SUPPLEMENT DATED MAY 1, 1998
TO PROSPECTUS DATED MAY 1, 1994
WRL FREEDOM SP PLUS(R)
The following information supplements information provided on page 7, fifth
paragraph of the Prospectus under the heading "11. What Charges are Assessed in
Connection with the Policy?"
PORTFOLIO RATE
--------- ----
Real Estate Securities 0.80%
The following information is added to page 8 of the Prospectus before the
section entitled "Investment Experience Information" and represents both the
actual annual expense of the existing Portfolios incurred during 1997, and the
estimated annual expenses, as a percentage of average net assets, of the new
Portfolios"
Fund Annual Expenses* (as a % of Fund average net assets)
<TABLE>
<CAPTION>
STRATEGIC REAL
MONEY EMERGING TOTAL AGGRESSIVE ESTATE
MARKET GROWTH GLOBAL BOND GROWTH RETURN GROWTH SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO*** PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management 0.40% 0.80% 0.80% 0.45% 0.80% 0.80% 0.80% 0.80%
Fees
Other
Expenses
(after 0.08% 0.07% 0.20% 0.14% 0.13% 0.08% 0.16% 0.20%
reimbursement)
Total Fund
Annual 0.48% 0.87% 1.00% 0.59% 0.93% 0.88% 0.96% 1.00%
Expenses
</TABLE>
<TABLE>
<CAPTION>
TACTICAL INTER- THIRD
GROWTH & ASSET C.A.S.E. NATIONAL VALUE U.S. AVENUE
BALANCED INCOME ALLOCATION GROWTH EQUITY EQUITY EQUITY VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management 0.80% 0.75% 0.80% 0.80% 0.80% 1.00% 0.80% 0.80%
Fees
Other
Expenses
(after 0.14% 0.21% 0.07% 0.20% 0.09% 0.50% 0.50% 0.20%
reimbursement)
Total Fund
Annual 0.94% 0.96% 0.87% 1.00% 0.89% 1.50% 1.30% 1.00%
Expenses
<PAGE>
<FN>
- ----------------
* Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan') and
pursuant to the Plan, entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the Fund.
Under the Distribution Plan , the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing a
Portfolio's shares, up to a maximum rate of 0.15% (fifteen
one-hundredths of one percent) on an annualized basis of the average
daily net assets. This fee is measured and accrued daily and paid
monthly. ISI has determined that it will not seek payment by the Fund
of distribution expenses with respect to any Portfolio during the
fiscal year ending December 31, 1998. Prior to ISI's seeking
reimbursement, Policyowners will be notified in advance.
** Because the Third Avenue Value Portfolio commenced operations on
January 2, 1998 and the Real Estate Securities Portfolio commenced
operations on May 1, 1998, the percentages set forth as "Other
Expenses" and "Total Fund Annual Expenses" reflect estimates of "Other
Expenses" for the first year of operations.
*** Effective January 1, 1998, the management fees for the Bond Portfolio
were reduced from 0.50% to 0.45% of the Portfolio's average daily net
assets. On December 16, 1997, Western Reserve received an Order from
the Securities and Exchange Commission ("Commission") approving the
substitution of shares of the Bond Portfolio for shares of the
Short-to-Intermediate Government Portfolio. On or about December 16,
1997, the substitution was effected in accordance with the Commission's
Order. As a result of the substitution, investments in the former
Short-to-Intermediate Government Portfolio were automatically
transferred to the Bond Sub-Account and the Short-to-Intermediate
Government Sub-Account was liquidated.
</FN>
</TABLE>
The purpose of the preceding Table is to assist the Policyowner in
understanding the various costs and expenses that a Policyowner will bear
directly and indirectly. The Table reflects charges and expenses of the
Portfolios of the Fund for the fiscal year ended December 31, 1997, except that
the "Other Expenses" and "Total Fund Annual Expenses" for the Third Avenue Value
and Real Estate Securities Portfolios are estimates. Expenses of the Fund may be
higher or lower in the future. Certain states and other governmental entities
may impose a premium tax, which the Table does not include. For more information
on the charges described in this Table, see "Charges and Deductions" on page 30
and the Fund Prospectus which accompanies this Prospectus.
WRL Investment Management, Inc. ("WRL Management") has undertaken, until at
least April 30, 1999, to pay Fund expenses on behalf of the Portfolios to the
extent normal operating expenses of a Portfolio exceed a stated percentage of
each Portfolio's average daily net assets. The expenses limitation for the
Aggressive Growth, Emerging Growth, Growth, Global, Balanced, Strategic Total
Return, Growth & Income, Tactical Asset Allocation, Value Equity, Third Avenue
Value, and C.A.S.E. Growth Portfolios is 1.00% of the average daily net assets;
0.70% of the average daily net assets for the Bond and Money Market Portfolios;
1.50% of the average daily net assets of the International Equity Portfolio; and
1.30% of the average daily net assets of the U.S. Equity Portfolio. In 1997, WRL
Management, the Fund's Investment Adviser, reimbursed the C.A.S.E. Growth
Portfolio in the amount of $50,000, the International Equity Portfolio in the
amount of $179,000 and the U.S. Equity Portfolio in the amount of $29,000.
Without such reimbursements, the total annual Fund expenses during 1997 for the
C.A.S.E. Growth Portfolio, International Equity Portfolio and U.S. Equity
Portfolio would have been 1.13%, 3.12% and 1.49%, respectively. See the Fund's
Prospectus for a description of the expense limitation applicable to each
Portfolio.
THE FOLLOWING PARAGRAPH IS ADDED AFTER THE THIRD PARAGRAPH ON PAGE 15 OF
THE PROSPECTUS UNDER THE HEADING "OTHER PERFORMANCE DATA":
Western Reserve is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such may include the IMSA logo and information
about IMSA membership in its advertisements. Companies that belong to IMSA
subscribe to a set of ethical standards covering the various aspects of sales
and service for individually sold life insurance and annuities.
2
<PAGE>
THE FOLLOWING SENTENCE IS ADDED TO THE END OF THE FIRST PARAGRAPH ON PAGE 16 OF
THE PROSPECTUS ENTITLED "PUBLISHED RATINGS OF WESTERN RESERVE" UNDER THE HEADING
"WESTERN RESERVE AND THE SERIES ACCOUNT - WESTERN RESERVE LIFE ASSURANCE CO. OF
OHIO":
These ratings do not apply to the Series Account, its Sub-Accounts, the Fund,
its Portfolios or to their performance.
THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION PROVIDED ON PAGES 22-23 OF THE
PROSPECTUS UNDER THE HEADING "INVESTMENTS OF THE SERIES ACCOUNT - WRL SERIES
FUND, INC.":
Beginning May 1, 1998, the Fund will offer one additional portfolio
("Portfolio"). The investment objective and polices of this new Portfolio are
summarized below. There is no assurance that any of the Portfolios will achieve
its stated objective. More detailed information, including a description of
risks, can be found in the WRL Series Fund, Inc. ("Fund") Prospectus, which
should be read carefully.
Real Estate Securities Portfolio: This Portfolio seeks long-term total
return from investments primarily in equity securities of real estate companies.
Total return will consist of realized and unrealized capital gains and losses
plus income.
WRL Management, a wholly-owned subsidiary of Western Reserve, serves as
investment adviser to the Fund and manages its assets in accordance with
policies and guidelines established by the Board of Directors of the Fund.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") is sub-adviser to
the Money Market Portfolio and the Real Estate Securities Portfolio of the Fund.
J.P. Morgan is a wholly-owned subsidiary of J.P. Morgan & Co., Incorporated. WRL
Management will receive monthly compensation at the current annual rate of 0.40%
of the aggregate average daily net assets of the Money Market Portfolio and
0.80% of the aggregate average daily net assets of the Real Estate Securities
Portfolio. From this amount as compensation for its services, J.P. Morgan will
receive 0.15% of the average daily net assets of the Money Market Portfolio and
0.40% of the average daily net assets of the Real Estate Securities Portfolio.
THE FOLLOWING SENTENCE IS ADDED TO PAGE 29 OF THE PROSPECTUS AFTER THE
FIRST SENTENCE UNDER THE PARAGRAPH ENTITLED "LAPSE" UNDER THE HEADING "POLICY
LAPSE AND REINSTATEMENT":
Conversely, paying all Planned Periodic Premium payments will not necessarily
guarantee that the Policy will not lapse. For instance, if the conditions
explained below are not met, the Policy may lapse prior to the No Lapse Date.
THE FOLLOWING PARAGRAPH REPLACES THE SECOND PARAGRAPH ON PAGE 46 OF THE
PROSPECTUS UNDER SECTION "4. DISTRIBUTION FROM POLICIES NOT CLASSIFIED AS
MODIFIED ENDOWMENT CONTRACTS" UNDER THE HEADING "TAX TREATMENT OF POLICY
BENEFITS":
Loans from, or secured by, a Policy that is not a modified endowment
contract are generally not treated as distributions. Instead, such loans are
treated as indebtedness of the Policyowner. However, the tax treatment of a loan
from a Policy that is not a modified endowment contract is uncertain to the
extent that the interest rate credited is equal to the interest rate charged on
the amount borrowed. A tax advisor should be consulted.
THE FOLLOWING PARAGRAPHS ARE ADDED TO PAGE 46 OF THE PROSPECTUS UNDER THE
HEADING "TAX TREATMENT OF POLICY BENEFITS":
8. Business-Owned Life Insurance. In recent years, 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.
3
<PAGE>
The individual situation of each Policyowner or beneficiary will determine
the extent, if any, to which Federal, state and local transfer taxes may be
imposed. Consult with your tax advisor for specific information in connection
with these taxes.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the Federal
taxation of this Policy. It is possible that any legislative change could be
retroactive (that is, effective prior to the date of the change). A tax advisor
should be consulted with respect to legislative developments and their effect on
the Policy.
THE FOLLOWING PARAGRAPH REPLACES THE PARAGRAPH ON PAGE 50 OF THE PROSPECTUS
UNDER THE HEADING "LEGAL PROCEEDINGS":
Western Reserve, like other life insurance companies, is involved in
lawsuits. Western Reserve is not aware of any class action lawsuits naming it as
a Defendant or involving the Series Account. In some lawsuits involving other
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, Western Reserve believes that at the present time
there are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the Series Account or Western Reserve.
THE FOLLOWING NEW SECTION IS ADDED TO PAGE 51 OF THE PROSPECTUS AFTER THE
HEADING "ADDITIONAL INFORMATION":
YEAR 2000 MATTERS
In October 1996, Western Reserve adopted and presently has in place a Year
2000 Assessment and Planning Project (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications systems,
to determine if they are Year 2000 compatible. Western Reserve has also engaged
the services of a third-party provider that is specialized in Year 2000 issues
to work on the Plan.
As of the date of this Prospectus, Western Reserve has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that the systems or
equipment addresses Year 2000 data prior to the Year 2000). Even with the
appropriate and diligent pursuit of a well-conceived response plan, including
testing procedures, there is no certainty that any company will achieve complete
success. Further, notwithstanding its efforts or results, Western Reserve's
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions (or failure to act) of third parties beyond our knowledge or
control. See the Fund's prospectus for information on the Fund's preparation for
Year 2000.
THE FIFTH PARAGRAPH ON PAGE 52 AND CONTINUING ON PAGE 53 OF THE PROSPECTUS UNDER
THE HEADING "APPENDIX A - ILLUSTRATION OF BENEFITS" IS CHANGED, AS FOLLOWS:
The amounts shown 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 Sub-Account which is equivalent to an annual charge
of 0.90% of the average net assets of the Sub-Accounts; (2) estimated daily
expenses equivalent to an effective average annual expense level of 0.95% of the
average daily net assets of the Portfolios of the Fund; and (3) all applicable
premium expense charges and Cash Value charges. The 0.95% expense level assumes
an equal allocation of amounts among the sixteen Sub-Accounts and is
4
<PAGE>
based on an average 0.76% investment advisory fee and estimated 1997 average
normal operating expenses of 0.19% for each of the Portfolios in operation
during 1997. Calculation of the average annual expense level utilized annualized
actual audited expenses incurred during 1997 for the Money Market (0.48%), Bond
(0.64%), Growth (0.87%), Strategic Total Return (0.88%), Emerging Growth
(0.93%), Global (1.00%), Aggressive Growth (0.96%), Balanced (0.94%), Growth &
Income (0.96%), C.A.S.E. Growth (1.00%), Tactical Asset Allocation (0.87%),
Value Equity (0.89%), International Equity (1.50%), and U.S. Equity (1.30%). In
addition, because the Third Avenue Value and Real Estate Securities Portfolios
had not commenced operations as of December 31, 1997, the estimated average
annual Portfolio expense level reflects estimated expenses for each of these
Portfolios at 1.00% for 1998. WRL Management has undertaken until April 30, 1999
to pay expenses to the extent normal operating expenses of a Portfolio exceed a
stated percentage of the Portfolio's average daily net assets. Taking into
account the assumed charges of 1.85%, the gross annual investment return rates
of 0%, 6% and 12% are equivalent to net annual investment return rates of
- -1.85%, 4.15%, and 10.15%.
WRL00192
5
<PAGE>
WRL SERIES LIFE ACCOUNT
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and
Policy Owners of the WRL Series Life Account
In our opinion, the accompanying statements of assets, liabilities and
equity accounts and the related statements of operations and of changes in
equity accounts and the selected per unit data and ratios present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the WRL Series Life Account (a separate account of Western Reserve
Life Assurance Co. of Ohio, hereafter referred to as the "Life Account") at
December 31, 1997, the results of each of their operations, the changes in each
of their equity accounts and the selected per unit data and ratios for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and selected per unit data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Life Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 30, 1998
5
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1997
All amounts (except unit value, units and shares) in thousands
<TABLE>
<CAPTION>
Money Market Bond Growth
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................ 16,381,111 1,581,226 12,215,272
================= =============== =================
Cost .................................. $ 16,381 $ 17,287 $ 359,253
================= =============== =================
Investments at net asset value ......... $ 16,381 $ 17,618 $ 450,062
Accrued transfers from depositor ....... 59 39 209
----------------- --------------- -----------------
Total assets .......................... 16,440 17,657 450,271
----------------- --------------- -----------------
LIABILITIES: ............................. 0 0 0
----------------- --------------- -----------------
Net assets ............................ $ 16,440 $ 17,657 $ 450,271
================= =============== =================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ................................. 1,019,515.089795 835,870.193630 7,972,011.504966
================= =============== =================
Unit value ............................ $ 16.125159 $ 21.123535 $ 56.481417
================= =============== =================
Policy Owners' equity ................. $ 16,440 $ 17,657 $ 450,271
----------------- --------------- -----------------
Depositor's equity:
Units ................................. N/A N/A N/A
================= =============== =================
Unit value ............................ $ N/A $ N/A $ N/A
================= =============== =================
Depositor's equity .................... $ N/A $ N/A $ N/A
----------------- --------------- -----------------
Total equity .......................... $ 16,440 $ 17,657 $ 450,271
================= =============== =================
</TABLE>
<TABLE>
<CAPTION>
Strategic
Global Total Return Emerging Growth Aggressive Growth
Sub-Account Sub-Account (a) Sub-Account Sub-Account
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares ................................ 7,604,927 5,163,177 8,082,693 5,890,842
================= ================= ================= =================
Cost .................................. $ 135,839 $ 66,903 $ 133,448 $ 85,485
================= ================= ================= =================
Investments at net asset value ......... $ 144,823 $ 80,673 $ 164,625 $ 94,517
Accrued transfers from depositor ....... 194 80 77 135
----------------- ----------------- ----------------- -----------------
Total assets .......................... 145,017 80,753 164,702 94,652
----------------- ----------------- ----------------- -----------------
LIABILITIES: ............................. 0 0 0 0
----------------- ----------------- ----------------- -----------------
Net assets ............................ $ 145,017 $ 80,753 $ 164,702 $ 94,652
================= ================= ================= =================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ................................. 8,144,902.999720 4,270,324.925754 7,013,376.822852 5,230,271.098013
================= ================= ================= =================
Unit value ............................ $ 17.804656 $ 18.910375 $ 23.484030 $ 18.096966
================= ================= ================= =================
Policy Owners' equity ................. $ 145,017 $ 80,753 $ 164,702 $ 94,652
----------------- ----------------- ----------------- -----------------
Depositor's equity:
Units ................................. N/A N/A N/A N/A
================= ================= ================= =================
Unit value ............................ $ N/A $ N/A $ N/A $ N/A
================= ================= ================= =================
Depositor's equity .................... $ N/A $ N/A $ N/A $ N/A
----------------- ----------------- ----------------- -----------------
Total equity .......................... $ 145,017 $ 80,753 $ 164,702 $ 94,652
================= ================= ================= =================
</TABLE>
6
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1997
All amounts (except unit value, units and shares) in thousands
<TABLE>
<CAPTION>
Growth & Tactical Asset
Balanced Income Allocation
Sub-Account Sub-Account (b) Sub-Account
<S> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares .................................. 891,005 718,410 2,124,794
=============== =============== =================
Cost .................................... $ 10,023 $ 8,540 $ 26,436
=============== =============== =================
Investments at net asset value ........... $ 10,700 $ 9,022 $ 28,925
Accrued transfers from depositor ......... 16 41 198
--------------- --------------- -----------------
Total assets ............................ 10,716 9,063 29,123
--------------- --------------- -----------------
LIABILITIES: ............................... 0 0 0
--------------- --------------- -----------------
Net assets .............................. $ 10,716 $ 9,063 $ 29,123
=============== =============== =================
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ................................... 756,353.665747 563,129.649597 1,867,261.033017
=============== =============== =================
Unit value .............................. $ 14.168361 $ 16.093919 $ 15.596453
=============== =============== =================
Policy Owners' equity ................... $ 10,716 $ 9,063 $ 29,123
--------------- --------------- -----------------
Depositor's equity:
Units ................................... N/A N/A N/A
=============== =============== =================
Unit value .............................. $ N/A $ N/A $ N/A
=============== =============== =================
Depositor's equity ...................... $ N/A $ N/A $ N/A
--------------- --------------- -----------------
Total equity ............................ $ 10,716 $ 9,063 $ 29,123
=============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. Growth Value Equity International Equity U.S. Equity
Sub-Account Sub-Account Sub-Account (c) Sub-Account (c)
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investment in WRL Series Fund, Inc.:
Shares .................................. 851,094 1,916,676 213,262 265,402
=============== ================= =============== ===============
Cost .................................... $ 12,159 $ 23,473 $ 2,386 $ 3,232
=============== ================= =============== ===============
Investments at net asset value ........... $ 11,924 $ 26,651 $ 2,283 $ 3,247
Accrued transfers from depositor ......... 22 63 6 11
--------------- ----------------- --------------- ---------------
Total assets ............................. 11,946 26,714 2,289 3,258
--------------- ----------------- --------------- ---------------
LIABILITIES: ............................... 0 0 0 0
--------------- ----------------- --------------- ---------------
Net assets .............................. $ 11,946 $ 26,714 $ 2,289 $ 3,258
=============== ================= =============== ===============
EQUITY ACCOUNTS:
Policy Owners' equity:
Units ................................... 969,379.081066 1,915,887.724063 214,889.042226 258,812.833059
=============== ================= =============== ===============
Unit value .............................. $ 12.322854 $ 13.943236 $ 10.654082 $ 12.588589
=============== ================= =============== ===============
Policy Owners' equity ................... $ 11,946 $ 26,714 $ 2,289 $ 3,258
--------------- ----------------- --------------- ---------------
Depositor's equity:
Units ................................... N/A N/A N/A N/A
=============== ================= =============== ===============
Unit value .............................. $ N/A $ N/A $ N/A $ N/A
=============== ================= =============== ===============
Depositor's equity ...................... $ N/A $ N/A $ N/A $ N/A
--------------- ----------------- --------------- ---------------
Total equity ............................ $ 11,946 $ 26,714 $ 2,289 $ 3,258
=============== ================= =============== ===============
<FN>
- ----------
(a) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(b) Prior to May 1, 1997, this sub-account was known as Utility.
(c) The inception date of this sub-account was January 2, 1997.
</FN>
</TABLE>
7
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
All amounts in thousands
<TABLE>
<CAPTION>
Money Market Bond Growth
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ............................................................. $ 772 $ 778 $ 3,046
Capital gain distributions .................................................. 0 0 44,809
----- ------- --------
772 778 47,855
EXPENSES:
Mortality and expense risk .................................................. 133 117 3,649
----- ------- --------
Net investment income (loss) ............................................... 639 661 44,206
----- ------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................... 0 (191) 5,459
Change in unrealized appreciation (depreciation) ........................... 0 609 9,779
----- ------- --------
Net gain (loss) on investments ............................................ 0 418 15,238
----- ------- --------
Net increase (decrease) in equity accounts resulting from operations ..... $ 639 $ 1,079 $ 59,444
===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Global
Sub-Account
<S> <C>
INVESTMENT INCOME:
Dividend income ........................................................ $ 8,033
Capital gain distributions ............................................. 8,885
--------
16,918
EXPENSES:
Mortality and expense risk ............................................. 1,059
--------
Net investment income (loss) .......................................... 15,859
--------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................. 910
Change in unrealized appreciation (depreciation) ...................... (105)
--------
Net gain (loss) on investments ....................................... 805
--------
Net increase (decrease) in equity accounts resulting from operations $ 16,664
========
<CAPTION>
Strategic Emerging Aggressive
Total Return Growth Growth
Sub-Account (a) Sub-Account Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................................ $ 1,894 $ 0 $ 2,430
Capital gain distributions ............................................. 4,821 15,057 6,045
-------- -------- --------
6,715 15,057 8,475
EXPENSES:
Mortality and expense risk ............................................. 614 1,216 680
-------- -------- --------
Net investment income (loss) .......................................... 6,101 13,841 7,795
-------- -------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................. 484 2,278 1,053
Change in unrealized appreciation (depreciation) ...................... 6,037 8,654 5,471
-------- -------- --------
Net gain (loss) on investments ....................................... 6,521 10,932 6,524
-------- -------- --------
Net increase (decrease) in equity accounts resulting from operations $ 12,622 $ 24,773 $ 14,319
======== ======== ========
</TABLE>
8
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
All amounts in thousands
<TABLE>
<CAPTION>
Growth & Tactical Asset
Balanced Income Allocation
Sub-Account Sub-Account (b) Sub-Account
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................................ $ 548 $ 670 $ 1,051
Capital gain distributions ............................................. 521 603 1,072
------- ------- -------
1,069 1,273 2,123
EXPENSES:
Mortality and expense risk ............................................. 77 59 210
------- ------- -------
Net investment income (loss) .......................................... 992 1,214 1,913
------- ------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................. 114 137 339
Change in unrealized appreciation (depreciation) ...................... 112 146 1,023
------- ------- -------
Net gain (loss) on investments ....................................... 226 283 1,362
------- ------- -------
Net increase (decrease) in equity accounts resulting from operations $ 1,218 $ 1,497 $ 3,275
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. Growth Value Equity
Sub-Account Sub-Account
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................................ $ 979 $ 292
Capital gain distributions ............................................. 85 46
------- -------
1,064 338
EXPENSES:
Mortality and expense risk ............................................. 70 155
------- -------
Net investment income (loss) .......................................... 994 183
------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................. 205 393
Change in unrealized appreciation (depreciation) ...................... (457) 2,645
------- -------
Net gain (loss) on investments ....................................... (252) 3,038
------- -------
Net increase (decrease) in equity accounts resulting from operations $ 742 $ 3,221
======= =======
<CAPTION>
International U.S.
Equity Equity
Sub-Account (c) Sub-Account (c)
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................................ $ 10 $ 108
Capital gain distributions ............................................. 0 11
------- -----
10 119
EXPENSES:
Mortality and expense risk ............................................. 14 12
------- -----
Net investment income (loss) .......................................... (4) 107
-------- -----
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................. 134 81
Change in unrealized appreciation (depreciation) ...................... (103) 15
------- -----
Net gain (loss) on investments ....................................... 31 96
------- -----
Net increase (decrease) in equity accounts resulting from operations $ 27 $ 203
======= =====
</TABLE>
(a) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(b) Prior to May 1, 1997, this sub-account was known as Utility.
(c) The inception date of this sub-account was January 2, 1997.
9
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
For the year ended
All amounts in thousands
<TABLE>
<CAPTION>
Money Market Bond
Sub-Account Sub-Account
December 31 December 31
----------------------- ------------------------
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 639 $ 491 $ 661 $ 553
Net gain (loss) on investments ........................... 0 0 418 (614)
-------- -------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 639 491 1,079 (61)
-------- -------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 7,719 5,217 7,506 3,452
-------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .................................. 3,108 2,639 1,633 1,314
Policy loans ............................................ 687 286 428 191
Surrender benefits ...................................... 854 776 437 339
Death benefits .......................................... 9 26 15 28
-------- -------- -------- --------
4,658 3,727 2,513 1,872
-------- -------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 3,061 1,490 4,993 1,580
-------- -------- -------- --------
Net increase (decrease) in equity accounts .............. 3,700 1,981 6,072 1,519
Depositor's equity contribution (net redemption) ......... 0 0 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 12,740 10,759 11,585 10,066
-------- -------- -------- --------
End of period ............................................ $ 16,440 $ 12,740 $ 17,657 $ 11,585
======== ======== ======== ========
<CAPTION>
Growth
Sub-Account
December 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 44,206 $ 19,310
Net gain (loss) on investments ........................... 15,238 26,919
--------- ---------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 59,444 46,229
--------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 106,236 91,556
--------- ---------
Less cost of units redeemed:
Administrative charges .................................. 37,231 29,331
Policy loans ............................................ 11,212 8,443
Surrender benefits ...................................... 15,746 12,386
Death benefits .......................................... 711 601
--------- ---------
64,900 50,761
--------- ---------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 41,336 40,795
--------- ---------
Net increase (decrease) in equity accounts .............. 100,780 87,024
Depositor's equity contribution (net redemption) ......... 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 349,491 262,467
--------- ---------
End of period ............................................ $ 450,271 $ 349,491
========= =========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Global Total Return
Sub-Account Sub-Account (a)
December 31 December 31
--------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 15,859 $ 6,524 $ 6,101 $ 2,646
Net gain (loss) on investments ........................... 805 6,374 6,521 3,636
--------- -------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 16,664 12,898 12,622 6,282
--------- -------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 64,272 43,697 22,072 16,832
--------- -------- -------- --------
Less cost of units redeemed:
Administrative charges .................................. 12,590 6,463 6,025 4,528
Policy loans ............................................ 2,948 1,466 1,624 921
Surrender benefits ...................................... 3,391 2,226 2,044 1,301
Death benefits .......................................... 149 62 148 112
--------- -------- -------- --------
19,078 10,217 9,841 6,862
--------- -------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 45,194 33,480 12,231 9,970
--------- -------- -------- --------
Net increase (decrease) in equity accounts .............. 61,858 46,378 24,853 16,252
Depositor's equity contribution (net redemption) ......... 0 (268) 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 83,159 37,049 55,900 39,648
--------- -------- -------- --------
End of period ............................................ $ 145,017 $ 83,159 $ 80,753 $ 55,900
========= ======== ======== ========
</TABLE>
10
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
For the year ended
All amounts in thousands
<TABLE>
<CAPTION>
Emerging Growth
Sub-Account
December 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 13,841 $ 3,935
Net gain (loss) on investments ........................... 10,932 9,284
--------- ---------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 24,773 13,219
--------- ---------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 54,392 40,944
--------- ---------
Less cost of units redeemed:
Administrative charges .................................. 14,518 9,201
Policy loans ............................................ 3,692 2,096
Surrender benefits ...................................... 3,986 2,754
Death benefits .......................................... 192 92
--------- ---------
22,388 14,143
--------- ---------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 32,004 26,801
--------- ---------
Net increase (decrease) in equity accounts .............. 56,777 40,020
Depositor's equity contribution (net redemption) ......... 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 107,925 67,905
--------- ---------
End of period ............................................ $ 164,702 $ 107,925
========= =========
<CAPTION>
Aggressive Growth Balanced
Sub-Account Sub-Account
December 31 December 31
----------------------- -----------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 7,795 $ 1,139 $ 992 $ 154
Net gain (loss) on investments ........................... 6,524 2,797 226 341
-------- -------- -------- -------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 14,319 3,936 1,218 495
-------- -------- -------- -------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 40,282 26,224 4,373 3,090
-------- -------- -------- -------
Less cost of units redeemed:
Administrative charges .................................. 9,888 6,413 958 575
Policy loans ............................................ 1,926 863 179 78
Surrender benefits ...................................... 2,485 1,350 153 85
Death benefits .......................................... 58 30 3 4
-------- -------- -------- -------
14,357 8,656 1,293 742
-------- -------- -------- -------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 25,925 17,568 3,080 2,348
-------- -------- -------- -------
Net increase (decrease) in equity accounts .............. 40,244 21,504 4,298 2,843
Depositor's equity contribution (net redemption) ......... 0 0 0 (220)
EQUITY ACCOUNTS:
Beginning of period ...................................... 54,408 32,904 6,418 3,795
-------- -------- -------- -------
End of period ............................................ $ 94,652 $ 54,408 $ 10,716 $ 6,418
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Growth & Tactical Asset
Income Allocation
Sub-Account (b) Sub-Account
December 31 December 31
--------------------- -----------------------
1997 1996 1997 1996
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 1,214 $ 246 $ 1,913 $ 584
Net gain (loss) on investments ........................... 283 210 1,362 1,179
------- ------- -------- --------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 1,497 456 3,275 1,763
------- ------- -------- --------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 3,232 3,245 11,386 9,062
------- ------- -------- --------
Less cost of units redeemed:
Administrative charges .................................. 733 440 2,219 1,135
Policy loans ............................................ 163 73 463 306
Surrender benefits ...................................... 260 82 742 866
Death benefits .......................................... 11 3 60 18
------- ------- -------- --------
1,167 598 3,484 2,325
------- ------- -------- --------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 2,065 2,647 7,902 6,737
------- ------- -------- --------
Net increase (decrease) in equity accounts .............. 3,562 3,103 11,177 8,500
Depositor's equity contribution (net redemption) ......... 0 (233) 0 0
EQUITY ACCOUNTS:
Beginning of period ...................................... 5,501 2,631 17,946 9,446
------- ------- -------- --------
End of period ............................................ $ 9,063 $ 5,501 $ 29,123 $ 17,946
======= ======= ======== ========
<CAPTION>
C.A.S.E. Growth
Sub-Account
December 31
-----------------------
1997 1996
------------ ----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 994 $ 70
Net gain (loss) on investments ........................... (252) 228
-------- -------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 742 298
-------- -------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 8,029 4,302
-------- -------
Less cost of units redeemed:
Administrative charges .................................. 970 140
Policy loans ............................................ 146 7
Surrender benefits ...................................... 144 12
Death benefits .......................................... 6 0
-------- -------
1,266 159
-------- -------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 6,763 4,143
-------- -------
Net increase (decrease) in equity accounts .............. 7,505 4,441
Depositor's equity contribution (net redemption) ......... (25) 25
EQUITY ACCOUNTS:
Beginning of period ...................................... 4,466 0
-------- -------
End of period ............................................ $ 11,946 $ 4,466
======== =======
</TABLE>
11
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN EQUITY ACCOUNTS
For the year ended
All amounts in thousands
<TABLE>
<CAPTION>
Value Equity
Sub-Account
December 31
------------------------
1997 1996 (c)
------------ ---------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 183 $ 19
Net gain (loss) on investments ........................... 3,038 603
-------- -------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 3,221 622
-------- -------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 17,023 8,292
-------- -------
Less cost of units redeemed:
Administrative charges .................................. 1,257 153
Policy loans ............................................ 542 36
Surrender benefits ...................................... 388 38
Death benefits .......................................... 0 0
-------- -------
2,187 227
-------- -------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 14,836 8,065
-------- -------
Net increase (decrease) in equity accounts .............. 18,057 8,687
Depositor's equity contribution (net redemption) ......... (230) 200
EQUITY ACCOUNTS:
Beginning of period ...................................... 8,887 0
-------- -------
End of period ............................................ $ 26,714 $ 8,887
======== =======
</TABLE>
<TABLE>
<CAPTION>
International U.S.
Equity Equity
Sub-Account Sub-Account
December 31 December 31
1997 (d) 1997 (d)
--------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ (4) $ 107
Net gain (loss) on investments ........................... 31 96
------- -------
Net increase (decrease) in equity accounts resulting
from operations ......................................... 27 203
------- -------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ...................... 2,458 3,208
------- -------
Less cost of units redeemed:
Administrative charges .................................. 117 91
Policy loans ............................................ 59 56
Surrender benefits ...................................... 14 9
Death benefits .......................................... 0 0
------- -------
190 156
------- -------
Increase (decrease) in equity accounts from capital
unit transactions ...................................... 2,268 3,052
------- -------
Net increase (decrease) in equity accounts .............. 2,295 3,255
Depositor's equity contribution (net redemption) ......... (6) 3
EQUITY ACCOUNTS:
Beginning of period ...................................... 0 0
------- -------
End of period ............................................ $ 2,289 $ 3,258
======= =======
</TABLE>
(a) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(b) Prior to May 1, 1997, this sub-account was known as Utility.
(c) The inception date of this sub-account was May 1, 1996.
(d) The inception date of this sub-account was January 2, 1997.
12
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
Money Market Sub-Account
December 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 15.45 $ 14.83
Income from operations:
Net investment income (loss) ....................................... 0.68 0.62
Net realized and unrealized gain (loss) on investments ............. 0.00 0.00
-------- --------
Total income (loss) from operations ............................... 0.68 0.62
-------- --------
Accumulation unit value, end of period ............................... $ 16.13 $ 15.45
======== ========
Total return (a) ..................................................... 4.37% 4.17%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 16,440 $ 12,740
Ratios of net investment income (loss) to average net assets (b) .... 4.28% 4.07%
<CAPTION>
Money Market Sub-Account
December 31
------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 14.19 $ 13.84 $ 13.63
Income from operations:
Net investment income (loss) ....................................... 0.64 0.35 0.21
Net realized and unrealized gain (loss) on investments ............. 0.00 0.00 0.00
-------- ------- -------
Total income (loss) from operations ............................... 0.64 0.35 0.21
-------- ------- -------
Accumulation unit value, end of period ............................... $ 14.83 $ 14.19 $ 13.84
======== ======= =======
Total return (a) ..................................................... 4.49% 2.58% 1.52%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 10,759 $ 9,706 $ 4,985
Ratios of net investment income (loss) to average net assets (b) .... 4.37% 2.66% 1.51%
</TABLE>
<TABLE>
<CAPTION>
Bond Sub-Account
December 31
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 19.53 $ 19.67
Income from operations:
Net investment income (loss) ....................................... 1.01 0.99
Net realized and unrealized gain (loss) on investments ............. 0.58 (1.13)
-------- -------
Total income (loss) from operations ............................... 1.59 (0.14)
-------- -------
Accumulation unit value, end of period ............................... $ 21.12 $ 19.53
======== =======
Total return (a) ..................................................... 8.18% (0.75%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 17,657 $ 11,585
Ratios of net investment income (loss) to average net assets (b) .... 5.06% 5.34%
<CAPTION>
Bond Sub-Account
December 31
----------------------------------
1995 1994 1993
----------- ------------ ---------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 16.14 $ 17.50 $ 15.57
Income from operations:
Net investment income (loss) ....................................... 1.05 0.89 2.11
Net realized and unrealized gain (loss) on investments ............. 2.48 (2.25) (0.18)
------- -------- -------
Total income (loss) from operations ............................... 3.53 (1.36) 1.93
------- -------- -------
Accumulation unit value, end of period ............................... $ 19.67 $ 16.14 $ 17.50
======= ======== =======
Total return (a) ..................................................... 21.89% (7.77%) 12.40%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $10,066 $ 6,259 $ 6,985
Ratios of net investment income (loss) to average net assets (b) .... 5.80% 5.57% 12.92%
</TABLE>
<TABLE>
<CAPTION>
Growth Sub-Account
December 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 48.48 $ 41.47
Income from operations:
Net investment income (loss) ....................................... 5.83 2.88
Net realized and unrealized gain (loss) on investments ............. 2.17 4.13
--------- ---------
Total income (loss) from operations ............................... 8.00 7.01
--------- ---------
Accumulation unit value, end of period ............................... $ 56.48 $ 48.48
========= =========
Total return (a) ..................................................... 16.50% 16.91%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 450,271 $ 349,491
Ratios of net investment income (loss) to average net assets (b) .... 10.84% 6.41%
<CAPTION>
Growth Sub-Account
December 31
------------------------------------------
1995 1994 1993
------------- -------------- -------------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 28.44 $ 31.30 $ 30.37
Income from operations:
Net investment income (loss) ....................................... 3.89 0.04 0.46
Net realized and unrealized gain (loss) on investments ............. 9.14 (2.90) 0.47
--------- -------- ---------
Total income (loss) from operations ............................... 13.03 (2.86) 0.93
--------- -------- ---------
Accumulation unit value, end of period ............................... $ 41.47 $ 28.44 $ 31.30
========= ======== =========
Total return (a) ..................................................... 45.81% (9.13%) 3.06%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 262,467 $ 161,490 $ 169,757
Ratios of net investment income (loss) to average net assets (b) .... 11.05% 0.16% 1.56%
</TABLE>
13
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
Global Sub-Account
December 31
--------------------------------------------------
1997 1996 1995 1994 (d)
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 15.13 $ 11.95 $ 9.80 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 2.30 1.50 0.45 0.71
Net realized and unrealized gain (loss) on investments ............. 0.37 1.68 1.70 (0.91)
--------- ------- ------- -------
Total income (loss) from operations ............................... 2.67 3.18 2.15 (0.20)
--------- ------- ------- -------
Accumulation unit value, end of period ............................... $ 17.80 $ 15.13 $ 11.95 $ 9.80
========= ======= ======= =======
Total return (a) ..................................................... 17.69% 26.60% 21.96% (2.02%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 145,017 $83,159 $37,049 $ 21,672
Ratios of net investment income (loss) to average net assets (b) .... 13.39% 11.09% 4.25% 8.86%
</TABLE>
<TABLE>
<CAPTION>
Strategic Total Return
Sub-Account (h)
December 31
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 15.66 $ 13.74
Income from operations:
Net investment income (loss) ....................................... 1.56 0.82
Net realized and unrealized gain (loss) on investments ............. 1.69 1.10
------- -------
Total income (loss) from operations ............................... 3.25 1.92
------- -------
Accumulation unit value, end of period ............................... $ 18.91 $ 15.66
======= =======
Total return (a) ..................................................... 20.77% 13.97%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $80,753 $55,900
Ratios of net investment income (loss) to average net assets (b) .... 8.89% 5.76%
<CAPTION>
Strategic Total Return Sub-Account
Sub-Account (h)
December 31
------------------------------------
1995 1994 1993 (c)
----------- ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.12 $ 11.28 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.68 0.18 0.19
Net realized and unrealized gain (loss) on investments ............. 1.94 (0.34) 1.09
------- ------- -------
Total income (loss) from operations ............................... 2.62 (0.16) 1.28
------- ------- -------
Accumulation unit value, end of period ............................... $ 13.74 $ 11.12 $ 11.28
======= ======= =======
Total return (a) ..................................................... 23.55% (1.42%) 12.81%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $39,648 $23,649 $13,343
Ratios of net investment income (loss) to average net assets (b) .... 5.47% 1.93% 2.27%
</TABLE>
<TABLE>
<CAPTION>
Emerging Growth Sub-Account
December 31
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 19.51 $ 16.56
Income from operations:
Net investment income (loss) ....................................... 2.20 0.82
Net realized and unrealized gain (loss) on investments ............. 1.77 2.13
--------- ---------
Total income (loss) from operations ............................... 3.97 2.95
--------- ---------
Accumulation unit value, end of period ............................... $ 23.48 $ 19.51
========= =========
Total return (a) ..................................................... 20.37% 17.82%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 164,702 $ 107,925
Ratios of net investment income (loss) to average net assets (b) .... 10.18% 4.51%
<CAPTION>
Emerging Growth Sub-Account
December 31
------------------------------------
1995 1994 1993 (c)
----------- ------------ -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.38 $ 12.40 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.65 (0.09) (0.09)
Net realized and unrealized gain (loss) on investments ............. 4.53 (0.93) 2.49
------- ------- -------
Total income (loss) from operations ............................... 5.18 (1.02) 2.40
------- ------- -------
Accumulation unit value, end of period ............................... $ 16.56 $ 11.38 $ 12.40
======= ======= =======
Total return (a) ..................................................... 45.49% (8.18%) 23.96%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $67,905 $36,687 $18,620
Ratios of net investment income (loss) to average net assets (b) .... 4.66% (0.86%) (0.92%)
</TABLE>
14
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
Aggressive Growth Sub-Account
December 31
------------------------------------------------------
1997 1996 1995 1994 (d)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 14.70 $ 13.43 $ 9.82 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 1.75 0.36 0.37 (0.06)
Net realized and unrealized gain (loss) on investments ............. 1.65 0.91 3.24 (0.12)
------- ------- ------- -------
Total income (loss) from operations ............................... 3.40 1.27 3.61 (0.18)
------- ------- ------- -------
Accumulation unit value, end of period ............................... $ 18.10 $ 14.70 $ 13.43 $ 9.82
======= ======= ======= =======
Total return (a) ..................................................... 23.14% 9.46% 36.79% (1.85%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $94,652 $54,408 $32,904 $ 8,909
Ratios of net investment income (loss) to average net assets (b) .... 10.26% 2.65% 2.93% (0.72%)
</TABLE>
<TABLE>
<CAPTION>
Balanced Sub-Account
December 31
------------------------------------------------------
1997 1996 1995 1994 (d)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 12.21 $ 11.13 $ 9.37 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 1.55 0.36 0.37 0.22
Net realized and unrealized gain (loss) on investments ............. 0.41 0.72 1.39 (0.85)
------- ------- -------- -------
Total income (loss) from operations ............................... 1.96 1.08 1.76 (0.63)
------- ------- -------- -------
Accumulation unit value, end of period ............................... $ 14.17 $ 12.21 $ 11.13 $ 9.37
======= ======= ======== =======
Total return (a) ..................................................... 16.06% 9.73% 18.73% (6.29%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $10,716 $ 6,418 $ 3,795 $ 2,145
Ratios of net investment income (loss) to average net assets (b) .... 11.62% 3.18% 3.59% 3.06%
</TABLE>
<TABLE>
<CAPTION>
Growth & Income Sub-Account (i)
December 31
------------------------------------------------------
1997 1996 1995 1994 (d)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 13.03 $ 11.77 $ 9.49 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 2.61 0.76 0.49 0.29
Net realized and unrealized gain (loss) on investments ............. 0.45 0.50 1.79 (0.80)
-------- -------- -------- -------
Total income (loss) from operations ............................... 3.06 1.26 2.28 (0.51)
-------- -------- -------- -------
Accumulation unit value, end of period ............................... $ 16.09 $ 13.03 $ 11.77 $ 9.49
======== ======== ======== =======
Total return (a) ..................................................... 23.54% 10.64% 24.14% (5.15%)
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 9,063 $ 5,501 $ 2,631 $ 1,215
Ratios of net investment income (loss) to average net assets (b) .... 18.50% 6.38% 4.57% 3.71%
</TABLE>
15
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
Tactical Asset Allocation Sub-Account
December 31
---------------------------------------
1997 1996 1995 (e)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ......................... $ 13.50 $ 11.90 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 1.20 0.53 0.61
Net realized and unrealized gain (loss) on investments ............. 0.90 1.07 1.29
------- ------- --------
Total income (loss) from operations ............................... 2.10 1.60 1.90
------- ------- --------
Accumulation unit value, end of period ............................... $ 15.60 $ 13.50 $ 11.90
======= ======= ========
Total return (a) ..................................................... 15.55% 13.40% 19.03%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $29,123 $17,946 $ 9,446
Ratios of net investment income (loss) to average net assets (b) .... 8.14% 4.35% 5.47%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. Growth
Sub-Account
December 31
-------------------------
1997 1996 (f)
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 10.81 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 1.51 0.37
Net realized and unrealized gain (loss) on investments ............. 0.00 0.44
------- -------
Total income (loss) from operations ............................... 1.51 0.81
------- -------
Accumulation unit value, end of period ............................... $ 12.32 $ 10.81
======= =======
Total return (a) ..................................................... 14.00% 8.09%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $11,946 $ 4,466
Ratios of net investment income (loss) to average net assets (b) .... 12.65% 6.11%
</TABLE>
<TABLE>
<CAPTION>
Value Equity
Sub-Account
December 31
-------------------------
1997 1996 (f)
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 11.25 $ 10.00
Income from operations:
Net investment income (loss) ....................................... 0.14 0.05
Net realized and unrealized gain (loss) on investments ............. 2.55 1.20
------- --------
Total income (loss) from operations ............................... 2.69 1.25
------- --------
Accumulation unit value, end of period ............................... $ 13.94 $ 11.25
======= ========
Total return (a) ..................................................... 23.93% 12.51%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $26,714 $ 8,887
Ratios of net investment income (loss) to average net assets (b) .... 1.05% 0.77%
</TABLE>
16
<PAGE>
WRL SERIES LIFE ACCOUNT
SELECTED PER UNIT DATA AND RATIOS*
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
International U.S.
Equity Equity
Sub-Account Sub-Account
December 31 December 31
1997 (g) 1997 (g)
--------------- ------------
<S> <C> <C>
Accumulation unit value, beginning of period ......................... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ....................................... (0.03) 0.99
Net realized and unrealized gain (loss) on investments ............. 0.68 1.60
------- --------
Total income (loss) from operations ............................... 0.65 2.59
------- --------
Accumulation unit value, end of period ............................... $ 10.65 $ 12.59
======= ========
Total return (a) ..................................................... 6.54% 25.89%
Ratios and supplemental data:
Net assets at end of period (in thousands) .......................... $ 2,289 $ 3,258
Ratios of net investment income (loss) to average net assets (b) .... (0.28%) 8.28%
</TABLE>
* The above tables illustrate the change for a unit outstanding computed using
average units outstanding throughout each period.
See Notes to Selected Per Unit Data and Ratios below.
NOTES TO SELECTED PER UNIT DATA AND RATIOS:
(a) For periods less than one year, the total return is not annualized.
(b) For periods less than one year, the ratio of net investment income to
average net assets is annualized.
(c) The inception date of this sub-account was March 1, 1993.
(d) The inception date of this sub-account was March 1, 1994.
(e) The inception date of this sub-account was January 3, 1995.
(f) The inception date of this sub-account was May 1, 1996.
(g) The inception date of this sub-account was January 2, 1997.
(h) Prior to May 1, 1997, this sub-account was known as Equity-Income.
(i) Prior to May 1, 1997, this sub-account was known as Utility.
17
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES
The WRL Series Life Account (the "Life Account"), was established as a
variable life insurance separate account of Western Reserve Life Assurance Co.
of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under
the Investment Company Act of 1940, as amended. The Life Account contains
fourteen investment options referred to as sub-accounts. Each sub-account
invests in the corresponding Portfolio of the WRL Series Fund, Inc.
(collectively referred to as the "Fund" and individually as a "Portfolio"), a
registered management investment company under the Investment Company Act of
1940, as amended.
The Fund has entered into annually renewable investment advisory
agreements for each Portfolio with WRL Investment Management, Inc. ("WRL
Management") as investment adviser. Costs incurred in connection with the
advisory services rendered by WRL Management are paid by each Portfolio. WRL
Management has entered into sub-advisory agreements with various management
companies, some of which are affiliates of WRL. Each sub-adviser is compensated
directly by WRL Management.
Effective May 1, 1997, the names of the Equity-Income and Utility
Sub-Accounts were changed to the Strategic Total Return and Growth & Income
Sub-Accounts, respectively.
On December 16, 1997, pursuant to an exemptive order (Rel. No. IC-22944)
received from the Securities and Exchange Commission for the substitution of
securities issued by the WRL Series Fund and held by the Life Series Account to
support individual premium variable life insurance policies, investments were
transferred from the Short-to-Intermediate Government Sub-Account to the Bond
Sub-Account.
On January 2, 1997, WRL made an initial contribution of $ 600,000 to the
Life Account. The amount of the contribution and units received were as
follows:
SUB-ACCOUNT CONTRIBUTION UNITS
- ----------------------- -------------- ----------------
International Equity $ 400,000 40,000.000000
U.S. Equity $ 200,000 20,000.000000
On April 28, 1997, WRL redeemed the initial contribution in the
International Equity Sub-Account for $ 406,299 and the U.S. Equity sub-account
for $ 197,490.
The Life Account holds assets to support the benefits under certain
flexible premium variable universal life insurance policies (the "Policies")
issued by WRL. The Life Account's equity transactions are accounted for using
the appropriate effective date at the corresponding accumulation unit value.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles for unit investment trusts, have
been consistently applied in the preparation of the Trust's financial
statements.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as determined by the Fund. Investment transactions are
accounted for on the trade date at the Fund NAV next determined after receipt
of sale or redemption orders without sales charges. Dividend income and capital
gains distributions are recorded on the ex-dividend date. The cost of
investments sold is determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under the
Internal Revenue Code. Under current 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.
C. ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
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 policyowner payments to the
sub-accounts. Thereafter,
18
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(CONTINUED)
NOTE 2 --CHARGES AND DEDUCTIONS
--(CONTINUED)
monthly administrative and cost of insurance charges are deducted from the
sub-accounts. Contingent surrender charges also apply.
Under the other forms of the Policies, such "front-end" and other
administrative charges are deducted prior to allocation of the initial premium
payment but may reside as contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of 0.90% of average daily net
assets is assessed to compensate WRL for assumption of mortality and expense
risks and administrative services in connection with issuance and administration
of the Policies. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3 -- DIVIDENDS AND DISTRIBUTIONS
Dividends of the Money Market Portfolio are declared daily and reinvested
monthly. Dividends of the remaining Portfolios are typically declared and
reinvested semi-annually, while capital gains distributions are declared and
reinvested annually. Dividends and distributions of the Fund are recorded on
the ex-date and generally are paid to and reinvested by the Life Account on the
next business day after the ex-date. Dividends are not declared by the Life
Account, since the increase in the value of the underlying investment in the
Fund is reflected daily in the unit price used to calculate the equity value
within the Life Account. Consequently, a dividend distribution by the
underlying Fund does not change either the unit price or equity values within
the Life Account.
NOTE 4 -- SECURITIES TRANSACTIONS
Securities transactions are summarized as follows:
For the year or period ended December 31, 1997 (in thousands)
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
Purchase of long-term securities ........................................ $ 31,536 $ 7,334 $ 95,096
Proceeds from sales of long-term securities ............................. 27,586 1,711 9,617
STRATEGIC TOTAL EMERGING
GLOBAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities ........................................ $ 63,481 $ 20,134 $ 51,532
Proceeds from sales of long-term securities ............................. 2,595 1,789 5,791
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities ........................................ $ 36,390 $ 4,654 $ 3,925
Proceeds from sales of long-term securities ............................. 2,757 571 683
TACTICAL ASSET C.A.S.E. VALUE
ALLOCATION GROWTH EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Purchase of long-term securities ........................................ $ 11,192 $ 8,860 $ 16,770
Proceeds from sales of long-term securities ............................. 1,496 1,124 2,030
INTERNATIONAL U.S.
EQUITY EQUITY
SUB-ACCOUNT (A) SUB-ACCOUNT (A)
Purchase of long-term securities ........................................ $ 4,574 $ 4,082
Proceeds from sales of long-term securities ............................. 2,322 931
</TABLE>
(a) The inception date of this sub-account was January 2, 1997.
19
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(CONTINUED)
NOTE 5 -- EQUITY TRANSACTIONS
For the year or period ended December 31, 1997
<TABLE>
<CAPTION>
MONEY MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
Units balance - beginning of year ........... 824,579.964824 593,289.952352 7,208,481.980640
Units issued ................................ 9,508,542.992920 567,591.792111 2,877,261.682232
Units redeemed .............................. 9,313,607.867949 325,011.550833 2,113,732.157906
---------------- -------------- ----------------
Units balance - end of year ................. 1,019,515.089795 835,870.193630 7,972,011.504966
================ ============== ================
STRATEGIC TOTAL EMERGING
GLOBAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 5,497,026.869725 3,569,906.038362 5,531,857.748031
Units issued ................................ 5,204,689.424549 1,808,954.429690 4,085,290.537514
Units redeemed .............................. 2,556,813.294554 1,108,535.542298 2,603,771.462693
---------------- ---------------- ----------------
Units balance - end of year ................. 8,144,902.999720 4,270,324.925754 7,013,376.822852
================ ================ ================
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 3,702,244.184822 525,703.773282 422,239.257570
Units issued ................................ 3,540,013.078309 471,558.712099 351,937.078911
Units redeemed .............................. 2,011,986.165118 240,908.819634 211,046.686884
---------------- ---------------- ----------------
Units balance - end of year ................. 5,230,271.098013 756,353.665747 563,129.649597
================ ================ ================
TACTICAL ASSET C.A.S.E. VALUE
ALLOCATION GROWTH EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
Units balance - beginning of year ........... 1,329,562.261984 413,189.701539 789,884.882222
Units issued ................................ 1,163,050.985561 930,816.590801 1,771,718.827803
Units redeemed .............................. 625,352.214528 374,627.211274 645,715.985962
---------------- ---------------- ----------------
Units balance - end of year ................. 1,867,261.033017 969,379.081066 1,915,887.724063
================ ================ ================
INTERNATIONAL U.S.
EQUITY EQUITY
SUB-ACCOUNT (A) SUB-ACCOUNT (A)
Units balance - beginning of period ......... N/A N/A
Units issued ................................ 484,482.761817 392,911.124759
Units redeemed .............................. 269,593.719591 134,098.291700
---------------- ----------------
Units balance - end of period ............... 214,889.042226 258,812.833059
================ ================
</TABLE>
(a) The inception date of this sub-account was January 2, 1997.
20
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(CONTINUED)
NOTE 6 -- OTHER MATTERS
At December 31, 1997, the equity accounts included net unrealized appreciation
(depreciation) on investments as follows (in thousands):
SUB-ACCOUNT
- ----------------------------------
Money Market ................... $ N/A
Bond ........................... 331
Growth ......................... 90,809
Global ......................... 8,984
Strategic Total Return ......... 13,770
Emerging Growth ................ 31,177
Aggressive Growth .............. 9,032
Balanced ....................... 677
Growth & Income ................ 482
Tactical Asset Allocation ...... 2,489
C.A.S.E. Growth ................ (235)
Value Equity ................... 3,178
International Equity ........... (103)
U.S. Equity .................... 15
21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Western Reserve Life Assurance Co. of Ohio
We have audited the accompanying statutory-basis balance sheets of Western
Reserve Life Assurance Co. of Ohio as of December 31, 1997 and 1996, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the statutory-basis financial
statement schedules required by Regulation S-X, Article 7. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the "Separate Account Assets" and "Separate
Account Liabilities" in the balance sheets of the Company. The Separate Account
financial statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the data included
for the Separate Account, is based solely upon the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1997 and 1996, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1997.
Also, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997 in conformity with accounting practices prescribed or permitted by the
Insurance Department of the State of Ohio. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 27, 1998
22
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
1997 1996
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments ................... $ 13,896 $ 2,480
Bonds ............................................. 255,919 359,579
Common stocks:
Affiliated entities (cost: 1997 - $150) ......... 319 -
Other (cost: 1997 and 1996 - $302) .............. 428 597
Mortgage loans on real estate ..................... 4,824 6,049
Home office properties ............................ 19,964 7,962
Policy loans ...................................... 76,741 52,604
---------- ----------
Total cash and invested assets ..................... 372,091 429,271
Premiums deferred and uncollected .................. 1,928 1,943
Accrued investment income .......................... 4,088 5,940
Receivable from affiliates ......................... - 1,165
Transfers from separate accounts ................... 279,958 204,181
Other assets ....................................... 5,221 3,962
Separate account assets ............................ 4,814,594 3,527,145
---------- ----------
Total admitted assets .............................. $5,477,880 $4,173,607
========== ==========
SEE ACCOMPANYING NOTES.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
------------- ------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life ................................................. $ 186,523 $ 155,166
Annuity .............................................. 296,290 332,230
Policy and contract claim reserves .................... 10,929 8,584
Other policyholders' funds ............................ 3,877 3,104
Remittances and items not allocated ................... 9,184 9,107
Federal income taxes payable .......................... 2,283 1,266
Asset valuation reserve ............................... 2,436 5,710
Interest maintenance reserve .......................... 9,134 7,451
Short-term note payable to affiliate .................. 8,200 -
Payable to affiliate .................................. 1,925 20,463
Other liabilities ..................................... 19,257 13,082
Separate account liabilities .......................... 4,812,979 3,521,888
---------- ----------
Total liabilities ...................................... 5,363,017 4,078,051
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares authorized,
issued and outstanding .............................. 1,500 1,500
Paid-in surplus ....................................... 88,015 68,015
Unassigned surplus .................................... 25,348 26,041
---------- ----------
Total capital and surplus .............................. 114,863 95,556
---------- ----------
Total liabilities and capital and surplus .............. $5,477,880 $4,173,607
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life ............................................................................... $ 394,370 $ 293,590 $ 191,508
Annuity ............................................................................ 822,149 740,125 378,390
Net investment income ............................................................... 40,013 36,067 40,891
Amortization of interest maintenance reserve ........................................ 1,576 1,335 882
Commissions and expense allowances on reinsurance ceded ............................. 11 11 11
Other income ........................................................................ 3,016 13,398 8,237
---------- ---------- ----------
1,261,135 1,084,526 619,919
Benefits and expenses:
Benefits paid or provided for:
Life ............................................................................... 28,060 21,256 17,844
Surrender benefits ................................................................. 431,939 286,406 206,250
Other benefits ..................................................................... 28,112 23,270 19,530
Increase (decrease) in aggregate reserves for policies and contracts: ..............
Life .............................................................................. 29,485 80,139 (15,132)
Annuity ........................................................................... (35,940) 12,877 5,229
Other ............................................................................. 794 422 109
---------- ---------- ----------
482,450 424,370 233,830
Insurance expenses:
Commissions ........................................................................ 179,106 140,261 82,903
General insurance expenses ......................................................... 70,546 47,406 37,246
Taxes, licenses and fees ........................................................... 13,101 10,848 8,919
Transfer to separate accounts ...................................................... 519,214 452,471 242,427
Other expenses ..................................................................... 21 60 34
---------- ---------- ----------
781,988 651,046 371,529
---------- ---------- ----------
1,264,438 1,075,416 605,359
---------- ---------- ----------
Gain (loss) from operations before federal income taxes and realized capital gains
(losses) on investments ............................................................ (3,303) 9,110 14,560
Federal income tax expense ........................................................... 469 9,297 8,917
---------- ---------- ----------
Gain (loss) from operations before realized capital gains (losses)
on investments ..................................................................... (3,772) (187) 5,643
Net realized capital gains (losses) on investments (net of related
federal income taxes and amounts transferred to interest
maintenance reserve) ............................................................... 747 (811) (1,678)
---------- ---------- ----------
Net income (loss) .................................................................... $ (3,025) $ (998) $ 3,965
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
25
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN SURPLUS
-------------- -----------------
<S> <C> <C>
Balance at January 1, 1995 ........................... $1,500 $68,015
Net income for 1995 ................................. - -
Net unrealized capital losses ....................... - -
Decrease in non-admitted assets ..................... - -
Decrease in asset valuation reserve ................. - -
Increase in surplus in separate accounts ............ - -
Change in reserve valuation ......................... - -
Other adjustments ................................... - -
------ -------
Balance at December 31, 1995 ......................... 1,500 68,015
Net loss for 1996 ................................... - -
Net unrealized capital gains ........................ - -
Decrease in non-admitted assets ..................... - -
Increase in asset valuation reserve ................. - -
Increase in surplus in separate accounts ............ - -
Change in reserve valuation ......................... - -
------ -------
Balance at December 31, 1996 ......................... 1,500 68,015
Net loss for 1997 ................................... - -
Increase in non-admitted assets ..................... - -
Decrease in asset valuation reserve ................. - -
Decrease in surplus in separate accounts ............ - -
Change in reserve valuation ......................... - -
Capital contribution ................................ - 20,000
Tax effect of capital loss carry-forward utilized
by affiliates ..................................... - -
------ -------
Balance at December 31, 1997 ......................... $1,500 $88,015
====== =======
</TABLE>
<TABLE>
<CAPTION>
UNASSIGNED SURPLUS TOTAL CAPITAL AND SURPLUS
-------------------- --------------------------
<S> <C> <C>
Balance at January 1, 1995 ........................... $ 25,505 $ 95,020
Net income for 1995 ................................. 3,965 3,965
Net unrealized capital losses ....................... (500) (500)
Decrease in non-admitted assets ..................... 903 903
Decrease in asset valuation reserve ................. 2,901 2,901
Increase in surplus in separate accounts ............ 541 541
Change in reserve valuation ......................... (3,496) (3,496)
Other adjustments ................................... (1,395) (1,395)
-------- --------
Balance at December 31, 1995 ......................... 28,424 97,939
Net loss for 1996 ................................... (998) (998)
Net unrealized capital gains ........................ 1,294 1,294
Decrease in non-admitted assets ..................... 199 199
Increase in asset valuation reserve ................. (120) (120)
Increase in surplus in separate accounts ............ 237 237
Change in reserve valuation ......................... (2,995) (2,995)
-------- --------
Balance at December 31, 1996 ......................... 26,041 95,556
Net loss for 1997 ................................... (3,025) (3,025)
Increase in non-admitted assets ..................... (702) (702)
Decrease in asset valuation reserve ................. 3,274 3,274
Decrease in surplus in separate accounts ............ (2,115) (2,115)
Change in reserve valuation ......................... (1,872) (1,872)
Capital contribution ................................ - 20,000
Tax effect of capital loss carry-forward utilized
by affiliates ..................................... 3,747 3,747
-------- --------
Balance at December 31, 1997 ......................... $ 25,348 $114,863
======== --------
</TABLE>
SEE ACCOMPANYING NOTES.
26
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance ...... $1,224,228 $1,046,548 $ 577,986
Net investment income ...................................... 43,802 38,666 42,359
Life and accident and health claims ........................ (26,005) (20,655) (16,759)
Surrender benefits and other fund withdrawals .............. (431,939) (286,406) (206,250)
Other benefits to policyholders ............................ (28,147) (22,129) (19,041)
Commissions, other expenses and other taxes ................ (261,352) (196,373) (128,341)
Net transfers to separate accounts ......................... (596,347) (658,326) (242,427)
Federal income taxes paid .................................. (5,006) (9,449) (7,531)
Interest paid .............................................. (731) - -
Other, net ................................................. (6,768) 28,325 (4,284)
---------- ---------- ----------
Net cash used in operating activities ...................... (88,265) (79,799) (4,288)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks ................................ 146,963 122,820 108,554
Common stocks ............................................. - - 2,108
Mortgage loans on real estate ............................. 2,116 132 1,954
Real estate ............................................... - 4,304 -
Other ..................................................... - 175 -
---------- ---------- ----------
149,079 127,431 112,616
Cost of investments acquired ...............................
Bonds and preferred stocks ................................ (40,418) (26,826) (139,402)
Common stocks ............................................. (150) (4) (589)
Mortgage loans on real estate ............................. (891) - (6)
Real estate ............................................... (12,002) (7,837) (449)
Policy loans .............................................. (24,137) (15,479) (9,605)
Other ..................................................... - (5) -
---------- ----------- ----------
(77,598) (50,151) (150,051)
---------- ---------- ----------
Net cash provided by (used in) investing activities ........ 71,481 77,280 (37,435)
FINANCING ACTIVITIES
Issuance of short-term note payable to affiliate ........... 8,200 - -
Capital contribution ....................................... 20,000 - -
---------- ---------- ----------
Net cash provided by financing activities .................. 28,200 - -
---------- ---------- ----------
Increase (decrease) in cash and short-term investments ..... 11,416 (2,519) (41,723)
Cash and short-term investments at beginning of year ....... 2,480 4,999 46,722
---------- ---------- ----------
Cash and short-term investments at end of year ............. $ 13,896 $ 2,480 $ 4,999
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
27
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, 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 and the District of Columbia. 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, which practices differ from generally accepted accounting
principles. The more significant of these differences are as follows: (a) bonds
are generally carried at amortized cost rather than segregating the portfolio
into held-to-maturity (reported at amortized cost), available-for-sale (reported
at fair value), and trading (reported at fair value) classifications; (b)
acquisition costs of acquiring new business are expensed as incurred rather than
deferred and amortized over the life of the policies; (c) policy reserves on
traditional life products are based on statutory mortality rates and interest
which may differ from reserves based on reasonable assumptions of expected
mortality, interest, and withdrawals which include a provision for possible
unfavorable deviation from such assumptions; (d) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (e) reinsurance amounts are netted
against the corresponding asset or liability rather than shown as gross amounts
on the balance sheet; (f) deferred income taxes are not provided for the
difference between the financial statement amounts and income tax bases of
assets and liabilities; (g) net realized gains or losses attributed to changes
in the level of interest rates in the market are deferred and amortized over the
remaining life of the bond or mortgage loan, rather than recognized as gains or
losses in the statement of operations when the sale is completed; (h) declines
in the estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (k) pension expense is recorded
as amounts are paid rather than accrued and expensed during the periods in which
the employers provide service; and (l) the financial statements of wholly-owned
affiliates are not consolidated with those of the Company. The effects of these
variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1998, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements. The impact of
any such changes on the Company's statutory surplus cannot be determined at
this time and could be material.
28
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Common stocks of
unaffiliated companies are carried at market and include shares of mutual funds
(money market and other), and the related unrealized capital gains/ (losses)
are reported in unassigned surplus without any adjustment for federal income
taxes. Common stocks of the Company's wholly-owned affiliates are recorded at
the equity in net assets. Home office property is reported at cost less
allowances for depreciation. Depreciation is computed principally by the
straight-line method. Policy loans are reported at unpaid principal. Other
"admitted assets" are valued, principally at cost, as required or permitted by
Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
During 1997, 1996 and 1995, net realized capital gains of $3,259, $2,394 and
$554, respectively, were credited to the IMR rather than being immediately
recognized in the statements of operations. Amortization of these net gains
aggregated $1,576, $1,335 and $882 for the years ended December 31, 1997, 1996
and 1995, respectively.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. No investment income due and accrued has
been excluded for the years ended December 31, 1997, 1996 and 1995, with
respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are determined
based on published tables using statutorily specified interest rates and
valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience 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.
29
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Reserves for immediate annuities and supplementary contracts with life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 5.75 to 8.75 percent and mortality rates, where
appropriate, from a variety of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown separately in the balance sheets. The assets in the separate
accounts are valued at market. Income and gains and losses with respect to the
assets in the separate accounts accrue to the benefit of the policyholders and,
accordingly, the operations of the separate accounts are not included in the
accompanying financial statements. The separate accounts do not have any
minimum guarantees and the investment risks associated with market value
changes are borne entirely by the policyholders. The Company received variable
contract premiums of $1,164,013, $997,513 and $466,822 in 1997, 1996 and 1995,
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
NOTE 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 sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or (in the
case of private placements) are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality, and
maturity of the investments. The fair values for equity securities are based on
quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
30
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- FAIR VALUES OF FINANCIAL
INSTRUMENTS--(CONTINUED)
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------------- ---------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds ................ $ 255,919 $ 267,763 $ 359,579 $ 372,319
Common stocks ........ 747 747 597 597
Mortgage loans
on real estate ..... 4,824 5,143 6,049 6,134
Policy loans ......... 76,741 76,741 52,604 52,604
Cash and
short-term
investments ........ 13,896 13,896 2,480 2,480
Separate account
assets ............. 4,814,594 4,814,594 3,527,145 3,527,145
LIABILITIES
Investment
contract
liabilities ........ 280,121 276,113 321,293 314,748
Separate account
annuities .......... 3,615,255 3,565,557 2,692,614 2,647,266
</TABLE>
NOTE 3 -- INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States
Government
and agencies ...... $ 3,675 $ 9 $ 30 $ 3,654
State, municipal
and other
government ........ 3,855 360 - 4,215
Public utilities ..... 15,794 904 403 16,295
Industrial and
miscellaneous ..... 121,513 7,700 710 128,503
Mortgage-backed
securities ........ 111,082 4,198 184 115,096
-------- ------- ------ --------
Total bonds .......... $255,919 $13,171 $1,327 $267,763
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States
Government and
agencies .............. $ 11,422 $ 13 $ 292 $ 11,143
State, municipal
and other
government ............ 5,504 274 - 5,778
Public utilities ......... 14,808 848 80 15,576
Industrial and
miscellaneous ......... 173,097 8,889 910 181,076
Mortgage-backed
securities ............ 154,748 4,617 619 158,746
-------- ------- ------ --------
Total bonds .............. $359,579 $14,641 $1,901 $372,319
======== ======= ====== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1997 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.
31
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3 -- INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due in one year or less ............................ $ 18,310 $ 18,467
Due one through five years ......................... 67,005 70,952
Due five through ten years ......................... 29,508 30,621
Due after ten years ................................ 30,014 32,627
-------- --------
144,837 152,667
Mortgage and other asset backed securities ......... 111,082 115,096
-------- --------
$255,919 $267,763
======== ========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest on bonds ....................... $25,723 $33,969 $38,624
Dividends on equity investments ......... 10,855 - 30
Interest on mortgage loans .............. 478 559 573
Rental income on real estate ............ 1,371 919 1,014
Interest on policy loans ................ 4,656 3,339 2,353
Other investment income ................. 26 9 328
------- ------- -------
Gross investment income ................. 43,109 38,795 42,922
Investment expenses ..................... (3,096) (2,728) (2,031)
------- ------- -------
Net investment income ................... $40,013 $36,067 $40,891
======= ======= =======
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds ...................... $146,963 $122,820 $108,554
======== ======== ========
Gross realized gains .......... $ 3,921 $ 2,984 $ 1,631
Gross realized losses ......... 626 791 1,346
-------- -------- --------
Net realized gains ............ $ 3,295 $ 2,193 $ 285
======== ======== ========
</TABLE>
At December 31, 1997, bonds with an aggregate carrying value of $5,474 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:
<TABLE>
<CAPTION>
Realized
---------------------------------------
Year ended December 31
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Debt securities .................................. $3,295 $2,193 $ 285
Mortgage loans ................................... - - (1,409)
Real estate ...................................... - (606) -
Other invested assets ............................ - (4) -
------ ------- -------
3,295 1,583 (1,124)
Tax benefit ...................................... (711) - -
Transfer to interest maintenance reserve ......... (3,259) (2,394) (554)
------ ------ -------
Net realized gains (losses) ...................... $ 747 $ (811) $(1,678)
====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Change in Unrealized
---------------------------------------
Year ended December 31
---------------------------------------
1997 1996 1995
---------- ------------- ----------
<S> <C> <C> <C>
Debt securities ................. $ (896) $(14,442) $36,399
Common stock .................... - (66) (236)
------ -------- -------
Change in unrealized appreciation
(depreciation) ................ $ (896) $(14,508) $36,163
====== ======== =======
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
<TABLE>
<CAPTION>
Unrealized
-------------------------
Year ended December 31
-------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Unrealized gains ............. $295 $295 $361
Unrealized losses ............ - - -
---- ---- ----
Net unrealized gains ......... $295 $295 $361
==== ==== ====
</TABLE>
During 1997, the Company issued one mortgage loan with an interest rate of
8.07%. The maximum percentage of any one mortgage loan to the value of the
underlying real estate at origination was 69%. The Company requires all
mortgagees to carry fire insurance equal to the value of the underlying
property.
32
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3 -- INVESTMENTS--(CONTINUED)
During 1997, 1996 and 1995, no mortgage loans were foreclosed and transferred
to real estate. During 1997 and 1996, the Company held a mortgage loan loss
reserve in the asset valuation reserve of $54 and $138, respectively.
At December 31, 1997, 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.
NOTE 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.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Direct premiums ............. $1,219,271 $1,034,757 $570,413
Reinsurance assumed ......... 2,389 2,063 1,569
Reinsurance ceded ........... (5,141) (3,105) (2,084)
---------- ---------- --------
Net premiums earned ......... $1,216,519 $1,033,715 $569,898
========== ========== ========
</TABLE>
The Company received reinsurance recoveries in the amount of $2,288, $2,156 and
$512 during 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996,
estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $2,721 and $974, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 1997 and 1996 of $1,369 and $1,140,
respectively.
NOTE 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 differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------- ---------
<S> <C> <C> <C>
Computed tax at federal statutory rate
(35%) ........................................ $ (1,156) $3,189 $5,096
Deferred acquisition costs - tax basis ......... 9,164 7,172 4,241
Tax reserve valuation .......................... (194) (696) (34)
Excess tax depreciation ........................ (127) (65) (49)
Amortization of IMR ............................ (552) (467) (309)
Dividend received deduction .................... (5,326) - -
Other, net ..................................... (1,340) 164 (28)
-------- ------ ------
Federal income tax expense ..................... $ 469 $9,297 $8,917
======== ====== ======
</TABLE>
For the year ended December 31, 1997, federal income tax benefit differs from
the amount computed by applying the statutory federal income tax rate to
realized gains due to the recognition for tax purposes of a deferred loss
previously incurred on a transfer of bonds from the Company to an affiliate.
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, 1997). 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 1995, the Company reached a final settlement with the Internal Revenue
Service for 1987 through 1993 resulting in taxes of $1,275 and interest of $120
(net of $65 tax effect).
33
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 -- INCOME TAXES--(CONTINUED)
The assessment was charged to surplus as a prior period adjustment. An
examination is currently underway for years 1994 through 1995.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $10,705, which were utilized by the Company's affiliates in the
consolidated tax return filing in 1997. This transaction resulted in a receipt
from the Company's affiliate of $3,747, which was credited directly to
unassigned surplus.
NOTE 6 -- POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies,
provided that a dividend distribution, which is determined annually based on
mortality and persistency experience of the participating policies, is
authorized by the Company. Participating insurance constituted approximately
.03% and .04% of life insurance in force at December 31, 1997 and 1996,
respectively.
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:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
1997 1996
------------------------- -------------------------
PERCENT Percent
AMOUNT OF TOTAL Amount of Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with market
value adjustment .............. $ 13,812 1% $ 14,881 1%
Subject to discretionary
withdrawal at book value
less surrender charge ......... 68,376 2 63,619 2
Subject to discretionary
withdrawal at market value 3,615,255 91 2,692,614 89
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
1997 1996
------------------------- -------------------------
PERCENT Percent
AMOUNT OF TOTAL Amount of Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal at book value
(minimal or no charges or
adjustments) .................. 201,457 5 239,204 7
Not subject to discretionary
withdrawal provision .......... 16,572 1 17,603 1
---------- -- ---------- --
3,915,472 100% 3,027,921 100%
===== =====
Less reinsurance ceded .......... - -
---------- ----------
Total policy reserves on
annuities and deposit fund
liabilities ................... $3,915,472 $3,027,921
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Transfers as reported in the
summary of operations of the
separate accounts statement:
Transfers to separate accounts ......... $1,164,013 $997,513 $466,882
Transfers from separate
accounts ............................. 646,477 339,523 224,416
---------- -------- ---------
Net transfers to separate
accounts ............................. 517,536 657,990 242,466
Reconciling adjustments - change
in accruals for investment
management, administration
fees and contract guarantees,
and separate account surplus ......... 1,678 (205,519) (39)
---------- -------- ---------
Transfers as reported in the
summary of operations of the
life, accident and health annual
statement ............................ $ 519,214 $452,471 $242,427
========== ======== =========
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1997 and 1996, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
34
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
--------- --------- --------
<S> <C> <C> <C>
DECEMBER 31, 1997
Ordinary direct first year business ......... $ 2 $ 1 $ 1
Ordinary direct renewal business ............ 1,350 140 1,210
Group life direct business .................. 717 - 717
------ ---- ------
$2,069 $141 $1,928
====== ==== ======
DECEMBER 31, 1996
Ordinary direct first year business ......... $ 40 $ 9 $ 31
Ordinary direct renewal business ............ 1,431 225 1,206
Group life direct business .................. 622 - 622
Annuity renewal business .................... 94 10 84
------ ---- ------
$2,187 $244 $1,943
====== ==== ======
</TABLE>
At December 31, 1997 and 1996, the Company had insurance in force aggregating
$1,710 and $1,904, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department of the State of Ohio. The Company established policy
reserves of $26 and $27 to cover these deficiencies at December 31, 1997 and
1996, respectively.
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 $1,872, $2,995 and
$3,496 was made for the years ended December 31, 1997, 1996 and 1995,
respectively, related to the change in reserve methodology.
NOTE 7 -- DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
NOTE 8 -- RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the FASB Statement No. 87
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $659, $581 and $505 for the years ended
December 31, 1997, 1996 and 1995, respectively. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement and Income Security Act of 1974.
Pension expense related to this plan was $448, $184 and $305 for the years
ended December 31, 1997, 1996 and 1995, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
or funded as deemed appropriate by management of AEGON and the Company.
35
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO THE FINANCIAL STATEMENTS -- STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 -- RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
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 $99, $98
and $86 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 9 -- RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1997,
1996 and 1995, the Company paid $10,040, $10,038 and $8,825, respectively, for
such services, which approximates their costs to the affiliates. Company
provides office space, marketing and administrative services to certain
affiliates. During 1997, 1996 and 1995, the Company received $4,395, $3,271 and
$4,545, respectively, for such services, which approximates their cost. The
Company had a net payable with affiliates of $1,925 and $19,298 at December 31,
1997 and 1996, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.33% at December 31, 1997. During 1997,
1996 and 1995, the Company paid (received) net interest of $364, $138 and
$(294), respectively, to (from) affiliates.
The Company received capital contributions of $20,000 from its parent in 1997.
At December 31, 1997, the Company has a $8,200 short-term note payable to an
affiliate. Interest on this note accrues at 5.60 %.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. The future obligation has been based on the most
recent information available from the National Organization of Life and Health
Insurance Guaranty Association. Potential future obligations for unknown
nsolvencies are not determinable by the Company. The Company has established a
reserve of $4,007 and $4,344 and an offsetting premium tax benefit of $1,070
and $1,218 at December 31, 1997 and 1996, respectively, for its estimated share
of future guaranty fund assessments related to several major insurer
insolvencies. The guaranty fund expense was $0, $212 and $1,950 at December 31,
1997, 1996 and 1995, respectively.
NOTE 11 -- YEAR 2000 (UNAUDITED)
AEGON has adopted and has in place a Year 2000 Assessment and Planning Project
(the "Project") to review and analyze its information technology and systems to
determine if they are Year 2000 compatible. The Company has begun to convert or
modify, where necessary, critical data processing systems. It is contemplated
that the plan will be substantially completed by early 1999. The Company does
not expect this project to have a significant effect on operations. However, to
mitigate the effect of outside influences upon the success of the project, the
Company has undertaken communications with its significant customers, suppliers
and other third parties to determine their Year 2000 compatibility and
readiness. Management believes that the issues associated with the Year 2000
will be resolved with no material financial impact on the Company.
36
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS - STATUTORY-BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
Since the Year 2000 computer problem, and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived Project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of the Company, its ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond its knowledge or control.
37
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -------------------------------------------------------------------- ---------- ---------- ----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government agencies and authorities .. $ 65,611 $ 68,452 $ 65,611
States, municipalities and political subdivisions ................. 1,840 1,974 1,840
Foreign governments ............................................... 2,015 2,241 2,015
Public utilities .................................................. 15,794 16,295 15,794
All other corporate bonds ......................................... 170,659 178,801 170,659
-------- -------- --------
Total fixed maturities ............................................. 255,919 267,763 255,919
EQUITY SECURITIES
Common stocks:
Industrial, miscellaneous and all other ........................... 452 747 747
-------- -------- --------
Total equity securities ............................................ 452 747 747
Mortgage loans on real estate ...................................... 4,824 4,824
Real estate ........................................................ 19,964 19,964
Policy loans ....................................................... 76,741 76,741
Cash and short-term investments .................................... 13,896 13,896
-------- --------
Total investments .................................................. $371,796 $372,091
======== ========
</TABLE>
(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.
38
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
BENEFITS,
CLAIMS,
FUTURE POLICY POLICY AND NET LOSSES AND OTHER
BENEFITS AND CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING
EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES*
--------------- ------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Individual life ............... $177,088 $ 9,533 $ 390,452 $13,742 $ 88,738 $176,303
Group life .................... 9,435 805 3,918 810 3,986 3,292
Annuity ....................... 296,290 591 822,149 25,461 389,726 83,179
-------- ------- ---------- ------- -------- --------
$482,813 $10,929 $1,216,519 $40,013 $482,450 $262,774
======== ======= ========== ======= ======== ========
YEAR ENDED DECEMBER 31, 1996
Individual life ............... $145,964 $ 7,017 $ 289,375 $ 8,228 $125,861 $124,181
Group life and health ......... 9,202 713 4,215 3,940 3,828 2,818
Annuity ....................... 332,230 854 740,125 23,899 294,681 71,576
-------- ------- ---------- ------- -------- --------
$487,396 $ 8,584 $1,033,715 $36,067 $424,370 $198,575
======== ======= ========== ======= ======== ========
YEAR ENDED DECEMBER 31, 1995
Individual life ............... $ 64,128 $ 5,811 $ 188,143 $ 9,470 $ 20,048 $ 83,709
Group life .................... 7,904 701 3,365 1,054 2,774 946
Annuity ....................... 319,353 100 378,390 30,367 211,008 44,447
-------- ------- ---------- ------- -------- --------
$391,385 $ 6,612 $ 569,898 $40,891 $233,830 $129,102
======== ======= ========== ======= ======== ========
</TABLE>
*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.
39
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE OF
OTHER FROM OTHER NET AMOUNT ASSUMED
GROSS AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------- ------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Life insurance in force ......... $40,221,361 $6,776,447 $2,692,822 $36,137,736 7.5%
=========== ========== ========== =========== ===
Premiums:
Individual life ................ $ 395,361 $ 4,910 $ - $ 390,452 0.0%
Group life and health .......... 1,761 231 2,389 3,918 61.0
Annuity ........................ 822,149 - - 822,149 0.0
----------- ---------- ---------- ----------- ----
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
=========== ========== ========== =========== ====
YEAR ENDED DECEMBER 31, 1996
Life insurance in force ......... $28,168,880 $4,463,986 $2,210,601 $25,915,495 8.5%
=========== ========== ========== =========== ====
Premiums:
Individual life ................ $ 292,239 $ 2,863 $ - $ 289,376 0.0%
Group life and health .......... 2,393 242 2,063 4,214 49.0
Annuity ........................ 740,125 - - 740,125 0.0
----------- ---------- ---------- ----------- ----
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
=========== ========== ========== =========== ====
YEAR ENDED DECEMBER 31, 1995
Life insurance in force ......... $19,438,203 $1,365,119 $1,619,378 $19,692,462 8.2%
=========== ========== ========== =========== ====
Premiums:
Individual life ................ $ 189,870 $ 1,727 $ - $ 188,143 0.0%
Group life ..................... 2,153 357 1,569 3,365 46.6
Annuity ........................ 378,390 - - 378,390 0.0
----------- ---------- ---------- ----------- ----
$ 570,413 $ 2,084 $ 1,569 $ 569,898 0.2%
=========== ========== ========== =========== ====
</TABLE>
40
