Letter from the President
Dear Fellow Touchstone Contract Owner:
As evidenced by the performance reflected in this semi-annual report, a robust
domestic economy and healing economies abroad marked the first six months of
1999. Among the forces influencing the investment climate were modest price
inflation overall, strong corporate earnings, continued consumer confidence and
accelerating recoveries in many regions of the world, despite rising oil prices.
Expectations of an eventual boost in interest rates drove the price of the
bellwether 30-year Treasury bond downward and were fulfilled by a hike in the
federal funds rate of 1/4 of 1 percent on June 30.
Historical trends show that the performance of investment sectors and styles
runs in cycles. The cycles of different sector and style classes often move in
opposite directions and alternately lead and lag one another. When one is up,
the other is flat or down, and vice versa. We require that our managers possess
the experience to stay the course through these cycles and the expertise to take
advantage of the various opportunities presented over the course of these
cycles. In the first six months of 1999, some sectors and styles that lagged in
1998 have exhibited a resurgence in performance and a subsequent return to
favor. Small capitalization stocks and value stocks have been among the leading
examples. The performance of a number of Touchstone's investment options reflect
that rebound. Please see the following pages for details.
Enhanced Investment Options
Because we feel strongly that a wise investor needs to maintain a good mix of
differing styles of funds, we were proud to introduce 10 new investment options
to our Touchstone variable annuity products effective May 17. The managers of
these new options from AIM Advisors, Inc., Fred Alger Management, Inc., MFS(R)
Investment Management, Pacific Investment Management Co., Fort Washington
Investment Advisors, Inc. and Todd Investment Advisors, Inc. offer you a wider
array of choices and additional opportunity for diversification within your
Touchstone contract.* Please call Touchstone at 800.669.2796 to confirm the
availability of these options in your state. As always, please read a current
prospectus carefully before investing or sending money.
Year 2000 Readiness
We have now passed the mid-point of 1999. We are confident that January 1, 2000,
will be like any other day when it comes to providing Touchstone contract owners
prompt and reliable service. We are taking every step to assure the readiness of
our computer systems for Year 2000. Even though we don't expect any problems, as
is our usual practice, we will have backup of all critical information on
December 31, 1999.
I'd like to take this opportunity to thank you for your investment in Touchstone
Variable Annuities.1 We appreciate your continued confidence and pledge every
effort to continue to merit your trust.
Sincerely,
[SIGNATURE HERE]
Jill T. McGruder
President and Chief Executive Officer
Touchstone Family of Funds and Variable Annuities
* This is a two-part semi-annual report. For those who have not selected the
AIM, Alger, MFS, and PIMCO options but would like to receive financial
information for these new investment options, please call Touchstone at
800.669.2796.
1 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.
1
<PAGE>
Notes
2
<PAGE>
Western-Southern Life Assurance Company
Separate Account 2
<TABLE>
<CAPTION>
Statement of Net Assets
June 30, 1999 (unaudited)
<S> <C> <C>
Assets:
Investments at current market value:
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth Fund ( 4 shares, cost $ 100 ) $ 104
AIM V.I. Government Securities Fund ( 9 shares, cost $ 100 ) 99
The Alger American Fund
Alger American Small Capitalization Portfolio ( 2 shares, cost $ 100 ) 109
Alger American Growth Portfolio ( 254 shares, cost $ 13,230 ) 14,181
MFS Variable Insurance Trust
MFS VIT Emerging Growth Series ( 4 shares, cost $ 100 ) 106
MFS VIT Growth with Income Series ( 5 shares, cost $ 100 ) 103
PIMCO Variable Insurance Trust
PIMCO Long-Term U.S. Gov't. Bond Portfolio ( 10 shares, cost $ 100 ) 99
Touchstone Variable Series Trust
Touchstone Small Cap Value Fund ( 10 shares, cost $ 100 ) 105
Touchstone Emerging Growth Fund (8,363 shares, cost $ 123,124 ) 147,770
Touchstone International Equity Fund (9,315 shares, cost $ 125,433 ) 131,811
Touchstone Income Opportunity Fund (15,953 shares, cost $ 145,487 ) 137,517
Touchstone High Yield Fund ( 10 shares, cost $ 100 ) 99
Touchstone Value Plus Fund ( 51 shares, cost $ 541 ) 575
Touchstone Growth & Income Fund (18,279 shares, cost $ 194,192 ) 213,680
Touchstone Enhanced 30 Fund (1,333 shares, cost $ 13,153 ) 13,539
Touchstone Balanced Fund (9,739 shares, cost $ 138,234 ) 145,496
Touchstone Bond Fund (9,273 shares, cost $ 94,135 ) 92,362
Touchstone Standby Income Fund (9,962 shares, cost $ 99,657 ) 99,318
- ------------------------------------------------------------------------------------------------------------------------------------
Total Invested Assets 997,073
Liabilities:
Accounts payable 157
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 157
Total net assets $ 996,916
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Variable annuity contracts $ 994,608
Retained in the variable account by Western-Southern Life Assurance Company 2,308
- ------------------------------------------------------------------------------------------------------------------------------------
Total net assets $ 996,916
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Western-Southern Life Assurance Company
Separate Account 2
<TABLE>
<CAPTION>
Statement of Operations and Changes in Net Assets
For the period from January 1, 1999 to June 30, 1999 (unaudited)
AIM V.I. Alger American MFS
AIM V.I. Government Small Alger American VIT Emerging
Growth Securities Capitalization Growth Growth
Total Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends and capital gains $ 10,574 $ -- $ -- $ -- $ -- $ --
Miscellaneous income (loss) (408) -- -- -- 355 --
Expenses:
Mortality and expense risk, and
administrative charge 4,539 -- -- -- 8 --
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 5,627 -- -- -- 347 --
- ------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 59,519 4 (1) 9 951 6
Realized gain (loss) on investments (12,529) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 46,990 4 (1) 9 951 6
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 52,617 4 (1) 9 1,298 6
- ------------------------------------------------------------------------------------------------------------------
Contract owners activity:
Payments received from contract
owners 60,985 100 100 100 12,883 100
Net transfers between
sub-accounts -- -- -- -- -- --
Withdrawals and surrenders (610,556) -- -- -- -- --
Contract maintenance charge (385) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity (549,956) 100 100 100 12,883 100
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (497,339) 104 99 109 14,181 106
Net assets, at beginning of period 1,494,255 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net assets, at end of period $ 996,916 $ 104 $ 99 $ 109 $ 14,181 $ 106
- ------------------------------------------------------------------------------------------------------------------
MFS PIMCO Touchstone Touchstone Touchstone Touchstone
VIT Growth Long-Term U.S. Small Cap Emerging International Income
with Income Government Bond Value Growth Equity Opportunity
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
Income:
Dividends and capital gains $ -- $ 1 $ -- $ -- $ -- $ 2,645
Miscellaneous income (loss) -- (1) -- (1,519) (56) (69)
Expenses:
Mortality and expense risk, and
administrative charge -- -- -- 533 554 594
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) -- -- -- (2,052) (610) 1,982
- ------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 3 (1) 5 20,096 (2,356) 12,600
Realized gain (loss) on investments -- -- -- (1,762) 2,940 (14,042)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3 (1) 5 18,334 584 (1,442)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 3 (1) 5 16,282 (26) 540
- ------------------------------------------------------------------------------------------------------------------
Contract owners activity:
Payments received from contract
owners 100 100 100 (1,829) 9,194 (15,104)
Net transfers between
sub-accounts -- -- -- (2,597) (372) 4,087
Withdrawals and surrenders -- -- -- (35,562) (38,256) (27,507)
Contract maintenance charge -- -- -- (57) (48) (57)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity 100 100 100 (40,045) (29,482) (38,581)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 103 99 105 (23,763) (29,508) (38,041)
Net assets, at beginning of period -- -- -- 171,524 161,311 175,552
- ------------------------------------------------------------------------------------------------------------------
Net assets end of period $ 103 $ 99 $ 105 $ 147,761 $ 131,803 $ 137,511
</TABLE>
<TABLE>
<CAPTION>
Touchstone Touchstone
Touchstone Touchstone Growth & Touchstone Touchstone Touchstone Standby
High Yield Value Plus Income Enhanced 30 Balanced Bond Income
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
Income:
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends and capital gains $ -- $ -- $ -- $ -- $ -- $ 817 $ 7,111
Miscellaneous income (loss) -- (1) 535 277 107 59 (95)
Expenses:
Mortality and expense risk, and
administrative charge -- 1 830 7 625 384 1,003
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) -- (2) (295) 270 (518) 492 6,013
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments (1) 29 19,487 386 10,414 (1,773) (339)
Realized gain (loss) on investments -- -- 2,095 -- (373) (551) (836)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1) 29 21,582 386 10,041 (2,324) (1,175)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1) 27 21,287 656 9,523 (1,832) 4,838
- -------------------------------------------------------------------------------------------------------------------------------
Contract owners activity:
Payments received from contract
owners 100 446 (963) 12,883 6,371 (9,821) 46,125
Net transfers between
sub-accounts -- -- (73) -- 707 5,088 (6,840)
Withdrawals and surrenders -- -- (44,358) -- (42,565) (10,353) (411,955)
Contract maintenance charge -- -- (128) -- (68) (23) (4)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity 100 446 (45,522) 12,883 (35,555) (15,109) (372,674)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 99 473 (24,235) 13,539 (26,032) (16,941) (367,836)
Net assets, at beginning of period -- 102 237,910 -- 171,518 109,301 467,037
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, at end of period $ 99 $ 575 $ 213,675 $ 13,539 $ 145,486 $ 92,360 $ 99,201
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the period from January 1, 1998 to December 31, 1998
Touchstone Touchstone Touchstone
Emerging International Income Touchstone
Growth Equity Opportunity Value Plus
Total Sub-Account Sub-Account Sub-Account Sub-Account
Income:
<S> <C> <C> <C> <C> <C>
Dividends and capital gains $ 90,346 $ 5,973 $ 5,347 $ 63,278 $ --
Miscellaneous income (loss) (4,698) 188 (1,300) (2,054) 5
Expenses:
Mortality and expense risk,
and administrative charge 13,748 1,845 1,312 5,436 5
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) 71,900 4,316 2,735 55,788 --
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 29,707 (12,141) 6,483 23,279 5
Realized gain (loss) on investments (60,160) 5,778 19,119 (95,409) 230
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (30,453) (6,363) 25,602 (72,130) 235
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 41,447 (2,047) 28,337 (16,342) 235
- -----------------------------------------------------------------------------------------------------
Contract owners activity:
Payments received from
contract owners 1,109,428 59,053 60,324 127,683 100
Net transfers between
sub-accounts -- 103,499 13,119 (830,696) (233)
Withdrawals and surrenders (1,739,080) (247,322) (89,500) (131,066) --
Contract maintenance charge (1,224) (200) (207) (211) --
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) from
contract activity (630,876) (84,970) (16,264) (834,290) (133)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (589,429) (87,017) 12,073 (850,632) 102
Net assets, at beginning of period 2,083,684 258,541 149,238 1,026,184 --
- -----------------------------------------------------------------------------------------------------
Net assets, at end of period $1,494,255 $ 171,524 $ 161.311 $ 175,552 $ 102
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Touchstone Touchstone
Growth & Touchstone Touchstone Standby
Income Balanced Bond Income
Sub-Account Sub-Account Sub-Account Sub-Account
Income:
<S> <C> <C> <C> <C>
Dividends and capital gains $ -- $ 9,305 $ -- $ 6,443
Miscellaneous income (loss) (50) (1,800) (75) 388
Expenses:
Mortality and expense risk, and
administrative charge 2,156 1,432 634 928
- ----------------------------------------------------------------------------------------
Net investment income (loss) (2,206) 6,073 (709) 5,903
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 13,754 (8,062) 6,346 43
Realized gain (loss) on investments -- 10,103 -- 19
- ----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 13,754 2,041 6,346 62
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 11,548 8,114 5,637 5,965
- ----------------------------------------------------------------------------------------
Contract owners activity:
Payments received from contract
owners 99,943 32,031 88,324 641,970
Net transfers between
sub-accounts 90,949 24,334 (18,106) 617,134
Withdrawals and surrenders (232,204) (61,060) (52,836) (925,092)
Contract maintenance charge (285) (238) (40) (43)
- ----------------------------------------------------------------------------------------
Net increase (decrease)
from contract activity (41,597) (4,933) 17,342 333,969
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets (30,049) 3,181 22,979 339,934
Net assets, at beginning of period 267,959 168,337 86,322 127,103
- ----------------------------------------------------------------------------------------
Net assets, at end of period $ 237,910 $ 171,518 $ 109,301 $ 467,037
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4 + 5 (spread)
<PAGE>
Western-Southern Life Assurance Company
Separate Account 2
<TABLE>
<CAPTION>
Supplementary Information
Touchstone Advisor Variable Annuity
(Selected data for an accumulation unit outstanding for each period)
AIM V.I. Alger American MFS MFS PIMCO.
AIM V.I Government Small Alger AmericanVIT Emerging VIT Growth Long-Term U.S.
Growth Securities Capitalization Growth Growth with Income Government Bond
Sub-Account* Sub-Account* Sub-Account* Sub-Account* Sub-Account* Sub-Account* Sub-Account*
- -----------------------------------------------------------------------------------------------------------------------------------
For the For the For the For the For the For the For the
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30, June 30, June 30, June 30,
1999 1999 1999 1999 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income $ -- $ -- $ -- $ -- $ -- $ -- $ 0.065825
Expenses 0.009450 0.009535 0.009705 0.009434 0.009615 0.009605 0.009528
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.009450) (0.009535) (0.009705) (0.009434) (0.009615) (0.009605) 0.056297
(0.039550)
Net realized and
unrealized gain (loss) on investments 0.397975 (0.063530) 0.872536 0.539143 0.562064 0.301865 (0.142770)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value 0.388525 (0.073065) 0.862831 0.529709 0.552449 0.292260 (0.086473)
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $10.388525 $ 9.926935 $10.862831 $10.529709 $10.552449 $10.292260 $ 9.913527
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.00% 0.00% 0.00% 0.11% 0.00% 0.00% 0.00%
Ratio of net investment
income (loss) to
average net assets (%) 0.00% 0.00% 0.00% 4.89% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
Touchstone
Small Cap
Value
Sub-Account* Touchstone Emerging Growth Sub-Account
- ------------------------------------------------------------------------------------------------------------------
For the For the For the For the For the For the
Period Ended Period Ended Year Ended Year Ended Year Ended Period Ended
June 30, June 30, December 31, December 31, December 31, December 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Investment income $ -- $ -- $ 0.612142 $ 0.929048 $ 0.337947 $ 0.789879
Expenses 0.009650 0.070023 0.134380 0.118607 0.098968 0.073756
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.009650) (0.070023) 0.477762 0.810441 0.238979 0.716123
Net realized and
unrealized gain (loss) on investments 0.520187 2.675504 (0.055311) 3.411742 0.967583 1.024979
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value 0.510537 2.605481 0.422451 4.222183 1.206562 1.741102
Beginning of period 10.000000 17.592298 17.169847 12.947664 11.741102 10.000000
- ------------------------------------------------------------------------------------------------------------------
End of period $10.510537 $20.197779$ 17.592298 $17.169847 $12.947664 $11.741102
- ------------------------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.00% 0.33% 0.86% 0.61% 0.76% 0.64%
Ratio of net investment
income (loss) to
average net assets (%) 0.00% -1.29% 2.01% 8.58% 0.97% 12.73%
</TABLE>
<TABLE>
<CAPTION>
Touchstone International Equity Sub-Account
- -----------------------------------------------------------------------------------------------------
For the For the For the For the For the
Period Ended Year Ended Year Ended Year Ended Period Ended
June 30, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Investment income $ -- $ 0.560971 $ 0.771640 $ 0.084052 $ 0.033748
Expenses 0.066147 0.128478 0.107978 0.095651 0.073298
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.066147) 0.432493 0.663662 (0.011599) (0.039550)
Net realized and
unrealized gain (loss) on investments 0.229025 2.302091 1.063784 1.204897 1.322219
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value 0.162878 2.734584 1.727446 1.193298 1.282669
Beginning of period 16.937997 14.203413 12.475967 11.282669 10.000000
- -----------------------------------------------------------------------------------------------------
End of period $17.100875 $16.937997 $14.203413 $12.475967 $11.282669
- -----------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.38% 0.84% 0.78% 0.70% 0.67%
Ratio of net investment
income (loss) to
average net assets (%) -0.42% 1.76% 7.22% 1.08% 0.17%
</TABLE>
<TABLE>
<CAPTION>
Touchstone
High Yield
Touchstone Income Opportunity Sub-Account Sub-Account*
- ---------------------------------------------------------------------------------------------------------------------
For the For the For the For the For the For the
Period Ended Year Ended Year Ended Year Ended Period Ended Period Ended
June 30, December 31, December 31, December 31, December 31, June 30,
1999 1998 1997 1996 1995 1999
<S> <C> <C> <C> <C> <C> <C>
Investment income $ 0.266185 $ 1.751570 $ 2.241559 $ 1.977619 $ 1.550039 $ --
Expenses 0.061075 0.134780 0.136658 0.113609 0.076165 0.009548
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.205110 1.616790 2.104901 1.864010 1.473874 (0.009548)
Net realized and
unrealized gain (loss) on investments(0.119699) (3.922423) (0.318302) 1.449756 1.098992 (0.090693)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value 0.085411 (2.305633) 1.786599 3.313766 2.572866 (0.100241)
Beginning of period 15.367598 17.673231 15.886632 12.572866 10.000000 10.000000
- ---------------------------------------------------------------------------------------------------------------------
End of period $15.453009 $15.367598 $17.673231 $15.886632 $12.572866 $ 9.899759
- ---------------------------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.38% 0.90% 0.24% 0.75% 0.66% 0.00%
Ratio of net investment
income (loss) to
average net assets (%) 1.27% 9.28% 8.84% 12.25% 10.26% 0.00%
</TABLE>
<TABLE>
<CAPTION>
Touchstone Value Plus
Sub-Account** Touchstone Growth & Income Sub-Account
- -----------------------------------------------------------------------------------------------------------------------------------
For the For the For the For the For the For the For the
Period Ended Period Ended Period Ended Year Ended Year Ended Year Ended Period Ended
June 30, December 31, June 30, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income $ -- $ 0.029387 $ -- $ -- $ -- $ -- $ --
Expenses 0.042078 0.050319 0.074285 0.141929 0.122934 0.108541 0.075378
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.042078) (0.020932 (0.074285) (0.141929) (0.122934) (0.108541) (0.075378)
Net realized and
unrealized gain (loss) on investments 1.125072 0.177735 2.144285 1.263248 2.827415 1.865939 2.609327
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value 1.082994 0.156803 2.070000 1.121319 2.704481 1.757398 2.533949
Beginning of period 10.156803 10.000000 18.117147 16.995828 14.291347 12.533949 10.000000
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $11.239797 $10.156803 $20.187147 $18.117147 $16.995828 $14.291347 $12.533949
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.34% 9.80% 0.37% 0.85% 0.84% 0.87% 0.62%
Ratio of net investment
income (loss) to
average net assets (%) -0.63% 0.00% -0.13% (0.87)% (0.41)% (9.54)% (0.55)%
</TABLE>
<TABLE>
<CAPTION>
Touchstone
Enhanced 30
Sub-Account* Touchstone Balanced Sub-Account
- ---------------------------------------------------------------------------------------------------------------------
For the For the For the For the For the For the
Period Ended Period Ended Year Ended Year Ended Year Ended Period Ended
June 30, June 30, December 31, December 31, December 31, December 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Investment income $ -- $ -- $ 0.918046 $ 1.317477 $ 0.569146 $ 1.125981
Expenses 0.009480 0.069846 0.134922 0.120752 0.101787 0.076118
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.009480) (0.069846) 0.783124 1.196725 0.467359 1.049863
Net realized and
unrealized gain (loss) on investments 0.293424 1.200550 (0.029731) 1.263315 1.436884 0.968160
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value 0.283944 1.130704 0.753393 2.460040 1.904243 2.018023
Beginning of period 10.000000 17.135699 16.382306 13.922266 12.018023 10.000000
- ---------------------------------------------------------------------------------------------------------------------
End of period $10.283944 $18.266403 $17.135699 $16.382306 $13.922266 $12.018023
- ---------------------------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.10% 0.39% 0.84% 0.71% 0.78% 0.69%
Ratio of net investment
income (loss) to
average net assets (%) 3.99% -0.33% 3.58% 10.64% 5.34% 14.78%
</TABLE>
* Calculation of the AIM V. I. Growth, AIM V. I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U. S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone Enhanced
30 Unit Values began May 17, 1999, when those sub-accounts commenced
operations.
** Calculation of the Value Plus Unit Values began May 1, 1998 when that
sub-account commenced operations.
The accompanying notes are an integral part of the financial statements.
6 + 7 (spread)
<PAGE>
Western-Southern Life Assurance Company
Separate Account 2
Supplementary Information - continued
(Selected data for an accumulation unit outstanding for each period)
<TABLE>
<CAPTION>
Touchstone Bond Sub-Account
- --------------------------------------------------------------------------------------------------------
For the For the For the For the For the
Period Ended Year Ended Year Ended Year Ended Period Ended
June 30, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Investment income $ 0.116865 $ -- $ -- $ -- $ --
Expenses 0.051826 0.101441 0.094423 0.089697 0.071770
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.065039 (0.101441) (0.094423) (0.089697) (0.071770)
Net realized and
unrealized gain (loss) on investments(0.312357) 1.007083 0.910882 0.285772 1.381287
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value (0.247318) 0.905642 0.816459 0.196075 1.309517
Beginning of period 13.227693 12.322051 11.505592 11.309517 10.000000
- --------------------------------------------------------------------------------------------------------
End of period $12.980375 $13.227693 $12.322051 $11.505592 $11.309517
- --------------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.38% 0.65% 0.71% 0.83% 0.69%
Ratio of net investment
income (loss) to
average net assets (%) 0.49% (0.72)% (0.64)% (2.09)% (0.66)%
</TABLE>
<TABLE>
<CAPTION>
Touchstone Standby Income Sub-Account
- --------------------------------------------------------------------------------------------------------
For the For the For the For the For the
Period Ended Year Ended Year Ended Year Ended Period Ended
June 30, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Investment income $ 0.327211 $ 0.633473 $ 0.594041 $ 0.550219 $ 0.483304
Expenses 0.047349 0.092320 0.088130 0.084812 0.068599
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.279862 0.541153 0.505911 0.465407 0.414705
Net realized and
unrealized gain (loss) on investments(0.047854) 0.011590 (0.010926) (0.010339) (0.049865)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
asset value 0.232008 0.552743 0.494985 0.455068 0.364840
Beginning of period 11.867636 11.314893 10.819908 10.364840 10.000000
- --------------------------------------------------------------------------------------------------------
End of period $12.099644 $11.867636 $11.314893 $10.819908 $10.364840
- --------------------------------------------------------------------------------------------------------
Ratios
Ratio of operating expense to
average net assets (%) 0.35% 0.31% 1.38% 0.50% 0.78%
Ratio of net investment
income (loss) to
average net assets (%) 2.12% 1.99% 7.95% 2.67% 4.35%
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 + 9 (spread)
<PAGE>
Western-Southern Life Assurance Company
Separate Account 2
Notes to Financial Statements
1. Organization
Western-Southern Life Assurance Company Separate Account 2 (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.
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 eighteen investment sub-accounts each of which invests in the
corresponding portfolio (a "Portfolio") of AIM Variable Insurance Funds, Inc.,
The Alger American Fund, MFS Variable Insurance Trust, PIMCO Variable Insurance
Trust, or Touchstone Variable Series Trust, each of which is an open-ended
diversified management investment company. Each sub-account's value fluctuates
on a day to day basis depending on the investment performance of the Portfolio
in which each sub-account is invested. 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 understanding 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 .80% of the contract value.
The Company also deducts an annual contract maintenance charge of $35 from the
contract value on each contract anniversary and upon any full surrender.
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.
10
<PAGE>
Western-Southern Life Assurance Company
Separate Account 2
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 of the Portfolios purchased
and proceeds from shares of the Portfolios sold by the corresponding
sub-accounts for the period January 1, 1999 to June 30, 1999.
<TABLE>
<CAPTION>
Purchases Sales
AIM Variable Insurance Funds, Inc.
<S> <C> <C>
AIM V.I. Growth Fund $ 100 $ --
AIM V.I. Government Securities Fund 100 --
The Alger American Fund
Alger American Small Capitalization Portfolio 100 --
Alger American Growth Portfolio 13,238 8
MFS Variable Insurance Trust
MFS VIT Emerging Growth Series 100 --
MFS VIT Growth with Income Series 100 --
PIMCO Variable Insurance Trust
PIMCO Long-Term U.S. Government
Bond Portfolio 100 --
Touchstone Variable Series Trust
Touchstone Small Cap Value Fund 100 --
Touchstone Emerging Growth Fund 34,675 76,769
Touchstone International Equity Fund 13,458 43,546
Touchstone Income Opportunity Fund 12,806 49,402
Touchstone High Yield Fund 100 --
Touchstone Value Plus Fund 446 1
Touchstone Growth & Income Fund 273,368 319,181
Touchstone Enhanced 30 Fund 13,160 7
Touchstone Balanced Fund 11,074 47,143
Touchstone Bond Fund 143,110 157,725
Touchstone Standby Income Fund 56,252 422,812
</TABLE>
7. Unit Values
The following table shows a summary of units outstanding for variable annuity
contracts for the period January 1, 1999 to June 30, 1999.
<TABLE>
<CAPTION>
Transfers
Between
Beginning Units Units Sub- Ending Unit Ending
Units Purchased Redeemed Accounts Units Value Value
AIM V.I. Growth
<S> <C> <C> <C> <C> <C> <C> <C>
Sub-Account* -- 10 -- -- 10 10.388525 $ 104
AIM V.I. Government
Securities
Sub-Account* -- 10 -- -- 10 9.926935 99
Alger American Small
Capitalization
Sub-Account* -- 10 -- -- 10 10.862831 109
Alger American Growth
Sub-Account* -- 1,347 -- -- 1,347 10.529709 14,181
</TABLE>
11
<PAGE>
Western-Southern Life Assurance Company
Separate Account 2
Notes to Financial Statements continued
<TABLE>
<CAPTION>
Transfers
Between
Beginning Units Units Sub- Ending Unit Ending
Units Purchased Redeemed Accounts Units Value Value
MFS VIT Emerging
<S> <C> <C> <C> <C>
Growth Sub-Account* -- 10 -- -- 10 10.552449 106
MFS VIT Growth with
Income Sub-Account* -- 10 -- -- 10 10.292260 103
PIMCO Long-Term U.S.
Government Bond
Sub-Account* -- 10 -- -- 10 9.913527 99
Touchstone Small Cap
Value Sub-Account* -- 10 -- -- 10 10.510537 105
Touchstone Emerging
Growth Sub-Account 9,749 (184) (2,105) (144) 7,316 20.197779 147,761
Touchstone International
Equity Sub-Account 9,524 543 (2,339) (21) 7,707 17.100875 131,803
Touchstone Income
Opportunity
Sub-Account 11,424 (998) (1,794) 267 8,899 15.453009 137,511
Touchstone High Yield
Sub-Account* -- 10 -- -- 10 9.899759 99
Touchstone Value Plus
Sub-Account 10 41 -- -- 51 11.239797 575
Touchstone Growth &
Income Sub-Account 13,132 (115) (2,428) (4) 10,585 20.187147 213,675
Touchstone Enhanced 30
Sub-Account* -- 1,316 -- -- 1,316 10.283944 13,539
Touchstone Balanced
Sub-Account 10,009 358 (2,442) 39 7,964 18.266403 145,486
Touchstone Bond
Sub-Account 8,263 (739) (797) 388 7,115 12.980375 92,360
Touchstone Standby
Income Sub-Account 39,354 3,864 (34,449) (570) 8,199 12.099644 99,201
- --------------------------------------------------------------------------------------------------------
$996,916
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U. S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone Enhanced
30 Unit Values began May 17, 1999, when those sub-accounts commenced
operations.
- --------------------------------------------------------------------------------
Supplementary Information: Change in Accountants
For 1998 and for previous years, PricewaterhouseCoopers LLP and its predecessor
("PWC") served as independent public accountant for the Western-Southern Life
Assurance Company Separate Accounts. Subsequent to PWC's completion of the 1998
fiscal year audit the Board of Directors of the Western-Southern Life Assurance
Company and its Separate Accounts elected to terminate the engagement with PWC
and selected Ernst & Young LLP as independent public accountant for the
Western-Southern Life Assurance Company Separate Accounts. The Board's selection
of Ernst & Young LLP did not result from any dispute between the
Western-Southern Life Assurance Company Separate Accounts and PWC, and PWC's
reports for the last two years did not contain any adverse opinion or disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles. There was no disagreement between PWC and the
Western-Southern Life Assurance Company Separate Accounts on any matter of
accounting principals, practices, financial statement disclosure or auditing
scope of procedure.
12
