..................... $ 41,268 $ 35,966 $ 215 $ 213 $ 1,001 $ 1,091
Net gain (loss) on investment securities ......... (168,747) 101,488 742 105 4,230 (2,078)
---------- --------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ....................... (127,479) 137,454 957 318 5,231 (987)
---------- --------- -------- -------- -------- --------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 103,588 74,699 4,955 5,997 7,863 5,627
---------- --------- -------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 26,734 19,544 2,124 1,931 2,328 2,355
Policy loans .................................... 12,341 8,193 442 429 628 346
Surrender benefits .............................. 10,374 7,977 559 626 534 542
Death benefits .................................. 666 118 18 10 110 55
---------- --------- -------- -------- -------- --------
50,115 35,832 3,143 2,996 3,600 3,298
---------- --------- -------- -------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... 53,473 38,867 1,812 3,001 4,263 2,329
---------- --------- -------- -------- -------- --------
Net increase (decrease) in net assets ........... (74,006) 176,321 2,769 3,319 9,494 1,342
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0 0 0
Net Assets:
Beginning of year ................................ 354,178 177,857 18,183 14,864 17,389 16,047
---------- --------- -------- -------- -------- --------
End of year ...................................... $ 280,172 $ 354,178 $ 20,952 $ 18,183 $ 26,883 $ 17,389
========== ========= ======== ======== ======== ========
Unit Activity:
Units outstanding - beginning of year ............ 7,928 6,669 1,186 990 1,117 976
Units issued ..................................... 3,925 3,640 569 637 996 714
Units redeemed ................................... (2,638) (2,381) (452) (441) (764) (573)
---------- --------- -------- -------- -------- --------
Units outstanding - end of year .................. 9,215 7,928 1,303 1,186 1,349 1,117
========== ========= ======== ======== ======== ========
See Notes to the Financial Statements, which is an integral part of this report.
118
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL WRL
DEAN C.A.S.E. NWQ
ASSET ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ------------------------ -------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------- ------------------------ -------------------------
2000 1999 2000 1999 2000 1999
------------ ------------ ------------ ----------- ------------ ------------
Operations:
Net investment income (loss) ..................... $ 2,290 $ 954 $ 4,321 $ 2,402 $ 412 $ 379
Net gain (loss) on investment securities ......... 2,493 (3,414) (10,421) 3,900 2,965 1,157
-------- -------- --------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ....................... 4,783 (2,460) (6,100) 6,302 3,377 1,536
-------- -------- --------- -------- -------- --------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 1,235 1,729 5,488 7,781 2,652 3,283
-------- -------- --------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 3,204 3,875 2,868 2,946 2,467 2,874
Policy loans .................................... 785 991 767 668 596 713
Surrender benefits .............................. 1,058 901 885 678 660 605
Death benefits .................................. 75 89 33 12 96 32
-------- -------- --------- -------- -------- --------
5,122 5,856 4,553 4,304 3,819 4,224
-------- -------- --------- -------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... (3,887) (4,127) 935 3,477 (1,167) (941)
-------- -------- --------- -------- -------- --------
Net increase (decrease) in net assets ........... 896 (6,587) (5,165) 9,779 2,210 595
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0 0 0
Net Assets:
Beginning of year ................................ 33,317 39,904 27,509 17,730 26,678 26,083
-------- -------- --------- -------- -------- --------
End of year ...................................... $ 34,213 $ 33,317 $ 22,344 $ 27,509 $ 28,888 $ 26,678
======== ======== ========= ======== ======== ========
Unit Activity:
Units outstanding - beginning of year ............ 2,128 2,383 1,657 1,417 1,895 1,982
Units issued ..................................... 729 937 1,014 1,347 907 1,296
Units redeemed ................................... (976) (1,192) (958) (1,107) (1,005) (1,383)
-------- -------- --------- -------- -------- --------
Units outstanding - end of year .................. 1,881 2,128 1,713 1,657 1,797 1,895
======== ======== ========= ======== ======== ========
See Notes to the Financial Statements, which is an integral part of this report.
119
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL WRL
GE GE THIRD AVENUE
INTERNATIONAL EQUITY U.S. EQUITY VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------- ------------------------- -----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- ------------------------- -----------------------
2000 1999 2000 1999 2000 1999
----------- ----------- ------------ ------------ ----------- -----------
Operations:
Net investment income (loss) ..................... $ 1,124 $ 325 $ 1,071 $ 1,730 $ 426 $ 61
Net gain (loss) on investment securities ......... (2,405) 1,104 (1,646) 1,544 1,699 365
-------- ------- -------- -------- -------- -------
Net increase (decrease) in net assets
resulting from operations ....................... (1,281) 1,429 (575) 3,274 2,125 426
-------- ------- -------- -------- -------- -------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 3,155 761 7,853 12,169 12,970 730
-------- ------- -------- -------- -------- -------
Less cost of units redeemed:
Administrative charges .......................... 663 644 2,712 2,237 560 218
Policy loans .................................... 150 101 440 422 894 52
Surrender benefits .............................. 125 258 744 444 306 80
Death benefits .................................. 5 1 27 8 11 3
-------- ------- -------- -------- -------- -------
943 1,004 3,923 3,111 1,771 353
-------- ------- -------- -------- -------- -------
Increase (decrease) in net assets from
capital unit transactions ...................... 2,212 (243) 3,930 9,058 11,199 377
-------- ------- -------- -------- -------- -------
Net increase (decrease) in net assets ........... 931 1,186 3,355 12,332 13,324 803
Depositor's equity contribution
(net redemption) ................................ 0 0 0 0 0 (199)
Net Assets:
Beginning of year ................................ 7,013 5,827 26,416 14,084 3,411 2,807
-------- ------- -------- -------- -------- -------
End of year ...................................... $ 7,944 $ 7,013 $ 29,771 $ 26,416 $ 16,735 $ 3,411
======== ======= ======== ======== ======== =======
Unit Activity:
Units outstanding - beginning of year ............ 475 489 1,468 919 322 304
Units issued ..................................... 474 672 1,064 1,292 1,432 258
Units redeemed ................................... (310) (686) (849) (743) (577) (240)
-------- ------- -------- -------- -------- -------
Units outstanding - end of year .................. 639 475 1,683 1,468 1,177 322
======== ======= ======== ======== ======== =======
See Notes to the Financial Statements, which is an integral part of this report.
120
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL WRL
J.P. MORGAN GOLDMAN SACHS GOLDMAN SACHS
REAL ESTATE SECURITIES GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------- ------------------------- --------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- ------------------------- --------------------
2000 1999 2000 1999(1) 2000 1999(1)
----------- --------- ----------- ----------- --------- --------
Operations:
Net investment income (loss) ..................... $ 17 $ 6 $ 7 $ (2) $ 11 $ 14
Net gain (loss) on investment securities ......... 345 (41) (156) 110 (27) 20
------- ----- ------- ------- ------ -----
Net increase (decrease) in net assets
resulting from operations ....................... 362 (35) (149) 108 (16) 34
------- ----- ------- ------- ------ -----
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 2,080 (26) 1,002 871 622 295
------- ----- ------- ------- ------ -----
Less cost of units redeemed:
Administrative charges .......................... 86 19 123 18 52 5
Policy loans .................................... 60 0 44 2 7 5
Surrender benefits .............................. 36 1 8 7 2 0
Death benefits .................................. 0 1 0 0 0 0
------- ----- ------- ------- ------ -----
182 21 175 27 61 10
------- ----- ------- ------- ------ -----
Increase (decrease) in net assets from
capital unit transactions ...................... 1,898 (47) 827 844 561 285
------- ----- ------- ------- ------ -----
Net increase (decrease) in net assets ........... 2,260 (82) 678 952 545 319
Depositor's equity contribution
(net redemption) ................................ (411) 0 (28) 25 (27) 25
Net Assets:
Beginning of year ................................ 627 709 977 0 344 0
------- ----- ------- ------- ------ -----
End of year ...................................... $ 2,476 $ 627 $ 1,627 $ 977 $ 862 $ 344
======= ===== ======= ======= ====== =====
Unit Activity:
Units outstanding - beginning of year ............ 78 84 87 0 31 0
Units issued ..................................... 816 67 161 106 80 41
Units redeemed ................................... (655) (73) (90) (19) (31) (10)
------- ----- ------- ------- ------ -----
Units outstanding - end of year .................. 239 78 158 87 80 31
======= ===== ======= ======= ====== =====
See Notes to the Financial Statements, which is an integral part of this report.
121
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL WRL
T. ROWE PRICE T. ROWE PRICE SALOMON
DIVIDEND GROWTH SMALL CAP ALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------- --------------------- ----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- --------------------- ----------------------
2000 1999(1) 2000 1999(1) 2000 1999(1)
----------- ----------- ----------- --------- ----------- ----------
Operations:
Net investment income (loss) ..................... $ (4) $ (1) $ 5 $ 26 $ 57 $ 11
Net gain (loss) on investment securities ......... 87 (17) (412) 162 161 15
------- ------- ------- ------ ------- ------
Net increase (decrease) in net assets
resulting from operations ....................... 83 (18) (407) 188 218 26
------- ------- ------- ------ ------- ------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 516 499 2,291 727 7,892 344
------- ------- ------- ------ ------- ------
Less cost of units redeemed:
Administrative charges .......................... 83 2 167 15 257 9
Policy loans .................................... 7 0 27 0 76 3
Surrender benefits .............................. 2 3 15 0 58 0
Death benefits .................................. 0 0 0 0 0 0
------- ------- ------- ------ ------- ------
92 5 209 15 391 12
------- ------- ------- ------ ------- ------
Increase (decrease) in net assets from
capital unit transactions ...................... 424 494 2,082 712 7,501 332
------- ------- ------- ------ ------- ------
Net increase (decrease) in net assets ........... 507 476 1,675 900 7,719 358
Depositor's equity contribution
(net redemption) ................................ (23) 25 (32) 25 (30) 25
Net Assets:
Beginning of year ................................ 501 0 925 0 383 0
------- ------- ------- ------ ------- ------
End of year ...................................... $ 985 $ 501 $ 2,568 $ 925 $ 8,072 $ 383
======= ======= ======= ====== ======= ======
Unit Activity:
Units outstanding - beginning of year ............ 55 0 75 0 36 0
Units issued ..................................... 132 65 301 161 836 58
Units redeemed ................................... (88) (10) (146) (86) (229) (22)
------- ------- ------- ------ ------- ------
Units outstanding - end of year .................. 99 55 230 75 643 36
======= ======= ======= ====== ======= ======
See Notes to the Financial Statements, which is an integral part of this report.
122
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL WRL
PILGRIM BAXTER DREYFUS
MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------
DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------
2000 1999(1) 2000 1999(1)
------------ ----------- ----------- -----------
Operations:
Net investment income (loss) ..................... $ 81 $ 5 $ 20 $ (1)
Net gain (loss) on investment securities ......... (16,860) 1,268 40 16
--------- ------- ------- -------
Net increase (decrease) in net assets
resulting from operations ....................... (16,779) 1,273 60 15
--------- ------- ------- -------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 55,513 3,885 1,562 297
--------- ------- ------- -------
Less cost of units redeemed:
Administrative charges .......................... 2,546 37 96 0
Policy loans .................................... 1,156 18 21 0
Surrender benefits .............................. 323 30 4 0
Death benefits .................................. 72 0 0 0
--------- ------- ------- -------
4,097 85 121 0
--------- ------- ------- -------
Increase (decrease) in net assets from
capital unit transactions ...................... 51,416 3,800 1,441 297
--------- ------- ------- -------
Net increase (decrease) in net assets ........... 34,637 5,073 1,501 312
Depositor's equity contribution
(net redemption) ................................ 0 (8) (27) 25
Net Assets:
Beginning of year ................................ 5,065 0 337 0
--------- ------- ------- -------
End of year ...................................... $ 39,702 $ 5,065 $ 1,811 $ 337
========= ======= ======= =======
Unit Activity:
Units outstanding - beginning of year ............ 317 0 33 0
Units issued ..................................... 4,015 412 311 52
Units redeemed ................................... (1,403) (95) (185) (19)
--------- ------- ------- -------
Units outstanding - end of year .................. 2,929 317 159 33
========= ======= ======= =======
See Notes to the Financial Statements, which is an integral part of this report.
123
WRL Series Life Account
Statements of Changes in Net Assets
For the Year Ended
All Amounts in Thousands
WRL WRL WRL
WRL GREAT GREAT GREAT
VALUE LINE COMPANIES - COMPANIES - COMPANIES -
AGGRESSIVE GROWTH AMERICA(SM) TECHNOLOGY(SM) GLOBAL(2)
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------- -------------- -------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------- -------------- -------------- -------------
2000(1) 2000(1) 2000(1) 2000(1)
------------------- -------------- -------------- -------------
Operations:
Net investment income (loss) ..................... $ (4) $ (28) $ (13) $ (1)
Net gain (loss) on investment securities ......... (185) 715 (1,437) (16)
-------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations ....................... (189) 687 (1,450) (17)
-------- -------- -------- --------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 1,091 8,008 4,240 494
-------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .......................... 19 177 80 7
Policy loans .................................... 16 110 53 1
Surrender benefits .............................. 0 117 69 0
Death benefits .................................. 0 0 0 0
-------- -------- -------- --------
35 404 202 8
-------- -------- -------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... 1,056 7,604 4,038 486
-------- -------- -------- --------
Net increase (decrease) in net assets ........... 867 8,291 2,588 469
Depositor's equity contribution
(net redemption) ................................ 200 200 200 25
Net Assets:
Beginning of year ................................ 0 0 0 0
-------- -------- -------- --------
End of year ...................................... $ 1,067 $ 8,491 $ 2,788 $ 494
======== ======== ======== ========
Unit Activity:
Units outstanding - beginning of year ............ 0 0 0 0
Units issued ..................................... 132 878 557 63
Units redeemed ................................... (13) (127) (141) (5)
-------- -------- -------- ---------
Units outstanding - end of year .................. 119 751 416 58
======== ======== ======== ========
See Notes to the Financial Statements, which is an integral part of this report.
124
WRL SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
WRL
GABELLI
GLOBAL FIDELITY VIP III FIDELITY VIP II FIDELITY VIP
GROWTH GROWTH OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ---------------------- ----------------- --------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- ---------------------- ----------------- --------------
2000(1) 2000(1) 2000(1) 2000(1)
-------------- ---------------------- ----------------- --------------
Operations:
Net investment income (loss) ..................... $ (1) $ (2) $ (3) $ (1)
Net gain (loss) on investment securities ......... (34) (73) (48) 17
-------- ------- ------- --------
Net increase (decrease) in net assets
resulting from operations ....................... (35) (75) (51) 16
-------- ------- ------- --------
Capital Unit Transactions:
Proceeds from units sold (transferred) ........... 1,014 633 1,085 276
-------- ------- ------- --------
Less cost of units redeemed:
Administrative charges .......................... 33 14 23 8
Policy loans .................................... 0 5 5 2
Surrender benefits .............................. 0 2 1 0
Death benefits .................................. 0 0 0 0
-------- ------- ------- --------
33 21 29 10
-------- ------- ------- --------
Increase (decrease) in net assets from
capital unit transactions ...................... 981 612 1,056 266
-------- ------- ------- --------
Net increase (decrease) in net assets ........... 946 537 1,005 282
Depositor's equity contribution
(net redemption) ................................ 25 25 25 25
Net Assets:
Beginning of year ................................ 0 0 0 0
-------- ------- ------- --------
End of year ...................................... $ 971 $ 562 $ 1,030 $ 307
======== ======= ======= ========
Unit Activity:
Units outstanding - beginning of year ............ 0 0 0 0
Units issued ..................................... 123 76 124 39
Units redeemed ................................... (16) (10) (14) (11)
-------- ------- ------- --------
Units outstanding - end of year .................. 107 66 110 28
======== ======= ======= ========
See Notes to the Financial Statements, which is an integral part of this report.
125
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL J.P. MORGAN MONEY MARKET SUBACCOUNT
--------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- -------------- -------------- --------------
Accumulation unit value, beginning of year ......... $ 17.49 $ 16.83 $ 16.13 $ 15.45 $ 14.83
--------- --------- --------- --------- ---------
Income from operations:
Net investment income (loss) ..................... 0.90 0.66 0.70 0.68 0.62
Net realized and unrealized gain (loss) on
investment ...................................... 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
Net income (loss) from operations ............... 0.90 0.66 0.70 0.68 0.62
--------- --------- --------- --------- ---------
Accumulation unit value, end of year ............... $ 18.39 $ 17.49 $ 16.83 $ 16.13 $ 15.45
========= ========= ========= ========= =========
Total return ....................................... 5.17 % 3.92 % 4.36 % 4.37 % 4.17 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 60,279 $ 56,070 $ 24,576 $ 16,440 $ 12,740
Ratio of net investment income (loss) to average
net assets ....................................... 5.05 % 3.87 % 4.24 % 4.28 % 4.07 %
WRL AEGON BOND SUBACCOUNT
-------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ------------- ------------- -------------- ---------------
Accumulation unit value, beginning of year ......... $ 22.01 $ 22.89 $ 21.12 $ 19.53 $ 19.67
-------- ------- ------- --------- ---------
Income from operations:
Net investment income (loss) ..................... 1.04 1.13 1.01 1.01 0.99
Net realized and unrealized gain (loss) on
investment ...................................... 1.14 (2.01) 0.76 0.58 (1.13)
-------- ------- ------- --------- ---------
Net income (loss) from operations ............... 2.18 (0.88) 1.77 1.59 (0.14)
-------- ------- ------- --------- ---------
Accumulation unit value, end of year ............... $ 24.19 $ 22.01 $ 22.89 $ 21.12 $ 19.53
======== ======= ======= ========= =========
Total return ....................................... 9.90 % (3.81)% 8.34 % 8.18 % (0.75)%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 25,935 $27,129 $24,934 $ 17,657 $ 11,585
Ratio of net investment income (loss) to average
net assets ....................................... 4.58 % 5.10 % 4.58 % 5.06 % 5.34 %
See Notes to the Financial Statements, which is an integral part of this report.
126
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL JANUS GROWTH SUBACCOUNT
---------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ---------------- -------------- -------------- -------------
Accumulation unit value, beginning of year ......... $ 145.70 $ 92.07 $ 56.48 $ 48.48 $ 41.47
-------- ---------- -------- -------- --------
Income from operations:
Net investment income (loss) ..................... 16.41 25.03 0.13 5.83 2.88
Net realized and unrealized gain (loss) on
investment ...................................... (59.50) 28.60 35.46 2.17 4.13
-------- ---------- -------- -------- --------
Net income (loss) from operations ............... (43.09) 53.63 35.59 8.00 7.01
-------- ---------- -------- -------- --------
Accumulation unit value, end of year ............... $ 102.61 $ 145.70 $ 92.07 $ 56.48 $ 48.48
======== ========== ======== ======== ========
Total return ....................................... (29.58)% 58.25 % 63.01 % 16.50 % 16.91 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $961,015 $1,353,957 $798,027 $450,271 $349,491
Ratio of net investment income (loss) to average
net assets ....................................... 11.75 % 22.67 % 0.19 % 10.84 % 6.41 %
WRL JANUS GLOBAL SUBACCOUNT
---------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ---------------- -------------- -------------- -------------
Accumulation unit value, beginning of year ......... $ 38.91 $ 22.94 $ 17.80 $ 15.13 $ 11.95
-------- ---------- -------- -------- -------
Income from operations:
Net investment income (loss) ..................... 7.93 2.44 0.82 2.30 1.50
Net realized and unrealized gain (loss) on
investment ...................................... (15.05) 13.53 4.32 0.37 1.68
-------- ---------- -------- -------- -------
Net income (loss) from operations ............... (7.12) 15.97 5.14 2.67 3.18
-------- ---------- -------- -------- -------
Accumulation unit value, end of year ............... $ 31.79 $ 38.91 $ 22.94 $ 17.80 $ 15.13
======== ========== ======== ======== =======
Total return ....................................... (18.28)% 69.58 % 28.86 % 17.69 % 26.60 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $410,109 $ 451,498 $233,256 $145,017 $83,159
Ratio of net investment income (loss) to average
net assets ....................................... 20.55 % 9.07 % 3.92 % 13.39 % 11.09 %
See Notes to the Financial Statements, which is an integral part of this report.
127
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL LKCM STRATEGIC TOTAL RETURN
SUBACCOUNT
---------------------------------
DECEMBER 31,
---------------------------------
2000 1999
---------------- ----------------
Accumulation unit value, beginning of year ......... $ 22.82 $ 20.55
---------- ----------
Income from operations:
Net investment income (loss) ..................... 1.63 1.68
Net realized and unrealized gain (loss) on
investment ..................................... (2.68) 0.59
---------- ----------
Net income (loss) from operations .............. (1.05) 2.27
---------- ----------
Accumulation unit value, end of year ............... $ 21.77 $ 22.82
========== ==========
Total return ....................................... (4.62)% 11.07 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 98,466 $ 106,665
Ratio of net investment income (loss) to average
net assets ....................................... 7.43 % 7.93 %
WRL LKCM STRATEGIC TOTAL RETURN SUBACCOUNT
-------------------------------------------
DECEMBER 31,
-------------------------------------------
1998 1997 1996
-------------- -------------- -------------
Accumulation unit value, beginning of year ......... $ 18.91 $ 15.66 $ 13.74
-------- -------- --------
Income from operations:
Net investment income (loss) ..................... 0.71 1.56 0.82
Net realized and unrealized gain (loss) on
investment ..................................... 0.93 1.69 1.10
-------- -------- --------
Net income (loss) from operations .............. 1.64 3.25 1.92
-------- -------- --------
Accumulation unit value, end of year ............... $ 20.55 $ 18.91 $ 15.66
======== ======== ========
Total return ....................................... 8.66 % 20.77 % 13.97 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 98,926 $ 80,753 $ 55,900
Ratio of net investment income (loss) to average
net assets ....................................... 3.67 % 8.89 % 5.76 %
WRL VKAM EMERGING GROWTH SUBACCOUNT
--------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- --------------- -------------- -------------- -------------
Accumulation unit value, beginning of year ......... $ 64.99 $ 31.96 $ 23.48 $ 19.51 $ 16.56
-------- ---------- -------- -------- --------
Income from operations:
Net investment income (loss) ..................... 16.83 9.32 0.91 2.20 0.82
Net realized and unrealized gain (loss) on
investment ...................................... (25.08) 23.71 7.57 1.77 2.13
-------- ---------- -------- -------- --------
Net income (loss) from operations ............... (8.25) 33.03 8.48 3.97 2.95
-------- ---------- -------- -------- --------
Accumulation unit value, end of year ............... $ 56.74 $ 64.99 $ 31.96 $ 23.48 $ 19.51
======== ========== ======== ======== ========
Total return ....................................... (12.70)% 103.33 % 36.11 % 20.37 % 17.82 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $580,202 $ 608,130 $262,665 $164,702 $107,925
Ratio of net investment income (loss) to average
net assets ....................................... 23.62 % 23.19 % 3.44 % 10.18 % 4.51 %
See Notes to the Financial Statements, which is an integral part of this report.
128
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL ALGER AGGRESSIVE GROWTH SUBACCOUNT
------------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- -------------- ------------- -------------
Accumulation unit value, beginning of year ......... $ 44.67 $ 26.67 $ 18.10 $ 14.70 $ 13.43
-------- -------- -------- ------- -------
Income from operations:
Net investment income (loss) ..................... 4.76 4.90 1.33 1.75 0.36
Net realized and unrealized gain (loss) on
investment ...................................... (19.03) 13.10 7.24 1.65 0.91
-------- -------- -------- ------- -------
Net income (loss) from operations ............... (14.27) 18.00 8.57 3.40 1.27
-------- -------- -------- ------- -------
Accumulation unit value, end of year ............... $ 30.40 $ 44.67 $ 26.67 $ 18.10 $ 14.70
======== ======== ======== ======= =======
Total return ....................................... (31.94)% 67.52 % 47.36 % 23.14 % 9.46 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $280,172 $354,178 $177,857 $94,652 $54,408
Ratio of net investment income (loss) to average
net assets ....................................... 11.65 % 15.54 % 6.20 % 10.26 % 2.65 %
WRL AEGON BALANCED SUBACCOUNT
-------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- -------------- -------------- ------------- -------------
Accumulation unit value, beginning of year ......... $ 15.33 $ 15.02 $ 14.17 $ 12.21 $ 11.13
--------- -------- -------- ------- -------
Income from operations:
Net investment income (loss) ..................... 0.17 0.19 0.25 1.55 0.36
Net realized and unrealized gain (loss) on
investment ...................................... 0.58 0.12 0.60 0.41 0.72
--------- -------- -------- ------- -------
Net income (loss) from operations ............... 0.75 0.31 0.85 1.96 1.08
--------- -------- -------- ------- -------
Accumulation unit value, end of year ............... $ 16.08 $ 15.33 $ 15.02 $ 14.17 $ 12.21
========= ======== ======== ======= =======
Total return ....................................... 4.88 % 2.11 % 5.98 % 16.06 % 9.73 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 20,952 $ 18,183 $ 14,864 $10,716 $ 6,418
Ratio of net investment income (loss) to average
net assets ....................................... 1.10 % 1.26 % 1.76 % 11.62 % 3.18 %
See Notes to the Financial Statements, which is an integral part of this report.
129
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL FEDERATED GROWTH & Income Subaccount
---------------------------------------------------------------------
December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
Accumulation unit value, beginning of year ......... $ 15.57 $ 16.44 $ 16.09 $ 13.03 $ 11.77
------- ------- ------- ------- -------
Income from operations:
Net investment income (loss) ..................... 0.85 1.05 0.77 2.61 0.76
Net realized and unrealized gain (loss) on
investment ...................................... 3.51 (1.92) (0.42) 0.45 0.50
------- ------- ------- ------- -------
Net income (loss) from operations ............... 4.36 (0.87) 0.35 3.06 1.26
------- ------- ------- ------- -------
Accumulation unit value, end of year ............... $ 19.93 $ 15.57 $ 16.44 $ 16.09 $ 13.03
======= ======= ======= ======= =======
Total return ....................................... 28.01 % (5.31)% 2.13 % 23.54 % 10.64 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $26,883 $17,389 $16,047 $ 9,063 $ 5,501
Ratio of net investment income (loss) to average
net assets ....................................... 5.00 % 6.51 % 4.83 % 18.50 % 6.38 %
WRL DEAN ASSET ALLOCATION SUBACCOUNT
---------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
Accumulation unit value, beginning of year ......... $ 15.66 $ 16.74 $ 15.60 $ 13.50 $ 11.90
------- ------- ------- ------- -------
Income from operations:
Net investment income (loss) ..................... 1.20 0.41 1.58 1.20 0.53
Net realized and unrealized gain (loss) on
investment ...................................... 1.33 (1.49) (0.44) 0.90 1.07
------- ------- ------- ------- -------
Net income (loss) from operations ............... 2.53 (1.08) 1.14 2.10 1.60
------- ------- ------- ------- -------
Accumulation unit value, end of year ............... $ 18.19 $ 15.66 $ 16.74 $ 15.60 $ 13.50
======= ======= ======= ======= =======
Total return ....................................... 16.16 % (6.48)% 7.36 % 15.55 % 13.40 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $34,213 $33,317 $39,904 $29,123 $17,946
Ratio of net investment income (loss) to average
net assets ....................................... 7.33 % 2.50 % 9.69 % 8.14 % 4.35 %
See Notes to the Financial Statements, which is an integral part of this report.
130
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL C.A.S.E. GROWTH SUBACCOUNT
-------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996(1)
----------- ------------- ------------- ------------- -------------
Accumulation unit value, beginning of year ......... $ 16.60 $ 12.51 $ 12.32 $ 10.81 $ 10.00
-------- ------- ------- ------- --------
Income from operations:
Net investment income (loss) ..................... 2.56 1.52 1.24 1.51 0.37
Net realized and unrealized gain (loss) on
investment ...................................... (6.12) 2.57 (1.05) 0.00 0.44
-------- ------- ------- ------- --------
Net income (loss) from operations ............... (3.56) 4.09 0.19 1.51 0.81
-------- ------- ------- ------- --------
Accumulation unit value, end of year ............... $ 13.04 $ 16.60 $ 12.51 $ 12.32 $ 10.81
======== ======= ======= ======= ========
Total return ....................................... (21.42)% 32.65 % 1.56 % 14.00 % 8.09 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 22,344 $27,509 $17,730 $11,946 $ 4,466
Ratio of net investment income (loss) to average
net assets ....................................... 16.28 % 10.16 % 10.21 % 12.65 % 6.11 %
WRL NWQ VALUE EQUITY SUBACCOUNT
--------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996(1)
------------- ------------- ------------ ------------- -------------
Accumulation unit value, beginning of year ......... $ 14.08 $ 13.16 $ 13.94 $ 11.25 $ 10.00
-------- ------- ------- ------- --------
Income from operations:
Net investment income (loss) ..................... 0.23 0.20 0.95 0.14 0.05
Net realized and unrealized gain (loss) on
investment ...................................... 1.76 0.72 (1.73) 2.55 1.20
-------- ------- ------- ------- --------
Net income (loss) from operations ............... 1.99 0.92 (0.78) 2.69 1.25
-------- ------- ------- ------- --------
Accumulation unit value, end of year ............... $ 16.07 $ 14.08 $ 13.16 $ 13.94 $ 11.25
======== ======= ======= ======= ========
Total return ....................................... 14.17 % 6.98 % (5.63)% 23.93 % 12.51 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 28,888 $26,678 $26,083 $26,714 $ 8,887
Ratio of net investment income (loss) to average
net assets ....................................... 1.58 % 1.42 % 6.84 % 1.05 % 0.77 %
See Notes to the Financial Statements, which is an integral part of this report.
131
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL GE INTERNATIONAL EQUITY SUBACCOUNT
----------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------
2000 1999 1998 1997(1)
------------ ------------- ------------ ------------
Accumulation unit value, beginning of year ......... $ 14.76 $ 11.92 $ 10.65 $ 10.00
-------- ------- -------- --------
Income from operations:
Net investment income (loss) ..................... 2.00 0.62 (0.09) (0.03)
Net realized and unrealized gain (loss) on
investment ...................................... (4.33) 2.22 1.36 0.68
-------- ------- -------- --------
Net income (loss) from operations ............... (2.33) 2.84 1.27 0.65
-------- ------- -------- --------
Accumulation unit value, end of year ............... $ 12.43 $ 14.76 $ 11.92 $ 10.65
======== ======= ======== ========
Total return ....................................... (15.75)% 23.84 % 11.84 % 6.54 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 7,944 $ 7,013 $ 5,827 $ 2,289
Ratio of net investment income (loss) to average
net assets ....................................... 14.54 % 5.09 % (0.81)% (0.28)%
WRL GE U.S. EQUITY SUBACCOUNT
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997(1)
------------ ------------- ------------- -------------
Accumulation unit value, beginning of year ......... $ 17.99 $ 15.33 $ 12.59 $ 10.00
-------- -------- -------- -------
Income from operations:
Net investment income (loss) ..................... 0.68 1.38 0.73 0.99
Net realized and unrealized gain (loss) on
investment ...................................... (0.98) 1.28 2.01 1.60
-------- -------- -------- -------
Net income (loss) from operations ............... (0.30) 2.66 2.74 2.59
-------- -------- -------- -------
Accumulation unit value, end of year ............... $ 17.69 $ 17.99 $ 15.33 $ 12.59
======== ======== ======== =======
Total return ....................................... (1.67)% 17.35 % 21.78 % 25.89 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 29,771 $ 26,416 $ 14,084 $ 3,258
Ratio of net investment income (loss) to average
net assets ....................................... 3.81 % 8.27 % 5.30 % 8.28 %
See Notes to the Financial Statements, which is an integral part of this report.
132
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL
THIRD AVENUE
VALUE
SUBACCOUNT
---------------------------------------------
DECEMBER 31,
---------------------------------------------
2000 1999 1998(1)
------------- ------------- -------------
Accumulation unit value, beginning of year ......... $ 10.59 $ 9.23 $ 10.00
------- -------- --------
Income from operations:
Net investment income (loss) ..................... 0.60 0.19 (0.05)
Net realized and unrealized gain (loss) on
investment ...................................... 3.03 1.17 (0.72)
------- -------- --------
Net income (loss) from operations ............... 3.63 1.36 (0.77)
------- -------- --------
Accumulation unit value, end of year ............... $ 14.22 $ 10.59 $ 9.23
======= ======== ========
Total return ....................................... 34.26 % 14.68 % (7.67)%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $16,735 $ 3,411 $ 2,807
Ratio of net investment income (loss) to average
net assets ....................................... 4.53 % 1.98 % (0.52)%
WRL
J.P. MORGAN
REAL ESTATE SECURITIES
SUBACCOUNT
--------------------------------------------
DECEMBER 31,
--------------------------------------------
2000 1999 1998(1)
------------- ------------ -------------
Accumulation unit value, beginning of year ......... $ 8.06 $ 8.46 $ 10.00
-------- ------- --------
Income from operations:
Net investment income (loss) ..................... 0.10 0.07 (0.05)
Net realized and unrealized gain (loss) on
investment ...................................... 2.20 (0.47) (1.49)
-------- ------- --------
Net income (loss) from operations ............... 2.30 (0.40) (1.54)
-------- ------- --------
Accumulation unit value, end of year ............... $ 10.36 $ 8.06 $ 8.46
======== ======= ========
Total return ....................................... 28.46 % (4.63)% (15.44)%
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 2,476 $ 627 $ 709
Ratio of net investment income (loss) to average
net assets ....................................... 1.07 % 0.95 % (0.90)%
See Notes to the Financial Statements, which is an integral part of this report.
133
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL WRL
GOLDMAN SACHS GOLDMAN SACHS
GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT
------------------------- --------------------------
DECEMBER 31, DECEMBER 31,
------------------------- --------------------------
2000 1999(1) 2000 1999(1)
------------ ------------ ------------ -------------
Accumulation unit value, beginning of year .......... $ 11.29 $ 10.00 $ 10.92 $ 10.00
------- ------- ------- --------
Income from operations:
Net investment income (loss) ...................... 0.06 (0.05) 0.22 0.76
Net realized and unrealized gain (loss) on
investment ...................................... (1.06) 1.34 (0.34) 0.16
------- ------- ------- --------
Net income (loss) from operations ................ (1.00) 1.29 (0.12) 0.92
------- ------- ------- --------
Accumulation unit value, end of year ................ $ 10.29 $ 11.29 $ 10.80 $ 10.92
======= ======= ======= ========
Total return ........................................ (8.84)% 12.91 % (1.15)% 9.23 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 1,627 $ 977 $ 862 $ 344
Ratio of net investment income (loss) to average
net assets ........................................ 0.59 % (0.90)% 2.00 % 15.66 %
WRL
T. ROWE PRICE
DIVIDEND GROWTH
SUBACCOUNT
---------------------------
DECEMBER 31,
---------------------------
2000 1999(1)
-------------- ------------
Accumulation unit value, beginning of year .......... $ 9.16 $ 10.00
---------- -------
Income from operations:
Net investment income (loss) ...................... (0.04) (0.04)
Net realized and unrealized gain (loss) on
investment ...................................... 0.86 (0.80)
---------- -------
Net income (loss) from operations ................ 0.82 (0.84)
---------- -------
Accumulation unit value, end of year ................ $ 9.98 $ 9.16
========== =======
Total return ........................................ 8.89 % (8.37)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 985 $ 501
Ratio of net investment income (loss) to average
net assets ........................................ (0.42)% (0.90)%
WRL WRL
T. ROWE PRICE SALOMON
SMALL CAP ALL CAP
SUBACCOUNT SUBACCOUNT
-------------------------- ---------------------------
DECEMBER 31, DECEMBER 31,
-------------------------- ---------------------------
2000 1999(1) 2000 1999(1)
------------ ------------- ------------- -------------
Accumulation unit value, beginning of year ...... $ 12.31 $ 10.00 $ 10.70 $ 10.00
------- -------- -------- --------
Income from operations:
Net investment income (loss) .................. 0.04 0.41 0.23 0.40
Net realized and unrealized gain (loss) on
investment .................................. (1.18) 1.90 1.62 0.30
------- -------- -------- --------
Net income (loss) from operations ............ (1.14) 2.31 1.85 0.70
------- -------- -------- --------
Accumulation unit value, end of year ............ $ 11.17 $ 12.31 $ 12.55 $ 10.70
======= ======== ======== ========
Total return .................................... (9.27)% 23.09 % 17.24 % 7.02 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ....... $ 2,568 $ 925 $ 8,072 $ 383
Ratio of net investment income (loss) to average
net assets .................................... 0.29 % 8.13 % 1.91 % 8.07 %
WRL
PILGRIM BAXTER
MID CAP GROWTH
SUBACCOUNT
---------------------------
DECEMBER 31
---------------------------
2000 1999(1)
------------- -------------
Accumulation unit value, beginning of year ...... $ 15.98 $ 10.00
--------- --------
Income from operations:
Net investment income (loss) .................. 0.04 0.04
Net realized and unrealized gain (loss) on
investment .................................. (2.46) 5.94
--------- --------
Net income (loss) from operations ............ (2.42) 5.98
--------- --------
Accumulation unit value, end of year ............ $ 13.56 $ 15.98
========= ========
Total return .................................... (15.16)% 59.78 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ....... 39,702 $ 5,065
Ratio of net investment income (loss) to average
net assets .................................... 0.25 % 0.62 %
See Notes to the Financial Statements, which is an integral part of this report.
134
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
WRL WRL WRL
DREYFUS VALUE LINE GREAT COMPANIES -
MID CAP AGGRESSIVE GROWTH AMERICA(SM)
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------------- ------------------- ------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------------- ------------------- ------------------
2000 1999(1) 2000(1) 2000(1)
-------------- ------------ ------------------- ------------------
Accumulation unit value, beginning of year ......... $ 10.14 $ 10.00 $ 10.00 $ 10.00
--------- ------- -------- -------
Income from operations:
Net investment income (loss) ..................... 0.23 (0.04) (0.06) (0.06)
Net realized and unrealized gain (loss) on
investment ...................................... 0.98 0.18 (0.96) 1.37
--------- ------- -------- -------
Net income (loss) from operations ............... 1.21 0.14 (1.02) 1.31
--------- ------- -------- -------
Accumulation unit value, end of year ............... $ 11.35 $ 10.14 $ 8.98 $ 11.31
========= ======= ======== =======
Total return ....................................... 11.91 % 1.44 % (10.24)% 13.12 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 1,811 $ 337 $ 1,067 $ 8,491
Ratio of net investment income (loss) to average
net assets ....................................... 2.02 % (0.90)% (0.90)% (0.90)%
WRL WRL WRL
GREAT COMPANIES - GREAT COMPANIES - GABELLI
TECHNOLOGY(SM) GLOBAL(2) GLOBAL GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------- ------------------- --------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------- ------------------- --------------
2000(1) 2000(1) 2000(1)
------------------- ------------------- --------------
Accumulation unit value, beginning of year .......... $ 10.00 $ 10.00 $ 10.00
-------- -------- -------
Income from operations:
Net investment income (loss) ...................... (0.05) (0.03) (0.03)
Net realized and unrealized gain (loss) on
investment ....................................... (3.25) (1.45) (0.90)
-------- -------- -------
Net income (loss) from operations ................ (3.30) (1.48) (0.93)
-------- -------- -------
Accumulation unit value, end of year ................ $ 6.70 $ 8.52 $ 9.07
======== ======== =======
Total return ........................................ (33.01)% (14.84)% (9.27)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........... $ 2,788 $ 494 $ 971
Ratio of net investment income (loss) to average
net assets ........................................ (0.90)% (0.90)% (0.90)%
See Notes to the Financial Statements, which is an integral part of this report.
135
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
FIDELITY VIP III FIDELITY VIP II FIDELITY VIP
GROWTH OPPORTUNITIES CONTRAFUND(R) EQUITY-INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------- ----------------- --------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------- ----------------- --------------
2000(1) 2000(1) 2000(1)
---------------------- ----------------- --------------
Accumulation unit value, beginning of year ......... $ 10.00 $ 10.00 $ 10.00
-------- ------- -------
Income from operations:
Net investment income (loss) ..................... (0.06) (0.06) (0.06)
Net realized and unrealized gain (loss) on
investment ...................................... (1.38) (0.56) 1.05
-------- ------- -------
Net income (loss) from operations ............... (1.44) (0.62) 0.99
-------- ------- -------
Accumulation unit value, end of year ............... $ 8.56 $ 9.38 $ 10.99
======== ======= =======
Total return ....................................... (14.36)% (6.16)% 9.91 %
Ratios and supplemental data:
Net assets at end of year (in thousands) .......... $ 562 $ 1,030 $ 307
Ratio of net investment income (loss) to average
net assets ....................................... (0.90)% (0.90)% (0.90)%
See Notes to the Financial Statements, which is an integral part of this report.
136
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 2000
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Life Account (the "Life Account"), was established as a variable
life insurance separate account of Western Reserve Life Assurance Co. of Ohio
("WRL", or the "depositor") and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The Life Account contains
thirty-one investment options referred to as subaccounts. Each subaccount
invests exclusively in a corresponding Portfolio (the "Portfolio") of a fund,
which collectively is referred to as the "Fund". WRL Series Life Account
contains four funds (collectively referred to as the "Funds"). Each fund is a
registered management investment company under the Investment Company Act of
1940, as amended.
SUBACCOUNT INVESTMENT BY FUND:
WRL SERIES FUND, INC.
WRL J.P. Morgan Money Market
WRL AEGON Bond
WRL Janus Growth
WRL Janus Global
WRL LKCM Strategic Total Return
WRL VKAM Emerging Growth
WRL Alger Aggressive Growth
WRL AEGON Balanced
WRL Federated Growth & Income
WRL Dean Asset Allocation
WRL C.A.S.E. Growth
WRL NWQ Value Equity
WRL GE International Equity
(formerly WRL GE/Scottish Equitable
International Equity)
WRL GE U.S. Equity
WRL Third Avenue Value
WRL J.P. Morgan Real Estate Securities
WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
WRL T. Rowe Price Dividend Growth
WRL T. Rowe Price Small Cap
WRL Salomon All Cap
WRL Pilgrim Baxter Mid Cap Growth
WRL Dreyfus Mid Cap
WRL Value Line Aggressive Growth
WRL Great Companies - America(SM)
WRL SERIES FUND, INC. (CONTINUED)
WRL Great Companies - Technology(SM)
WRL Great Companies - Global(2)
WRL Gabelli Global Growth
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Fidelity VIP III Growth Opportunities Portfolio - Service Class 2 (Referred
to as "Fidelity VIP III Growth Opportunities")
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Fidelity VIP II Contrafund(R) Portfolio - Service Class 2 (Referred to as
"Fidelity VIP II Contrafund(R)")
VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Equity-Income Portfolio - Service Class 2 (Referred to as
"Fidelity VIP Equity-Income")
The WRL Series Fund, Inc. has entered into annually renewable investment
advisory agreements for each Portfolio with WRL Investment Management, Inc.
("WRL Management") as investment adviser. WRL Management is a wholly-owned
subsidiary of WRL.
Costs incurred in connection with the advisory services rendered by WRL
Management are paid by each Portfolio. WRL Management has entered into
sub-advisory agreements with various management companies ("Sub-Advisers"),
some of which are affiliates of WRL. Each Sub-Adviser is compensated directly
by WRL Management. The other three Funds have each entered into a participation
agreement for their respective Portfolio among the Fund, its adviser, and WRL.
Each period reported on within the Annual Report reflects a full twelve-month
period, except as follows:
SUBACCOUNT INCEPTION DATE
- ---------- --------------
WRL C.A.S.E. Growth 05/01/1996
WRL NWQ Value Equity 05/01/1996
WRL GE International Equity
(formerly WRL GE/Scottish Equitable
International Equity) 01/02/1997
WRL GE U.S. Equity 01/02/1997
WRL Third Avenue Value 01/02/1998
WRL J.P. Morgan Real Estate Securities 05/01/1998
WRL Goldman Sachs Growth 07/01/1999
WRL Goldman Sachs Small Cap 07/01/1999
WRL T. Rowe Price Dividend Growth 07/01/1999
WRL T. Rowe Price Small Cap 07/01/1999
137
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 2000
NOTE 1 -- (CONTINUED)
SUBACCOUNT (CONTINUED) INCEPTION DATE
- ---------------------- --------------
WRL Salomon All Cap 07/01/1999
WRL Pilgrim Baxter Mid Cap Growth 07/01/1999
WRL Dreyfus Mid Cap 07/01/1999
WRL Value Line Aggressive Growth 05/01/2000
WRL Great Companies - America(SM) 05/01/2000
WRL Great Companies - Technology(SM) 05/01/2000
WRL Great Companies - Global(2) 09/01/2000
WRL Gabelli Global Growth 09/01/2000
Fidelity VIP III Growth Opportunities 05/01/2000
Fidelity VIP II Contrafund(R) 05/01/2000
Fidelity VIP Equity-Income 05/01/2000
Effective September 1, 2000, the WRL Janus Global subaccount is not available
for investment to new policy owners. The subaccount remains open to the policy
owners who purchased the Policy before September 1, 2000.
On May 1, 2000 and September 1, 2000, WRL made initial contributions totaling
$ 675,000 and $ 50,000 to the Life Account. The respective amounts of the
contributions and units received are as follows:
SUBACCOUNT CONTRIBUTION UNITS
- ---------- ------------ -----
MAY 1, 2000:
WRL Value Line Aggressive Growth $ 200,000 20,000
WRL Great Companies - America(SM) 200,000 20,000
WRL Great Companies - Technology(SM) 200,000 20,000
Fidelity VIP III Growth Opportunities 25,000 2,500
Fidelity VIP II Contrafund(R) 25,000 2,500
Fidelity VIP Equity-Income 25,000 2,500
SEPTEMBER 1, 2000:
WRL Great Companies - Global(2) 25,000 2,500
WRL Gabelli Global Growth 25,000 2,500
The Life Account holds assets to support the benefits under certain flexible
premium variable universal life insurance policies (the "Policies") issued by
WRL. The Life Account's equity transactions are accounted for using the
appropriate effective date at the corresponding accumulation unit value.
The following significant accounting policies, which are in conformity with
accounting principles generally accepted in the United States, have been
consistently applied in the preparation of the Life Account Financial
Statements. The preparation of the Financial Statements required management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Funds' shares are valued at the closing net asset value
("NAV") per share of the underlying Portfolio, as determined by the Funds.
Investment transactions are accounted for on the trade date at the Portfolio
NAV next determined after receipt of sale or redemption orders without sales
charges. Dividend income and capital gains distributions are recorded on the
ex-dividend date. The cost of investments sold is determined on a first-in,
first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the total
operations of WRL, which is taxed as a life insurance company under the
Internal Revenue Code. Under the Internal Revenue Code law, the investment
income of the Life Account, including realized and unrealized capital gains, is
not taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2 -- CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with the issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, a sales charge and premium taxes are deducted
by WRL prior to allocation of policy owner payments to the subaccounts.
Contingent surrender charges may also apply.
Under all forms of the Policy, monthly charges against Policy cash values are
made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of .90 % of average daily net assets is
assessed to compensate WRL for assumption of mortality and expense risks for
administrative services in
138
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 2000
connection with issuance and administration of the Policies. This charge (not
assessed at the individual policy level) effectively reduces the value of a
unit outstanding during the year.
NOTE 3 -- DIVIDEND DISTRIBUTIONS
Dividends are not declared by the Life Account, since the increase in the value
of the underlying investment in the Funds 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 Funds does not
change either the accumulation unit value or equity values within the Life
Account.
NOTE 4 -- SECURITIES TRANSACTIONS
Securities transactions for the period ended December 31, 2000 are as follows
(in thousands):
PURCHASES PROCEEDS
OF FROM SALES
SUBACCOUNT SECURITIES OF SECURITIES
- ---------- ---------- -------------
WRL J.P. Morgan Money Market $ 638,618 $ 636,655
WRL AEGON Bond 4,135 6,597
WRL Janus Growth 243,926 80,714
WRL Janus Global 163,941 13,299
WRL LKCM Strategic Total Return 13,451 9,338
WRL VKAM Emerging Growth 816,363 582,058
WRL Alger Aggressive Growth 106,886 11,655
WRL AEGON Balanced 3,704 1,678
WRL Federated Growth & Income 10,936 5,680
WRL Dean Asset Allocation 5,321 6,820
WRL C.A.S.E. Growth 11,454 6,201
WRL NWQ Value Equity 5,542 6,294
WRL GE International Equity 5,524 2,162
WRL GE U.S. Equity 9,487 4,466
WRL Third Avenue Value 14,811 3,442
WRL J.P. Morgan Real Estate
Securities 7,113 5,626
WRL Goldman Sachs Growth 1,393 609
WRL Goldman Sachs Small Cap 736 224
WRL T. Rowe Price Dividend
Growth 1,002 595
WRL T. Rowe Price Small Cap 2,912 883
WRL Salomon All Cap 8,645 1,108
WRL Pilgrim Baxter Mid Cap
Growth 56,247 4,861
WRL Dreyfus Mid Cap 2,964 1,516
WRL Value Line Aggressive Growth 1,336 84
WRL Great Companies -
America(SM) 8,220 449
WRL Great Companies -
Technology(SM) 4,615 394
WRL Great Companies - Global(2) 515 9
WRL Gabelli Global Growth 1,003 9
Fidelity VIP III Growth
Opportunities 695 60
Fidelity VIP II Contrafund(R) 1,152 74
Fidelity VIP Equity-Income 394 104
NOTE 5 -- FINANCIAL HIGHLIGHTS
Per unit information has been computed using average units outstanding
throughout each period. Total return is not annualized for periods of less than
one year. The ratio of net investment income (loss) to average net assets is
annualized for periods of less than one year.
139
Report of Independent Auditors
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio (an indirect wholly-owned subsidiary of
AEGON N.V.) as of December 31, 2000 and 1999, and the related statutory-basis
statements of operations, changes in capital and surplus, and cash flow for
each of the three years in the period ended December 31, 2000. Our audits also
included the statutory-basis financial statement schedules required by
Regulation S-X, Article 7. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits. We did
not audit the "Separate Account Assets" and "Separate Account Liabilities"
included in the statutory-basis balance sheet of the Company as of December 31,
1999. The Separate Account balance sheets as of December 31, 1999 were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the data included for the Separate Accounts as of
December 31, 1999, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report 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 accounting principles generally accepted in the United States. The
variances between such practices and accounting principles generally accepted
in the United States also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of Western Reserve Life Assurance Co. of Ohio at
December 31, 2000 and 1999, or the results of its operations or its cash flow
for each of the three years in the period ended December 31, 2000.
0006-0069641
140
However, in our opinion, based on our audits and the report 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, 2000 and 1999, and the results of its operations and its cash
flow for each of the three years in the period ended December 31, 2000, 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 15, 2001
0006-0069641
141
Western Reserve Life Assurance Co. of Ohio
Balance Sheets -- Statutory Basis
(Dollars in thousands, except per share amounts)
DECEMBER 31
2000 1999
------------- -------------
Admitted assets
Cash and invested assets:
Cash and short-term investments $ 25,465 $ 23,932
Bonds 92,652 119,731
Common stocks:
Affiliated entities (cost: 2000 and 1999 -- $243) 4,164 2,156
Other (cost: 2000 and 1999 -- $302) 352 358
Mortgage loans on real estate 14,041 9,698
Home office properties 33,571 34,066
Investment properties 10,808 11,078
Policy loans 284,335 182,975
Other invested assets 10,091 --
----------- -----------
Total cash and invested assets 475,479 383,994
Federal income taxes recoverable 22,547 --
Premiums deferred and uncollected 908 785
Accrued investment income 1,475 1,638
Transfers from separate accounts due or accrued 480,404 463,721
Cash surrender value of life insurance policies 49,787 47,518
Other assets 5,905 6,614
Separate account assets 10,190,653 11,587,982
----------- -----------
Total admitted assets $11,227,158 $12,492,252
=========== ===========
See accompanying notes.
0006-0069641
142
DECEMBER 31
2000 1999
------------- -------------
Liabilities and capital and surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 400,695 $ 302,138
Annuity 259,199 268,864
Policy and contract claim reserves 13,474 9,269
Other policyholders' funds 39,118 38,633
Remittances and items not allocated 21,192 20,686
Federal income taxes payable -- 5,873
Asset valuation reserve 4,726 3,809
Interest maintenance reserve 5,934 7,866
Short-term note payable to affiliate 71,400 17,100
Payable to affiliate 17,406 964
Other liabilities 62,528 49,478
Separate account liabilities 10,185,342 11,582,656
----------- -----------
Total liabilities 11,081,014 12,307,336
Capital and surplus:
Common stock, $1.00 par value, 3,000,000 shares
authorized and 2,500,000 shares issued and
outstanding 2,500 2,500
Paid-in surplus 120,107 120,107
Unassigned surplus 23,537 62,309
----------- -----------
Total capital and surplus 146,144 184,916
----------- -----------
Total liabilities and capital and surplus $11,227,158 $12,492,252
=========== ===========
See accompanying notes.
0006-0069641
143
Western Reserve Life Assurance Co. of Ohio
Statements of Operations -- Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
2000 1999 1998
------------- ------------- -------------
Revenues:
Premiums and other considerations, net of reinsurance:
Life $ 741,937 $ 584,729 $ 476,053
Annuity 1,554,430 1,104,525 794,841
Net investment income 47,867 39,589 36,315
Amortization of interest maintenance reserve 1,656 1,751 744
Commissions and expense allowances on reinsurance ceded 1,648 4,178 15,333
Income from fees associated with investment
management, administration and contract guarantees for
separate accounts 149,086 104,775 72,817
Other income 58,531 44,366 67,751
---------- ---------- ----------
2,555,155 1,883,913 1,463,854
Benefits and expenses:
Benefits paid or provided for:
Life 58,813 35,591 42,982
Surrender benefits 888,060 689,535 551,528
Other benefits 47,855 32,201 31,280
Increase (decrease) in aggregate reserves for policies
and contracts:
Life 98,557 70,542 42,940
Annuity (9,665) 3,446 (30,872)
Other 67 (121) 32,178
---------- ---------- ----------
1,083,687 831,194 670,036
Insurance expenses:
Commissions 316,337 246,334 205,939
General insurance expenses 120,798 112,536 102,611
Taxes, licenses and fees 23,193 19,019 15,545
Net transfers to separate accounts 1,068,213 625,598 475,435
Other expenses 36 -- 59
---------- ---------- ----------
1,528,577 1,003,487 799,589
---------- ---------- ----------
2,612,264 1,834,681 1,469,625
---------- ---------- ----------
Gain (loss) from operations before federal income tax
expense (benefit) and net realized capital gains (losses)
on investments (57,109) 49,232 (5,771)
Federal income tax expense (benefit) (17,470) 11,816 (347)
---------- ---------- ----------
Gain (loss) from operations before net realized capital gains
(losses) on investments (39,639) 37,416 (5,424)
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to
interest maintenance reserve) (856) (716) 1,494
---------- ---------- ----------
Net income (loss) $ (40,495) $ 36,700 $ (3,930)
========== ========== ==========
See accompanying notes.
0006-0069641
144
Western Reserve Life Assurance Co. of Ohio
Statements of Changes in Capital and Surplus -- Statutory Basis
(Dollars in thousands)
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
Balance at January 1, 1998 $1,500 $ 88,015 $ 25,348 $ 114,863
Net loss -- -- (3,930) (3,930)
Change in net unrealized capital gains -- -- 248 248
Change in non-admitted assets -- -- (1,815) (1,815)
Change in asset valuation reserve -- -- (412) (412)
Change in surplus in separate accounts -- -- (341) (341)
Change in reserve valuation -- -- (2,132) (2,132)
Capital contribution -- 32,092 -- 32,092
Settlement of prior period tax returns -- -- 353 353
Tax benefits on stock options exercised -- -- 4,654 4,654
------ -------- --------- ---------
Balance at December 31, 1998 1,500 120,107 21,973 143,580
Net income -- -- 36,700 36,700
Change in net unrealized capital gains -- -- 1,421 1,421
Change in non-admitted assets -- -- 703 703
Change in asset valuation reserve -- -- (961) (961)
Change in surplus in separate accounts -- -- 451 451
Transfer from unassigned surplus to
common stock (stock dividend) 1,000 -- (1,000) --
Settlement of prior period tax returns -- -- 1,000 1,000
Tax benefits on stock options exercised -- -- 2,022 2,022
------ -------- --------- ---------
Balance at December 31, 1999 2,500 120,107 62,309 184,916
Net loss -- -- (40,495) (40,495)
Change in net unrealized capital gains -- -- 1,571 1,571
Change in non-admitted assets -- -- (1,359) (1,359)
Change in asset valuation reserve -- -- (917) (917)
Change in surplus in separate accounts -- -- (314) (314)
Settlement of prior period tax returns -- -- 30 30
Tax benefits on stock options exercised -- -- 2,712 2,712
------ -------- --------- ---------
Balance at December 31, 2000 $2,500 $120,107 $ 23,537 $ 146,144
====== ======== ========= =========
See accompanying notes.
0006-0069641
145
Western Reserve Life Assurance Co. of Ohio
Statements of Cash Flow -- Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
2000 1999 1998
------------- ------------- -------------
Operating activities
Premiums and other considerations, net of reinsurance $2,356,441 $1,738,870 $1,356,732
Net investment income 51,583 44,235 38,294
Life and accident and health claims (55,030) (35,872) (44,426)
Surrender benefits and other fund withdrawals (888,060) (689,535) (551,528)
Other benefits to policyholders (43,721) (32,642) (31,231)
Commissions, other expenses and other taxes (456,874) (382,372) (326,080)
Net transfers to separate accounts (935,755) (628,762) (461,982)
Federal income taxes received (paid) (8,236) (9,637) 11,956
Other, net 16,913 (21,054) (7,109)
---------- ---------- ----------
Net cash provided by (used in) operating activities 37,261 (16,769) (15,374)
Investing activities
Proceeds from investments sold, matured or repaid:
Bonds 45,079 114,177 143,449
Mortgage loans on real estate 227 212 221
Other 345 18 --
---------- ---------- ----------
45,651 114,407 143,670
Cost of investments acquired:
Bonds (18,005) (49,279) (68,202)
Common stocks -- -- (93)
Mortgage loans on real estate (5,003) (1) (5,313)
Real estate (108) (286) (26,213)
Policy loans (101,360) (69,993) (36,241)
Other invested assets (11,203) -- --
Other -- (855) (414)
---------- ---------- ----------
(135,679) (120,414) (136,476)
---------- ---------- ----------
Net cash provided by (used in) investing activities (90,028) (6,007) 7,194
Financing activities
Issuance (payment) of short-term note payable to
affiliate, net 54,300 (27,100) 36,000
Capital contribution -- -- 32,092
---------- ---------- ----------
Net cash provided by (used in) financing activities 54,300 (27,100) 68,092
---------- ---------- ----------
Increase (decrease) in cash and short-term investments 1,533 (49,876) 59,912
Cash and short-term investments at beginning of year 23,932 73,808 13,896
---------- ---------- ----------
Cash and short-term investments at end of year $ 25,465 $ 23,932 $ 73,808
========== ========== ==========
See accompanying notes.
0006-0069641
146
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis
(Dollars in thousands)
December 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and variable
annuity areas of the life insurance business. The Company is licensed in 49
states, District of Columbia, Puerto Rico and Guam. Sales of the Company's
products are through financial planners, independent representatives, financial
institutions and stockbrokers. The majority of the Company's new life insurance
written and a substantial portion of new annuities written is done through one
marketing organization; the Company expects to maintain this relationship for
the foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Ohio ("Insurance Department"), which practices differ from accounting
principles generally accepted in the United States. 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 or over the expected gross profit stream; (c) policy
reserves on traditional life products are based on statutory mortality rates
and interest which may differ from reserves based on reasonable assumptions of
expected mortality, interest, and withdrawals which include a provision for
possible unfavorable deviation from such assumptions; (d) policy reserves on
certain investment products use discounting methodologies utilizing statutory
interest rates rather than full account values; (e)
0006-0069641
147
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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) potential declines in the estimated realizable
value of investments are provided for through the establishment of a
formula-determined statutory investment reserve (reported as a liability),
changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated
as "non-admitted assets" have been charged to unassigned surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (k) pension expense is recorded
as amounts are paid rather than accrued and expensed during the periods in
which the employers provide service; (l) stock options settled in cash are
recorded as an expense of the Company's indirect parent rather than charged to
current operations; (m) adjustments to federal income taxes of prior years are
charged or credited directly to surplus, rather than reported as a component of
income tax expense in the statement of operations; and (n) the financial
statements of wholly-owned affiliates are not consolidated with those of the
Company. The effects of these variances have not been determined by the
Company, but are presumed to be material.
The National Association of Insurance Commissioners ("NAIC") has revised the
Accounting Practices and Procedures Manual in a process referred to as
Codification. The revised manual is effective January 1, 2001. The State of
Ohio has adopted the provisions of the revised manual. The revised manual has
changed, to some extent, prescribed statutory accounting practices and will
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. The cumulative effect of changes in
accounting principles adopted to conform to the revised Accounting Practices
and Procedures Manual will be reported as an adjustment to surplus as of
January 1, 2001. Management believes the effect of these changes will not
result in a significant reduction in the Company's statutory-basis capital and
surplus as of adoption.
Other significant statutory accounting practices are as follows:
0006-0069641
148
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Common stocks of
unaffiliated companies are carried at market, and the related unrealized
capital gains/(losses) are reported in unassigned surplus without any
adjustment for federal income taxes. Common stocks of the Company's
wholly-owned affiliates are recorded at the equity in net assets. Home office
and investment properties are reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid principal. Other invested assets consist
principally of investments in various joint ventures and are recorded at equity
in underlying net assets. Other "admitted assets" are valued, principally at
cost, as required or permitted by Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for potential
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 2000, 1999 and 1998, net realized capital gains (losses) of $(276),
$(67) and $1,294, respectively, were credited to the IMR rather than being
immediately recognized in the statements of operations. Amortization of these
net gains aggregated $1,656, $1,751 and $744 for the years ended December 31,
2000, 1999 and 1998, respectively.
0006-0069641
149
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. No investment income due and accrued has
been excluded for the years ended December 31, 2000, 1999 and 1998, 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.
Tabular interest, tabular less actual reserves released, and tabular cost have
been determined by formula. Tabular interest on funds not involving life
contingencies has also been determined by formula.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality Tables.
The reserves are calculated using interest rates ranging from 2.25 to 5.50
percent and are computed principally on the Net Level Premium Valuation and the
Commissioners' Reserve Valuation Methods. Reserves for universal life policies
are based on account balances adjusted for the Commissioners' Reserve Valuation
Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 4.00 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
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.
0006-0069641
150
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders and,
accordingly, the operations of the separate accounts are not included in the
accompanying financial statements. The separate accounts do not have any
minimum guarantees and the investment risks associated with market value
changes are borne entirely by the policyholders. The Company received variable
contract premiums of $2,336,299, $1,675,642 and $1,240,858 in 2000, 1999 and
1998, 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 that includes eligible employees of the
Company. Pursuant to the plan, the option price at the date of grant is equal
to the market value of the stock. Under statutory accounting principles, the
Company does not record any expense related to this plan. However, the Company
is allowed to record a deduction in the consolidated tax return filed by the
Company and certain affiliates. The tax benefit of this deduction has been
credited directly to surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to the 2000 presentation.
0006-0069641
151
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
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.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheets for these instruments approximate their
fair values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities 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.
SHORT-TERM NOTE PAYABLE TO AFFILIATE: The carrying amounts reported in
the statutory-basis balance sheets for these instruments approximate
their fair values.
0006-0069641
152
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107:
DECEMBER 31
2000 1999
----------------------------- -----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
Admitted assets
Cash and short-term investments $ 25,465 $ 25,465 $ 23,932 $ 23,932
Bonds 92,652 93,766 119,731 119,076
Common stocks, other than affiliates 352 352 358 358
Mortgage loans on real estate 14,041 14,422 9,698 9,250
Policy loans 284,335 284,335 182,975 182,975
Separate account assets 10,190,653 10,190,653 11,587,982 11,587,982
Liabilities
Investment contract liabilities 298,279 291,457 301,403 294,342
Short-term note payable to affiliate 71,400 71,400 17,100 17,100
Separate account annuities 7,305,380 7,142,011 8,271,548 8,079,141
3. INVESTMENTS
The carrying amount and estimated fair value of investments in debt securities
are as follows:
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
---------- ------------ ------------ ----------
December 31, 2000
Bonds:
United States Government and agencies $ 4,580 $ 78 $ 15 $ 4,643
State, municipal and other government 1,478 85 -- 1,563
Public utilities 13,061 75 159 12,977
Industrial and miscellaneous 42,482 1,673 811 43,344
Mortgage and other asset-backed securities 31,051 416 228 31,239
------- ------ ------ -------
Total bonds $92,652 $2,327 $1,213 $93,766
======= ====== ====== =======
0006-0069641
153
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
3. INVESTMENTS (CONTINUED)
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
---------- ------------ ------------ ----------
December 31, 1999
Bonds:
United States Government and agencies $ 4,755 $ 4 $ 66 $ 4,693
State, municipal and other government 2,185 12 -- 2,197
Public utilities 13,134 129 368 12,895
Industrial and miscellaneous 52,997 1,213 1,208 53,002
Mortgage and other asset-backed securities 46,660 480 851 46,289
-------- ------ ------ --------
Total bonds $119,731 $1,838 $2,493 $119,076
======== ====== ====== ========
The carrying amount and fair value of bonds at December 31, 2000 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
---------- ----------
Due in one year or less $ 3,006 $ 3,027
Due one through five years 30,022 30,264
Due five through ten years 21,811 22,273
Due after ten years 6,762 6,963
------- -------
61,601 62,527
Mortgage and other asset-backed securities 31,051 31,239
------- -------
$92,652 $93,766
======= =======
A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31
2000 1999 1998
----------- ---------- ----------
Interest on bonds $ 8,540 $ 12,094 $ 17,150
Dividends on equity investments from
subsidiaries 26,453 18,555 13,233
Interest on mortgage loans 776 746 499
Rental income on real estate 6,034 5,794 2,839
Interest on policy loans 14,372 9,303 6,241
Other investment income 1 414 540
-------- -------- --------
Gross investment income 56,176 46,906 40,502
Investment expenses (8,309) (7,317) (4,187)
-------- -------- --------
Net investment income $ 47,867 $ 39,589 $ 36,315
======== ======== ========
0006-0069641
154
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
3. INVESTMENTS (CONTINUED)
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
YEAR ENDED DECEMBER 31
2000 1999 1998
---------- ----------- -----------
Proceeds $45,079 $114,177 $143,449
======= ======== ========
Gross realized gains $ 117 $ 1,762 $ 4,641
Gross realized losses 480 1,709 899
-------
Net realized gains (losses) $ (363) $ 53 $ 3,742
======= ======== ========
At December 31, 2000, bonds with an aggregate carrying value of $4,025 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.
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
REALIZED
------------------------------------
YEAR ENDED DECEMBER 31
2000 1999 1998
---------- --------- -----------
Debt securities $ (363) $ 53 $ 3,742
Other invested assets (1,115) 18 (18)
-------- ------ --------
(1,478) 71 3,724
Tax benefit (expense) 346 (854) (936)
Transfer to interest maintenance reserve 276 67 (1,294)
-------- ------ --------
Net realized gains (losses) $ (856) $ (716) $ 1,494
======== ====== ========
CHANGES IN UNREALIZED
-------------------------------
YEAR ENDED DECEMBER 31
2000 1999 1998
--------- --------- -------
Common stocks $2,002 $1,426 $248
Mortgage loans (431) (5) --
------ ------- ----
Change in unrealized appreciation $1,571 $1,421 $248
====== ====== ====
0006-0069641
155
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
3. INVESTMENTS (CONTINUED)
Gross unrealized gains (losses) on common stocks were as follows:
UNREALIZED
---------------------
DECEMBER 31
2000 1999
--------- ---------
Unrealized gains $4,040 $1,995
Unrealized losses (69) (26)
------ ------
Net unrealized gains $3,971 $1,969
====== ======
During 2000, the Company issued one mortgage loan with a lending rate of 7.97%.
The percentage of the loan to the value of the security at the time of
origination was 69%. The Company requires all mortgages to carry fire insurance
equal to the value of the underlying property.
During 2000, 1999 and 1998, no mortgage loans were foreclosed and transferred
to real estate. During 2000 and 1999, the Company held a mortgage loan loss
reserve in the asset valuation reserve of $0 and $110, respectively.
At December 31, 2000, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed its
established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
YEAR ENDED DECEMBER 31
2000 1999 1998
------------- ------------- -------------
Direct premiums $2,385,134 $1,748,265 $1,345,752
Reinsurance assumed -- -- 461
Reinsurance ceded (88,767) (59,011) (75,319)
---------- ---------- ----------
Net premiums earned $2,296,367 $1,689,254 $1,270,894
========== ========== ==========
0006-0069641
156
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
4. REINSURANCE (CONTINUED)
The Company received reinsurance recoveries in the amount of $8,856, $4,916 and
$5,260 during 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $2,337 and $1,557, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 2000 and 1999 of $5,128 and $3,487,
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.
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to gain (loss) from operations
before federal income tax expense (benefit) and realized capital gains (losses)
on investments for the following reasons:
YEAR ENDED DECEMBER 31
2000 1999 1998
------------- ------------ ------------
Computed tax (benefit) at federal statutory rate (35%) $ (19,988) $ 17,231 $ (2,019)
Deferred acquisition costs -- tax basis 14,725 11,344 9,672
Tax reserve valuation 123 (2,272) 1,513
Excess tax depreciation (426) (727) (442)
Amortization of IMR (580) (613) (260)
Dividend received deduction (12,805) (10,784) (6,657)
Prior year under (over) accrual 560 (3,167) (2,322)
Other, net 921 804 168
--------- --------- --------
Federal income tax expense (benefit) $ (17,470) $ 11,816 $ (347)
========= ========= ========
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to realized gains (losses) due
to the differences in book and tax asset bases at the time certain investments
are sold.
0006-0069641
157
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
5. INCOME TAXES (CONTINUED)
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, 2000). 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.
In 2000, the Company received $30 in interest from the Internal Revenue Service
related to the 1993 tax year. In 1999, the Company received $1,000 from its
former parent, an unaffiliated company, for reimbursement of prior period tax
payments made by the Company but owed by the former parent. 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. Tax
settlements for 2000, 1999 and 1998 were credited directly to unassigned
surplus.
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products,
primarily separate accounts, that are not subject to significant mortality or
morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves
on these products, by withdrawal characteristics are summarized as follows:
DECEMBER 31
2000 1999
------------------------- ------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ ---------- ------------ ---------
Subject to discretionary withdrawal with market value adjust-
ment $ 11,999 0% $ 12,534 0%
Subject to discretionary withdrawal at book value less surrender
charge 72,456 1 73,903 1
Subject to discretionary withdrawal at market value 7,305,182 96 8,271,441 96
Subject to discretionary withdrawal at book value (minimal or
no charges or adjustments) 210,648 3 217,372 3
Not subject to discretionary withdrawal provision 15,753 0 15,433 0
---------- -- ---------- --
7,616,038 100% 8,590,683 100%
=== ===
Less reinsurance ceded 2,145 1,581
---------- ----------
Total policy reserves on annuities and deposit fund liabilities $7,613,893 $8,589,102
========== ==========
0006-0069641
158
Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
Year ended December 31
2000 1999 1998
------------- ------------- -------------
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts $2,336,299 $1,675,642 $1,240,858
Transfers from separate accounts 1,268,865 1,056,207 774,690
---------- ---------- ----------
Net transfers to separate accounts 1,067,434 619,435 466,168
Reconciling adjustments -- change in accruals
for investment management, administration
fees and contract guarantees, reinsurance and
separate account surplus 779 6,163 9,267
---------- ---------- ----------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement $1,068,213 $ 625,598 $ 475,435
========== ========== ==========
Reserves on the Company's traditional life insurance products are computed
using mean reserving methodologies. These methodologies result in the
establishment of assets for the amount of the net valuation premiums that are
anticipated to be received between the policy's paid-through date to the
policy's next anniversary date. At December 31, 2000 and 1999, 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, 2000
Ordinary direct renewal business $ 991 $220 $771
Ordinary new business 133 (4) 137
------ ----- ----
$1,124 $216 $908
====== ==== ====
December 31, 1999
Ordinary direct renewal business $1,017 $232 $785
------ ---- ----
$1,017 $232 $785
====== ==== ====
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 was made
for the year ended December 31, 1998 related to the change in reserve
methodology.
0006-0069641
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Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Ohio, on the
payment of dividends to its parent company. Generally, dividends during any
twelve month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to the availability of unassigned surplus at the time
of such dividend, the maximum payment which may be made in 2001, without the
prior approval of insurance regulatory authorities, is $14,614.
8. CAPITAL STRUCTURE
During 1999, the Company's Board of Director's approved an amendment to the
Company's Articles of Incorporation which increased the number of authorized
capital shares to 3,000,000. The Board of Directors also authorized a stock
dividend in the amount of $1,000, which was transferred from unassigned
surplus. This amendment and stock dividend were in response to a change in
California law which requires all life insurance companies which do business in
the state to have capital stock of at least $2,500.
9. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the Statement of Financial
Accounting Standards No. 87 expense as a percent of salaries. The benefits are
based on years of service and the employee's compensation during the highest
five consecutive years of employment. Pension expense aggregated $1,224, $1,105
and $917 for the years ended December 31, 2000, 1999 and 1998, respectively.
The plan is subject to the reporting and disclosure requirements of the
Employee Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974.
Expense related to this plan was $930, $816 and $632 for the years ended
December 31, 2000, 1999 and 1998, respectively.
0006-0069641
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Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
9. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. The Company's
allocation of expense for these plans for each of the years ended December 31,
2000, 1999 and 1998 was negligible. AEGON also sponsors an employee stock
option plan for individuals employed at least three years and a stock purchase
plan for its producers, with the participating affiliated companies
establishing their own eligibility criteria, producer contribution limits and
company matching formula. These plans have been accrued for or funded as deemed
appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits
to employees meeting certain eligibility requirements. Portions of the medical
and dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $108, $81
and $157 for the years ended December 31, 2000, 1999 and 1998, respectively.
10. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 2000,
1999 and 1998, the Company paid $19,248, $16,905 and $12,763, respectively, for
such services, which approximates their costs to the affiliates. The Company
provides office space, marketing and administrative services to certain
affiliates. During 2000, 1999 and 1998, the Company received $4,665, $3,755 and
$5,125, respectively, for such services, which approximates their cost.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 6.4% at December 31, 2000. During 2000,
1999 and 1998, the Company paid net interest of $2,262, $1,997 and $1,090,
respectively, to affiliates.
The Company received capital contributions of $32,092 from its parent in 1998.
At December 31, 2000 and 1999, the Company had short-term note payables to an
affiliate of $71,400 and $17,100, respectively. Interest on these notes ranged
from 6.49% to 6.58% at December 31, 2000 and 5.15% to 5.9% at December 31,
1999.
0006-0069641
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Western Reserve Life Assurance Co. of Ohio
Notes to Financial Statements -- Statutory-Basis (continued)
(Dollars in thousands)
December 31, 2000
10. RELATED PARTY TRANSACTIONS (CONTINUED)
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, 2000 and 1999, the cash surrender
value of these policies was $49,787 and $47,518, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most
recent information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
insolvencies are not determinable by the Company. The Company has established a
reserve of $3,438 and $3,498 and an offsetting premium tax benefit of $777 and
$837 at December 31, 2000 and 1999, respectively, for its estimated share of
future guaranty fund assessments related to several major insurer insolvencies.
The guaranty fund expense (credit) was $(9), $(20) and $(74) at December 31,
2000, 1999 and 1998, respectively.
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME
The following table reconciles capital and surplus and net income as reported
in the 1998 Annual Statement filed with the Insurance Department of the State
of Ohio, to the amounts reported in the accompanying financial statements:
YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1998
------------------- ------------------
TOTAL CAPITAL
AND SURPLUS NET INCOME/LOSS
------------------- ------------------
Amounts reported in Annual Statement $148,038 $ 528
Adjustment to federal income tax benefit (4,458) (4,458)
-------- --------
Amounts reported herein $143,580 $ (3,930)
======== ========
0006-0069641
162
Western Reserve Life Assurance Co. of Ohio
Summary of Investments Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 2000
SCHEDULE I
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ---------------------------------------------------- ------------ --------- ----------------
Fixed maturities
Bonds:
United States Government and government
agencies and authorities $ 5,029 $5,097 $ 5,029
States, municipalities and political subdivisions 11,783 11,996 11,783
Public utilities 13,061 12,977 13,061
All other corporate bonds 62,779 63,696 62,779
--------- ------ ---------
Total fixed maturities 92,652 93,766 92,652
Equity securities
Common stocks:
Industrial, miscellaneous and all other 302 352 352
--------- ------ ---------
Total equity securities 302 352 352
Mortgage loans on real estate 14,041 14,041
Real estate 44,379 44,379
Policy loans 284,335 284,335
Cash and short-term investments 25,465 25,465
Other invested assets 10,091 10,091
--------- ---------
Total investments $ 471,265 $ 471,315
========= =========
(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.
0006-0069641
163
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,
2000
Individual life $389,458 $13,349 $ 741,090 $13,430 $ 267,540 $310,243
Group life 11,237 100 847 936 1,413 580
Annuity 259,199 25 1,554,430 33,501 814,734 149,541
-------- ------- ---------- ------- ---------- --------
$659,894 $13,474 $2,296,367 $47,867 $1,083,687 $460,364
======== ======= ========== ======= ========== ========
Year ended December 31,
1999
Individual life $291,106 $ 9,152 $ 583,656 $10,754 $ 178,237 $261,284
Group life 11,032 100 1,073 706 1,437 599
Annuity 268,864 17 1,104,525 28,129 651,520 116,006
-------- ------- ---------- ------- ---------- --------
$571,002 $ 9,269 $1,689,254 $39,589 $ 831,194 $377,889
-------- ------- ---------- ------- ---------- --------
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
======== ======= ========== ======= ========== ========
* 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.
0006-0069641
164
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, 2000
Life insurance in force $76,903,969 $14,753,778 $ -- $62,150,191 0.0%
=========== =========== ==== =========== ===
Premiums:
Individual life $ 774,550 $ 33,460 $ -- $ 741,090 0.0%
Group life 1,100 253 -- 847 0.0
Annuity 1,609,484 55,054 -- 1,554,430 0.0
----------- ----------- ---- ----------- ---
$ 2,385,134 $ 88,767 $ -- $ 2,296,367 0.0%
=========== =========== ==== =========== ===
Year ended
December 31, 1999
Life insurance in force $63,040,741 $11,297,250 $ -- $51,743,491 0.0%
=========== =========== ==== =========== ===
Premiums:
Individual life $ 604,628 $ 20,972 $ -- $ 583,656 0.0%
Group life 1,383 310 -- 1,073 0.0
Annuity 1,142,254 37,729 -- 1,104,525 0.0
----------- ----------- ---- ----------- ---
$ 1,748,265 $ 59,011 $ -- $ 1,689,254 0.0%
=========== =========== ==== =========== ===
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 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%
=========== =========== ==== =========== ====
0006-0069641
165
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
I-1
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless, and only to the extent that the court of
common pleas, or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation, or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5) (a) Unless at the time of a director's act or omission that is the
subject of an action, suit or proceeding referred to in divisions (E)(1) and (2)
of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance 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:
II-2
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorneys' fees incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including but not limited to trust funds, letters of credit, or
self-insurance on behalf of or for any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to divisions (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
SECOND AMENDED ARTICLES OF INCORPORATION OF WESTERN RESERVE
ARTICLE EIGHTH
EIGHTH: (1) The corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right
II-3
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) 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.
II-4
(5) Expenses, including attorneys' fees incurred in defending any action,
suit, or proceeding referred to in sections (1) and (2) of this article, may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized by the directors in the specific case upon
receipt of a written undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this article. If a majority vote of a quorum of disinterested
directors so directs by resolution, said written undertaking need not be
submitted to the corporation. Such a determination that a written undertaking
need not be submitted to the corporation shall in no way affect the entitlement
of indemnification as authorized by this article.
(6) The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under the articles or the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official 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.
II-5
AMENDED CODE OF REGULATIONS OF WESTERN RESERVE
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director, officer and member of a committee of this Corporation,
and any person who may have served at the request of this Corporation as a
Director, officer or member of a committee of any other corporation in which
this Corporation owns shares of capital stock or of which this Corporation is a
creditor (and his heirs, executors and administrators) shall be indemnified by
the Corporation against all expenses, costs, judgments, decrees, fines or
penalties as provided by, and to the extent allowed by, Article Eighth of the
Corporation's Articles of Incorporation, as amended.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of 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 167 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) Sutherland Asbill & Brennan LLP
(b) Ernst & Young LLP
(c) 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 (3)
(2) Not Applicable
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement (4)
II-6
(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) (a) Specimen Flexible Premium Variable Life Insurance Policy
(b) Endorsement (EL101) (5)
(c) Living Benefit Rider
(d) Other Insured Rider
(e) Primary Insured Rider and Primary Insured Rider Plus
(6) (a) Second Amended Articles of Incorporation of Western Reserve
(2)
(b) Amended Code of Regulations (By-Laws) of Western Reserve
(2)
(c) Certificate of First Amendment to the Second Amended
Articles of Incorporation of Western Reserve (9)
(7) Not Applicable
(8) (a) Investment Advisory Agreement with the Fund (3)
(b) Sub-Advisory Agreement (3)
(c) Participation Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Western Reserve
Life Assurance Co. of Ohio dated June 14, 1999 (6)
(d) Amendment No.1 dated March 15, 2000 to Participation
Agreement - Variable Insurance Products Fund (7)
(e) Participation Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Western
Reserve Life Assurance Co. of Ohio dated June 14, 1999 (6)
(f) Amendment No.1 dated March 15, 2000 to Participation
Agreement - Variable Insurance Products Fund II (7)
(g) Participation Agreement Among Variable Insurance Products
Fund III, Fidelity Distributors Corporation and Western
Reserve Life Assurance Co. of Ohio dated June 14, 1999 (6)
(h) Amendment No. 1 dated March 15, 2000 to Participation
Agreement - Variable Insurance Products Fund III (7)
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance Policy
(11) Memorandum describing issuance, transfer and redemption
procedures (10)
2. See Exhibit 1.A. (1)
3. Opinion of Counsel as to the legality of the securities being registered
(10)
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 (10)
7. Consent of Thomas E. Pierpan, Esq. (10)
8. Consent of Sutherland Asbill & Brennan LLP (10)
9. Consent of Ernst & Young LLP (10)
II-7
10. Consent of PricewaterhouseCoopers LLP (10)
11. Powers of Attorney (8)
- ----------------------------------------
(1) This exhibit was previously filed on Post-Effective Amendment No. 1 to Form
S-6 Registration Statement dated December 19, 1997 (File No. 333-23359) and
is incorporated herein by reference.
(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. 28 to
Form N-1A Registration Statement dated April 28, 1997 (File No. 33-507) and
is incorporated herein by reference.
(4) 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.
(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 to
Form S-6 dated September 23, 1999 (File No. 333-57681) and is incorporated
herein by reference.
(7) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form
N-4 Registration Statement dated April 10, 2000 (File No. 333-93169) and is
incorporated herein by reference.
(8) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form
N-4 Registration Statement dated July 28, 2000 (File No. 333-31228) and is
incorporated herein by reference.
(9) This exhibit was previously filed on Post-Effective Amendment No. 5 to Form
S-6 Registration Statement dated April 19, 2000 (File No. 333-23359) and is
incorporated herein by reference.
(10) To be filed by amendment.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, WRL
Series Life Account, has duly caused this Initial 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 4th day of April, 2001.
(SEAL) WRL SERIES LIFE ACCOUNT
-----------------------
Registrant
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
------------------------------
Depositor
ATTEST:
/s/ PRISCILLA I. HECHLER By: /s/ JOHN R. KENNEY
- -------------------------------------- ------------------------------
Priscilla I. Hechler John R. Kenney
Assistant Vice President Chairman of the Board and
and Assistant Secretary Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Initial
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
- ------------------- ----
/s/ JOHN R. KENNEY April 4, 2001
- --------------------------------------
John R. Kenney, Chairman of the
Board and Chief Executive Officer
/s/ ALLAN J. HAMILTON April 4, 2001
- --------------------------------------
Allan J. Hamilton, Vice President,
Treasurer and Controller
/s/ ALAN M. YAEGER April 4, 2001
- --------------------------------------
Alan M. Yaeger, Executive Vice
President, Actuary and Chief
Financial Officer*
- --------
*Principal Financial Officer
/s/ JEROME C. VAHL April 4, 2001
- --------------------------------------
Jerome C. Vahl, Director and President
/s/ JAMES R. WALKER April 4, 2001
- --------------------------------------
James R. Walker, Director **/
/s/ JACK E. ZIMMERMAN April 4, 2001
- --------------------------------------
Jack E. Zimmerman, Director **/
**/ /s/ PRISCILLA I. HECHLER
----------------------------------
Signed by: Priscilla I. Hechler
As Attorney-in-fact
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
(5)(a) Specimen Flexible Premium Variable Life Insurance Policy
(5)(c) Living Benefit Rider
(5)(d) Other Insured Rider
(5)(e) Primary Insured Rider and Primary Insured Rider Plus
(10) Application for Flexible Premium Variable Life Insurance Policy