<PAGE> 1
LETTER FROM THE PRESIDENT
BACKGROUND ARTWORK
Dear Fellow Contract Owner:
There's no doubt that we've all experienced excessive volatility in the
financial markets in 1998. The 12-month period ending December 31, 1998, has
served as a clear example of how the performance of different asset classes can
vary widely over a given time period. For example, domestic large cap stocks
made an impressive rebound in the fourth quarter to provide the highest asset
class returns for the year, even more spectacular when viewed against the
lackluster performance of small cap stocks over the past year. Similarly, the
divergence between the returns of value versus growth styles, Europe versus
Asia, and emerging versus developed markets reflects the overall volatility that
has been inherent in 1998.
Given these wild swings in performance, we think the message is clear: expect
volatility, and understand that it's extremely difficult to predict which asset
classes will be strong performers and which ones will be weak. One way to
cushion the volatility is to be sure that you're adequately diversified in your
investments and that you've properly allocated your assets based on your
investing needs and goals. By investing with Touchstone through a financial
advisor, you have already taken the important first step in building a portfolio
that can help you meet your future goals. Your financial advisor can help you
set new guidelines when life-style changes occur, and they can help you measure
your level of patience for overall market conditions.
We're proud to note that the Touchstone Standby Income Fund has been recognized
with Morningstar's highest 5-star rating for its three-year performance as of
12-31-98(1). Those familiar with Morningstar know that they are a privately
owned company that provides unbiased mutual fund information to help individual
investors make informed investment decisions. Only the top 10% of all mutual
funds in each investment class actually receive Morningstar's highest rating.
The Touchstone Standby Income Fund, classified as an Ultrashort Bond fund by
Morningstar, was ranked among 2,126 funds in Morningstar's Taxable Bond category
as of 12/31/98.
I'd like to take this opportunity to thank you for the success we've shared
together. We appreciate your continued confidence and investment in the
Touchstone Family of Funds and Variable Annuities(2).
Sincerely,
/s/ Jill McGruder
Jill T. McGruder
President and Chief Executive Officer
Touchstone Family of Funds and Variable Annuities
P.S. Please visit us on the World Wide Web at www.touchstonefunds.com
(1) Morningstar proprietary ratings reflect historical risk-adjusted
performance, and are subject to change every month. Morningstar ratings are
calculated from the fund's three-, five-, and 10-year average annual returns in
excess of 3-month Treasury bill returns with appropriate fee adjustments, and a
risk factor that reflects fund performance below 3-month Treasury bill returns.
The top 10% of funds in a category receives 5 stars; the next 22.5% receives 4
stars. Past performance is no guarantee of future results. The Advisor waived
fees and reimbursed the Fund which had a material effect on the total return.
(2) Touchstone Variable Annuities are underwritten by Western-Southern Life
Assurance Company, Cincinnati, Ohio. The Touchstone Family of Funds and Variable
Annuities are distributed by Touchstone Securities, Inc., member NASD and SIPC.
For a prospectus containing more information, including all fees and expenses,
call 800.669.2796. Please read the prospectus carefully before investing or
sending money.
<PAGE> 2
NOTES
2
<PAGE> 3
TABLE OF CONTENTS
3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Separate Account I
Management Discussion & Analysis......................... 7
Statement of Net Assets.................................. 21
Statement of Operations and Changes in Net Assets........ 22
Notes to Financial Statements............................ 23
Report of Independent Accountants........................ 31
Select Advisors Variable Insurance Trust
Emerging Growth.......................................... 3
International Equity..................................... 7
Income Opportunity....................................... 10
Value Plus............................................... 14
Balanced................................................. 17
Standby Income........................................... 21
Statements of Assets and Liabilities..................... 22
Statements of Operations................................. 23
Statements of Changes in Net Assets...................... 24
Financial Highlights..................................... 26
Notes to Financial Statements............................ 28
Report of Independent Accountants........................ 36
Select Advisors Portfolios
Growth & Income.......................................... 3
Bond..................................................... 6
Statements of Assets and Liabilities..................... 9
Statements of Operations................................. 10
Statements of Changes in Net Assets...................... 11
Ratios and Supplementary Data............................ 12
Notes to Financial Statements............................ 13
Report of Independent Accountants........................ 18
</TABLE>
<PAGE> 4
NOTES 4
<PAGE> 5
TOUCHSTONE
LOGO WESTERN-SOUTHERN LIFE
ASSURANCE COMPANY
SEPARATE ACCOUNT 1 LOGO
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE> 6
NOTES
6
<PAGE> 7
MANAGEMENT DISCUSSION & ANALYSIS
7
MANAGEMENT DISCUSSION & ANALYSIS (MD&A)
Touchstone Emerging Growth
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Emerging Growth Sub-Account. Small capitalization stocks, as measured
by the Russell 2000, declined 2.5% while the total return (net of fees and
expenses, but excluding surrender charges) for the Touchstone Emerging Growth
Sub-Account (Variable Annuity) was 1.9%. The total return (net of fees and
expenses, but excluding surrender charges) for the Touchstone Emerging Growth
Sub-Account (Options 1, 2 and 3 for the Select Variable Annuity) was -1.8%,
- - -1.9% and -2.0% respectively. (The Standard Death Benefit, Annual Step-Up Death
Benefit, and 6% Accumulating Death Benefit of the Select Variable Annuity are
referred to as Options 1, 2 and 3, respectively, in this report. The Select
Variable Annuity was not available until March of 1998. Performance information
is shown for the period of March 1 through December 31, 1998.)
As the value-style manager of the Touchstone Emerging Growth Portfolio, David L.
Babson's core strategy continued to stress bottom-up fundamental analysis in
identifying low risk stocks with attractive return potential. Small company
stocks continued to have a difficult time in 1998. The domestic equity markets
overall were marked by wild swings throughout the year. In the third quarter,
the Russell 2000 declined 20% as investors sold stocks due to fears the U.S. was
shortly headed into a recession. Not surprisingly, given Babson's low risk value
discipline, the value-style portion of the portfolio held its value well during
the third quarter and bettered its benchmark.
In the fourth quarter of 1998, investors dramatically shifted course and
purchased stocks as rapidly as they were sold in the previous quarter, resulting
in the Russell 2000 increasing its value by 16%. Not surprisingly, Babson's low
risk value discipline had difficulty keeping pace with the soaring market, and
the value-style portion of the Portfolio trailed its benchmark for the quarter
and for the entire year.
Standout performers for the year included Elsag Bailey (+137%) due to a buyout
offer from the large European industrial conglomerate ABB, and Martin Marietta
Materials (+70%) due to continued strong demand of their primary product,
aggregates--a fancy term for rocks, stone and gravel which are critical in road
and infrastructure building. Unfortunately, Babson's increased weighting in the
Energy sector, the worst performing sector in 1998, detracted from performance.
Babson still likes the long term outlook for the Energy sector and continues to
increase their weighting in this sector.
As the growth-style manager of the Touchstone Emerging Growth Portfolio,
Westfield Capital Management continued to find companies with good growth
prospects. Unlike 1997, small cap growth did much better than small cap value in
1998. This pattern correlates very well with past cycles where growth
outperforms relatively as overall corporate profits peak--an environment
Westfield expects to continue into 1999.
<PAGE> 8
MANAGEMENT DISCUSSION & ANALYSIS
8
Technology (including telecommunications) led the growth-style portion of the
portfolio. Its impact can be seen in the performance pattern over the course of
the year with the first quarter and fourth quarter accounting for most of the
gains. Portfolio performance was achieved the old-fashioned way--that is,
without the presence of Internet stocks. In the liquidity-driven market of 1998,
top performance portfolio managers had to speculate on unheard of valuations in
either the Internet group or the top 50 blue chips. Neither area fit Westfield's
price/earnings-to-growth valuation discipline very well. Instead, some of
Westfield's best technology stock picks were market-penetration stories. Such
names as Geotel in call routing systems, Galileo in networking ICs, and EMC in
data storage are but a few.
The portfolio kept pace with its benchmarks and peers during the severe
correction of July and August, and Westfield feels that this reflects the
cushioning effect of their growth-at-a-reasonable-price style, as well as
specific portfolio sector shifts made earlier in the year. Concerns about Asian
demand caused Westfield to exit the Energy sector and several technology product
arenas. Financially-sensitive holdings were reduced as they saw signs of a
slowing economy, while service companies in the consumer and healthcare sectors
were added. The educational field was also sharply overweighted and remained a
stand-out performer.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE ANNUITY
EMERGING GROWTH WIES. SM CO GR MINOR
SUB-ACCOUNT RUSSELL 2000 MAJOR INDEX INDEX
----------- ------------------------ --------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10094 10171 10294
6/95 10694 11125 11458
9/95 11600 12224 12955
12/95 11687 12488 12801
3/96 12227 13126 13501
6/96 12753 13782 14428
9/96 12465 13829 14705
12/96 12818 14548 14934
3/97 12419 13796 13808
6/97 14685 16032 16007
9/97 16965 18418 18439
12/97 16906 17801 17424
3/98 18436 19592 19361
6/98 17753 18678 18781
9/98 14259 14915 14838
12/98 17228 17348 17675
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 2/23/95
1.9% 15.2%
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
2/23/95
72.3%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
<PAGE> 9
MANAGEMENT DISCUSSION & ANALYSIS
9
Touchstone International Equity
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone International Equity Sub-Account. International equity stocks, as
measured by the MSCI EAFE Index, rose 20.3% while the total return (net of fees
and expenses, but excluding surrender charges) for the Touchstone International
Equity Sub-Account (Variable Annuity) was 18.6%. The total return (net of fees
and expenses, but excluding surrender charges) for the Touchstone International
Equity Sub-Account (Options 1, 2 and 3 for the Select Variable Annuity) was
8.5%, 8.4% and 8.3% respectively.
As the manager of the Touchstone International Equity Portfolio, Credit Suisse
Asset Management (formerly BEA Associates) attributes the Portfolio's
performance to three prominent drivers: the Portfolio's allocation to European
markets, their underweight position in Japan, and their absence from the rest of
Asia.
In Europe, Credit Suisse favored several themes during the year including
companies benefiting from restructuring and businesses that help other companies
reduce costs. During the first half of the year, their positions in the auto
(Renault, Porsche, Volkswagen and BMW), business services (Cap Gemini and SAP),
and telecommunications equipment and mobile phone industries (Vodaphone and
Telefonica) added to performance.
Late in the third quarter, as the emerging markets crisis spread, they
repositioned their European allocation in favor of defensive industries and
companies whose core businesses are concentrated in Europe. This repositioning
had a negative impact in October, and was the primary cause of slight
underperformance for the year, when oversold global financials, in which they
were underweight, rallied sharply. However, their defensive positioning proved
beneficial during the end of the quarter as investors reduced their global
economic growth expectations and sought safer havens with higher earnings
visibility.
Being underweight in Japan added to performance for the year while stock
selection there hurt performance by a modest degree. For much of the year the
portfolio was positioned in large blue chip exporters (Sony, Canon, TDK and
Honda) on the belief that their earnings would be more stable than domestic
companies that rely on Japan's domestic economy for revenues. While exporters
did well during the first part of the year, they were hurt in the third and
fourth quarters when the yen rallied sharply, thereby weakening the
profitability of exporters. Credit Suisse was also underweight in large banks in
Japan, which rallied in October causing a negative impact on performance.
Being absent from all of Asia except Japan proved to be effective on a full-
year basis. Despite the rally in the first month of the year and in the final
quarter, Asian markets were weak for most of the year, underscoring the view
that avoiding them was the most prudent approach to take.
<PAGE> 10
MANAGEMENT DISCUSSION & ANALYSIS
10
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE ANNUITY
INTERNATIONAL EQUITY WIES. NON-US EQUITY
SUB-ACCOUNT MSCI EAFE MAJOR INDEX MINOR INDEX
----------- --------------------- -------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10337 10627 10271
6/95 10754 10712 10758
9/95 11201 11167 11225
12/95 11231 11628 11397
3/96 11888 11973 11961
6/96 12116 12171 12411
9/96 11963 12165 12357
12/96 12351 12368 12833
3/97 12499 12183 12979
6/97 13865 13774 14314
9/97 14426 13685 14386
12/97 13985 12622 13128
3/98 16272 14489 14737
6/98 17166 14653 14426
9/98 14721 12579 12102
12/98 16587 15189 14141
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 2/23/95
18.6% 14.0%
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
2/23/95
65.9%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
Touchstone Income Opportunity
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Income Opportunity Sub-Account. Corporate high yield bonds, as
measured by the Wiesenberger: Corporate High Yield Variable Annuity Index,
declined 1.5%; emerging market bonds, as measured by the Wiesenberger: Emerging
Market Income Variable Annuity Index, declined 22.7%, while corporate bonds in
general, as measured by the Lehman Brothers Corporate Bond Index, rose 8.5%.
Total return (net of fees and expenses, but excluding surrender charges) for the
Touchstone Income Opportunity Sub-Account (Variable Annuity) was -13.5%. The
total return (net of fees and expenses, but excluding surrender charges) for the
Touchstone Income Opportunity Sub-Account (Options 1, 2 and 3 for the Select
Variable Annuity) was -15.5%, -15.6% and -15.6% respectively.
As the manager of the Touchstone Income Opportunity Portfolio, Alliance Capital
Management continued to concentrate its portfolio strategy on investments in
emerging market corporates, emerging market sovereign and U.S. corporate high
yield debt. Alliance reports that 1998 was an extremely challenging year for
financial markets, as economic turmoil spread from Asia to encompass Russia and
Latin America, particularly Brazil. Both the high yield and emerging markets
came under pressure in the second half of the
<PAGE> 11
MANAGEMENT DISCUSSION & ANALYSIS
11
year, after Russia announced a debt moratorium in August. High yield assets also
came under pressure due to these global concerns, causing many companies to
revise earning estimates downward; liquidity in the secondary market dissipated.
As emerging market assets came under pressure, several positions were more
severely impacted than others, including: Russian principal loans, overweight
positions in Indonesian corporates, a Chinese toll road, and an Ecuadorian
cellular company. The portfolio performance also suffered because of an
overweight position in emerging market corporate securities that underperformed
sovereign bonds.
During the second half of the year, Alliance decided to change the investment
strategy and began to slowly weight the portfolio with more high yield assets,
rather than emerging markets securities, reflecting their belief in the strength
of the U.S. economy. As of December 31, 1997, 60% of Touchstone Income
Opportunity was in emerging markets. By December 31, 1998, 32% of the portfolio
was in emerging market assets. They accomplished this transition by taking
advantage of positive price momentum in emerging assets. When they felt prices
reflected fair value, they sold some of the emerging market assets--thereby
minimizing the losses on the portfolio--and invested those assets in the
domestic high yield area.
Alliance believes that there will be continued strong demand for the high yield
asset class, which could offer price appreciation through spread tightening of
0.50% to 1.25%. Although high yield is not immune to external events such as the
Brazilian situation, the outlook for continued, albeit slower, growth in the
United States will have more of a positive impact on high yield performance.
<PAGE> 12
MANAGEMENT DISCUSSION & ANALYSIS
12
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE ANNUITY WIES. GLOB. INC.
INCOME OPPORTUNITY CORP MAJOR VA MINOR WIES EMERG MKT WIES CORP. HIGH
SUB-ACCOUNT INDEX INDEX MINOR INDEX MINOR INDEX
----------- ----------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
2/95 10000 10000 10000 10000 10000
3/95 9780 10082 10161 9740 10083
6/95 11247 10832 10727 11408 10595
9/95 11919 11087 10908 12056 10933
12/95 12515 11635 11304 13048 11277
3/96 13185 11335 11214 13574 11545
6/96 13970 11386 11359 14975 11770
9/96 15020 11613 11712 16839 12286
12/96 15728 12017 12067 18107 12667
3/97 16033 11896 11855 18462 12695
6/97 17089 12387 12213 20203 13382
9/97 17870 12872 12523 21293 14115
12/97 17401 13247 12570 20131 14285
3/98 18266 13451 12762 21107 14844
6/98 17446 13788 12761 19445 14824
9/98 14489 14288 12795 13923 13639
12/98 15049 14374 13167 15551 14065
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 2/23/95
(13.5%) 11.2%
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
2/23/95
50.5%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
Touchstone Value Plus
Over the course of the abbreviated period ended December 31, 1998, several
investment management strategies and techniques materially affected the
performance of the Touchstone Value Plus Sub-Account since its inception on May
1, 1998. From the Portfolio's inception in May until the end of 1998, growth and
value stocks, as measured by the S&P 500 Index, rose 11.7% while value stocks,
as measured by the S&P Barra Value Index, rose 1.6%. Total return (net of fees
and expenses, but excluding surrender charges) for the Touchstone Value Plus
Sub-Account (Variable Annuity) was 1.2%. The total return (net of fees and
expenses, but excluding surrender charges) for the Touchstone Value Plus
Sub-Account (Options 1, 2 and 3 for the Select Variable Annuity) was 1.2%, 1.1%
and 1.1% respectively.
As the manager of the Touchstone Value Plus Portfolio, Fort Washington
Investment Advisors concentrated their efforts on mid to large cap common stocks
that were considered fundamentally undervalued. Fort Washington reports that
1998 marked the fourth straight year of twenty plus percent returns for the S&P
500, a first in history. The year was also characterized by several other
events:
O The Asian crisis and the Long Term Capital debacle sent shock waves
through the financial markets.
<PAGE> 13
MANAGEMENT DISCUSSION & ANALYSIS
13
O Weakening overseas economies and a defiant Iraq headlined the foreign
political landscape.
O President Clinton weathered a flurry of setbacks including charges of
sexual misconduct and a formal impeachment by members of Congress.
With all of this as a backdrop, investors encountered the type of volatility one
would expect from an unpredictable market. Valuations for stocks continued to
increase as a combination of lower interest rates and abundant liquidity pushed
stock prices higher.
The S&P 500 return was clearly dominated by the largest twenty names as they
accounted for over 36% of the index and over 75% of the total return for the
year. Growth managers continued their outperformance versus Value managers for
1998 as represented by the S&P Barra Growth and S&P Barra Value indexes, up
42.2% and 14.7% respectively. In an even starker contrast, the Russell 2000
turned in a -2.5% return for the full year.
The best performing sector in the portfolio for the time period was Finance,
with Fannie Mae and Bank One contributing the most. Technology issues such as
Computer Associates were the weakest performing sector.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE ANNUITY
VALUE PLUS S&P BAR VAL MINOR WILSHIRE|LG CAP
SUB-ACCOUNT S&P 500 MAJOR INDEX INDEX VAL|MINOR INDEX
----------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
4/98 10000 10000 10000 10000
6/98 9898 10227 9934 9968
9/98 8761 9210 8651 8853
12/98 10120 11171 10159 10075
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 5/1/98
n/a n/a
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
5/1/98
1.2%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
<PAGE> 14
MANAGEMENT DISCUSSION & ANALYSIS
14
Touchstone Growth & Income
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Growth & Income Sub-Account. Growth and value stocks, as measured by
the S&P 500 Index, rose 28.6% while the total return (net of fees and expenses,
but excluding surrender charges) for the Touchstone Growth & Income Sub-Account
(Variable Annuity) was 6.0%. The total return (net of fees and expenses, but
excluding surrender charges) for the Touchstone Growth & Income Sub-Account
(Options 1, 2, and 3 for the Select Variable Annuity) was -0.6%, -0.6% and -0.7%
respectively.
As the manager of the Touchstone Growth & Income Portfolio, Scudder Kemper
Investments focused exclusively on their relative dividend yield discipline.
Scudder reports that 1998 was truly a "Jekyll and Hyde" year for the U.S. equity
market. On the one hand, the S&P 500 Index returned a remarkable 28.6%, the
fourth consecutive year of returns in excess of 20%. On the other hand, it was
an extraordinarily difficult period for value-oriented strategies, such as those
employed by the Touchstone Growth & Income Portfolio. The strongest returns were
limited to a narrow subset of the U.S. market, mostly the largest capitalization
growth technology stocks. Unfortunately, these returns did not percolate down to
most other stocks in the S&P 500. The lack of market breadth last year is
captured by the following statistics: fully 70% of the stocks in the S&P 500
underperformed the reported index return, and 40% of S&P 500 stocks actually
declined for the year.
Other than the headwind of large cap growth stock dominance, the primary
negative influence resulted from Scudder's overweight in industrial cyclicals,
largely chemical, paper/forest products, and metals stocks. This overweight had
been in place since 1997, having been driven by the stocks' recession level
valuations. But commodity deflation, in combination with operating (and in a few
cases, financial) leverage caused such severe pressure on earnings that even
historically low valuations were not able to mitigate downside in stocks such as
Imperial Chemical, Witco, Lyondell and Oregon Steel. One bright spot in the
chemical sector was the third quarter announcement that BetzDearborn was to be
acquired by Hercules, leading to a 20% total return for the stock for the ten
months of 1998 until it was acquired. The paper stocks fared better, largely
because of their year-end rally which had each of the Portfolio's paper holdings
outperforming the fourth quarter S&P 500 return of 21%. This rally was driven by
a positive sentiment shift that occurred at the depths of the September market.
The global oversupply of pulp had become so severe that U.S. companies began to
respond with meaningful closings of capacity in an attempt to stabilize pricing.
Further positive news was the surprise announcement in November that
International Paper was seeking to acquire Union Camp, which drove the entire
sector higher.
The greatest source of outperformance was the Portfolio's overweight in
telecommunication stocks, which in aggregate rose 48%. Standout performers were
Bellsouth (+81%), Sprint (+64%), Alltel (+50%), and Frontier
<PAGE> 15
MANAGEMENT DISCUSSION & ANALYSIS
15
(+46%). Low relative valuations at the beginning of the year, and the increasing
recognition that the local telephone companies' earnings were being enhanced by
the growth in value-added services catalyzed the outperformance of many of these
stocks. Scudder's underweight in the consumer staple sector, as well as specific
stock selection, also added value as their value discipline enabled them to
avoid the weakness in Coca-Cola, Proctor & Gamble, and Gillette. Instead, the
portfolio was led by standout performers Avon (+47%) and Unilever (+35%). The
Portfolio also benefited from the fact many of its best performing stocks were
top holdings. These included Ford (+87%), Bellsouth (+81%), Sprint (+64%), Xerox
(+62%), American Home Products (+50%), Bristol-Myers Squibb (+43%), and Chase
Manhattan (+33%). And finally, the tremendous level of merger and acquisition
activity in the U.S. market helped the Portfolio last year. Stocks which were
held that were acquired during the year (or which are pending final completion)
included MidOcean, Mercantile Stores, Firstar, Echlin, BetzDearborn, and Mobil.
Scudder continues to focus on their relative dividend yield discipline, which
seeks to identify opportunities in undervalued and misunderstood companies.
While this discipline does not add value in every year, Scudder feels that it
has proven itself over market cycles. They cannot control the normal cyclical
shifts between growth and value, but they are confident that adhering to a time
tested stock selection discipline will prove beneficial over time.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE ANNUITY
GROWTH & INCOME WIES. GRO. & INC. MINOR
SUB-ACCOUNT S&P 500 MAJOR INDEX INDEX
----------- ------------------- -----------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10252 10295 10249
6/95 10998 11278 11017
9/95 11814 12174 11845
12/95 12490 12908 12386
3/96 13346 13600 12996
6/96 13623 14210 13423
9/96 13762 14649 13853
12/96 14162 15871 14856
3/97 13553 16296 14914
6/97 15052 19141 16913
9/97 16348 20575 18210
12/97 16750 21165 18423
3/98 18850 24118 20487
6/98 18278 24914 20547
9/98 15922 22436 18151
12/98 17758 27213 21427
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 2/23/95
6.0% 16.1%
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
2/23/95
77.6%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
<PAGE> 16
MANAGEMENT DISCUSSION & ANALYSIS
16
Touchstone Balanced
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Balanced Sub-Account. Growth and value stocks, as measured by the S&P
500 Index, rose 28.6% and government and corporate bonds, as measured by the
Lehman Brothers Aggregate Index, rose 8.7% while the total return (net of fees
and expenses, but excluding surrender charges) for the Touchstone Balanced
Sub-Account (Variable Annuity) was 4.0%. The total return (net of fees and
expenses, but excluding surrender charges) for the Touchstone Balanced
Sub-Account (Options 1, 2 and 3 for the Select Variable Annuity) was 0.9%, 0.8%
and 0.7% respectively.
As the manager of the Touchstone Balanced Portfolio, OpCap Advisors employed a
disciplined, bottom-up approach to stock selection which has not changed since
they began managing this Portfolio in April of 1997. Their investment horizon is
long-term, with an average holding period of 3 to 4 years. OpCap reports that
the stock market was characterized in 1998 by exceptionally strong
crosscurrents, including wide performance disparities among individual stocks.
Many quality businesses that are inexpensive languished or even fell in price,
while many large cap growth stocks and technology issues with what OpCap
believed to be unsustainably high valuations became even more highly valued.
Subsequently, OpCap's equity performance suffered from the ownership of a
disproportionate number of quality mid cap companies that have reasonable
valuations. The mid cap sector, especially mid cap value stocks, lagged badly in
the year.
Performance also suffered from the relatively limited holdings of technology
stocks. The stock market valued many technology companies as if they had
unlimited earnings growth potential. The most obvious example is the Internet
stocks, which rose dramatically in price in 1998 even though many Internet
companies have very limited revenues. For example, At Home Corporation with a
market capitalization of $11 billion had revenues for the year of $50 million.
While OpCap agrees that technology is revolutionary, they do not feel
comfortable paying high prices for large unknowns. Moreover, they believe that
highly priced technology stocks, including the Internet issues, may be
vulnerable to large declines when the euphoria that surrounds them subsides. For
these reasons, they sold their technology holdings when they believed they had
achieved a level of prudent valuation. For example, the EMC Corporation (EMC)
position was sold in August at a price of $59 per share, or 37 times 1998's
estimated earnings.
While technology stocks soared in 1998, many solid but less glamorous companies
with improving business results fell by the wayside. The most striking example
in the portfolio is the real estate company, Security Capital Group, which
experienced a 58% drop in its share price. This occurred even though the
company's funds from operations (the real estate equivalent to earnings per
share) are expected to rise 9% in 1998 and 20% in 1999. At year end, the
company's stock sold at less than eight times 1998 funds from operations and at
a large discount to its net asset value.
<PAGE> 17
MANAGEMENT DISCUSSION & ANALYSIS
17
Even though OpCap's disciplined value style of investing did not produce strong
returns in 1998, they will stick to it because in their experience it has proven
itself over time. In other words, they will continue to invest carefully for the
long term, rather than chase after highly valued stocks or buy companies that
are in vogue. Their objective is to control risk and generate superior returns
by acquiring stocks for substantially less than they are worth.
OpCap believes two of the most important long-term drivers of the price of a
stock are five-year average return on equity and five-year earnings per share
growth. In that regard, the companies they own have significantly higher return
on equity and comparable earnings per share growth than the average of the
stocks in the S&P 500 Index. The stocks owned by the Portfolio not only have
favorable business characteristics, but are also reasonably valued. Their
weighted average positive price/earnings ratio was 18.9 times at the end of the
year and their weighted average price to book ratio was 3.8 times, well below
the S&P 500 Index's levels of 26.7 times and 13.8 times, respectively. They
remain optimistic that investments in quality undervalued businesses will
generate superior returns over time.
In the second half of the year, OpCap established new positions in the common
stocks of Compaq Computer, Computer Associates International and News
Corporation Limited. Each is expected to deliver strong business results in
1999. In the case of Compaq, for instance, they believe the stock is inexpensive
because of uncertainties created by acquisitions and recent poor operating
performance. They believe management has a sound plan for integrating
acquisitions and improving core operating results. The five largest equity
holdings at December 31, 1998 were Security Capital Group (Class B), a real
estate company; Teva Pharmaceutical Industries Ltd., the leading global generic
pharmaceutical company; Sabre Group Holdings, which operates a travel
reservation and information system; Monsanto Co., a life sciences company; and
Sprint Corp., a leading provider of telecommunications services.
In addition to its holdings of common stocks, which represented 59.7% of the
Portfolio's net assets at year end, 34.7% of net assets were invested in fixed
income securities. The balance was invested in cash and cash equivalents. The
fixed income portion of the portfolio performed well in 1998. OpCap's fixed
income holdings include a diverse group of high-quality corporate bonds, U.S.
Government and agency securities, foreign government debt and tax-exempt
municipal bonds.
<PAGE> 18
MANAGEMENT DISCUSSION & ANALYSIS
18
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE ANNUITY BLEND: 60
BALANCED S&P 500 LB AGGREG MAJOR S&P 40 LB WIES BALANCED
SUB-ACCOUNT MAJOR INDEX INDEX AGGREG MINOR INDEX
----------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
2/95 10000 10000 10000 10000 10000
3/95 10283 10295 10061 10202 10161
6/95 11258 11278 10674 11034 10825
9/95 11915 12174 10884 11645 11383
12/95 11963 12908 11348 12266 11795
3/96 12339 13600 11147 12569 12026
6/96 12454 14210 11210 12936 12236
9/96 12842 14649 11417 13278 12503
12/96 13783 15871 11760 14102 13089
3/97 13652 16296 11695 14303 13005
6/97 14978 19141 12125 15993 14339
9/97 15871 20575 12530 16935 15274
12/97 16130 21165 12895 17433 15396
3/98 17180 24118 13094 18986 16596
6/98 17215 24914 13402 19544 16923
9/98 15588 22436 13968 18731 15784
12/98 16780 27213 14015 21091 17777
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 2/23/95
4.0% 14.4%
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
2/23/95
67.8%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
Touchstone Bond
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Bond Sub-Account. Corporate bonds, as measured by the Lehman Brothers
Aggregate Index, rose 8.7% while the return of the Wiesenberger: Corporate Bond
(Investment Grade) Variable Annuity Index rose 6.3%. Total return (net of fees
and expenses, but excluding surrender charges) for the Touchstone Bond
Sub-Account (Variable Annuity) was 6.8%. The total return (net of fees and
expenses, but excluding surrender charges) for the Touchstone Bond Sub-Account
(Options 1, 2 and 3 for the Select Variable Annuity) was 5.4%, 5.3% and 5.2%
respectively.
As the manager of the Touchstone Bond Portfolio, Fort Washington Investment
Advisors continued to strategically rotate between government, corporate and
mortgage securities throughout the year. Fort Washington reports that the
Portfolio generated solid returns in a market that was very unfriendly to the
average manager. The returns were the result of an above average market yield
and a portfolio duration equal to that of the Portfolio's overall market index.
<PAGE> 19
MANAGEMENT DISCUSSION & ANALYSIS
19
The portfolio was overweight in corporate and asset-backed securities. A 5% cash
position and a core position (5%) in preferred stocks generated significant
current income with low market volatility. The goal of the portfolio was to find
market niches of mispriced securities that generated above average returns for
their quality or duration. The portfolio position in preferred stock was a
perfect example of this strategy.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE
ANNUITY BOND WIES. CORP. INV. GRADE -
SUB-ACCOUNT LB AGGREG. MAJOR INDEX VA MINOR INDEX
----------- ---------------------- ------------------------
<S> <C> <C> <C>
2/95 10000 10000 10000
3/95 10068 10061 10050
6/95 10686 10674 10651
9/95 10832 10884 10830
12/95 11263 11348 11216
3/96 10974 11147 11055
6/96 10972 11210 11087
9/96 11129 11417 11280
12/96 11395 11760 11606
3/97 11322 11695 11560
6/97 11649 12125 11935
9/97 11983 12530 12299
12/97 12137 12895 12524
3/98 12346 13094 12723
6/98 12589 13402 12944
9/98 12856 13968 13315
12/98 12960 14015 13315
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 2/23/95
6.8% 7.0%
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
2/23/95
29.6%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
Touchstone Standby Income
Over the course of the annual period ended December 31, 1998, several investment
management strategies and techniques materially affected the performance of the
Touchstone Standby Income Sub-Account. Cash equivalents, as measured by the
Smith Barney 3-month Treasury Bill Index, rose 5.1% while the Merrill Lynch
91-Day Treasury Index rose 5.2% and the return of the 30-Day Money Market Yield
Index rose 5.1%. Total return (net of fees and expenses, but excluding surrender
charges) for the Touchstone Standby Income Sub-Account (Variable Annuity) was
4.3%. The total return (net of fees and expenses, excluding surrender charges)
for the Touchstone Standby Income Sub-Account (Options 1, 2 and 3 for the Select
Variable Annuity) was 3.7%, 3.6% and 3.5% respectively.
<PAGE> 20
MANAGEMENT DISCUSSION & ANALYSIS
20
As the manager of the Touchstone Standby Income Portfolio, Fort Washington
Investment Advisors maintained its core investment strategy by using a sector
rotation strategy and trend analysis. As the year began, the Portfolio was
overweight in commercial paper. As the year concluded, they had a significantly
higher corporate and asset-backed weighting. They had also extended the average
maturity of the Portfolio, making it roughly 50% longer than the 3-month
Treasury bill. This dual focus restructuring was accomplished by rotating into
corporate and asset-backed securities as spreads widened to near historic highs.
In the process, Fort Washington was able to pare back their commercial paper
exposure and better position the portfolio for the coming year.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
TOUCHSTONE VARIABLE ANNUITY
STANDBY INCOME 30-DAY MM MINOR MERRILL 91-DAY MAJOR SBR 3-MTH TR MINOR
SUB-ACCOUNT INDEX INDEX INDEX
----------- --------------- -------------------- ------------------
<S> <C> <C> <C> <C>
2/95 10000 10000 10000 10000
3/95 10053 10046 10051 10049
6/95 10115 10185 10202 10196
9/95 10190 10321 10347 10339
12/95 10317 10457 10499 10480
3/96 10407 10586 10628 10616
6/96 10505 10713 10765 10750
9/96 10608 10842 10914 10890
12/96 10711 10974 11056 11031
3/97 10801 11107 11197 11171
6/97 10909 11246 11350 11315
9/97 11033 11387 11502 11461
12/97 11141 11532 11646 11610
3/98 11249 11679 11797 11760
6/98 11367 11826 11949 11909
9/98 11499 11975 12119 12060
12/98 11622 12114 12254 12198
</TABLE>
- - ----------------------------
Average Annual Total Return
- - ----------------------------
One Year Since
Ended Inception
12/31/98 2/23/95
4.3% 4.0%
- - ---------------------------
Cumulative Total Return
- - ---------------------------
Since Inception
2/23/95
16.2%
- - ---------------------------
The performance information shown here represents the performance of an
investment made by a Variable Annuity contract owner in the Sub-Account. It
reflects the fees that are paid by the Sub-Account and the Variable Annuity
contract owner. The chart does not reflect additional fees related to the
Select Variable Annuity. Inclusion of these fees would reduce the return
figures. Past performance is not indicative of future performance.
<PAGE> 21
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
21
STATEMENT OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
COST
<S> <C>
ASSETS:
Investments at current market value:
Select Advisors Variable Insurance Trust
Emerging Growth Portfolio (1,785,767 shares, cost
$26,683,448) $ 27,375,805
International Equity Portfolio (1,858,084 shares, cost
$24,094,203) 25,938,859
Balanced Portfolio (2,677,782 shares, cost $38,173,552) 37,381,834
Income Opportunity Portfolio (3,616,191 shares, cost
$39,515,015) 31,424,697
Standby Income Portfolio (1,971,159 shares, cost
$19,722,085) 19,731,304
Value Plus Portfolio (236,065 shares, cost $2,183,740) 2,403,143
Select Advisors Portfolios
Growth & Income Portfolio II (72.916482% beneficial
interest $49,213,130) 54,465,447
Bond Portfolio II (62.500533% beneficial interest
$22,151,582) 24,059,688
- - --------------------------------------------------------------------------
Total invested assets 222,780,777
Accounts receivable 2,914
- - --------------------------------------------------------------------------
Total net assets $222,783,691
- - --------------------------------------------------------------------------
NET ASSETS:
Variable annuity contracts $222,782,410
Retained in the variable account by Western-Southern Life
Assurance Company 1,281
- - --------------------------------------------------------------------------
Total net assets $222,783,691
- - --------------------------------------------------------------------------
</TABLE>
<PAGE> 22
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS 22
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME VALUE PLUS
TOTAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends and capital gains $ 7,790,557 $ 949,247 $ 855,477 $1,889,245 $3,182,093 $ 908,378 $ 6,117
Miscellaneous income (loss) 38,997 (2,563) 12,273 10,320 10,204 9,108 1,075
EXPENSES:
Mortality and expense risk,
and administrative charge 2,427,007 293,715 282,611 400,076 397,116 223,301 10,259
- - --------------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) 5,402,547 652,969 585,139 1,499,489 2,795,181 694,185 (3,067)
- - --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on
investments (3,978,283) (776,947) 1,667,350 (1,248,671) (7,057,484) 19,079 219,404
Realized gain (loss) on
investments 342,534 431,014 410,552 377,228 (659,377) (763) (216,120)
- - --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on
investments (3,635,749) (345,933) 2,077,902 (871,443) (7,716,861) 18,316 3,284
- - --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 1,766,798 307,036 2,663,041 628,046 (4,921,680) 712,501 217
- - --------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 115,835,531 12,397,017 11,156,959 19,309,239 18,716,854 14,871,076 900,471
Net transfers between
subaccounts and/or fixed
account 1,426,873 1,374,341 871,994 1,500,884 (2,260,691) (5,922,348) 1,574,297
Withdrawals and surrenders (16,702,244) (2,261,213) (1,887,141) (2,649,241) (2,651,298) (1,439,245) (71,597)
Contract maintenance charge (91,368) (12,823) (11,413) (14,359) (16,220) (4,676) (246)
- - --------------------------------------------------------------------------------------------------------------------------------
Net increase from contract
activity 100,468,792 11,497,322 10,130,399 18,146,523 13,788,645 7,504,807 2,402,925
- - --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 102,235,590 11,804,358 12,793,440 18,774,569 8,866,965 8,217,308 2,403,142
- - --------------------------------------------------------------------------------------------------------------------------------
Net assets, at beginning of
period 120,548,101 15,571,456 13,145,364 18,607,225 22,557,696 11,517,000 --
- - --------------------------------------------------------------------------------------------------------------------------------
Net assets, at end of
period $222,783,691 $27,375,814 $25,938,804 $37,381,794 $31,424,661 $19,734,308 $2,403,142
- - --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
INCOME:
Dividends and capital gains -- --
Miscellaneous income (loss) ($ 2,166) $ 746
EXPENSES:
Mortality and expense risk,
and administrative charge 582,000 237,929
- - ----------------------------------------------------------
Net investment income
(loss) (584,166) (237,183)
- - ----------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on
investments 1,880,378 1,318,608
Realized gain (loss) on
investments -- --
- - ----------------------------------------------------------
Net realized and unrealized
gain (loss) on
investments 1,880,378 1,318,608
- - ----------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 1,296,212 1,081,425
- - ----------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 27,198,189 11,285,726
Net transfers between
subaccounts and/or fixed
account 2,696,317 1,592,079
Withdrawals and surrenders (4,484,468) (1,258,041)
Contract maintenance charge (24,273) (7,358)
- - ----------------------------------------------------------
Net increase from contract
activity 25,385,765 11,612,406
- - ----------------------------------------------------------
Net increase in net assets 26,681,977 12,693,831
- - ----------------------------------------------------------
Net assets, at beginning of
period 27,783,481 11,365,879
- - ----------------------------------------------------------
Net assets, at end of
period $54,465,458 $24,059,710
- - ----------------------------------------------------------
</TABLE>
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME VALUE PLUS
TOTAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Dividends and capital gains $ 5,409,296 $ 834,976 $ 709,520 $1,376,386 $2,070,121 $ 418,293
Miscellaneous income (loss) 3,218 3,731 2,880 (2,658) (3,840) 328
EXPENSES:
Mortality and expense risk,
and administrative charge 939,202 122,709 108,285 135,364 179,897 103,640
- - --------------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) 4,473,312 715,998 604,115 1,238,364 1,886,384 314,981
- - --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on
investments 4,261,510 1,424,333 71,338 292,397 (1,073,439) (10,274)
Realized gain (loss) on
investments 735,060 360,604 196,132 25,029 154,273 (978)
- - --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on
investments 4,996,570 1,784,937 267,470 317,426 (919,166) (11,252)
- - --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 9,469,882 2,500,935 871,585 1,555,790 967,218 303,729
- - --------------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 85,891,128 9,661,438 8,570,847 12,652,990 17,117,095 14,114,244
Net transfers between
subaccounts and/or fixed
account 414,133 764,178 877,161 1,086,970 (243,339) (5,891,834)
Withdrawals and surrenders (2,638,983) (384,782) (287,848) (364,055) (532,734) (293,869)
Contract maintenance charge (23,424) (3,521) (3,073) (3,299) (4,491) (1,006)
- - --------------------------------------------------------------------------------------------------------------------------------
Net increase from contract
activity 83,642,854 10,037,313 9,157,087 13,372,606 16,336,531 7,927,535
- - --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 93,112,736 12,538,248 10,028,672 14,928,396 17,303,749 8,231,264
- - --------------------------------------------------------------------------------------------------------------------------------
Net assets, at beginning of
period 27,435,365 3,033,208 3,116,692 3,678,829 5,253,947 3,285,736
- - --------------------------------------------------------------------------------------------------------------------------------
Net assets, at end of
period $120,548,101 $15,571,456 $13,145,364 $18,607,225 $22,557,696 $11,517,000
- - --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
INCOME:
Dividends and capital gains $ -- $ --
Miscellaneous income (loss) 3,168 (391)
EXPENSES:
Mortality and expense risk,
and administrative charge 207,267 82,040
- - ----------------------------------------------------------
Net investment income
(loss) (204,099) (82,431)
- - ----------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on
investments 3,058,688 498,467
Realized gain (loss) on
investments -- --
- - ----------------------------------------------------------
Net realized and unrealized
gain (loss) on
investments 3,058,688 498,467
- - ----------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 2,854,589 416,036
- - ----------------------------------------------------------
CONTRACT OWNERS ACTIVITY:
Payments received from
contract owners 17,225,945 6,548,569
Net transfers between
subaccounts and/or fixed
account 1,881,077 1,939,920
Withdrawals and surrenders (560,767) (214,928)
Contract maintenance charge (6,180) (1,854)
- - ----------------------------------------------------------
Net increase from contract
activity 18,540,075 8,271,707
- - ----------------------------------------------------------
Net increase in net assets 21,394,664 8,687,743
- - ----------------------------------------------------------
Net assets, at beginning of
period 6,388,817 2,678,136
- - ----------------------------------------------------------
Net assets, at end of
period $27,783,481 $11,365,879
- - ----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 23
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
23
NOTES TO FINANCIAL STATEMENTS
1. Organization
Western-Southern Life Assurance Company Separate Account 1 (the "Account") is a
unit investment trust registered under the Investment Company Act of 1940 (the
"1940 Act"), established by the Western-Southern Life Assurance Company (the
"Company"), a life insurance company which is a wholly-owned subsidiary of The
Western and Southern Life Insurance Company ("Western & Southern"). The Account
is a funding vehicle for individual variable annuity contracts, and commenced
operations on February 23, 1995 with the issuance of the first Touchstone
Variable Annuity contract. The first Touchstone Select Variable Annuity contract
was issued on March 2, 1998.
The variable annuity contracts are designed for individual investors and group
plans that desire to accumulate capital on a tax-deferred basis for retirement
or other long-term objectives. The variable annuity contracts are distributed
across the United States through a network of broker-dealers and wholesalers.
2. Significant Accounting Policies
The Account has eight investment sub-accounts, each of which invests in the
corresponding portfolio (a "Portfolio") of Select Advisors Variable Insurance
Trust or of Select Advisors Portfolios, each of which is an open-ended
diversified management investment company. The sub-account's value fluctuates on
a day to day basis depending on the investment performance of the Portfolio in
which the sub-account is invested. A contractholder may also allocate funds to
the Fixed Account, which is part of the general account of the Company. Due to
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933 (the "1933 Act") and the
Company's general account has not been registered as an investment company under
the 1940 Act. Sub-account transactions are recorded on the trade date and income
from dividends is recorded on the ex-dividend date. Realized gains and losses on
the sales of investments are computed on the basis of specific identification.
Upon annuitization, the contract assets are transferred to the general account
of the Company. Accordingly, contract reserves are recorded by the Company. See
the related prospectus for a more detailed description of the annuity contracts.
3. Contract Charges
Certain deductions for administrative and risk charges are deducted from the
contract value in order to compensate the Company for administrative expenses
and for the assumption of mortality and expense risks. These charges are made
daily at an annual effective rate of 1.35% for the Touchstone Variable Annuity.
For the Touchstone Select Variable Annuity, the effective rates are 1.35% for
the Standard Death Benefit (Option 1), 1.45% for the Annual Step Up Death
Benefit (Option 2) and 1.55% for the Accumulating Death Benefit (Option 3).
<PAGE> 24
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
24
Notes to Financial Statements continued
The Company also deducts an annual contract maintenance charge from the contract
value on each contract anniversary and upon any full surrender. For the
Touchstone Variable Annuity the contract maintenance charge is $35 for the first
ten Contract Years and the lesser of (a) $35 and (b) 0.17% of the Contract Value
after the tenth Contract Anniversary. For the Touchstone Select Variable
Annuity, the contract maintenance charge is $40 for the first ten Contract
Years, and if the Contract Value is less than $50,000 after the tenth Contract
Anniversary, the charge is the lesser of (a) $40 and (b) 0.14% of the Contract
Value.
Since no deduction for a sales charge is made from the payments received from
contract owners, a surrender charge is imposed on certain surrenders and partial
withdrawals to cover expenses relating to promotion, sale and distribution of
the contracts. The surrender charge is assessed on each redemption, except for
certain amounts excluded from charges under the contract. For the Touchstone
Variable Annuity, this charge ranges from 7% to 0% depending on the number of
years since the payment was received. For the Touchstone Select Variable
Annuity, this charge ranges from 8% to 0%, depending on the number of years
since the payment was received.
4. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
5. Taxes
The Account is not taxed separately because the operations of the Account are
part of the total operations of the Company. The Company is taxed as a life
insurance company under the Internal Revenue Code. Under existing federal income
tax law, no taxes are payable on the investment income or on the capital gains
of the Account.
6. Purchases and Sales of Investments
The following table shows aggregate cost of shares and beneficial interests of
the Portfolios purchased and proceeds from shares and beneficial
<PAGE> 25
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
25
interests of the Portfolios sold by the corresponding sub-accounts for the
period January 1, 1998 to December 31, 1998.
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Select Advisors Variable Insurance
Trust
Emerging Growth Portfolio $14,669,128 $2,518,819
International Equity Portfolio 12,849,339 2,133,719
Balanced Portfolio 23,059,388 3,413,320
Income Opportunity Portfolio 20,259,817 3,675,861
Standby Income Portfolio 21,583,553 13,386,839
Value Plus Portfolio 4,599,508 2,199,648
Select Advisors Portfolios
Growth & Income Portfolio II 31,132,547 6,330,958
Bond Portfolio II 17,315,046 5,939,844
</TABLE>
7. Unit Values
The following table shows a summary of units outstanding for variable annuity
contracts for the period January 1, 1998 to December 31, 1998. Eight unit values
are calculated for the Touchstone Variable Annuity. Eight unit values are
calculated for each of the death benefit options in the Touchstone Select
Variable Annuity.
<PAGE> 26
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
26
Notes to Financial Statements continued
TOUCHSTONE VARIABLE ANNUITY
<TABLE>
<CAPTION>
TRANSFERS
BEGINNING UNITS UNITS BETWEEN ENDING UNIT ENDING
UNITS PURCHASED REDEEMED SUB-ACCOUNTS UNITS VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth 921,086 665,252 (137,675) 79,049 1,527,712 17.227461 $ 26,318,599
International Equity 939,980 630,025 (117,189) 48,423 1,501,239 16.586786 24,900,730
Balanced 1,153,567 1,069,662 (158,767) 77,987 2,142,449 16.780412 35,951,185
Income Opportunity 1,296,326 1,013,209 (163,283) (127,924) 2,018,328 15.048926 30,373,665
Standby Income 1,033,781 1,255,150 (126,003) (509,487) 1,653,441 11.621488 19,215,444
Value Plus -- 82,239 (7,412) 146,709 221,536 10.119923 2,241,927
Growth & Income 1,658,720 1,444,985 (258,181) 127,812 2,973,336 17.758155 52,800,967
Bond 936,431 820,328 (98,776) 106,096 1,764,079 12.960022 22,862,503
- - -------------------------------------------------------------------------------------------------------------
Total -- Touchstone Variable Annuity 214,665,020
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
TOUCHSTONE SELECT VARIABLE ANNUITY -- OPTION 1
<TABLE>
<CAPTION>
TRANSFERS
BEGINNING UNITS UNITS BETWEEN ENDING UNIT ENDING
UNITS PURCHASED REDEEMED SUB-ACCOUNTS UNITS VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth -- 26,106 -- 2,635 28,741 9.816905 282,145
International Equity -- 8,972 -- 939 9,911 10.847208 107,502
Balanced -- 11,526 -- 2,893 14,419 10.086416 145,440
Income Opportunity -- 15,361 -- 3,233 18,594 8.450648 157,132
Standby Income -- 14,947 -- (5,418) 9,529 10.365454 98,767
Value Plus -- 1,566 -- -- 1,566 10.119923 15,852
Growth & Income -- 21,072 -- 2,928 24,000 9.945485 238,687
Bond -- 9,468 -- 807 10,275 10.536637 108,264
- - -------------------------------------------------------------------------------------------------------------
Total -- Touchstone Variable Annuity -- Option 1 1,153,789
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
TOUCHSTONE SELECT VARIABLE ANNUITY -- OPTION 2
<TABLE>
<CAPTION>
TRANSFERS
BEGINNING UNITS UNITS BETWEEN ENDING UNIT ENDING
UNITS PURCHASED REDEEMED SUB-ACCOUNTS UNITS VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth -- 58,173 (2,013) (342) 55,818 9.808771 547,511
International Equity -- 57,669 (1,806) 899 56,762 10.838240 615,205
Balanced -- 73,663 (1,206) 5,247 77,704 10.078051 783,105
Income Opportunity -- 84,451 (1,208) (25,724) 57,519 8.443640 485,670
Standby Income -- 30,949 (96) (7,187) 23,666 10.356871 245,106
Value Plus -- 10,714 (150) 3,693 14,257 10.113256 144,180
Growth & Income -- 91,265 (1,670) 7,669 97,264 9.937692 966,581
Bond -- 46,392 (917) 17,921 63,396 10.528530 667,464
- - -------------------------------------------------------------------------------------------------------------
Total -- Touchstone Variable Annuity -- Option 2 4,454,822
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
TOUCHSTONE SELECT VARIABLE ANNUITY -- OPTION 3
<TABLE>
<CAPTION>
TRANSFERS
BEGINNING UNITS UNITS BETWEEN ENDING UNIT ENDING
UNITS PURCHASED REDEEMED SUB-ACCOUNTS UNITS VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth -- 23,146 (682) 755 23,219 9.800639 227,559
International Equity -- 29,565 (632) 189 29,122 10.829259 315,367
Balanced -- 48,146 (664) 2,377 49,859 10.069706 502,064
Income Opportunity -- 48,154 (1,385) 1,615 48,384 8.436637 408,194
Standby Income -- 17,366 (37) (419) 16,910 10.348293 174,991
Value Plus -- 117 -- -- 117 10.106600 1,183
Growth & Income -- 45,073 (1,216) 2,399 46,256 9.927793 459,223
Bond -- 41,789 (471) (1,248) 40,070 10.518460 421,479
- - -------------------------------------------------------------------------------------------------------------
Total -- Touchstone Variable Annuity -- Option 3 2,510,060
- - -------------------------------------------------------------------------------------------------------------
Total $222,783,691
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
27
8. Subsequent Event
Effective immediately after the close of business on
December 31, 1998, two new portfolios, namely Touchstone
Growth & Income Fund and Touchstone Bond Fund were
established in the Select Advisors Variable Insurance
Trust. Effective after the close of business on December
31, 1998, Select Advisors Variable Insurance Trust was
renamed Touchstone Variable Series Trust ("VST"). The
shares of the newly established VST: Touchstone Growth &
Income Fund and VST: Touchstone Bond Fund, (collectively
"VST Funds") were substituted for shares of the Select
Advisors Portfolios: Growth & Income Portfolio II and the
Select Advisors Portfolios: Bond Portfolio II respectively,
(collectively "SAP Funds") held by Western-Southern Life
Assurance Company Separate Account 1 and Separate Account 2
and The Western and Southern Life Insurance Company
Separate Account A. This transaction was achieved through
an in-kind redemption from the SAP Funds and a
corresponding in-kind contribution to the VST Funds of the
net assets of the SAP Funds. As a result of this
transaction, the SAP Funds ceased to be available as
investment options for Separate Accounts 1, 2 and A. The
VST Funds have substantially identical investment
objectives, policies and risks as those of the respective
SAP Funds. In addition, the VST Funds will employ the same
investment advisor and investment techniques as those
employed by the respective SAP Funds. The SAP Funds will be
dissolved and terminated as soon as practicable.
<PAGE> 28
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
28
Notes to Financial Statements continued
9. Supplementary Information -- Selected Per Share Data and Ratios
TOUCHSTONE VARIABLE ANNUITY
Selected data for an accumulation unit outstanding throughout each year:
<TABLE>
<CAPTION>
TOUCHSTONE EMERGING GROWTH FUND SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.599473 $ 0.914814 $ 0.334587 $ 0.786333
Expenses 0.222097 0.197048 0.165347 0.123840
- - ----------------------------------------------------------------------------------------
Net investment income
(loss) 0.377376 0.717766 0.169240 0.662493
Net realized and unrealized
gain (loss) on
investments (0.055459) 3.369931 0.961438 1.024676
- - ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.321917 4.087697 1.130678 1.687169
Beginning of period 16.905544 12.817847 11.687169 10.000000
- - ----------------------------------------------------------------------------------------
End of period $17.227461 $16.905544 $12.817847 $11.687169
- - ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.37% 1.32% 0.96% 0.58%
Ratio of net investment
income (loss) to average
net assets (%) 3.04% 7.70% 4.00% 12.54%
<CAPTION>
TOUCHSTONE INTERNATIONAL EQUITY SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.549363 $ 0.759815 $ 0.083236 $ 0.033593
Expenses 0.212322 0.179407 0.159808 0.123076
- - ----------------------------------------------------------------------------------------
Net investment income
(loss) 0.337041 0.580408 (0.076572) (0.089483)
Net realized and unrealized
gain (loss) on
investments 2.265021 1.053431 1.196627 1.320313
- - ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 2.602062 1.633839 1.120055 1.230830
Beginning of period 13.984724 12.350885 11.230830 10.000000
- - ----------------------------------------------------------------------------------------
End of period $16.586786 $13.984724 $12.350885 $11.230830
- - ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.45% 1.33% 0.98% 0.66%
Ratio of net investment
income (loss) to average
net assets (%) 2.99% 7.43% 0.18% 0.06%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE BALANCED SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.899829 $ 1.297872 $ 0.564184 $ 1.121644
Expenses 0.222979 0.200630 0.170051 0.127804
- - ----------------------------------------------------------------------------------------
Net investment income
(loss) 0.676850 1.097242 0.394133 0.993840
Net realized and unrealized
gain (loss) on
investments (0.026608) 1.250190 1.425763 0.969002
- - ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.650242 2.347432 1.819896 1.962842
Beginning of period 16.130170 13.782738 11.962842 10.000000
- - ----------------------------------------------------------------------------------------
End of period $16.780412 $16.130170 $13.782738 $11.962842
- - ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.43% 1.21% 0.99% 0.67%
Ratio of net investment
income (loss) to average
net assets (%) 5.36% 11.11% 4.36% 13.90%
<CAPTION>
TOUCHSTONE INCOME OPPORTUNITY SUB-ACCOUNT
---------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 1.719380 $ 2.211330 $ 1.961352 $ 1.546728
Expenses 0.222766 0.227065 0.189796 0.127882
- - ----------------------------------------------------------------------------------------
Net investment income
(loss) 1.496614 1.984265 1.771556 1.418846
Net realized and unrealized
gain (loss) on
investments (3.848938) (0.310492) 1.440778 1.096297
- - ----------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value (2.352324) 1.673773 3.212334 2.515143
Beginning of period 17.401250 15.727477 12.515143 10.000000
- - ----------------------------------------------------------------------------------------
End of period $15.048926 $17.401250 $15.727477 $12.515143
- - ----------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.47% 1.29% 0.81% 0.68%
Ratio of net investment
income (loss) to average
net assets (%) 10.36% 13.57% 12.28% 6.77%
</TABLE>
* Calculation of the Value Plus Unit Values began May 1, 1998, when that
sub-account commenced operations.
<PAGE> 29
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
29
<TABLE>
<CAPTION>
TOUCHSTONE STANDBY INCOME SUB-ACCOUNT
- - ---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.622007 $ 0.586459 $ 0.546191 $ 0.482206
Expenses 0.152566 0.146437 0.141698 0.115186
- - ---------------------------------------------------------------------------------------
Net investment income
(loss) 0.469441 0.440022 0.404493 0.367020
Net realized and unrealized
gain (loss) on
investments 0.011393 (0.010786) (0.010269) (0.049826)
- - ---------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.480834 0.429236 0.394224 0.317194
Beginning of period 11.140654 10.711418 10.317194 10.000000
- - ---------------------------------------------------------------------------------------
End of period $11.621488 $11.140654 $10.711418 $10.317194
- - ---------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.43% 1.40% 0.97% 0.64%
Ratio of net investment
income (loss) to average
net assets (%) 4.44% 4.26% 2.77% 2.00%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE GROWTH & INCOME SUB-ACCOUNT
- - ---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ -- $ -- $ -- $ --
Expenses 0.234781 0.204446 0.181541 0.126716
- - ---------------------------------------------------------------------------------------
Net investment income
(loss) (0.234781) (0.204446) (0.181541) (0.126716)
Net realized and unrealized
gain (loss) on
investments 1.242981 2.792923 1.852780 2.616955
- - ---------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 1.008200 2.588477 1.671239 2.490239
Beginning of period 16.749955 14.161478 12.490239 10.000000
- - ---------------------------------------------------------------------------------------
End of period $17.758155 $16.749955 $14.161478 $12.490239
- - ---------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.42% 1.21% 0.94% 0.63%
Ratio of net investment
income (loss) to average
net assets (%) (1.42)% (1.19)% (0.74)% (0.61)%
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE
VALUE PLUS
TOUCHSTONE BOND SUB-ACCOUNT SUB-ACCOUNT*
- - ---------------------------------------------------------------------------------------- -------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED*
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1998
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ -- $ -- $ -- $ -- $ 0.029295
Expenses 0.168619 0.156956 0.149925 0.120569 0.084536
- - --------------------------------------------------------------------------------------------------------
Net investment income
(loss) (0.168619) (0.156956) (0.149925) (0.120569) (0.055241)
Net realized and unrealized
gain (loss) on
investments 0.991200 0.899266 0.282532 1.383093 0.175164
- - --------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value 0.822581 0.742310 0.132607 1.262524 0.119923
Beginning of period 12.137441 11.395131 11.262524 10.000000 10.000000
- - --------------------------------------------------------------------------------------------------------
End of period $12.960022 $12.137441 $11.395131 $11.262524 $10.119923
- - --------------------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.34% 1.17% 1.08% 0.75% 0.85%
Ratio of net investment
income (loss) to average
net assets (%) (1.34)% (1.17)% (1.03)% (0.75)% (0.26)%
</TABLE>
<PAGE> 30
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
30
Notes to Financial Statements continued
Selected data for an accumulation unit outstanding throughout each year
TOUCHSTONE SELECT VARIABLE ANNUITY -- OPTION 1**
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME VALUE PLUS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.341604 $ 0.359265 $ 0.540872 $ 0.823471 $ 0.470157 $ 0.029295
Expenses 0.106294 0.118896 0.113337 0.104235 0.114820 0.084535
- - -----------------------------------------------------------------------------------------------------------------------------
Investment income-net 0.235310 0.240369 0.427535 0.719236 0.355337 (0.055240)
Net realized and unrealized
gain (loss) on
investments (0.418405) 0.606839 (0.341119) (2.268588) 0.010117 0.175163
- - -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value (0.183095) 0.847208 0.086416 (1.549352) 0.365454 0.119923
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- - -----------------------------------------------------------------------------------------------------------------------------
End of period $ 9.816905 $ 10.847208 $ 10.086416 $ 8.450648 $ 10.365454 $ 10.119923
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.37% 1.45% 1.43% 1.47% 1.43% 0.85%
Ratio of investment income-
net to average net assets
(%) 3.04% 2.99% 5.36% 10.36% 4.44% (0.26)%
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
PER SHARE DATA
Investment income $ -- $ --
Expenses 0.046866 0.045636
- - -------------------------------------------------------------
Investment income-net (0.046866) (0.045636)
Net realized and unrealized
gain (loss) on
investments (0.007649) 0.582273
- - -------------------------------------------------------------
Net increase (decrease) in
net asset value (0.054515) 0.536637
Beginning of period 10.000000 10.000000
- - -------------------------------------------------------------
End of period $ 9.945485 $ 10.536637
- - -------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.42% 1.34%
Ratio of investment income-
net to average net assets
(%) (1.42)% (1.34)%
</TABLE>
TOUCHSTONE SELECT VARIABLE ANNUITY -- OPTION 2**
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME VALUE PLUS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.341323 $ 0.358972 $ 0.540513 $ 0.823085 $ 0.469961 $ 0.029278
Expenses 0.114060 0.127582 0.121617 0.111851 0.123207 0.090718
- - -----------------------------------------------------------------------------------------------------------------------------
Investment income-net 0.227263 0.231390 0.418896 0.711234 0.346754 (0.061440)
Net realized and unrealized
gain (loss) on
investments (0.418492) 0.606850 (0.340845) (2.267594) 0.010117 0.174696
- - -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value (0.191229) 0.838240 0.078051 (1.556360) 0.356871 0.113256
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- - -----------------------------------------------------------------------------------------------------------------------------
End of period $ 9.808771 $ 10.838240 $ 10.078051 $ 8.443640 $ 10.356871 $ 10.113256
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.37% 1.45% 1.43% 1.47% 1.43% 0.85%
Ratio of investment income-
net to average net assets
(%) 3.04% 2.99% 5.36% 10.36% 4.44% (0.26)%
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
PER SHARE DATA
Investment income $ -- $ --
Expenses 0.050305 0.048988
- - -------------------------------------------------------------
Investment income-net (0.050305) (0.048988)
Net realized and unrealized
gain (loss) on
investments (0.012003) 0.577518
- - -------------------------------------------------------------
Net increase (decrease) in
net asset value (0.062308) 0.528530
Beginning of period 10.000000 10.000000
- - -------------------------------------------------------------
End of period $ 9.937692 $ 10.528530
- - -------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.42% 1.34%
Ratio of investment income-
net to average net assets
(%) (1.42)% (1.34)%
</TABLE>
TOUCHSTONE SELECT VARIABLE ANNUITY -- OPTION 3**
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL INCOME STANDBY
GROWTH EQUITY BALANCED OPPORTUNITY INCOME VALUE PLUS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Investment income $ 0.341044 $ 0.358677 $ 0.540154 $ 0.822700 $ 0.469766 $ 0.029261
Expenses 0.121821 0.136261 0.129890 0.119462 0.131587 0.096897
- - -----------------------------------------------------------------------------------------------------------------------------
Investment income-net 0.219223 0.222416 0.410264 0.703238 0.338179 (0.067636)
Net realized and unrealized
gain (loss) on
investments (0.418584) 0.606843 (0.340558) (2.266601) 0.010114 0.174236
- - -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value (0.199361) 0.829259 0.069706 (1.563363) 0.348293 0.106600
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- - -----------------------------------------------------------------------------------------------------------------------------
End of period $ 9.800639 $ 10.829259 $ 10.069706 $ 8.436637 $ 10.348293 $ 10.106600
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.37% 1.45% 1.43% 1.47% 1.43% 0.85%
Ratio of investment income-
net to average net assets
(%) 3.04% 2.99% 5.36% 10.36% 4.44% (0.26)%
<CAPTION>
GROWTH &
INCOME BOND
SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C>
PER SHARE DATA
Investment income $ -- $ --
Expenses 0.053733 0.052327
- - -----------------------------------------------------------------------------------------------------------------------------
Investment income-net (0.053733) (0.052327)
Net realized and unrealized
gain (loss) on
investments (0.018474) 0.570787
- - -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value (0.072207) 0.518460
Beginning of period 10.000000 10.000000
- - -----------------------------------------------------------------------------------------------------------------------------
End of period $ 9.927793 $ 10.518460
- - -----------------------------------------------------------------------------------------------------------------------------
RATIOS
Ratio of operating expense
to average net assets (%) 1.42% 1.34%
Ratio of investment income-
net to average net assets
(%) (1.42)% (1.34)%
</TABLE>
* Calculation of the Value Plus Unit Values began May 1, 1998, when that
sub-account commenced operations.
** Supplementary information for the years prior to 1997 is not available for
the Touchstone Select Variable Annuity as the first contract was issued on
March 2, 1998.
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contractholders and Board of Directors of
Western-Southern Life Assurance Company
In our opinion, the accompanying statement of net assets and statement of
operations and changes in net assets present fairly, in all material respects,
the financial position of Western-Southern Life Assurance Company Separate
Account 1 as of December 31, 1998 and the results of their operations and
changes in net assets for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these 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.
PricewaterhouseCoopers LLP
January 22, 1999
Cincinnati, Ohio
<PAGE> 32
NOTES
32
