SUPPLEMENT DATED MAY 1, 1999
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
--------- ----
WRL Goldman Sachs Growth 0.90%
WRL Goldman Sachs Small Cap 0.90%
WRL T. Rowe Price Dividend Growth 0.90%
WRL T. Rowe Price Small Cap 0.75%
WRL Salomon All Cap 0.90%
WRL Pilgrim Baxter Mid Cap Growth 0.90%
WRL Dreyfus Mid Cap 0.85%
THE FOLLOWING INFORMATION IS ADDED TO PAGE 9, UNDER THE SECTION ENTITLED "DEATH
BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS" IN THE PROSPECTUS:
The information contained in both the explanation and "Hypothetical
Illustrations" is out-of-date and should not be relied upon. In addition,
current hypothetical illustrations for the new Portfolios are not included in
Appendix A.
THE FOLLOWING INFORMATION IS ADDED TO PAGE 8 OF THE PROSPECTUS BEFORE THE
SECTION ENTITLED "INVESTMENT EXPERIENCE INFORMATION" AND REPRESENTS BOTH THE
ACTUAL ANNUAL EXPENSES OF THE EXISTING PORTFOLIOS INCURRED DURING 1998, AND THE
ESTIMATED ANNUAL EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS, OF THE NEW
PORTFOLIOS:
FUND ANNUAL EXPENSES 1/ (as a % of Fund average net assets)
<TABLE>
<CAPTION>
WRL
WRL J.P. WRL LKCM
Morgan WRL WRL WRL VKAM Strategic
Money Janus Janus AEGON Emerging Total
Market Growth 2/ Global 3/ Bond Growth Return
------ --------- --------- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.40% 0.78% 0.80% 0.45% 0.80% 0.80%
Other Expenses 0.06% 0.05% 0.15% 0.09% 0.09% 0.06%
(After Reimbursement)
Total Annual Expenses 0.46% 0.83% 0.95% 0.54% 0.89% 0.86%
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL WRL
Alger WRL Federated Dean WRL NWQ
Aggressive AEGON Growth & Asset C.A.S.E. Value
Growth Balanced Income Allocation Growth Equity
------ -------- ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.80% 0.80% 0.75% 0.80% 0.80% 0.80%
Other Expenses 0.11% 0.11% 0.15% 0.06% 0.20% 0.09%
(After Reimbursement)
Total Annual Expenses 0.91% 0.91% 0.90% 0.86% 1.00% 0.89%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WRL GE/ WRL J.P.
Scottish Equitable WRL GE WRL Third Morgan
International U.S. Avenue Real Estate
Equity Equity Value Securities 4/
------ ------ ----- ---------------
<S> <C> <C> <C> <C>
Management Fees 1.00% 0.80% 0.80% 0.80%
Other Expenses 0.50% 0.25% 0.20% 0.20%
(After Reimbursement)
Total Annual Expenses 1.50% 1.05% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
WRL WRL
WRL WRL T. Rowe WRL Pilgrim
Goldman Goldman Price T. Rowe WRL Baxter WRL
Sachs Sachs Dividend Price Salomon Mid Cap Dreyfus
Growth 3/ 5/ Small Cap 5/ Growth 3/ 5/ Small Cap 5/ All Cap 3/ 5/ Growth 3/ 5/ Mid Cap 3/ 5/
------------ ------------ ------------ ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.90% 0.90% 0.90% 0.75% 0.90% 0.90% 0.85%
Other Expenses 0.10% 0.10% 0.10% 0.25% 0.10% 0.10% 0.15%
(After Reimbursement)
Total Annual Expenses 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
</TABLE>
- -----------------
1/ Effective January 1, 1997, the Fund's Board authorized the Fund to charge
each Portfolio of the Fund an annual 12b-1 fee of up to 0.15% of each
Portfolio's average daily net assets. However, the Fund will not deduct the
fee from any Portfolio before April 30, 2000. You will receive advance
written notice if a Rule 12b-1 fee is deducted. See the Fund prospectus for
more detail.
2/ WRL Janus Growth's management fee was 0.80% of the average daily net assets
for the period prior to May 1, 1998, 0.775% of the first $3 billion of
average daily net assets and 0.75% of the average daily net assets in
excess of $3 billion for the period May 1, 1998 to December 31, 1998.
3/ As compensation for its services to the Portfolios, the investment adviser
receives monthly compensation at an annual rate of a percentage of the
average daily net assets of each Portfolio. The management fees for each
Portfolio are: WRL Janus Global - 0.80% up to $2 billion and 0.775% over $2
billion; WRL Goldman Sachs Growth - 0.90% up to $100 million and 0.80% over
$100 million; WRL T. Rowe Price Dividend Growth - 0.90% up to $100 million
and 0.80% over $100 million; WRL Salomon All Cap - 0.90% up to $100 million
and 0.80% over $100 million; WRL Pilgrim Baxter Mid Cap Growth - 0.90% up
to $100 million and 0.80% over $100 million; and WRL Dreyfus Mid Cap -
0.85% up to $100 million and 0.80% over $100 million.
4/ Because WRL J.P. Morgan Real Estate Securities commenced operations on May
1, 1998, the percentages set forth as "Other Expenses" and "Total Annual
Expenses" are annualized.
5/ Because these Portfolios did not commence operations until May 1, 1999, the
percentages set forth as "Other Expenses" and "Total Annual Expenses"
reflect estimates of "Other Expenses" for the first year of operations.
Subject to state approvals, these Portfolios will be available for
allocations of net premiums and cash value on or about July 1, 1999. Please
contact your agent for information regarding availability.
The purpose of the preceding table is to help you understand the
various costs and expenses that you will bear directly and indirectly. The table
reflects charges and expenses of the Portfolios of the Fund for the fiscal year
ended December 31, 1998. For more information on the charges described in this
table, see the Fund prospectus, which accompanies this prospectus.
WRL Management has undertaken, until at least April 30, 2000, to pay
expenses on behalf of the Portfolios of the Fund to the extent normal operating
expenses of a Portfolio exceed a stated percentage of each Portfolio's average
daily net assets. The expense limitation for WRL Alger Aggressive Growth, WRL
VKAM Emerging Growth, WRL Janus Growth, WRL Janus Global, WRL AEGON Balanced,
WRL LKCM Strategic Total Return, WRL Federated Growth & Income, WRL Dean Asset
Allocation, WRL NWQ Value Equity, WRL Third Avenue Value, WRL C.A.S.E. Growth,
WRL J.P. Morgan Real Estate Securities, WRL Goldman Sachs Growth, WRL Goldman
Sachs Small Cap, WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap,
WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus
2
<PAGE>
Mid Cap is 1.00% of the average daily net assets; 0.70% of the average daily net
assets for the WRL AEGON Bond and WRL J.P. Morgan Money Market; 1.50% of the
average daily net assets of the WRL GE/Scottish Equitable International Equity;
and 1.30% of the average daily net assets of the WRL GE U.S. Equity. In 1998,
WRL Management, the Fund's Investment Adviser, reimbursed WRL GE/Scottish
Equitable International Equity in the amount of $127,763, WRL Third Avenue Value
in the amount of $14,229, and WRL J.P. Morgan Real Estate Securities in the
amount of $28,275. Without such reimbursements, the total Fund expenses during
1998 for WRL GE/Scottish Equitable International Equity, WRL Third Avenue Value,
and WRL J.P. Morgan Real Estate Securities would have been 1.96%, 1.13% and
3.34%, respectively. See the Fund's Prospectus for a description of the expense
limitation applicable to each Portfolio.
THE FOLLOWING IS REVISED AFTER THE THIRD PARAGRAPH ON PAGE 15 OF THE PROSPECTUS
UNDER THE HEADING "OTHER PERFORMANCE DATA":
We are a charter member of the Insurance Marketplace Standards
Association ("IMSA"). IMSA is an independent, voluntary organization of life
insurance companies. It promotes high ethical standards in the sales,
advertising and servicing of individual life insurance and annuity products.
Companies must undergo a rigorous self and independent assessment of their
practices to become a member of IMSA. The IMSA logo in our sales literature
shows our ongoing commitment to these standards.
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, 1999, you may direct the money in your Policy into
seven new Sub-Accounts of the WRL Series Life Account. Each Sub-Account invests
exclusively in a new Portfolio of the WRL Series Fund, Inc. ("Fund"). 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 Fund
Prospectus, which accompanies this Supplement, and should be read carefully.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Sub-Adviser Investment Objective
- --------- ----------- ---------------------
<S> <C> <C>
WRL Goldman Goldman Sachs Asset Seek long-term growth of capital.
Sachs Growth* Management, Inc.
WRL Goldman Goldman Sachs Asset Seek long-term growth of capital.
Sachs Small Cap* Management, Inc.
WRL T. Rowe T. Rowe Price Seeks to provide an increasing
Price Dividend Associates, Inc. level of dividend income,
Growth* long-term capital appreciation
and reasonable current income
through investments primarily
in dividend paying stocks.
WRL T. Rowe T. Rowe Price Seeks long-term growth of
Price Small Cap* Associates, Inc. capital by investing primarily
in common stocks of small
growth companies.
WRL Salomon Salomon Brothers Asset Seeks capital appreciation.
All Cap* Management, Inc.
WRL Pilgrim Pilgrim Baxter & Seeks capital appreciation.
Baxter Mid Cap Associates, Ltd.
Growth*
WRL Dreyfus The Dreyfus Seeks total investment returns
Mid Cap* Corporation (including capital appreciation
and income), which consistently
outperform the S&P 400 Mid Cap
Index.
</TABLE>
* SUBJECT TO STATE APPROVALS, THESE PORTFOLIOS WILL BE AVAILABLE FOR
ALLOCATIONS OF NET PREMIUMS AND CASH VALUE ON OR ABOUT JULY 1, 1999.
PLEASE CONTACT YOUR AGENT FOR INFORMATION REGARDING AVAILABILITY.
- --------------------------------------------------------------------------------
3
<PAGE>
In addition, effective May 1, 1999, the Portfolios of the Fund in which
you may currently invest through the Policy have changed their names. Below is a
list of the "old" and "new" names for these Portfolios:
- ------------------------------------ -------------------------------------------
OLD NAME NEW NAME
- ------------------------------------ -------------------------------------------
Money Market WRL J.P. Morgan Money Market
- ------------------------------------ -------------------------------------------
Growth WRL Janus Growth
- ------------------------------------ -------------------------------------------
Global WRL Janus Global
- ------------------------------------ -------------------------------------------
Bond WRL AEGON Bond
- ------------------------------------ -------------------------------------------
Emerging Growth WRL VKAM Emerging Growth
- ------------------------------------ -------------------------------------------
Strategic Total Return WRL LKCM Strategic Total Return
- ------------------------------------ -------------------------------------------
Aggressive Growth WRL Alger Aggressive Growth
- ------------------------------------ -------------------------------------------
Balanced WRL AEGON Balanced
- ------------------------------------ -------------------------------------------
Growth & Income WRL Federated Growth & Income
- ------------------------------------ -------------------------------------------
Tactical Asset Allocation WRL Dean Asset Allocation
- ------------------------------------ -------------------------------------------
C.A.S.E. Growth WRL C.A.S.E. Growth
- ------------------------------------ -------------------------------------------
Value Equity WRL NWQ Value Equity
- ------------------------------------ -------------------------------------------
International Equity WRL GE/Scottish Equitable International
Equity
- ------------------------------------ -------------------------------------------
U.S. Equity WRL GE U.S. Equity
- ------------------------------------ -------------------------------------------
Third Avenue Value WRL Third Avenue Value
- ------------------------------------ -------------------------------------------
Real Estate Securities WRL J.P. Morgan Real Estate Securities
- ------------------------------------ -------------------------------------------
THE FOLLOWING PARAGRAPH IS ADDED AFTER THE CARRYOVER PARAGRAPH ON PAGE 29 OF THE
PROSPECTUS UNDER THE HEADING "ALLOCATION OF PREMIUMS AND CASH VALUE -
TRANSFERS."
The Policy's transfer privilege is not intended to afford policyowners
a way to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the Portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each Portfolio, except from WRL J.P.
Morgan Money Market. We interpret "substantive" to mean either a dollar amount
large enough to have a negative impact on a Portfolio's operations or a service
of movements between Portfolios.We will not limit non-substantive transfers.
THE FOLLOWING PARAGRAPH IS ADDED AFTER THE CARRYOVER PARAGRAPH ON PAGE 35 OF THE
PROSPECTUS UNDER THE HEADING "POLICY RIGHTS - LOAN PRIVILEGES."
You may request a loan by telephone by calling us at 1-800-851-9777. If
the loan amount you request exceeds $50,000 or if the address of record has been
changed within the past 10 days, we may reject your request. If you do not want
the ability to request a loan by telephone, you should notify us in writing. You
will be required to provide certain information for identification purposes when
you request a loan by telephone. We may ask you to provide us with written
confirmation of your request. We will not be liable for processing a loan
request if we believe the request is genuine.
You may also fax your loan request to us at 727-299-1667. We will not
be responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
THE FOLLOWING SECTION HAS BEEN REVISED ON PAGE 51 OF THE PROSPECTUS AFTER THE
HEADING "ADDITIONAL INFORMATION":
YEAR 2000 READINESS DISCLOSURE
In May 1996, Western Reserve adopted and presently has in place a Year
2000 Project Plan (the "Plan") to review and analyze existing hardware and
software systems, as well as voice and data communications systems, to determine
if they are Year 2000 compliant. As of March 1, 1999, substantially all of
Western Reserve's mission-critical systems are Year 2000 compliant. The Plan
remains on track as we continue with the validation of our mission-critical and
non-mission-critical systems, including revalidation testing in 1999. In
addition, we have undertaken aggressive initiatives to test all systems that
interface with any third parties and other business partners. All of these steps
are aimed at allowing current operations to remain unaffected by the Year 2000
data change.
4
<PAGE>
As of the date of this prospectus, Western Reserve has identified and
made available what it believes are the appropriate resources of hardware,
people, and dollars, including the engagement of outside third parties, to
ensure that the Plan will be completed.
The actions taken by management under the Plan are intended to reduce
significantly Western Reserve's risk of a material business interruption based
on the Year 2000 issues. It should be noted that the Year 2000 computer problem,
and its resolution, is complex and multifaceted, and any company's success
cannot be conclusively known until the Year 2000 is reached. In spite of its
efforts or results, our ability to function unaffected to and through the Year
2000 may be adversely affected by actions, or failure to act, of third parties,
beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section
3(9) of the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C.
Section 1 (1998).
THE FIFTH PARAGRAPH ON PAGE 52 OF THE PROSPECTUS UNDER THE HEADING "APPENDIX A -
ILLUSTRATION OF BENEFITS" IS CHANGED, AS FOLLOWS:
The amounts we show for the death benefits, Cash Values and Net
Surrender Values take into account (1) the daily charge for assuming mortality
and expense risks assessed against each Sub-Account. This charge 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 0.94% of the Portfolios' average daily net assets; and (3) all applicable
premium expense charges and Cash Value charges using the current monthly Policy
charge. The 0.94% average Portfolio expense level assumes an equal allocation of
amounts among the 23 Sub-Accounts. It is based on an average 0.80% investment
advisory fee and estimated 1998 average normal operating expenses of 0.14% for
each of the Portfolios in operation during 1998. We used annualized actual
audited expenses incurred during 1998 for the following Portfolios to calculate
the average annual expense level: WRL J.P. Morgan Money Market (0.46%), WRL
AEGON Bond (0.54%), WRL Janus Growth (0.83%), WRL LKCM Strategic Total Return
(0.86%), WRL VKAM Emerging Growth (0.89%), WRL Janus Global (0.95%), WRL Alger
Aggressive Growth (0.91%), WRL AEGON Balanced (0.91%), WRL Federated Growth &
Income (0.90%), WRL C.A.S.E. Growth (1.00%), WRL Dean Asset Allocation (0.86%),
WRL NWQ Value Equity (0.89%), WRL GE/Scottish Equitable International Equity
(1.50%), WRL GE U.S. Equity (1.05%), WRL Third Avenue Value (1.00%), and WRL
J.P. Morgan Real Estate Securities (1.00%). Because the Portfolios of WRL
Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend
Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid
Cap Growth and WRL Dreyfus Mid Cap had not commenced operations as of December
31, 1998, the estimated average annual Portfolio expense level reflects
estimated expenses for each of these Portfolios at 1.00% for 1999.
During 1998, WRL Management undertook to pay normal operating expenses
of certain Portfolios that exceeded a certain stated percentage of those
Portfolios' average daily net assets. WRL Management has undertaken until April
30, 2000 to pay expenses to the extent normal operating expenses of certain
Portfolios of the Fund exceed a stated percentage of the Portfolio's average
daily net assets. Taking into account the assumed charges of 1.84%, the gross
annual investment return rates of 0%, 6% and 12% are equivalent to net annual
investment return rates of -1.84%, 4.16%, and 10.16%.
WRL00192-5/99
5
<PAGE>
Index to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRL SERIES LIFE ACCOUNT:
Report of Independent Accountants dated January 29, 1999
Statement of Assets and Liabilities and Statement of Operations at or for the
year ended December 31, 1998
Statement of Changes in Net Assets for the years ended December 31, 1998 and
1997
Financial Highlights for the years ended December 31, 1998, 1997, 1996, 1995
and 1994
Notes to the Financial Statements
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Report of Independent Auditors dated February 19, 1999
Statutory-Basis Balance Sheets at December 31, 1998 and 1997
Statutory-Basis Statements of Operations for the years ended December 31, 1998,
1997 and 1996
Statutory-Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 1998, 1997 and 1996
Statutory-Basis Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996
Notes to Statutory-Basis Financial Statements
Statutory-Basis Financial Statement Schedules
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life
Assurance Co. of Ohio and Policy Owners of the
WRL Series Life Account.
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of each of the Sub-Accounts constituting the WRL Series Life Account
(a separate account of Western Reserve Life Assurance Co. of Ohio, hereafter
referred to as the "Life Account") at December 31, 1998, the results of each of
their operations, the changes in each of their net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Life Account's management, our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 29, 1999
7
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
MONEY
MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 24,472 2,150 13,310
======= ======= ========
Cost ............................................... $24,472 $24,523 $423,759
======= ======= ========
Investment, at net asset value ...................... $24,472 $24,925 $797,795
Transfers receivable from depositor ................. 104 9 232
------- ------- --------
Total assets ....................................... 24,576 24,934 798,027
------- ------- --------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------- ------- --------
Total liabilities .................................. 0 0 0
------- ------- --------
Net assets ......................................... $24,576 $24,934 $798,027
======= ======= ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $24,576 $24,934 $798,027
Depositor's equity .................................. 0 0 0
------- ------- --------
Net assets applicable to units outstanding ......... $24,576 $24,934 $798,027
======= ======= ========
Policy Owners' units ................................ 1,460 1,090 8,668
Depositor's units ................................... 0 0 0
------- ------- --------
Units outstanding .................................. 1,460 1,090 8,668
======= ======= ========
Accumulation unit value ............................ $ 16.83 $ 22.89 $ 92.07
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC EMERGING
GLOBAL TOTAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 9,833 6,028 9,752
======== ======= ========
Cost ............................................... $189,249 $81,865 $176,852
======== ======= ========
Investment, at net asset value ...................... $233,131 $98,885 $262,548
Transfers receivable from depositor ................. 125 41 117
-------- ------- --------
Total assets ....................................... 233,256 98,926 262,665
-------- ------- --------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
-------- ------- --------
Total liabilities .................................. 0 0 0
-------- ------- --------
Net assets ......................................... $233,256 $98,926 $262,665
======= ========
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $233,256 $98,926 $262,665
Depositor's equity .................................. 0 0 0
-------- ------- --------
Net assets applicable to units outstanding ......... $233,256 $98,926 $262,665
======== ======= ========
Policy Owners' units ................................ 10,167 4,814 8,218
Depositor's units ................................... 0 0 0
-------- ------- --------
Units outstanding .................................. 10,167 4,814 8,218
======== ======= ========
Accumulation unit value ............................ $ 22.94 $ 20.55 $ 31.96
======== ======= ========
</TABLE>
The notes to the financial statements are an integral part of this report.
8
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH &
GROWTH BALANCED INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 7,923 1,185 1,306
======== ======= =======
Cost ............................................... $126,802 $13,872 $16,213
======== ======= =======
Investment, at net asset value ...................... $177,787 $14,863 $16,036
Transfers receivable from depositor ................. 70 1 11
-------- ------- -------
Total assets ....................................... 177,857 14,864 16,047
-------- ------- -------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
-------- ------- -------
Total liabilities .................................. 0 0 0
-------- ------- -------
Net assets ......................................... $177,857 $14,864 $16,047
======== ======= =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $177,857 $14,864 $16,047
Depositor's equity .................................. 0 0 0
-------- ------- -------
Net assets applicable to units outstanding ......... $177,857 $14,864 $16,047
======== ======= =======
Policy Owners' units ................................ 6,669 990 976
Depositor's units ................................... 0 0 0
-------- ------- -------
Units outstanding .................................. 6,669 990 976
======== ======= =======
Accumulation unit value ............................ $ 26.67 $ 15.02 $ 16.44
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET C.A.S.E.
ALLOCATION GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 2,988 1,364 2,152
======= ======= =======
Cost ............................................... $38,916 $19,242 $28,825
======= ======= =======
Investment, at net asset value ...................... $39,889 $17,718 $26,066
Transfers receivable from depositor ................. 15 12 17
------- ------- -------
Total assets ....................................... 39,904 17,730 26,083
------- ------- -------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------- ------- -------
Total liabilities .................................. 0 0 0
------- ------- -------
Net assets ......................................... $39,904 $17,730 $26,083
======= ======= =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $39,904 $17,730 $26,083
Depositor's equity .................................. 0 0 0
------- ------- -------
Net assets applicable to units outstanding ......... $39,904 $17,730 $26,083
======= ======= =======
Policy Owners' units ................................ 2,383 1,417 1,982
Depositor's units ................................... 0 0 0
------- ------- -------
Units outstanding .................................. 2,383 1,417 1,982
======= ======= =======
Accumulation unit value ............................ $ 16.74 $ 12.51 $ 13.16
======= ======= =======
</TABLE>
The notes to the financial statements are an integral part of this report.
9
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
<TABLE>
<CAPTION>
INTERNATIONAL U.S. THIRD AVENUE
EQUITY EQUITY VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 483 976 302
====== ======= ======
Cost ............................................... $5,705 $13,010 $2,904
====== ======= ======
Investment, at net asset value ...................... $5,824 $14,078 $2,801
Transfers receivable from depositor ................. 3 6 6
------ ------- ------
Total assets ....................................... 5,827 14,084 2,807
------ ------- ------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------ ------- ------
Total liabilities .................................. 0 0 0
------ ------- ------
Net assets ......................................... $5,827 $14,084 $2,807
====== ======= ======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $5,827 $14,084 $2,622
Depositor's equity .................................. 0 0 185
------ ------- ------
Net assets applicable to units outstanding ......... $5,827 $14,084 $2,807
====== ======= ======
Policy Owners' units ................................ 489 919 284
Depositor's units ................................... 0 0 20
------ ------- ------
Units outstanding .................................. 489 919 304
====== ======= ======
Accumulation unit value ............................ $11.92 $ 15.33 $ 9.23
====== ======= ======
</TABLE>
REAL ESTATE
SECURITIES
SUB-ACCOUNT
-----------
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 83
=====
Cost ............................................... $ 784
=====
Investment, at net asset value ...................... $ 708
Transfers receivable from depositor ................. 1
-----
Total assets ....................................... 709
-----
LIABILITIES:
Accrued expenses .................................... 0
Transfers payable to depositor ...................... 0
-----
Total liabilities .................................. 0
-----
Net assets ......................................... $ 709
=====
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 371
Depositor's equity .................................. 338
-----
Net assets applicable to units outstanding ......... $ 709
=====
Policy Owners' units ................................ 44
Depositor's units ................................... 40
-----
Units outstanding .................................. 84
=====
Accumulation unit value ............................ $8.46
=====
The notes to the financial statements are an integral part of this report.
10
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
MONEY
MARKET BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $1,113 $1,196 $ 1,180
Capital gain distributions .............................................. 0 0 5,200
------ ------ --------
Total investment income ................................................ 1,113 1,196 6,380
EXPENSES:
Mortality and expense risk .............................................. 194 194 5,277
------ ------ --------
Net investment income (loss) ........................................... 919 1,002 1,103
------ ------ --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 0 642 12,232
Change in unrealized appreciation (depreciation) ....................... 0 71 283,227
------ ------ --------
Net gain (loss) on investment securities ............................... 0 713 295,459
------ ------ --------
Net increase (decrease) in net assets resulting from operations ....... $ 919 $1,715 $296,562
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC EMERGING
GLOBAL TOTAL RETURN GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 1,092 $2,240 $ 0
Capital gain distributions .............................................. 8,026 1,844 8,683
------- ------ -------
Total investment income ................................................ 9,118 4,084 8,683
EXPENSES:
Mortality and expense risk .............................................. 1,693 800 1,789
------- ------ -------
Net investment income (loss) ........................................... 7,425 3,284 6,894
------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 3,529 1,097 4,995
Change in unrealized appreciation (depreciation) ....................... 34,898 3,250 54,519
------- ------ -------
Net gain (loss) on investment securities ............................... 38,427 4,347 59,514
------- ------ -------
Net increase (decrease) in net assets resulting from operations ....... $45,852 $7,631 $66,408
======= ====== =======
</TABLE>
The notes to the financial statements are an integral part of this report.
11
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH BALANCED GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 356 $329 $ 651
Capital gain distributions .............................................. 8,627 13 112
------- ---- ------
Total investment income ................................................ 8,983 342 763
EXPENSES:
Mortality and expense risk .............................................. 1,132 115 119
------- ---- ------
Net investment income (loss) ........................................... 7,851 227 644
------- ---- ------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 2,395 262 390
Change in unrealized appreciation (depreciation) ....................... 41,953 314 (659)
------- ---- ------
Net gain (loss) on investment securities ............................... 44,348 576 (269)
------- ---- ------
Net increase (decrease) in net assets resulting from operations ....... $52,199 $803 $ 375
======= ==== ======
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET C.A.S.E.
ALLOCATION GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................................................. $ 1,115 $ 1,514 $ 530
Capital gain distributions ....................................... 2,619 90 1,755
-------- -------- --------
Total investment income ......................................... 3,734 1,604 2,285
EXPENSES:
Mortality and expense risk ....................................... 315 129 264
-------- -------- --------
Net investment income (loss) .................................... 3,419 1,475 2,021
-------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ........... 429 175 1,254
Change in unrealized appreciation (depreciation) ................ (1,516) (1,289) (5,937)
-------- -------- --------
Net gain (loss) on investment securities ........................ (1,087) (1,114) (4,683)
-------- -------- --------
Net increase (decrease) in net assets resulting from operations $ 2,332 $ 361 $ (2,662)
======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of this report.
12
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
INTERNATIONAL U.S. THIRD AVENUE
EQUITY EQUITY BOND VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT(a)
----------- ----------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ......................................................... $ 3 $ 413 $ 8
Capital gain distributions .............................................. 0 94 0
----- ------ ------
Total investment income ................................................ 3 507 8
EXPENSES:
Mortality and expense risk .............................................. 35 73 19
----- ------ ------
Net investment income (loss) ........................................... (32) 434 (11)
----- ------ ------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions .................. 147 358 (39)
Change in unrealized appreciation (depreciation) ....................... 222 1,053 (103)
----- ------ ------
Net gain (loss) on investment securities ............................... 369 1,411 (142)
----- ------ ------
Net increase (decrease) in net assets resulting from operations ....... $ 337 $1,845 $ (153)
===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES
SUB-ACCOUNT(b)
--------------
<S> <C>
INVESTMENT INCOME:
Dividend income .................................................. $ 0
Capital gain distributions ....................................... 0
------
Total investment income ......................................... 0
EXPENSES:
Mortality and expense risk ....................................... 4
------
Net investment income (loss) .................................... (4)
-------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from securities transactions ........... (36)
Change in unrealized appreciation (depreciation) ................ (76)
------
Net gain (loss) on investment securities ........................ (112)
------
Net increase (decrease) in net assets resulting from operations $ (116)
======
</TABLE>
(a) The inception date of this Sub-Account was January 2, 1998.
(b) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of this report.
13
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
MONEY MARKET
SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
------------ ----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 919 $ 639
Net gain (loss) on investment securities .............................. 0 0
---------- --------
Net increase (decrease) in net assets resulting from operations ....... 919 639
---------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 12,763 7,719
---------- --------
Less cost of units redeemed:
Administrative charges ............................................... 3,123 3,108
Policy loans ......................................................... 1,163 687
Surrender benefits ................................................... 1,250 854
Death benefits ....................................................... 10 9
---------- --------
5,546 4,658
---------- --------
Increase (decrease) in net assets from capital unit transactions ..... 7,217 3,061
---------- --------
Net increase (decrease) in net assets ................................ 8,136 3,700
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 16,440 12,740
---------- --------
End of year ........................................................... $ 24,576 $ 16,440
========== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 1,020 825
Units issued .......................................................... 11,339 9,509
Units redeemed ........................................................ (10,899) (9,314)
---------- --------
Units outstanding - end of year ....................................... 1,460 1,020
========== ========
<CAPTION>
BOND GROWTH
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31, DECEMBER 31,
---------------------- ------------------------
1998 1997 1998 1997
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 1,002 $ 661 $ 1,103 $ 44,206
Net gain (loss) on investment securities .............................. 713 418 295,459 15,238
------- ------- -------- --------
Net increase (decrease) in net assets resulting from operations ....... 1,715 1,079 296,562 59,444
------- ------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 9,472 7,506 140,684 106,236
------- ------- -------- --------
Less cost of units redeemed:
Administrative charges ............................................... 2,292 1,633 44,910 37,231
Policy loans ......................................................... 594 428 18,083 11,212
Surrender benefits ................................................... 865 437 22,312 15,746
Death benefits ....................................................... 159 15 4,185 711
------- ------- -------- --------
3,910 2,513 89,490 64,900
------- ------- -------- --------
Increase (decrease) in net assets from capital unit transactions ..... 5,562 4,993 51,194 41,336
------- ------- -------- --------
Net increase (decrease) in net assets ................................ 7,277 6,072 347,756 100,780
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of year ..................................................... 17,657 11,585 450,271 349,491
------- ------- -------- --------
End of year ........................................................... $24,934 $17,657 $798,027 $450,271
======= ======= ======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 836 593 7,972 7,208
Units issued .......................................................... 1,030 568 2,967 2,877
Units redeemed ........................................................ (776) (325) (2,271) (2,113)
------- ------- -------- --------
Units outstanding - end of year ....................................... 1,090 836 8,668 7,972
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
SUB-ACCOUNT
DECEMBER 31,
------------------------
1998 1997
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 7,425 $ 15,859
Net gain (loss) on investment securities .............................. 38,427 805
-------- --------
Net increase (decrease) in net assets resulting from operations ....... 45,852 16,664
-------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 72,962 64,272
-------- --------
Less cost of units redeemed:
Administrative charges ............................................... 19,369 12,590
Policy loans ......................................................... 4,953 2,948
Surrender benefits ................................................... 5,662 3,391
Death benefits ....................................................... 591 149
-------- --------
30,575 19,078
-------- --------
Increase (decrease) in net assets from capital unit transactions ..... 42,387 45,194
-------- --------
Net increase (decrease) in net assets ................................ 88,239 61,858
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 145,017 83,159
-------- --------
End of year ........................................................... $233,256 $145,017
======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 8,145 5,497
Units issued .......................................................... 5,610 5,205
Units redeemed ........................................................ (3,588) (2,557)
-------- --------
Units outstanding - end of year ....................................... 10,167 8,145
======== ========
<CAPTION>
STRATEGIC
TOTAL RETURN EMERGING GROWTH
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31, DECEMBER 31,
----------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 3,284 $ 6,101 $ 6,894 $ 13,841
Net gain (loss) on investment securities .............................. 4,347 6,521 59,514 10,932
-------- -------- -------- --------
Net increase (decrease) in net assets resulting from operations ....... 7,631 12,622 66,408 24,773
-------- -------- -------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 24,191 22,072 64,824 54,392
-------- -------- -------- --------
Less cost of units redeemed:
Administrative charges ............................................... 7,696 6,025 19,612 14,518
Policy loans ......................................................... 2,319 1,624 5,601 3,692
Surrender benefits ................................................... 2,587 2,044 7,688 3,986
Death benefits ....................................................... 1,047 148 368 192
-------- -------- -------- --------
13,649 9,841 33,269 22,388
-------- -------- -------- --------
Increase (decrease) in net assets from capital unit transactions ..... 10,542 12,231 31,555 32,004
-------- -------- -------- --------
Net increase (decrease) in net assets ................................ 18,173 24,853 97,963 56,777
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of year ..................................................... 80,753 55,900 164,702 107,925
-------- -------- -------- --------
End of year ........................................................... $ 98,926 $ 80,753 $262,665 $164,702
======== ======== ======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 4,270 3,570 7,013 5,532
Units issued .......................................................... 1,946 1,809 4,099 4,085
Units redeemed ........................................................ (1,402) (1,109) (2,894) (2,604)
-------- -------- -------- --------
Units outstanding - end of year ....................................... 4,814 4,270 8,218 7,013
======== ======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of this report.
14
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 7,851 $ 7,795
Net gain (loss) on investment securities .............................. 44,348 6,524
-------- --------
Net increase (decrease) in net assets resulting from operations ....... 52,199 14,319
-------- --------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 53,159 40,282
-------- --------
Less cost of units redeemed:
Administrative charges ............................................... 13,960 9,888
Policy loans ......................................................... 3,522 1,926
Surrender benefits ................................................... 4,423 2,485
Death benefits ....................................................... 248 58
-------- --------
22,153 14,357
-------- --------
Increase (decrease) in net assets from capital unit transactions ..... 31,006 25,925
-------- --------
Net increase (decrease) in net assets ................................ 83,205 40,244
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 94,652 54,408
-------- --------
End of year ........................................................... $177,857 $ 94,652
======== ========
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 5,230 3,702
Units issued .......................................................... 3,797 3,540
Units redeemed ........................................................ (2,358) (2,012)
-------- --------
Units outstanding - end of year ....................................... 6,669 5,230
======== ========
<CAPTION>
BALANCED GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 227 $ 992 $ 644 $1,214
Net gain (loss) on investment securities .............................. 576 226 (269) 283
------- ------- ------- ------
Net increase (decrease) in net assets resulting from operations ....... 803 1,218 375 1,497
------- ------- ------- ------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 5,658 4,373 8,963 3,232
------- ------- ------- ------
Less cost of units redeemed:
Administrative charges ............................................... 1,423 958 1,633 733
Policy loans ......................................................... 279 179 218 163
Surrender benefits ................................................... 596 153 431 260
Death benefits ....................................................... 15 3 72 11
------- ------- ------- ------
2,313 1,293 2,354 1,167
------- ------- ------- ------
Increase (decrease) in net assets from capital unit transactions ..... 3,345 3,080 6,609 2,065
------- ------- ------- ------
Net increase (decrease) in net assets ................................ 4,148 4,298 6,984 3,562
Depositor's equity contribution (redemption) .......................... 0 0 0 0
NET ASSETS:
Beginning of year ..................................................... 10,716 6,418 9,063 5,501
------- ------- ------- ------
End of year ........................................................... $14,864 $10,716 $16,047 $9,063
======= ======= ======= ======
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 756 526 563 422
Units issued .......................................................... 578 472 966 352
Units redeemed ........................................................ (344) (242) (553) (211)
------- ------- ------- ------
Units outstanding - end of year ....................................... 990 756 976 563
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
TACTICAL ASSET
ALLOCATION
SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 3,419 $ 1,913
Net gain (loss) on investment securities .............................. (1,087) 1,362
-------- -------
Net increase (decrease) in net assets resulting from operations ....... 2,332 3,275
-------- -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 13,703 11,386
-------- -------
Less cost of units redeemed:
Administrative charges ............................................... 3,421 2,219
Policy loans ......................................................... 748 463
Surrender benefits ................................................... 925 742
Death benefits ....................................................... 160 60
-------- -------
5,254 3,484
-------- -------
Increase (decrease) in net assets from capital unit transactions ..... 8,449 7,902
-------- -------
Net increase (decrease) in net assets ................................ 10,781 11,177
Depositor's equity contribution (redemption) .......................... 0 0
NET ASSETS:
Beginning of year ..................................................... 29,123 17,946
-------- -------
End of year ........................................................... $ 39,904 $29,123
======== =======
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 1,867 1,330
Units issued .......................................................... 1,377 1,163
Units redeemed ........................................................ (861) (626)
-------- -------
Units outstanding - end of year ....................................... 2,383 1,867
======== =======
<CAPTION>
C.A.S.E. GROWTH VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 1,475 $ 994 $ 2,021 $ 183
Net gain (loss) on investment securities .............................. (1,114) (252) (4,683) 3,038
-------- ------- -------- -------
Net increase (decrease) in net assets resulting from operations ....... 361 742 (2,662) 3,221
-------- ------- -------- -------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 8,731 8,029 6,086 17,023
-------- ------- -------- -------
Less cost of units redeemed:
Administrative charges ............................................... 2,433 970 2,846 1,257
Policy loans ......................................................... 520 146 643 542
Surrender benefits ................................................... 295 144 401 388
Death benefits ....................................................... 60 6 165 0
-------- ------- -------- -------
3,308 1,266 4,055 2,187
-------- ------- -------- -------
Increase (decrease) in net assets from capital unit transactions ..... 5,423 6,763 2,031 14,836
-------- ------- -------- -------
Net increase (decrease) in net assets ................................ 5,784 7,505 (631) 18,057
Depositor's equity contribution (redemption) .......................... 0 (25) 0 (230)
NET ASSETS:
Beginning of year ..................................................... 11,946 4,466 26,714 8,887
-------- ------- -------- -------
End of year ........................................................... $ 17,730 $11,946 $ 26,083 $26,714
======== ======= ======== =======
UNIT ACTIVITY:
Units outstanding - beginning of year ................................. 969 413 1,916 790
Units issued .......................................................... 1,317 931 1,748 1,772
Units redeemed ........................................................ (869) (375) (1,682) (646)
-------- ------- -------- -------
Units outstanding - end of year ....................................... 1,417 969 1,982 1,916
======== ======= ======== =======
</TABLE>
The notes to the financial statements are an integral part of this report.
15
<PAGE>
WRL SERIES LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY U.S. EQUITY THIRD AVENUE REAL ESTATE
SUB-ACCOUNT SUB-ACCOUNT VALUE SECURITIES
DECEMBER 31, DECEMBER 31, SUB-ACCOUNT SUB-ACCOUNT
--------------------- -------------------- DECEMBER 31, DECEMBER 31,
1998 1997(a) 1998 1997(a) 1998(b) 1998(c)
---------- ---------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................... $ (32) $ (4) $ 434 $ 107 $ (11) $ (4)
Net gain (loss) on investment
securities ............................................ 369 31 1,411 96 (142) (112)
------ ------ ------- ------ ------ ------
Net increase (decrease) in net assets resulting from
operations ............................................ 337 27 1,845 203 (153) (116)
------ ------ ------- ------ ------ ------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................. 3,972 2,458 10,178 3,208 2,932 472
------ ------ ------- ------ ------ ------
Less cost of units redeemed:
Administrative charges ................................ 433 117 862 91 138 4
Policy loans .......................................... 196 59 159 56 8 43
Surrender benefits .................................... 35 14 113 9 26 0
Death benefits ........................................ 107 0 63 0 0 0
------ ------ ------- ------ ------ ------
771 190 1,197 156 172 47
------ ------ ------- ------ ------ ------
Increase (decrease) in net assets from capital
unit transactions ................................... 3,201 2,268 8,981 3,052 2,760 425
------ ------ ------- ------ ------ ------
Net increase (decrease) in net assets ................. 3,538 2,295 10,826 3,255 2,607 309
Depositor's equity contribution (redemption) ........... 0 (6) 0 3 200 400
NET ASSETS:
Beginning of year ...................................... 2,289 0 3,258 0 0 0
------ ------ ------- ------ ------ ------
End of year ............................................ $5,827 $2,289 $14,084 $3,258 $2,807 $ 709
====== ====== ======= ====== ====== ======
UNIT ACTIVITY:
Units outstanding - beginning of year .................. 215 0 259 0 0 0
Units issued ........................................... 767 484 1,266 393 495 113
Units redeemed ......................................... (493) (269) (606) (134) (191) (29)
------ ------ ------- ------ ------ ------
Units outstanding - end of year ........................ 489 215 919 259 304 84
====== ====== ======= ====== ====== ======
</TABLE>
(a) The inception date of this Sub-Account was January 2, 1997.
(b) The inception date of this Sub-Account was January 2, 1998.
(c) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of this report.
16
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
MONEY MARKET SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................... $ 16.13 $ 15.45
Income from operations:
Net investment income (loss) ........................................... 0.70 0.68
Net realized and unrealized gain (loss) on investment .................. 0.00 0.00
------- -------
Net income (loss) from operations ..................................... 0.70 0.68
------- -------
Accumulation unit value, end of year ..................................... $ 16.83 $ 16.13
======= =======
Total return (a) ......................................................... 4.36% 4.37%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $24,576 $16,440
Ratios of net investment income (loss) to average net assets (b) ........ 4.24% 4.28%
<CAPTION>
MONEY MARKET SUB-ACCOUNT
DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 14.83 $ 14.19 $ 13.84
Income from operations:
Net investment income (loss) ........................................... 0.62 0.64 0.35
Net realized and unrealized gain (loss) on investment .................. 0.00 0.00 0.00
------- ------- -------
Net income (loss) from operations ..................................... 0.62 0.64 0.35
------- ------- -------
Accumulation unit value, end of year ..................................... $ 15.45 $ 14.83 $ 14.19
======= ======= =======
Total return (a) ......................................................... 4.17% 4.49% 2.58%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $12,740 $10,759 $ 9,706
Ratios of net investment income (loss) to average net assets (b) ........ 4.07% 4.37% 2.66%
</TABLE>
<TABLE>
<CAPTION>
BOND SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................... $ 21.12 $ 19.53
Income from operations:
Net investment income (loss) ........................................... 1.01 1.01
Net realized and unrealized gain (loss) on investment .................. 0.76 0.58
------- -------
Net income (loss) from operations ..................................... 1.77 1.59
------- -------
Accumulation unit value, end of year ..................................... $ 22.89 $ 21.12
======= =======
Total return (a) ......................................................... 8.34% 8.18%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $24,934 $17,657
Ratios of net investment income (loss) to average net assets (b) ........ 4.58% 5.06%
<CAPTION>
BOND SUB-ACCOUNT
DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 19.67 $ 16.14 $ 17.50
Income from operations:
Net investment income (loss) ........................................... 0.99 1.05 0.89
Net realized and unrealized gain (loss) on investment .................. (1.13) 2.48 (2.25)
-------- ------- ---------
Net income (loss) from operations ..................................... (0.14) 3.53 (1.36)
-------- ------- ---------
Accumulation unit value, end of year ..................................... $ 19.53 $ 19.67 $ 16.14
======== ======= =========
Total return (a) ......................................................... (0.75)% 21.89% (7.77)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $ 11,585 $10,066 $ 6,259
Ratios of net investment income (loss) to average net assets (b) ........ 5.34% 5.80% 5.57%
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
DECEMBER 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of year ....................... $ 56.48 $ 48.48
Income from operations:
Net investment income (loss) ................................... 0.13 5.83
Net realized and unrealized gain (loss) on investment .......... 35.46 2.17
-------- --------
Net income (loss) from operations ............................. 35.59 8.00
-------- --------
Accumulation unit value, end of year ............................. $ 92.07 $ 56.48
======== ========
Total return (a) ................................................. 63.01% 16.50%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........................ $798,027 $450,271
Ratios of net investment income (loss) to average net assets (b) 0.19% 10.84%
<CAPTION>
GROWTH SUB-ACCOUNT
DECEMBER 31,
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ....................... $ 41.47 $ 28.44 $ 31.30
Income from operations:
Net investment income (loss) ................................... 2.88 3.89 0.04
Net realized and unrealized gain (loss) on investment .......... 4.13 9.14 (2.90)
-------- -------- --------
Net income (loss) from operations ............................. 7.01 13.03 (2.86)
-------- -------- --------
Accumulation unit value, end of year ............................. $ 48.48 $ 41.47 $ 28.44
======== ======== ========
Total return (a) ................................................. 16.91% 45.81% (9.13)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ........................ $349,491 $262,467 $161,490
Ratios of net investment income (loss) to average net assets (b) 6.41% 11.05% 0.16%
</TABLE>
The notes to the financial statements are an integral part of this report.
17
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
GLOBAL SUB-ACCOUNT
DECEMBER 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 17.80 $ 15.13
Income from operations:
Net investment income (loss) ........................................ 0.82 2.30
Net realized and unrealized gain (loss) on investment ............... 4.32 0.37
-------- --------
Net income (loss) from operations .................................. 5.14 2.67
-------- --------
Accumulation unit value, end of year .................................. $ 22.94 $ 17.80
======== ========
Total return (a) ...................................................... 28.86% 17.69%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $233,256 $145,017
Ratios of net investment income (loss) to average net assets (b) ..... 3.92% 13.39%
<CAPTION>
GLOBAL SUB-ACCOUNT
DECEMBER 31,
----------------------------------
1996 1995 1994(c)
----------- ----------- ----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 11.95 $ 9.80 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 1.50 0.45 0.71
Net realized and unrealized gain (loss) on investment ............... 1.68 1.70 (0.91)
------- ------- --------
Net income (loss) from operations .................................. 3.18 2.15 (0.20)
------- ------- --------
Accumulation unit value, end of year .................................. $ 15.13 $ 11.95 $ 9.80
======= ======= ========
Total return (a) ...................................................... 26.60% 21.96% (2.02)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $83,159 $37,049 $ 21,672
Ratios of net investment income (loss) to average net assets (b) ..... 11.09% 4.25% 8.86%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC TOTAL RETURN
SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 18.91 $ 15.66
Income from operations:
Net investment income (loss) ........................................ 0.71 1.56
Net realized and unrealized gain (loss) on investment ............... 0.93 1.69
------- -------
Net income (loss) from operations .................................. 1.64 3.25
------- -------
Accumulation unit value, end of year .................................. $ 20.55 $ 18.91
======= =======
Total return (a) ...................................................... 8.66% 20.77%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $98,926 $80,753
Ratios of net investment income (loss) to average net assets (b) ..... 3.67% 8.89%
<CAPTION>
STRATEGIC TOTAL RETURN SUB-ACCOUNT
DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 13.74 $ 11.12 $ 11.28
Income from operations:
Net investment income (loss) ........................................ 0.82 0.68 0.18
Net realized and unrealized gain (loss) on investment ............... 1.10 1.94 (0.34)
------- ------- --------
Net income (loss) from operations .................................. 1.92 2.62 (0.16)
------- ------- --------
Accumulation unit value, end of year .................................. $ 15.66 $ 13.74 $ 11.12
======= ======= ========
Total return (a) ...................................................... 13.97% 23.55% (1.42)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $55,900 $39,648 $ 23,649
Ratios of net investment income (loss) to average net assets (b) ..... 5.76% 5.47% 1.93%
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
DECEMBER 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 23.48 $ 19.51
Income from operations:
Net investment income (loss) ........................................ 0.91 2.20
Net realized and unrealized gain (loss) on investment ............... 7.57 1.77
-------- --------
Net income (loss) from operations .................................. 8.48 3.97
-------- --------
Accumulation unit value, end of year .................................. $ 31.96 $ 23.48
======== ========
Total return (a) ...................................................... 36.11% 20.37%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $262,665 $164,702
Ratios of net investment income (loss) to average net assets (b) ..... 3.44% 10.18%
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT
DECEMBER 31,
------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 16.56 $ 11.38 $ 12.40
Income from operations:
Net investment income (loss) ........................................ 0.82 0.65 (0.09)
Net realized and unrealized gain (loss) on investment ............... 2.13 4.53 (0.93)
-------- ------- -------
Net income (loss) from operations .................................. 2.95 5.18 (1.02)
-------- ------- -------
Accumulation unit value, end of year .................................. $ 19.51 $ 16.56 $ 11.38
======== ======= =======
Total return (a) ...................................................... 17.82% 45.49% (8.18)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $107,925 $67,905 $36,687
Ratios of net investment income (loss) to average net assets (b) ..... 4.51% 4.66% (0.86)%
</TABLE>
The notes to the financial statements are an integral part of this report.
18
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
SUB-ACCOUNT
DECEMBER 31,
------------------------
1998 1997
------------ -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 18.10 $ 14.70
Income from operations:
Net investment income (loss) ........................................ 1.33 1.75
Net realized and unrealized gain (loss) on investment ............... 7.24 1.65
-------- -------
Net income (loss) from operations .................................. 8.57 3.40
-------- -------
Accumulation unit value, end of year .................................. $ 26.67 $ 18.10
======== =======
Total return (a) ...................................................... 47.36% 23.14%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $177,857 $94,652
Ratios of net investment income (loss) to average net assets (b) ..... 6.20% 10.26%
<CAPTION>
AGGRESSIVE GROWTH SUB-ACCOUNT
DECEMBER 31,
-----------------------------------
1996 1995 1994(c)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 13.43 $ 9.82 $10.00
Income from operations:
Net investment income (loss) ........................................ 0.36 0.37 (0.06)
Net realized and unrealized gain (loss) on investment ............... 0.91 3.24 (0.12)
------- ------- ------
Net income (loss) from operations .................................. 1.27 3.61 (0.18)
------- ------- ------
Accumulation unit value, end of year .................................. $ 14.70 $ 13.43 $ 9.82
======= ======= ======
Total return (a) ...................................................... 9.46% 36.79% (1.85)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $54,408 $32,904 $8,909
Ratios of net investment income (loss) to average net assets (b) ..... 2.65% 2.93% (0.72)%
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................... $ 14.17 $ 12.21
Income from operations:
Net investment income (loss) ........................................... 0.25 1.55
Net realized and unrealized gain (loss) on investment .................. 0.60 0.41
------- -------
Net income (loss) from operations ..................................... 0.85 1.96
------- -------
Accumulation unit value, end of year ..................................... $ 15.02 $ 14.17
======= =======
Total return (a) ......................................................... 5.98% 16.06%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $14,864 $10,716
Ratios of net investment income (loss) to average net assets (b) ........ 1.76% 11.62%
<CAPTION>
BALANCED SUB-ACCOUNT
DECEMBER 31,
-----------------------------------
1996 1995 1994(c)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 11.13 $ 9.37 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.36 0.37 0.22
Net realized and unrealized gain (loss) on investment .................. 0.72 1.39 (0.85)
------- -------- ---------
Net income (loss) from operations ..................................... 1.08 1.76 (0.63)
------- -------- ---------
Accumulation unit value, end of year ..................................... $ 12.21 $ 11.13 $ 9.37
======= ======== =========
Total return (a) ......................................................... 9.73% 18.73% (6.29)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $ 6,418 $ 3,795 $ 2,145
Ratios of net investment income (loss) to average net assets (b) ........ 3.18% 3.59% 3.06%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME
SUB-ACCOUNT
DECEMBER 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Accumulation unit value, beginning of year ............................ $ 16.09 $ 13.03
Income from operations:
Net investment income (loss) ........................................ 0.77 2.61
Net realized and unrealized gain (loss) on investment ............... (0.42) 0.45
------- --------
Net income (loss) from operations .................................. 0.35 3.06
------- --------
Accumulation unit value, end of year .................................. $ 16.44 $ 16.09
======= ========
Total return (a) ...................................................... 2.13% 23.54%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $16,047 $ 9,063
Ratios of net investment income (loss) to average net assets (b) ..... 4.83% 18.50%
<CAPTION>
GROWTH & INCOME SUB-ACCOUNT
DECEMBER 31,
-----------------------------------
1996 1995 1994(c)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................ $ 11.77 $ 9.49 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.76 0.49 0.29
Net realized and unrealized gain (loss) on investment ............... 0.50 1.79 (0.80)
-------- -------- ---------
Net income (loss) from operations .................................. 1.26 2.28 (0.51)
-------- -------- ---------
Accumulation unit value, end of year .................................. $ 13.03 $ 11.77 $ 9.49
======== ======== =========
Total return (a) ...................................................... 10.64% 24.14% (5.15)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................. $ 5,501 $ 2,631 $ 1,215
Ratios of net investment income (loss) to average net assets (b) ..... 6.38% 4.57% 3.71%
</TABLE>
The notes to the financial statements are an integral part of this report.
19
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION SUB-ACCOUNT
DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995(d)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 15.60 $ 13.50 $ 11.90 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 1.58 1.20 0.53 0.61
Net realized and unrealized gain (loss) on investment .................. (0.44) 0.90 1.07 1.29
------- ------- ------- --------
Net income (loss) from operations ..................................... 1.14 2.10 1.60 1.90
------- ------- ------- --------
Accumulation unit value, end of year ..................................... $ 16.74 $ 15.60 $ 13.50 $ 11.90
======= ======= ======= ========
Total return (a) ......................................................... 7.36% 15.55% 13.40% 19.03%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $39,904 $29,123 $17,946 $ 9,446
Ratios of net investment income (loss) to average net assets (b) ........ 9.69% 8.14% 4.35% 5.47%
</TABLE>
<TABLE>
<CAPTION>
C.A.S.E. GROWTH SUB-ACCOUNT
DECEMBER 31,
---------------------------------------
1998 1997 1996(e)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 12.32 $ 10.81 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 1.24 1.51 0.37
Net realized and unrealized gain (loss) on investment .................. (1.05) 0.00 0.44
------- ------- -------
Net income (loss) from operations ..................................... 0.19 1.51 0.81
------- ------- -------
Accumulation unit value, end of year ..................................... $ 12.51 $ 12.32 $ 10.81
======= ======= =======
Total return (a) ......................................................... 1.56% 14.00% 8.09%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $17,730 $11,946 $ 4,466
Ratios of net investment income (loss) to average net assets (b) ........ 10.21% 12.65% 6.11%
</TABLE>
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT
DECEMBER 31,
---------------------------------------
1998 1997 1996(e)
----------- ----------- -----------
<S> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $ 13.94 $ 11.25 $ 10.00
Income from operations:
Net investment income (loss) ........................................... 0.95 0.14 0.05
Net realized and unrealized gain (loss) on investment .................. (1.73) 2.55 1.20
-------- ------- --------
Net income (loss) from operations ..................................... (0.78) 2.69 1.25
-------- ------- --------
Accumulation unit value, end of year ..................................... $ 13.16 $ 13.94 $ 11.25
======== ======= ========
Total return (a) ......................................................... (5.63)% 23.93% 12.51%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $ 26,083 $26,714 $ 8,887
Ratios of net investment income (loss) to average net assets (b) ........ 6.84% 1.05% 0.77%
</TABLE>
The notes to the financial statements are an integral part of this report.
20
<PAGE>
WRL SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY U.S. EQUITY
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31, DECEMBER 31,
----------------------- -------------------------
1998 1997(f) 1998 1997(f)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of year ............................... $10.65 $10.00 $ 12.59 $ 10.00
Income from operations:
Net investment income (loss) ........................................... (0.09) (0.03) 0.73 0.99
Net realized and unrealized gain (loss) on investment .................. 1.36 0.68 2.01 1.60
------- ------- ------- --------
Net income (loss) from operations ..................................... 1.27 0.65 2.74 2.59
------- ------- ------- --------
Accumulation unit value, end of year ..................................... $11.92 $10.65 $ 15.33 $ 12.59
======= ======= ======= ========
Total return (a) ......................................................... 11.84% 6.54% 21.78% 25.89%
Ratios and supplemental data:
Net assets at end of year (in thousands) ................................ $5,827 $2,289 $14,084 $ 3,258
Ratios of net investment income (loss) to average net assets (b) ........ (0.81)% (0.28)% 5.30% 8.28%
</TABLE>
<TABLE>
<CAPTION>
THIRD AVENUE REAL ESTATE
VALUE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31, DECEMBER 31,
1998(g) 1998(h)
-------------- -------------
<S> <C> <C>
Accumulation unit value, beginning of year ........................... $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ....................................... (0.05) (0.05)
Net realized and unrealized gain (loss) on investment .............. (0.72) (1.49)
------- --------
Net income (loss) from operations ................................. (0.77) (1.54)
------- --------
Accumulation unit value, end of year ................................. $ 9.23 $ 8.46
======= ========
Total return (a) ..................................................... (7.67)% (15.44)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 2,807 $ 709
Ratios of net investment income (loss) to average net assets (b) .... (0.52)% (0.90)%
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
* Per unit information has been computed using average units outstanding
throughout each period.
(a) Not annualized for periods less than one year.
(b) Annualized for periods less than one year.
(c) The inception date of this Sub-Account was March 1, 1994.
(d) The inception date of this Sub-Account was January 3, 1995.
(e) The inception date of this Sub-Account was May 1, 1996.
(f) The inception date of this Sub-Account was January 2, 1997.
(g) The inception date of this Sub-Account was January 2, 1998.
(h) The inception date of this Sub-Account was May 1, 1998.
The notes to the financial statements are an integral part of this report.
21
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Life Account (the "Life Account"), was established as a
variable life insurance separate account of Western Reserve Life Assurance Co.
of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under
the Investment Company Act of 1940, as amended. The Life Account contains
sixteen investment options referred to as sub-accounts. Each sub-account
invests in the corresponding Portfolio of the WRL Series Fund, Inc.
(collectively referred to as the "Fund" and individually as a "Portfolio"), a
registered management investment company under the Investment Company Act of
1940, as amended.
The Fund has entered into annually renewable investment advisory
agreements for each Portfolio with WRL Investment Management, Inc. ("WRL
Management") as investment adviser. Costs incurred in connection with the
advisory services rendered by WRL Management are paid by each Portfolio. WRL
Management has entered into sub-advisory agreements with various management
companies, some of which are affiliates of WRL. Each sub-adviser is compensated
directly by WRL Management.
On January 2, 1998 and May 1, 1998, WRL made initial contributions
totaling $600,000 to the Life Account. The respective amounts of the
contributions and units received are as follows:
SUB-ACCOUNT CONTRIBUTION UNITS
----------- ------------ -----
Third Avenue Value ............. $200,000 20,000
Real Estate Securities ......... $400,000 40,000
The Life Account holds assets to support the benefits under certain
flexible premium variable universal life insurance policies (the "Policies")
issued by WRL. The Life Account's equity transactions are accounted for using
the appropriate effective date at the corresponding accumulation unit value.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles, have been consistently applied
in the preparation of the Trust's financial statements. The preparation of
financial statements required management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are stated at the closing net asset value
("NAV") per share as determined by the Fund. Investment transactions are
accounted for on the trade date at the Fund NAV next determined after receipt
of sale or redemption orders without sales charges. Dividend income and capital
gains distributions are recorded on the ex-dividend date. The cost of
investments sold is determined on a first-in, first-out basis.
22
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under the
Internal Revenue Code. Under the Internal Revenue Code law, the investment
income of the Life Account, including realized and unrealized capital gains, is
not taxable to WRL. Accordingly, no provision for Federal income taxes has been
made.
NOTE 2. CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with the issuance and
administration of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, a sales charge and premium taxes are
deducted by WRL prior to allocation of policy owner payments to the
sub-accounts. Thereafter, monthly administrative and cost of insurance charges
are deducted from the policies. Contingent surrender charges also apply.
Under the other forms of the Policies, such "front-end" and other
administrative charges are deducted prior to allocation of the initial premium
payment but may be subject to contingent surrender charges.
Under all forms of the Policy, monthly charges against policy cash values
are made to compensate WRL for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of .90% of average daily net assets
is assessed to compensate WRL for assumption of mortality and expense risks and
administrative services in connection with issuance and administration of the
Policies. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
NOTE 3. DIVIDENDS AND DISTRIBUTIONS
Dividends are not declared by the Life Account, since the increase in the
value of the underlying investment in the Fund is reflected daily in the
accumulation unit value used to calculate the equity value within the Life
Account. Consequently, a dividend distribution by the underlying Fund does not
change either the accumulation unit value or equity values within the Life
Account.
23
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 4. SECURITIES TRANSACTIONS
Securities transactions for the year ended December 31, 1998 are as
follows (in thousands):
PURCHASE PROCEEDS
SUB-ACCOUNT OF SECURITIES OF SECURITIES
----------- --------------- --------------
Money Market ....................... $54,231 $46,140
Bond ............................... 14,451 7,857
Growth ............................. 72,758 20,484
Global ............................. 59,238 9,357
Strategic Total Return ............. 17,619 3,754
Emerging Growth .................... 49,088 10,679
Aggressive Growth .................. 44,611 5,689
Balanced ........................... 4,604 1,017
Growth & Income .................... 10,694 3,411
Tactical Asset Allocation .......... 14,060 2,009
C.A.S.E. Growth .................... 9,433 2,525
Value Equity ....................... 13,179 9,081
International Equity ............... 6,220 3,048
U.S. Equity ........................ 12,496 3,076
Third Avenue Value (a) ............. 3,849 906
Real Estate Securities (b) ......... 1,047 226
(a) The inception date of this Sub-Account was January 2, 1998.
(b) The inception date of this Sub-Account was May 1, 1998.
24
<PAGE>
WRL SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 5. OTHER MATTERS
At December 31, 1998 net unrealized appreciation (depreciation) on
investments was as follows (in thousands):
SUB-ACCOUNT
-----------
Money Market ...................... $ 0
Bond .............................. 402
Growth ............................ 374,036
Global ............................ 43,882
Strategic Total Return ............ 17,020
Emerging Growth ................... 85,696
Aggressive Growth ................. 50,985
Balanced .......................... 991
Growth & Income ................... (177)
Tactical Asset Allocation ......... 973
C.A.S.E. Growth ................... (1,524)
Value Equity ...................... (2,759)
International Equity .............. 119
U.S. Equity ....................... 1,068
Third Avenue Value ................ (103)
Real Estate Securities ............ (76)
25
<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, 1998 and 1997, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the statutory-basis financial
statement schedules required by Regulation S-X, Article 7. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the "Separate Account Assets" and "Separate
Account Liabilities" in the balance sheets of the Company. The Separate Account
financial statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the data included
for the Separate Account, is based solely upon the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Ohio, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Western Reserve Life Assurance Co. of Ohio at December
31, 1998 and 1997, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1998.
However, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Western Reserve Life Assurance Co.
of Ohio at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Insurance Department of the State of Ohio. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 19, 1999
26
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments .............................. $ 73,808 $ 13,896
Bonds ........................................................ 184,697 255,919
Common stocks:
Affiliated entities (cost: 1998 - $243; 1997 - $150)......... 704 319
Other (cost: 1998 and 1997 - $302)........................... 384 428
Mortgage loans on real estate ................................ 9,916 4,824
Home office properties ...................................... 34,583 19,964
Investment properties ....................................... 11,594 --
Policy loans ................................................ 112,982 76,741
Other invested assets ....................................... 396 --
---------- ----------
Total cash and invested assets ................................ 429,064 372,091
Premiums deferred and uncollected ............................. 900 1,928
Accrued investment income ..................................... 2,867 4,088
Transfers from separate accounts .............................. 350,633 279,958
Cash surrender value of life insurance policies ............... 45,445 --
Other assets .................................................. 9,239 5,221
Separate account assets ....................................... 6,999,290 4,814,594
---------- ----------
Total admitted assets ......................................... $7,837,438 $5,477,880
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
27
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
BALANCE SHEETS -- STATUTORY BASIS
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life ............................................ $ 231,596 $ 186,523
Annuity ......................................... 265,418 296,290
Policy and contract claim reserves ............... 9,233 10,929
Other policyholders' funds ....................... 38,080 3,877
Remittances and items not allocated .............. 20,569 9,184
Federal income taxes payable ..................... 5,716 2,283
Asset valuation reserve .......................... 2,848 2,436
Interest maintenance reserve ..................... 9,684 9,134
Short-term note payable to affiliate ............. 44,200 8,200
Payable to affiliate ............................. 37,907 1,925
Other liabilities ................................ 31,151 19,257
Separate account liabilities ..................... 6,997,456 4,812,979
---------- ----------
Total liabilities ................................. 7,693,858 5,363,017
Commitments and contingencies
Capital and surplus:
Common stock, $1.00 par value, 1,500 shares
authorized, issued and outstanding ............. 1,500 1,500
Paid-in surplus .................................. 120,107 88,015
Unassigned surplus ............................... 21,973 25,348
---------- ----------
Total capital and surplus ......................... 143,580 114,863
---------- ----------
Total liabilities and capital and surplus ......... $7,837,438 $5,477,880
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
28
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life ........................................................... $ 476,053 $ 394,370 $ 293,590
Annuity ........................................................ 794,841 822,149 740,125
Net investment income ........................................... 36,315 40,013 36,067
Amortization of interest maintenance reserve .................... 744 1,576 1,335
Commissions and expense allowances on reinsurance ceded ......... 15,333 11 11
Other income .................................................... 67,751 3,016 13,398
---------- ---------- ----------
1,391,037 1,261,135 1,084,526
Benefits and expenses:
Benefits paid or provided for:
Life ........................................................... 42,982 28,060 21,256
Surrender benefits ............................................. 551,528 431,939 286,406
Other benefits ................................................. 31,280 28,112 23,270
Increase (decrease) in aggregate reserves for policies
and contracts:
Life .......................................................... 42,940 29,485 80,139
Annuity ....................................................... (30,872) (35,940) 12,877
Other ......................................................... 32,178 794 422
---------- ---------- ----------
670,036 482,450 424,370
Insurance expenses:
Commissions .................................................... 205,939 179,106 140,261
General insurance expenses ..................................... 102,611 70,546 47,406
Taxes, licenses and fees ....................................... 15,545 13,101 10,848
Net transfer to separate accounts .............................. 402,618 519,214 452,471
Other expenses ................................................. 59 21 60
---------- ---------- ----------
726,772 781,988 651,046
---------- ---------- ----------
1,396,808 1,264,438 1,075,416
---------- ---------- ----------
Gain (loss) from operations before federal income taxes (benefit)
and realized capital gains (losses) on investments ............. (5,771) (3,303) 9,110
Federal income tax expense (benefit) ............................. (347) 469 9,297
---------- ---------- ----------
Loss from operations before realized capital gains
(losses) on investments ........................................ (5,424) (3,772) (187)
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to interest
maintenance reserve) ........................................... 1,494 747 (811)
---------- ---------- ----------
Net loss ......................................................... $ (3,930) $ (3,025) $ (998)
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CAPITAL
COMMON PAID-IN UNASSIGNED AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 ....................... $1,500 $ 68,015 $ 28,424 $ 97,939
Net loss for 1996 ............................... -- -- (998) (998)
Net unrealized capital gains .................... -- -- 1,294 1,294
Change in non-admitted assets ................... -- -- 199 199
Change in asset valuation reserve ............... -- -- (120) (120)
Change in surplus in separate accounts .......... -- -- 237 237
Change in reserve valuation ..................... -- -- (2,995) (2,995)
------ -------- -------- --------
Balance at December 31, 1996 ..................... 1,500 68,015 26,041 95,556
Net loss for 1997 ............................... -- -- (3,025) (3,025)
Change in non-admitted assets ................... -- -- (702) (702)
Change in asset valuation reserve ............... -- -- 3,274 3,274
Change in surplus in separate accounts .......... -- -- (2,115) (2,115)
Change in reserve valuation ..................... -- -- (1,872) (1,872)
Capital contribution ............................ -- 20,000 -- 20,000
Tax effect of capital loss carry-forward utilized
by affiliates ................................. -- -- 3,747 3,747
------ -------- -------- --------
Balance at December 31, 1997 ..................... 1,500 88,015 25,348 114,863
Net loss for 1998 ............................... -- -- (3,930) (3,930)
Net unrealized capital gains .................... -- -- 248 248
Change in non-admitted assets ................... -- -- (1,815) (1,815)
Change in asset valuation reserve ............... -- -- (412) (412)
Change in surplus in separate accounts .......... -- -- (341) (341)
Change in reserve valuation ..................... -- -- (2,132) (2,132)
Capital contribution ............................ -- 32,092 -- 32,092
Settlement of prior period tax returns .......... -- -- 353 353
Tax benefits on stock options exercised ......... -- -- 4,654 4,654
------ -------- -------- --------
Balance at December 31, 1998 ..................... $1,500 $120,107 $ 21,973 $143,580
====== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
30
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance .......... $1,356,732 $1,223,898 $1,046,548
Net investment income .......................................... 38,294 43,802 38,666
Life and accident and health claims ............................ (44,426) (26,005) (20,655)
Surrender benefits and other fund withdrawals .................. (551,528) (431,939) (286,406)
Other benefits to policyholders ................................ (31,231) (28,147) (22,129)
Commissions, other expenses and other taxes .................... (326,080) (262,901) (196,373)
Net transfers to separate accounts ............................. (461,982) (596,347) (658,326)
Federal income taxes received (paid) ........................... 11,956 5,006 (9,449)
Interest paid .................................................. -- (731) --
Other, net ..................................................... (7,109) (14,901) 28,325
---------- ---------- ----------
Net cash used in operating activities .......................... (15,374) (88,265) (79,799)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks .................................... 143,449 146,963 122,820
Mortgage loans on real estate ................................. 221 2,116 132
Real estate ................................................... -- -- 4,304
Other ......................................................... -- -- 175
---------- ---------- ----------
143,670 149,079 127,431
Cost of investments acquired ...................................
Bonds and preferred stocks .................................... (68,202) (40,418) (26,826)
Common stocks ................................................. (93) (150) (4)
Mortgage loans on real estate ................................. (5,313) (891) --
Real estate ................................................... (26,213) (12,002) (7,837)
Policy loans .................................................. (36,241) (24,137) (15,479)
Other ......................................................... (414) -- (5)
---------- ---------- -----------
(136,476) (77,598) (50,151)
---------- ---------- ----------
Net cash provided by investing activities ...................... 7,194 71,481 77,280
FINANCING ACTIVITIES
Issuance of short-term note payable to affiliate ............... 36,000 8,200 --
Capital contribution ........................................... 32,092 20,000 --
---------- ---------- ----------
Net cash provided by financing activities ...................... 68,092 28,200 --
---------- ---------- ----------
Increase (decrease) in cash and short-term investments ......... 59,912 11,416 (2,519)
Cash and short-term investments at beginning of year ........... 13,896 2,480 4,999
---------- ---------- ----------
Cash and short-term investments at end of year ................. $ 73,808 $ 13,896 $ 2,480
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
31
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company
organized under the laws of The Netherlands.
NATURE OF BUSINESS
The Company operates predominantly in the variable universal life and
variable annuity areas of the life insurance business. The Company is licensed
in 49 states, District of Columbia, Puerto Rico and Guam. Sales of the
Company's products are through financial planners, independent representatives,
financial institutions and stockbrokers. The majority of the Company's new life
insurance written and a substantial portion of new annuities written is done
through one marketing organization; the Company expects to maintain this
relationship for the foreseeable future.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the Insurance Department
of the State of Ohio ("Insurance Department"), which practices differ from
generally accepted accounting principles. The more significant of these
differences are as follows: (a) bonds are generally reported at amortized cost
rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring
new business are expensed as incurred rather than deferred and amortized over
the life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
32
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement amounts and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond or
mortgage loan, rather than recognized as gains or losses in the statement of
operations when the sale is completed; (h) declines in the estimated realizable
value of investments are provided for through the establishment of a formula-
determined statutory investment reserve (reported as a liability) changes to
which are charged directly to surplus, rather than through recognition in the
statement of operations for declines in value, when such declines are judged to
be other than temporary; (i) certain assets designated as "non-admitted assets"
have been charged to surplus rather than being reported as assets; (j) revenues
for universal life and investment products consist of the entire premiums
received rather than policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed; (k) pension expense is recorded as amounts are paid rather
than accrued and expensed during the periods in which the employers provide
service; and (l) the financial statements of wholly-owned affiliates are not
consolidated with those of the Company. The effects of these variances have not
been determined by the Company, but are presumed to be material.
In 1998, the National Association of Insurance Commissioners (NAIC)
adopted codified statutory accounting principles ("Codification"). Codification
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. Codification will require
adoption by the various states before it becomes the prescribed statutory basis
of accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State
of Ohio must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Department. At this time it is unclear whether the State of Ohio will adopt
Codification. However, based on current guidance, management believes that the
impact of Codification will not be material to the Company's statutory-basis
financial statements.
33
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Other significant statutory accounting practices are as follows:
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturities of one year or less when
purchased to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation
office of the NAIC has ascribed a value), mortgage loans on real estate and
short-term investments are reported at cost adjusted for amortization of
premiums and accrual of discounts. Amortization is computed using methods which
result in a level yield over the expected life of the investment. The Company
reviews its prepayment assumptions on mortgage and other asset backed
securities at regular intervals and adjusts amortization rates retrospectively
when such assumptions are changed due to experience and/or expected future
patterns. Common stocks of unaffiliated companies are carried at market and
include shares of mutual funds (money market and other), and the related
unrealized capital gains/(losses) are reported in unassigned surplus without
any adjustment for federal income taxes. Common stocks of the Company's
wholly-owned affiliates are recorded at the equity in net assets. Home office
and investment properties are reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid principal. Other "admitted assets" are
valued, principally at cost, as required or permitted by Ohio Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC and
are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve
(IMR), the portion of realized gains and losses on sales of fixed income
investments, principally bonds and mortgage loans, attributable to changes in
the general level of interest rates and amortizes those deferrals over the
remaining period to maturity of the security.
During 1998, 1997 and 1996, net realized capital gains of $1,294, $3,259
and $2,394, respectively, were credited to the IMR rather than being
immediately recognized in the statements of operations. Amortization of these
net gains aggregated $744, $1,576 and $1,335 for the years ended December 31,
1998, 1997 and 1996, respectively.
34
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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, 1998, 1997 and 1996, with
respect to such practices.
AGGREGATE RESERVES FOR POLICIES
Life and annuity reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.25 to 5.50 percent and are computed principally on the Net Level Premium
Valuation and the Commissioners' Reserve Valuation Methods. Reserves for
universal life policies are based on account balances adjusted for the
Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 5.75 to 8.75 percent and mortality rates, where appropriate, from a
variety of tables.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims
reported to the Company and claims incurred but not yet reported through the
statement date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable universal life and variable
annuity contracts and the Company's corresponding obligation to the contract
owners are shown
35
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 $1,240,858, $1,164,013 and $997,513 in 1998, 1997 and 1996, respectively.
All variable account contracts are subject to discretionary withdrawal by the
policyholder at the market value of the underlying assets less the current
surrender charge. Separate account contractholders have no claim against the
assets of the general account.
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. Statement of Financial Accounting Standards No. 107 excludes
certain
36
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
financial instruments and all nonfinancial instruments from its disclosure
requirements and allows companies to forego the disclosures when those
estimates can only be made at excessive cost. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or (in the case of private placements) are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities are based on quoted market prices.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of
the loans. The fair value of policy loans are assumed to equal their
carrying value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
37
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following sets forth a comparison of the fair values and carrying
values of the Company's financial instruments subject to the provisions of
Statement of Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------- -------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments .......... $ 73,808 $ 73,808 $ 13,896 $ 13,896
Bonds .................................... 184,697 192,556 255,919 267,763
Common stocks, other than affiliates ..... 384 384 428 428
Mortgage loans on real estate ............ 9,916 10,390 4,824 5,143
Policy loans ............................. 112,982 112,982 76,741 76,741
Separate account assets .................. 6,999,290 6,999,290 4,814,594 4,814,594
LIABILITIES
Investment contract liabilities .......... 297,349 294,105 280,121 276,113
Separate account annuities ............... 5,096,680 5,038,296 3,615,255 3,565,557
</TABLE>
38
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies ..... $ 4,749 $ 83 $ -- $ 4,832
State, municipal and other government ..... 3,234 117 -- 3,351
Public utilities .......................... 18,792 818 251 19,359
Industrial and miscellaneous .............. 96,332 6,685 577 102,440
Mortgage-backed securities ................ 61,590 1,235 251 62,574
-------- ------- ------ --------
Total bonds ................................ $184,697 $ 8,938 1,079 $192,556
======== ======= ====== ========
DECEMBER 31, 1997
Bonds:
United States Government and agencies ..... $ 3,675 $ 9 $ 30 $ 3,654
State, municipal and other government ..... 3,855 360 -- 4,215
Public utilities .......................... 15,794 904 403 16,295
Industrial and miscellaneous .............. 121,513 7,700 710 128,503
Mortgage-backed securities ................ 111,082 4,198 184 115,096
-------- ------- ------ --------
Total bonds ................................ $255,919 $13,171 $1,327 $267,763
======== ======= ====== ========
</TABLE>
The carrying value and fair value of bonds at December 31, 1998 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due in one year or less ............................ $ 2,706 $ 2,743
Due one through five years ......................... 61,340 64,696
Due five through ten years ......................... 43,233 45,352
Due after ten years ................................ 15,828 17,191
-------- --------
123,107 129,982
Mortgage and other asset backed securities ......... 61,590 62,574
-------- --------
$184,697 $192,556
======== ========
</TABLE>
39
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest on bonds ....................................... $ 17,150 $ 25,723 $ 33,969
Dividends on equity investments from subsidiary ......... 13,233 10,855 --
Interest on mortgage loans .............................. 499 478 559
Rental income on real estate ............................ 2,839 1,371 919
Interest on policy loans ................................ 6,241 4,656 3,339
Other investment income ................................. 540 26 9
-------- -------- --------
Gross investment income ................................. 40,502 43,109 38,795
Investment expenses ..................................... (4,187) (3,096) (2,728)
-------- -------- --------
Net investment income ................................... $ 36,315 $ 40,013 $ 36,067
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Proceeds ...................... $143,449 $146,963 $122,820
======== ======== ========
Gross realized gains .......... $ 4,641 $ 3,921 $ 2,984
Gross realized losses ......... 899 626 791
-------- -------- --------
Net realized gains ............ $ 3,742 $ 3,295 $ 2,193
======== ======== ========
At December 31, 1998, bonds with an aggregate carrying value of $4,297
were on deposit with certain state regulatory authorities or were restrictively
held in bank custodial accounts for benefit of such state regulatory
authorities, as required by statute.
40
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
Realized investment gains (losses) and changes in unrealized gains
(losses) for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
---------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Debt securities .................................. $ 3,742 $ 3,295 $ 2,193
Real estate ...................................... -- -- (606)
Other invested assets ............................ (18) -- (4)
-------- -------- ---------
3,724 3,295 1,583
Tax expense ...................................... (936) (711) --
Transfer to interest maintenance reserve ......... (1,294) (3,259) (2,394)
-------- -------- --------
Net realized gains (losses) ...................... $ 1,494 $ 747 $ (811)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
-----------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ---------- -------------
<S> <C> <C> <C>
Debt securities .......................................... $ (3,985) $ (896) $ (14,442)
Common stock ............................................. 248 -- (66)
-------- ------ ---------
Change in unrealized appreciation (depreciation) ......... $ (3,737) $ (896) $ (14,508)
======== ====== =========
</TABLE>
Gross unrealized gains (losses) on common stocks were as follows:
REALIZED
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
-------- ------ -------
Unrealized gains ............. $ 579 $295 $295
Unrealized losses ............ (36) -- --
----- ---- ----
Net unrealized gains ......... $ 543 $295 $295
===== ==== ====
During 1998, the Company issued one mortgage loan with an interest rate of
6.71%. The maximum percentage of any one mortgage loan to the value of the
underlying real estate at origination was 75%. The Company requires all
mortgagees to carry fire insurance equal to the value of the underlying
property.
During 1998, 1997 and 1996, no mortgage loans were foreclosed and
transferred to real estate. During 1998 and 1997, the Company held a mortgage
loan loss reserve in the asset valuation reserve of $112 and $54, respectively.
At December 31, 1998, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
41
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. REINSURANCE
The Company reinsures portions of certain insurance policies which exceed
its established limits, thereby providing a greater diversification of risk and
minimizing exposure on larger risks. The Company remains contingently liable
with respect to any insurance ceded, and this would become an actual liability
in the event that the assuming insurance company became unable to meet its
obligations under the reinsurance treaty.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Direct premiums .............. $1,345,752 $1,219,271 $1,034,757
Reinsurance assumed .......... 461 2,389 2,063
Reinsurance ceded ............ (75,319) (5,141) (3,105)
---------- ---------- ----------
Net premiums earned .......... $1,270,894 $1,216,519 $1,033,715
---------- ---------- ----------
</TABLE>
The Company received reinsurance recoveries in the amount of $5,260,
$2,288 and $2,156 during 1998, 1997 and 1996, respectively. At December 31,
1998 and 1997, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim reserves totaled $1,003 and $2,721,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1998 and 1997 of
$2,849 and $1,369, respectively.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a
tax-sharing agreement between the Company and its affiliates, the Company
computes federal income tax expense as if it were filing a separate income tax
return, except that tax credits and net operating loss carryforwards are
determined on the basis of the consolidated group. Additionally, the
alternative minimum tax is computed for the consolidated group and the
resulting tax, if any, is allocated back to the separate companies on the basis
of the separate companies' alternative minimum taxable income.
42
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to gain (loss) from operations
before income taxes (benefit) and realized capital gains (losses) on
investments for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ---------
<S> <C> <C> <C>
Computed tax (benefit) at federal statutory rate (35%) .......... $ (2,019) $ (1,156) $3,189
Deferred acquisition costs -- tax basis ......................... 9,672 9,164 7,172
Tax reserve valuation ........................................... 1,513 (194) (696)
Excess tax depreciation ......................................... (442) (127) (65)
Amortization of IMR ............................................. (260) (552) (467)
Dividend received deduction ..................................... (6,657) (5,326) --
Prior year over-accrual ......................................... (2,322) (1,541) (9)
Other, net ...................................................... 168 201 173
-------- -------- ------
Federal income tax expense (benefit) ............................ $ (347) $ 469 $9,297
-------- -------- ------
</TABLE>
Federal income tax expense differs from the amount computed by applying
the statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation, but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($293 at December 31, 1998). To the extent dividends are paid
from the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $103.
At December 31, 1996, the Company had capital loss carryforwards of
approximately $10,705, which were utilized by the Company's affiliates in the
consolidated tax return filing in 1997. This transaction resulted in a receipt
from the Company's affiliate of $3,747, which was credited directly to
unassigned surplus.
In 1998, the Company reached a final settlement with the Internal Revenue
Service for 1994 and 1995 resulting in a tax refund of $300 and interest
received of $53.
43
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products,
primarily separate accounts, that are not subject to significant mortality or
morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of reserves
on these products, by withdrawal characteristics are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
----------------------- ----------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with market
value adjustment ................................. $ 12,810 $ 13,812 1%
Subject to discretionary withdrawal at book value
less surrender charge ............................ 76,289 1% 68,376 2
Subject to discretionary withdrawal at market value 5,096,680 94 3,615,255 91
Subject to discretionary withdrawal at book value
(minimal or no charges or adjustments) ........... 210,270 4 201,457 5
Not subject to discretionary withdrawal provision . 15,681 1 16,572 1
---------- -- ---------- --
5,411,730 100% 3,915,472 100%
=== ===
Less reinsurance ceded ............................ 1,131 --
---------- ----------
Total policy reserves on annuities and deposit fund
liabilities ...................................... $5,410,599 $3,915,472
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Transfers as reported in the summary of operations
of the separate accounts statement:
Transfers to separate accounts ........................ $1,240,858 $1,164,013 $ 997,513
Transfers from separate accounts ...................... 847,507 646,477 339,523
---------- ---------- ----------
Net transfers to separate accounts ..................... 393,351 517,536 657,990
Reconciling adjustments -- change in accruals for
investment management, administration fees and
contract guarantees, and separate account surplus ..... 9,267 1,678 (205,519)
---------- ---------- ----------
Transfers as reported in the summary of operations
of the life, accident and health annual statement ..... $ 402,618 $ 519,214 $ 452,471
========== ========== ==========
</TABLE>
44
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
Reserves on the Company's traditional life products are computed using
mean reserving methodologies. These methodologies result in the establishment
of assets for the amount of the net valuation premiums that are anticipated to
be received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1998 and 1997, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
--------- --------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1998
Ordinary direct renewal business ............ $1,101 $201 $ 900
------ ---- ------
$1,101 $201 $ 900
====== ==== ======
DECEMBER 31, 1997
Ordinary direct first year business ......... $ 2 $ 1 $ 1
Ordinary direct renewal business ............ 1,350 140 1,210
Group life direct business .................. 717 -- 717
------ ---- ------
$2,069 $141 $1,928
====== ==== ======
</TABLE>
In 1994, the NAIC enacted a guideline to clarify reserving methodologies
for contracts that require immediate payment of claims upon proof of death of
the insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $2,132,
$1,872 and $2,995 was made for the years ended December 31, 1998, 1997 and
1996, respectively, related to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Ohio, on
the payment of dividends to its parent company. Generally, dividends during any
twelve month period may not be paid; without prior regulatory approval, in
excess of the lesser of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to the availability of unassigned surplus at the time
of such dividend, the maximum payment which may be made in 1999, without the
prior approval of insurance regulatory authorities, is $14,657.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored
by AEGON. The Company has no legal obligation for the plan. The Company
recognizes pension expense equal to its allocation from AEGON. The pension
expense is allocated among the participating companies based on the FASB
Statement No. 87 expense as a percent of salaries. The benefits are based on
years of service and the employee's
45
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS--(CONTINUED)
compensation during the highest five consecutive years of employment. Pension
expense aggregated $917, $659 and $581 for the years ended December 31, 1998,
1997 and 1996, respectively. The plan is subject to the reporting and
disclosure requirements of the Employee Retirement and Income Security Act of
1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k) of
the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Pension expense related to this plan was $632, $448 and
$184 for the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's
senior management with benefits in excess of normal pension benefits. The plans
are noncontributory and benefits are based on years of service and the
employee's compensation level. The plans are unfunded and nonqualified under
the Internal Revenue Code. In addition, AEGON has established incentive
deferred compensation plans for certain key employees of the Company. AEGON
also sponsors an employee stock option plan for individuals employed at least
three years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
for or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans
sponsored by AEGON that provide postretirement medical, dental and life
insurance benefits to employees meeting certain eligibility requirements.
Portions of the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $157, $99 and $98 for the years ended December 31, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
46
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS--(CONTINUED)
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, the Company paid $12,763, $10,040 and $10,038, respectively, for
such services, which approximates their costs to the affiliates. The Company
provides office space, marketing and administrative services to certain
affiliates. During 1998, 1997 and 1996, the Company received $5,125, $4,395 and
$3,271, respectively, for such services, which approximates their cost. The
Company had a net payable with affiliates of $33,449 and $1,925 at December 31,
1998 and 1997, respectively.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 4.74% at December 31, 1998. During 1998,
1997 and 1996, the Company paid net interest of $1,090, $364 and $138,
respectively, to affiliates.
The Company received capital contributions of $32,092 and $20,000 from its
parent in 1998 and 1997, respectively.
At December 31, 1998 and 1997, the Company had short-term note payables to
an affiliate of $44,200 and $8,200, respectively. Interest on these notes
ranged from 5.13% to 5.54% at December 31, 1998 and was 5.60% at December 31.
1997.
During 1998, the Company purchased life insurance policies covering the
lives of certain employees of the Company. Premiums of $43,500 were paid to an
affiliate for these policies. At December 31, 1998, the cash surrender value of
these policies is $45,445.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as an
asset on the Company's balance sheet. The future obligation has been based on
the most recent information available from the National Organization of Life
and Health Insurance Guaranty Association. Potential future obligations for
unknown insolvencies are not determinable by the Company. The
47
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Company has established a reserve of $3,489 and $4,007 and an offsetting
premium tax benefit of $828 and $1,070 at December 31, 1998 and 1997,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(credit) was $(74), $0 and $212 at December 31, 1998, 1997 and 1996,
respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 Issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address
the Year 2000 issue as it affects the Company's internal IT and non-IT systems,
and to assess Year 2000 issues relating to third parties with whom the Company
has critical relationships.
The Plan for addressing internal systems generally includes an assessment
of internal IT and non-IT systems and equipment affected by the Year 2000
issue; definition of strategies to address affected systems and equipment;
remediation of identified systems and equipment; internal testing and
certification that each internal system is Year 2000 compliant; and a review of
existing and revised business resumption and contingency plans to address
potential Year 2000 issues. The Company has remediated and tested substantially
all of its mission-critical internal IT systems as of December 31, 1998. The
Company continues to remediate and test certain non-critical internal IT
systems, internal non-IT systems and will continue with a revalidation testing
program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers around
cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from
48
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
its vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. The Company anticipates that a
considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party business
partners and expects to continue working with its business partners on any
interfacing of systems. However, the timing of external system compliance
cannot currently be predicted with accuracy because the implementation of Year
2000 readiness will vary from one company to another.
The Company does have some exposure to date sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other industries that may be equipment intensive, like manufacturing,
the Company is a life insurance and financial services organization providing
insurance, annuities and pension products to its customers. As such, the
primary equipment and electronic devices in use are computers and telephone
related equipment. This type of hardware can have date sensitive embedded
technology which could have Year 2000 problems. Because of this exposure, the
Company has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is in
the process of replacing any equipment that will not properly process date
sensitive data in the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could experience
an interruption in the ability to collect and process premiums or deposits,
process claim payments, accurately maintain policyholder information,
accurately maintain accounting records, and or perform adequate customer
service. Should the worst case scenario occur, it could, dependent upon its
duration, have a material impact on the Company's business and financial
condition. Simple failures can be repaired and returned to production within a
matter of hours with no material impact. Unanticipated failures with a longer
service disruption period could have a more serious impact. For this reason,
the Company is placing significant emphasis on risk management and Year 2000
business resumption contingency planning in 1999 by modifying its existing
business resumption and disaster recovery plans to address potential Year 2000
issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should be noted that the Year
2000 computer problem, and its
49
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. YEAR 2000 (UNAUDITED)--(CONTINUED)
resolution, is complex and multifaceted, and any company's success cannot be
conclusively known until the Year 2000 is reached. In spite of its efforts or
results, the Company's ability to function unaffected to and through the Year
2000 may be adversely affected by actions (or failure to act) of third parties
beyond our knowledge or control. It is anticipated that there may be problems
that will have to be resolved in the ordinary course of business on and after
the Year 2000. However, the Company does not believe that the problems will
have a material adverse affect on the Company's operations or financial
condition.
12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME
The following table reconciles capital and surplus and net income as
reported in the Annual Statement filed with the Insurance Department of the
State of Ohio, to the amounts reported in the accompanying financial
statements:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1998
-------------- ------------------
TOTAL CAPITAL
AND SURPLUS NET INCOME/(LOSS)
-------------- ------------------
<S> <C> <C>
Amounts reported in Annual Statement ............. $148,038 $ 528
Adjustment to federal income tax benefit ......... (4,458) (4,458)
-------- --------
Amounts reported herein .......................... $143,580 $ (3,930)
======== ========
</TABLE>
50
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998
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 ................................ $ 19,899 $ 20,673 $ 19,899
States, municipalities and political subdivisions ......... 6,676 6,930 6,676
Public utilities .......................................... 18,792 19,359 18,792
All other corporate bonds ................................. 139,330 145,594 139,330
--------- -------- ---------
Total fixed maturities ..................................... 184,697 192,556 184,697
EQUITY SECURITIES
Common stocks:
Affiliated entities ....................................... 243 704
Industrial, miscellaneous and all other ................... 302 384
--------- ---------
Total equity securities .................................... 545 1,088
Mortgage loans on real estate .............................. 9,916 9,916
Real estate ................................................ 34,583 34,583
Policy loans ............................................... 112,982 112,982
Other invested assets ...................................... 396 396
Cash and short-term investments ............................ 73,808 73,808
Investment properties ...................................... 11,594 11,594
--------- ---------
Total investments .......................................... $ 429,655 $ 429,064
========= =========
</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.
51
<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, 1998
Individual life ................ $ 221,050 $ 8,624 $ 474,120 $ 9,884 $ 122,542 $ 230,368
Group life ..................... 10,546 100 1,933 723 1,962 2,281
Annuity ........................ 265,418 509 794,841 25,708 545,532 91,505
--------- -------- ----------- -------- --------- ---------
$ 497,014 $ 9,233 $ 1,270,894 $ 36,315 $ 670,036 $ 324,154
========= ======== =========== ======== ========= =========
YEAR ENDED DECEMBER 31, 1997
Individual life ................ $ 177,088 $ 9,533 $ 390,452 $ 13,742 $ 88,738 $ 176,303
Group life ..................... 9,435 805 3,918 810 3,986 3,292
Annuity ........................ 296,290 591 822,149 25,461 389,726 83,179
--------- -------- ----------- -------- --------- ---------
$ 482,813 $ 10,929 $ 1,216,519 $ 40,013 $ 482,450 $ 262,774
========= ======== =========== ======== ========= =========
YEAR ENDED DECEMBER 31, 1996
Individual life ................ $ 145,964 $ 7,017 $ 289,375 $ 8,228 $ 125,861 $ 124,181
Group life and health .......... 9,202 713 4,215 3,940 3,828 2,818
Annuity ........................ 332,230 854 740,125 23,899 294,681 71,576
--------- -------- ----------- -------- --------- ---------
$ 487,396 $ 8,584 $ 1,033,715 $ 36,067 $ 424,370 $ 198,575
========= ======== =========== ======== ========= =========
</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.
52
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
--------------- -------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Life insurance in force ........ $ 51,064,173 $ 9,862,460 $ -- $ 41,201,713 0.0%
============ =========== =========== ============ ===
Premiums:
Individual life ............... $ 493,633 $ 19,512 $ -- $ 474,121 0.0%
Group life and health ......... 1,691 220 461 1,932 23.8
Annuity ....................... 850,428 55,587 -- 794,841 0.0
------------ ----------- ----------- ------------ ----
$ 1,345,752 $ 75,319 $ 461 $ 1,270,894 .03%
============ =========== =========== ============ ====
YEAR ENDED DECEMBER 31, 1997
Life insurance in force ........ $ 40,221,361 $ 6,776,447 $ 2,692,822 $ 36,137,736 7.5%
============ =========== =========== ============ ====
Premiums:
Individual life ............... $ 395,361 $ 4,910 $ -- $ 390,452 0.0%
Group life and health ......... 1,761 231 2389 3,918 61.0
Annuity ....................... 822,149 -- -- 822,149 0.0
------------ ----------- ----------- ------------ ----
$ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2%
============ =========== =========== ============ ====
YEAR ENDED DECEMBER 31, 1996
Life insurance in force ........ $ 28,168,880 $ 4,463,986 $ 2,210,601 $ 25,915,495 8.5%
============ =========== =========== ============ ====
Premiums:
Individual life ............... $ 292,239 $ 2,863 $ -- $ 289,376 0.0%
Group life and health ......... 2,393 242 2,063 4,214 49.0
Annuity ....................... 740,125 -- -- 740,125 0.0
------------ ----------- ----------- ------------ ----
$ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2%
============ =========== =========== ============ ====
</TABLE>
53
