-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HEWeykqB9nPJ/nPyxpS7+GuuQGykfSfk0VG/LwCvaxStKiRM0nDwgtLZMcPYR2BE gQGC7rj2Bhzuv5TNmsjjOA== 0001016843-99-000465.txt : 19990503 0001016843-99-000465.hdr.sgml : 19990503 ACCESSION NUMBER: 0001016843-99-000465 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WRL SERIES LIFE ACCOUNT CENTRAL INDEX KEY: 0000778209 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-05143 FILM NUMBER: 99605867 BUSINESS ADDRESS: STREET 1: 201 HIGHLAND AVE CITY: LARGO STATE: FL ZIP: 34640 BUSINESS PHONE: 813-587-18 MAIL ADDRESS: STREET 1: 201 HIGHLAND AVENUE CITY: LARGO STATE: FL ZIP: 33770 497 1 SUPPLEMENT DATED MAY 1, 1999 TO PROSPECTUS DATED MAY 1, 1994 WRL FREEDOM SP PLUS (R) THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION PROVIDED ON PAGE 7, FIFTH PARAGRAPH OF THE PROSPECTUS UNDER THE HEADING "11. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY?" Portfolio Rate --------- ---- WRL Goldman Sachs Growth 0.90% WRL Goldman Sachs Small Cap 0.90% WRL T. Rowe Price Dividend Growth 0.90% WRL T. Rowe Price Small Cap 0.75% WRL Salomon All Cap 0.90% WRL Pilgrim Baxter Mid Cap Growth 0.90% WRL Dreyfus Mid Cap 0.85% THE FOLLOWING INFORMATION IS ADDED TO PAGE 9, UNDER THE SECTION ENTITLED "DEATH BENEFIT, CASH VALUE AND NET SURRENDER VALUE ILLUSTRATIONS" IN THE PROSPECTUS: The information contained in both the explanation and "Hypothetical Illustrations" is out-of-date and should not be relied upon. In addition, current hypothetical illustrations for the new Portfolios are not included in Appendix A. THE FOLLOWING INFORMATION IS ADDED TO PAGE 8 OF THE PROSPECTUS BEFORE THE SECTION ENTITLED "INVESTMENT EXPERIENCE INFORMATION" AND REPRESENTS BOTH THE ACTUAL ANNUAL EXPENSES OF THE EXISTING PORTFOLIOS INCURRED DURING 1998, AND THE ESTIMATED ANNUAL EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS, OF THE NEW PORTFOLIOS: FUND ANNUAL EXPENSES 1/ (as a % of Fund average net assets)
WRL WRL J.P. WRL LKCM Morgan WRL WRL WRL VKAM Strategic Money Janus Janus AEGON Emerging Total Market Growth 2/ Global 3/ Bond Growth Return ------ --------- --------- ---- ------ ------ Management Fees 0.40% 0.78% 0.80% 0.45% 0.80% 0.80% Other Expenses 0.06% 0.05% 0.15% 0.09% 0.09% 0.06% (After Reimbursement) Total Annual Expenses 0.46% 0.83% 0.95% 0.54% 0.89% 0.86%
WRL WRL WRL WRL Alger WRL Federated Dean WRL NWQ Aggressive AEGON Growth & Asset C.A.S.E. Value Growth Balanced Income Allocation Growth Equity ------ -------- ------ ---------- ------ ------ Management Fees 0.80% 0.80% 0.75% 0.80% 0.80% 0.80% Other Expenses 0.11% 0.11% 0.15% 0.06% 0.20% 0.09% (After Reimbursement) Total Annual Expenses 0.91% 0.91% 0.90% 0.86% 1.00% 0.89%
WRL GE/ WRL J.P. Scottish Equitable WRL GE WRL Third Morgan International U.S. Avenue Real Estate Equity Equity Value Securities 4/ ------ ------ ----- --------------- Management Fees 1.00% 0.80% 0.80% 0.80% Other Expenses 0.50% 0.25% 0.20% 0.20% (After Reimbursement) Total Annual Expenses 1.50% 1.05% 1.00% 1.00%
WRL WRL WRL WRL T. Rowe WRL Pilgrim Goldman Goldman Price T. Rowe WRL Baxter WRL Sachs Sachs Dividend Price Salomon Mid Cap Dreyfus Growth 3/ 5/ Small Cap 5/ Growth 3/ 5/ Small Cap 5/ All Cap 3/ 5/ Growth 3/ 5/ Mid Cap 3/ 5/ ------------ ------------ ------------ ------------ ------------- ------------ -------------- Management Fees 0.90% 0.90% 0.90% 0.75% 0.90% 0.90% 0.85% Other Expenses 0.10% 0.10% 0.10% 0.25% 0.10% 0.10% 0.15% (After Reimbursement) Total Annual Expenses 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
- ----------------- 1/ Effective January 1, 1997, the Fund's Board authorized the Fund to charge each Portfolio of the Fund an annual 12b-1 fee of up to 0.15% of each Portfolio's average daily net assets. However, the Fund will not deduct the fee from any Portfolio before April 30, 2000. You will receive advance written notice if a Rule 12b-1 fee is deducted. See the Fund prospectus for more detail. 2/ WRL Janus Growth's management fee was 0.80% of the average daily net assets for the period prior to May 1, 1998, 0.775% of the first $3 billion of average daily net assets and 0.75% of the average daily net assets in excess of $3 billion for the period May 1, 1998 to December 31, 1998. 3/ As compensation for its services to the Portfolios, the investment adviser receives monthly compensation at an annual rate of a percentage of the average daily net assets of each Portfolio. The management fees for each Portfolio are: WRL Janus Global - 0.80% up to $2 billion and 0.775% over $2 billion; WRL Goldman Sachs Growth - 0.90% up to $100 million and 0.80% over $100 million; WRL T. Rowe Price Dividend Growth - 0.90% up to $100 million and 0.80% over $100 million; WRL Salomon All Cap - 0.90% up to $100 million and 0.80% over $100 million; WRL Pilgrim Baxter Mid Cap Growth - 0.90% up to $100 million and 0.80% over $100 million; and WRL Dreyfus Mid Cap - 0.85% up to $100 million and 0.80% over $100 million. 4/ Because WRL J.P. Morgan Real Estate Securities commenced operations on May 1, 1998, the percentages set forth as "Other Expenses" and "Total Annual Expenses" are annualized. 5/ Because these Portfolios did not commence operations until May 1, 1999, the percentages set forth as "Other Expenses" and "Total Annual Expenses" reflect estimates of "Other Expenses" for the first year of operations. Subject to state approvals, these Portfolios will be available for allocations of net premiums and cash value on or about July 1, 1999. Please contact your agent for information regarding availability. The purpose of the preceding table is to help you understand the various costs and expenses that you will bear directly and indirectly. The table reflects charges and expenses of the Portfolios of the Fund for the fiscal year ended December 31, 1998. For more information on the charges described in this table, see the Fund prospectus, which accompanies this prospectus. WRL Management has undertaken, until at least April 30, 2000, to pay expenses on behalf of the Portfolios of the Fund to the extent normal operating expenses of a Portfolio exceed a stated percentage of each Portfolio's average daily net assets. The expense limitation for WRL Alger Aggressive Growth, WRL VKAM Emerging Growth, WRL Janus Growth, WRL Janus Global, WRL AEGON Balanced, WRL LKCM Strategic Total Return, WRL Federated Growth & Income, WRL Dean Asset Allocation, WRL NWQ Value Equity, WRL Third Avenue Value, WRL C.A.S.E. Growth, WRL J.P. Morgan Real Estate Securities, WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus 2 Mid Cap is 1.00% of the average daily net assets; 0.70% of the average daily net assets for the WRL AEGON Bond and WRL J.P. Morgan Money Market; 1.50% of the average daily net assets of the WRL GE/Scottish Equitable International Equity; and 1.30% of the average daily net assets of the WRL GE U.S. Equity. In 1998, WRL Management, the Fund's Investment Adviser, reimbursed WRL GE/Scottish Equitable International Equity in the amount of $127,763, WRL Third Avenue Value in the amount of $14,229, and WRL J.P. Morgan Real Estate Securities in the amount of $28,275. Without such reimbursements, the total Fund expenses during 1998 for WRL GE/Scottish Equitable International Equity, WRL Third Avenue Value, and WRL J.P. Morgan Real Estate Securities would have been 1.96%, 1.13% and 3.34%, respectively. See the Fund's Prospectus for a description of the expense limitation applicable to each Portfolio. THE FOLLOWING IS REVISED AFTER THE THIRD PARAGRAPH ON PAGE 15 OF THE PROSPECTUS UNDER THE HEADING "OTHER PERFORMANCE DATA": We are a charter member of the Insurance Marketplace Standards Association ("IMSA"). IMSA is an independent, voluntary organization of life insurance companies. It promotes high ethical standards in the sales, advertising and servicing of individual life insurance and annuity products. Companies must undergo a rigorous self and independent assessment of their practices to become a member of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to these standards. THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION PROVIDED ON PAGES 22-23 OF THE PROSPECTUS UNDER THE HEADING "INVESTMENTS OF THE SERIES ACCOUNT - WRL SERIES FUND, INC.": Beginning May 1, 1999, you may direct the money in your Policy into seven new Sub-Accounts of the WRL Series Life Account. Each Sub-Account invests exclusively in a new Portfolio of the WRL Series Fund, Inc. ("Fund"). There is no assurance that any of the Portfolios will achieve its stated objective. More detailed information, including a description of risks, can be found in the Fund Prospectus, which accompanies this Supplement, and should be read carefully.
- -------------------------------------------------------------------------------- Portfolio Sub-Adviser Investment Objective - --------- ----------- --------------------- WRL Goldman Goldman Sachs Asset Seek long-term growth of capital. Sachs Growth* Management, Inc. WRL Goldman Goldman Sachs Asset Seek long-term growth of capital. Sachs Small Cap* Management, Inc. WRL T. Rowe T. Rowe Price Seeks to provide an increasing Price Dividend Associates, Inc. level of dividend income, Growth* long-term capital appreciation and reasonable current income through investments primarily in dividend paying stocks. WRL T. Rowe T. Rowe Price Seeks long-term growth of Price Small Cap* Associates, Inc. capital by investing primarily in common stocks of small growth companies. WRL Salomon Salomon Brothers Asset Seeks capital appreciation. All Cap* Management, Inc. WRL Pilgrim Pilgrim Baxter & Seeks capital appreciation. Baxter Mid Cap Associates, Ltd. Growth* WRL Dreyfus The Dreyfus Seeks total investment returns Mid Cap* Corporation (including capital appreciation and income), which consistently outperform the S&P 400 Mid Cap Index.
* SUBJECT TO STATE APPROVALS, THESE PORTFOLIOS WILL BE AVAILABLE FOR ALLOCATIONS OF NET PREMIUMS AND CASH VALUE ON OR ABOUT JULY 1, 1999. PLEASE CONTACT YOUR AGENT FOR INFORMATION REGARDING AVAILABILITY. - -------------------------------------------------------------------------------- 3 In addition, effective May 1, 1999, the Portfolios of the Fund in which you may currently invest through the Policy have changed their names. Below is a list of the "old" and "new" names for these Portfolios: - ------------------------------------ ------------------------------------------- OLD NAME NEW NAME - ------------------------------------ ------------------------------------------- Money Market WRL J.P. Morgan Money Market - ------------------------------------ ------------------------------------------- Growth WRL Janus Growth - ------------------------------------ ------------------------------------------- Global WRL Janus Global - ------------------------------------ ------------------------------------------- Bond WRL AEGON Bond - ------------------------------------ ------------------------------------------- Emerging Growth WRL VKAM Emerging Growth - ------------------------------------ ------------------------------------------- Strategic Total Return WRL LKCM Strategic Total Return - ------------------------------------ ------------------------------------------- Aggressive Growth WRL Alger Aggressive Growth - ------------------------------------ ------------------------------------------- Balanced WRL AEGON Balanced - ------------------------------------ ------------------------------------------- Growth & Income WRL Federated Growth & Income - ------------------------------------ ------------------------------------------- Tactical Asset Allocation WRL Dean Asset Allocation - ------------------------------------ ------------------------------------------- C.A.S.E. Growth WRL C.A.S.E. Growth - ------------------------------------ ------------------------------------------- Value Equity WRL NWQ Value Equity - ------------------------------------ ------------------------------------------- International Equity WRL GE/Scottish Equitable International Equity - ------------------------------------ ------------------------------------------- U.S. Equity WRL GE U.S. Equity - ------------------------------------ ------------------------------------------- Third Avenue Value WRL Third Avenue Value - ------------------------------------ ------------------------------------------- Real Estate Securities WRL J.P. Morgan Real Estate Securities - ------------------------------------ ------------------------------------------- THE FOLLOWING PARAGRAPH IS ADDED AFTER THE CARRYOVER PARAGRAPH ON PAGE 29 OF THE PROSPECTUS UNDER THE HEADING "ALLOCATION OF PREMIUMS AND CASH VALUE - TRANSFERS." The Policy's transfer privilege is not intended to afford policyowners a way to speculate on short-term movements in the market. Excessive use of the transfer privilege can disrupt the management of the Portfolios and increase transaction costs. Accordingly, we have established a policy of limiting excessive transfer activity. We will limit transfer activity to two substantive transfers (at least 30 days apart) from each Portfolio, except from WRL J.P. Morgan Money Market. We interpret "substantive" to mean either a dollar amount large enough to have a negative impact on a Portfolio's operations or a service of movements between Portfolios.We will not limit non-substantive transfers. THE FOLLOWING PARAGRAPH IS ADDED AFTER THE CARRYOVER PARAGRAPH ON PAGE 35 OF THE PROSPECTUS UNDER THE HEADING "POLICY RIGHTS - LOAN PRIVILEGES." You may request a loan by telephone by calling us at 1-800-851-9777. If the loan amount you request exceeds $50,000 or if the address of record has been changed within the past 10 days, we may reject your request. If you do not want the ability to request a loan by telephone, you should notify us in writing. You will be required to provide certain information for identification purposes when you request a loan by telephone. We may ask you to provide us with written confirmation of your request. We will not be liable for processing a loan request if we believe the request is genuine. You may also fax your loan request to us at 727-299-1667. We will not be responsible for any transmittal problems when you fax your request unless you report it to us within five business days and send us proof of your fax transmittal. THE FOLLOWING SECTION HAS BEEN REVISED ON PAGE 51 OF THE PROSPECTUS AFTER THE HEADING "ADDITIONAL INFORMATION": YEAR 2000 READINESS DISCLOSURE In May 1996, Western Reserve adopted and presently has in place a Year 2000 Project Plan (the "Plan") to review and analyze existing hardware and software systems, as well as voice and data communications systems, to determine if they are Year 2000 compliant. As of March 1, 1999, substantially all of Western Reserve's mission-critical systems are Year 2000 compliant. The Plan remains on track as we continue with the validation of our mission-critical and non-mission-critical systems, including revalidation testing in 1999. In addition, we have undertaken aggressive initiatives to test all systems that interface with any third parties and other business partners. All of these steps are aimed at allowing current operations to remain unaffected by the Year 2000 data change. 4 As of the date of this prospectus, Western Reserve has identified and made available what it believes are the appropriate resources of hardware, people, and dollars, including the engagement of outside third parties, to ensure that the Plan will be completed. The actions taken by management under the Plan are intended to reduce significantly Western Reserve's risk of a material business interruption based on the Year 2000 issues. It should be noted that the Year 2000 computer problem, and its resolution, is complex and multifaceted, and any company's success cannot be conclusively known until the Year 2000 is reached. In spite of its efforts or results, our ability to function unaffected to and through the Year 2000 may be adversely affected by actions, or failure to act, of third parties, beyond our knowledge or control. This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C. Section 1 (1998). THE FIFTH PARAGRAPH ON PAGE 52 OF THE PROSPECTUS UNDER THE HEADING "APPENDIX A - ILLUSTRATION OF BENEFITS" IS CHANGED, AS FOLLOWS: The amounts we show for the death benefits, Cash Values and Net Surrender Values take into account (1) the daily charge for assuming mortality and expense risks assessed against each Sub-Account. This charge is equivalent to an annual charge of 0.90% of the average net assets of the Sub-Accounts; (2) estimated daily expenses equivalent to an effective average annual expense level of 0.94% of the Portfolios' average daily net assets; and (3) all applicable premium expense charges and Cash Value charges using the current monthly Policy charge. The 0.94% average Portfolio expense level assumes an equal allocation of amounts among the 23 Sub-Accounts. It is based on an average 0.80% investment advisory fee and estimated 1998 average normal operating expenses of 0.14% for each of the Portfolios in operation during 1998. We used annualized actual audited expenses incurred during 1998 for the following Portfolios to calculate the average annual expense level: WRL J.P. Morgan Money Market (0.46%), WRL AEGON Bond (0.54%), WRL Janus Growth (0.83%), WRL LKCM Strategic Total Return (0.86%), WRL VKAM Emerging Growth (0.89%), WRL Janus Global (0.95%), WRL Alger Aggressive Growth (0.91%), WRL AEGON Balanced (0.91%), WRL Federated Growth & Income (0.90%), WRL C.A.S.E. Growth (1.00%), WRL Dean Asset Allocation (0.86%), WRL NWQ Value Equity (0.89%), WRL GE/Scottish Equitable International Equity (1.50%), WRL GE U.S. Equity (1.05%), WRL Third Avenue Value (1.00%), and WRL J.P. Morgan Real Estate Securities (1.00%). Because the Portfolios of WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap had not commenced operations as of December 31, 1998, the estimated average annual Portfolio expense level reflects estimated expenses for each of these Portfolios at 1.00% for 1999. During 1998, WRL Management undertook to pay normal operating expenses of certain Portfolios that exceeded a certain stated percentage of those Portfolios' average daily net assets. WRL Management has undertaken until April 30, 2000 to pay expenses to the extent normal operating expenses of certain Portfolios of the Fund exceed a stated percentage of the Portfolio's average daily net assets. Taking into account the assumed charges of 1.84%, the gross annual investment return rates of 0%, 6% and 12% are equivalent to net annual investment return rates of -1.84%, 4.16%, and 10.16%. WRL00192-5/99 5 Index to Financial Statements - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WRL SERIES LIFE ACCOUNT: Report of Independent Accountants dated January 29, 1999 Statement of Assets and Liabilities and Statement of Operations at or for the year ended December 31, 1998 Statement of Changes in Net Assets for the years ended December 31, 1998 and 1997 Financial Highlights for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 Notes to the Financial Statements WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO Report of Independent Auditors dated February 19, 1999 Statutory-Basis Balance Sheets at December 31, 1998 and 1997 Statutory-Basis Statements of Operations for the years ended December 31, 1998, 1997 and 1996 Statutory-Basis Statements of Changes in Capital and Surplus for the years ended December 31, 1998, 1997 and 1996 Statutory-Basis Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Statutory-Basis Financial Statements Statutory-Basis Financial Statement Schedules 6 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and Policy Owners of the WRL Series Life Account. In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the Sub-Accounts constituting the WRL Series Life Account (a separate account of Western Reserve Life Assurance Co. of Ohio, hereafter referred to as the "Life Account") at December 31, 1998, the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Life Account's management, our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Boston, Massachusetts January 29, 1999 7 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
MONEY MARKET BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 24,472 2,150 13,310 ======= ======= ======== Cost ............................................... $24,472 $24,523 $423,759 ======= ======= ======== Investment, at net asset value ...................... $24,472 $24,925 $797,795 Transfers receivable from depositor ................. 104 9 232 ------- ------- -------- Total assets ....................................... 24,576 24,934 798,027 ------- ------- -------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 ------- ------- -------- Total liabilities .................................. 0 0 0 ------- ------- -------- Net assets ......................................... $24,576 $24,934 $798,027 ======= ======= ======== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $24,576 $24,934 $798,027 Depositor's equity .................................. 0 0 0 ------- ------- -------- Net assets applicable to units outstanding ......... $24,576 $24,934 $798,027 ======= ======= ======== Policy Owners' units ................................ 1,460 1,090 8,668 Depositor's units ................................... 0 0 0 ------- ------- -------- Units outstanding .................................. 1,460 1,090 8,668 ======= ======= ======== Accumulation unit value ............................ $ 16.83 $ 22.89 $ 92.07 ======= ======= ========
STRATEGIC EMERGING GLOBAL TOTAL RETURN GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 9,833 6,028 9,752 ======== ======= ======== Cost ............................................... $189,249 $81,865 $176,852 ======== ======= ======== Investment, at net asset value ...................... $233,131 $98,885 $262,548 Transfers receivable from depositor ................. 125 41 117 -------- ------- -------- Total assets ....................................... 233,256 98,926 262,665 -------- ------- -------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 -------- ------- -------- Total liabilities .................................. 0 0 0 -------- ------- -------- Net assets ......................................... $233,256 $98,926 $262,665 ======= ======== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $233,256 $98,926 $262,665 Depositor's equity .................................. 0 0 0 -------- ------- -------- Net assets applicable to units outstanding ......... $233,256 $98,926 $262,665 ======== ======= ======== Policy Owners' units ................................ 10,167 4,814 8,218 Depositor's units ................................... 0 0 0 -------- ------- -------- Units outstanding .................................. 10,167 4,814 8,218 ======== ======= ======== Accumulation unit value ............................ $ 22.94 $ 20.55 $ 31.96 ======== ======= ========
The notes to the financial statements are an integral part of this report. 8 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
AGGRESSIVE GROWTH & GROWTH BALANCED INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 7,923 1,185 1,306 ======== ======= ======= Cost ............................................... $126,802 $13,872 $16,213 ======== ======= ======= Investment, at net asset value ...................... $177,787 $14,863 $16,036 Transfers receivable from depositor ................. 70 1 11 -------- ------- ------- Total assets ....................................... 177,857 14,864 16,047 -------- ------- ------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 -------- ------- ------- Total liabilities .................................. 0 0 0 -------- ------- ------- Net assets ......................................... $177,857 $14,864 $16,047 ======== ======= ======= NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $177,857 $14,864 $16,047 Depositor's equity .................................. 0 0 0 -------- ------- ------- Net assets applicable to units outstanding ......... $177,857 $14,864 $16,047 ======== ======= ======= Policy Owners' units ................................ 6,669 990 976 Depositor's units ................................... 0 0 0 -------- ------- ------- Units outstanding .................................. 6,669 990 976 ======== ======= ======= Accumulation unit value ............................ $ 26.67 $ 15.02 $ 16.44 ======== ======= =======
TACTICAL ASSET C.A.S.E. ALLOCATION GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 2,988 1,364 2,152 ======= ======= ======= Cost ............................................... $38,916 $19,242 $28,825 ======= ======= ======= Investment, at net asset value ...................... $39,889 $17,718 $26,066 Transfers receivable from depositor ................. 15 12 17 ------- ------- ------- Total assets ....................................... 39,904 17,730 26,083 ------- ------- ------- LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 ------- ------- ------- Total liabilities .................................. 0 0 0 ------- ------- ------- Net assets ......................................... $39,904 $17,730 $26,083 ======= ======= ======= NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $39,904 $17,730 $26,083 Depositor's equity .................................. 0 0 0 ------- ------- ------- Net assets applicable to units outstanding ......... $39,904 $17,730 $26,083 ======= ======= ======= Policy Owners' units ................................ 2,383 1,417 1,982 Depositor's units ................................... 0 0 0 ------- ------- ------- Units outstanding .................................. 2,383 1,417 1,982 ======= ======= ======= Accumulation unit value ............................ $ 16.74 $ 12.51 $ 13.16 ======= ======= =======
The notes to the financial statements are an integral part of this report. 9 WRL SERIES LIFE ACCOUNT STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ALL AMOUNTS (EXCEPT UNIT VALUES) IN THOUSANDS
INTERNATIONAL U.S. THIRD AVENUE EQUITY EQUITY VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 483 976 302 ====== ======= ====== Cost ............................................... $5,705 $13,010 $2,904 ====== ======= ====== Investment, at net asset value ...................... $5,824 $14,078 $2,801 Transfers receivable from depositor ................. 3 6 6 ------ ------- ------ Total assets ....................................... 5,827 14,084 2,807 ------ ------- ------ LIABILITIES: Accrued expenses .................................... 0 0 0 Transfers payable to depositor ...................... 0 0 0 ------ ------- ------ Total liabilities .................................. 0 0 0 ------ ------- ------ Net assets ......................................... $5,827 $14,084 $2,807 ====== ======= ====== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $5,827 $14,084 $2,622 Depositor's equity .................................. 0 0 185 ------ ------- ------ Net assets applicable to units outstanding ......... $5,827 $14,084 $2,807 ====== ======= ====== Policy Owners' units ................................ 489 919 284 Depositor's units ................................... 0 0 20 ------ ------- ------ Units outstanding .................................. 489 919 304 ====== ======= ====== Accumulation unit value ............................ $11.92 $ 15.33 $ 9.23 ====== ======= ======
REAL ESTATE SECURITIES SUB-ACCOUNT ----------- ASSETS: Investment in WRL Series Fund, Inc.: Shares ............................................. 83 ===== Cost ............................................... $ 784 ===== Investment, at net asset value ...................... $ 708 Transfers receivable from depositor ................. 1 ----- Total assets ....................................... 709 ----- LIABILITIES: Accrued expenses .................................... 0 Transfers payable to depositor ...................... 0 ----- Total liabilities .................................. 0 ----- Net assets ......................................... $ 709 ===== NET ASSETS CONSISTS OF: Policy Owners' equity ............................... $ 371 Depositor's equity .................................. 338 ----- Net assets applicable to units outstanding ......... $ 709 ===== Policy Owners' units ................................ 44 Depositor's units ................................... 40 ----- Units outstanding .................................. 84 ===== Accumulation unit value ............................ $8.46 ===== The notes to the financial statements are an integral part of this report. 10 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ALL AMOUNTS IN THOUSANDS
MONEY MARKET BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT INVESTMENT INCOME: Dividend income ......................................................... $1,113 $1,196 $ 1,180 Capital gain distributions .............................................. 0 0 5,200 ------ ------ -------- Total investment income ................................................ 1,113 1,196 6,380 EXPENSES: Mortality and expense risk .............................................. 194 194 5,277 ------ ------ -------- Net investment income (loss) ........................................... 919 1,002 1,103 ------ ------ -------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 0 642 12,232 Change in unrealized appreciation (depreciation) ....................... 0 71 283,227 ------ ------ -------- Net gain (loss) on investment securities ............................... 0 713 295,459 ------ ------ -------- Net increase (decrease) in net assets resulting from operations ....... $ 919 $1,715 $296,562 ====== ====== ========
STRATEGIC EMERGING GLOBAL TOTAL RETURN GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- INVESTMENT INCOME: Dividend income ......................................................... $ 1,092 $2,240 $ 0 Capital gain distributions .............................................. 8,026 1,844 8,683 ------- ------ ------- Total investment income ................................................ 9,118 4,084 8,683 EXPENSES: Mortality and expense risk .............................................. 1,693 800 1,789 ------- ------ ------- Net investment income (loss) ........................................... 7,425 3,284 6,894 ------- ------ ------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 3,529 1,097 4,995 Change in unrealized appreciation (depreciation) ....................... 34,898 3,250 54,519 ------- ------ ------- Net gain (loss) on investment securities ............................... 38,427 4,347 59,514 ------- ------ ------- Net increase (decrease) in net assets resulting from operations ....... $45,852 $7,631 $66,408 ======= ====== =======
The notes to the financial statements are an integral part of this report. 11 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ALL AMOUNTS IN THOUSANDS
AGGRESSIVE GROWTH BALANCED GROWTH & INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- INVESTMENT INCOME: Dividend income ......................................................... $ 356 $329 $ 651 Capital gain distributions .............................................. 8,627 13 112 ------- ---- ------ Total investment income ................................................ 8,983 342 763 EXPENSES: Mortality and expense risk .............................................. 1,132 115 119 ------- ---- ------ Net investment income (loss) ........................................... 7,851 227 644 ------- ---- ------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 2,395 262 390 Change in unrealized appreciation (depreciation) ....................... 41,953 314 (659) ------- ---- ------ Net gain (loss) on investment securities ............................... 44,348 576 (269) ------- ---- ------ Net increase (decrease) in net assets resulting from operations ....... $52,199 $803 $ 375 ======= ==== ======
TACTICAL ASSET C.A.S.E. ALLOCATION GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ----------- ----------- INVESTMENT INCOME: Dividend income .................................................. $ 1,115 $ 1,514 $ 530 Capital gain distributions ....................................... 2,619 90 1,755 -------- -------- -------- Total investment income ......................................... 3,734 1,604 2,285 EXPENSES: Mortality and expense risk ....................................... 315 129 264 -------- -------- -------- Net investment income (loss) .................................... 3,419 1,475 2,021 -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions ........... 429 175 1,254 Change in unrealized appreciation (depreciation) ................ (1,516) (1,289) (5,937) -------- -------- -------- Net gain (loss) on investment securities ........................ (1,087) (1,114) (4,683) -------- -------- -------- Net increase (decrease) in net assets resulting from operations $ 2,332 $ 361 $ (2,662) ======== ======== ========
The notes to the financial statements are an integral part of this report. 12 WRL SERIES LIFE ACCOUNT STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ALL AMOUNTS IN THOUSANDS
INTERNATIONAL U.S. THIRD AVENUE EQUITY EQUITY BOND VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT(a) ----------- ----------- -------------- INVESTMENT INCOME: Dividend income ......................................................... $ 3 $ 413 $ 8 Capital gain distributions .............................................. 0 94 0 ----- ------ ------ Total investment income ................................................ 3 507 8 EXPENSES: Mortality and expense risk .............................................. 35 73 19 ----- ------ ------ Net investment income (loss) ........................................... (32) 434 (11) ----- ------ ------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions .................. 147 358 (39) Change in unrealized appreciation (depreciation) ....................... 222 1,053 (103) ----- ------ ------ Net gain (loss) on investment securities ............................... 369 1,411 (142) ----- ------ ------ Net increase (decrease) in net assets resulting from operations ....... $ 337 $1,845 $ (153) ===== ====== ======
REAL ESTATE SECURITIES SUB-ACCOUNT(b) -------------- INVESTMENT INCOME: Dividend income .................................................. $ 0 Capital gain distributions ....................................... 0 ------ Total investment income ......................................... 0 EXPENSES: Mortality and expense risk ....................................... 4 ------ Net investment income (loss) .................................... (4) ------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from securities transactions ........... (36) Change in unrealized appreciation (depreciation) ................ (76) ------ Net gain (loss) on investment securities ........................ (112) ------ Net increase (decrease) in net assets resulting from operations $ (116) ======
(a) The inception date of this Sub-Account was January 2, 1998. (b) The inception date of this Sub-Account was May 1, 1998. The notes to the financial statements are an integral part of this report. 13 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED ALL AMOUNTS IN THOUSANDS
MONEY MARKET SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ------------ ---------- OPERATIONS: Net investment income (loss) .......................................... $ 919 $ 639 Net gain (loss) on investment securities .............................. 0 0 ---------- -------- Net increase (decrease) in net assets resulting from operations ....... 919 639 ---------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 12,763 7,719 ---------- -------- Less cost of units redeemed: Administrative charges ............................................... 3,123 3,108 Policy loans ......................................................... 1,163 687 Surrender benefits ................................................... 1,250 854 Death benefits ....................................................... 10 9 ---------- -------- 5,546 4,658 ---------- -------- Increase (decrease) in net assets from capital unit transactions ..... 7,217 3,061 ---------- -------- Net increase (decrease) in net assets ................................ 8,136 3,700 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 16,440 12,740 ---------- -------- End of year ........................................................... $ 24,576 $ 16,440 ========== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 1,020 825 Units issued .......................................................... 11,339 9,509 Units redeemed ........................................................ (10,899) (9,314) ---------- -------- Units outstanding - end of year ....................................... 1,460 1,020 ========== ======== BOND GROWTH SUB-ACCOUNT SUB-ACCOUNT DECEMBER 31, DECEMBER 31, ---------------------- ------------------------ 1998 1997 1998 1997 ----------- ---------- ----------- ------------ OPERATIONS: Net investment income (loss) .......................................... $ 1,002 $ 661 $ 1,103 $ 44,206 Net gain (loss) on investment securities .............................. 713 418 295,459 15,238 ------- ------- -------- -------- Net increase (decrease) in net assets resulting from operations ....... 1,715 1,079 296,562 59,444 ------- ------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 9,472 7,506 140,684 106,236 ------- ------- -------- -------- Less cost of units redeemed: Administrative charges ............................................... 2,292 1,633 44,910 37,231 Policy loans ......................................................... 594 428 18,083 11,212 Surrender benefits ................................................... 865 437 22,312 15,746 Death benefits ....................................................... 159 15 4,185 711 ------- ------- -------- -------- 3,910 2,513 89,490 64,900 ------- ------- -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 5,562 4,993 51,194 41,336 ------- ------- -------- -------- Net increase (decrease) in net assets ................................ 7,277 6,072 347,756 100,780 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of year ..................................................... 17,657 11,585 450,271 349,491 ------- ------- -------- -------- End of year ........................................................... $24,934 $17,657 $798,027 $450,271 ======= ======= ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 836 593 7,972 7,208 Units issued .......................................................... 1,030 568 2,967 2,877 Units redeemed ........................................................ (776) (325) (2,271) (2,113) ------- ------- -------- -------- Units outstanding - end of year ....................................... 1,090 836 8,668 7,972 ======= ======= ======== ========
GLOBAL SUB-ACCOUNT DECEMBER 31, ------------------------ 1998 1997 ----------- ------------ OPERATIONS: Net investment income (loss) .......................................... $ 7,425 $ 15,859 Net gain (loss) on investment securities .............................. 38,427 805 -------- -------- Net increase (decrease) in net assets resulting from operations ....... 45,852 16,664 -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 72,962 64,272 -------- -------- Less cost of units redeemed: Administrative charges ............................................... 19,369 12,590 Policy loans ......................................................... 4,953 2,948 Surrender benefits ................................................... 5,662 3,391 Death benefits ....................................................... 591 149 -------- -------- 30,575 19,078 -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 42,387 45,194 -------- -------- Net increase (decrease) in net assets ................................ 88,239 61,858 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 145,017 83,159 -------- -------- End of year ........................................................... $233,256 $145,017 ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 8,145 5,497 Units issued .......................................................... 5,610 5,205 Units redeemed ........................................................ (3,588) (2,557) -------- -------- Units outstanding - end of year ....................................... 10,167 8,145 ======== ======== STRATEGIC TOTAL RETURN EMERGING GROWTH SUB-ACCOUNT SUB-ACCOUNT DECEMBER 31, DECEMBER 31, ----------------------- ------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ------------ OPERATIONS: Net investment income (loss) .......................................... $ 3,284 $ 6,101 $ 6,894 $ 13,841 Net gain (loss) on investment securities .............................. 4,347 6,521 59,514 10,932 -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations ....... 7,631 12,622 66,408 24,773 -------- -------- -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 24,191 22,072 64,824 54,392 -------- -------- -------- -------- Less cost of units redeemed: Administrative charges ............................................... 7,696 6,025 19,612 14,518 Policy loans ......................................................... 2,319 1,624 5,601 3,692 Surrender benefits ................................................... 2,587 2,044 7,688 3,986 Death benefits ....................................................... 1,047 148 368 192 -------- -------- -------- -------- 13,649 9,841 33,269 22,388 -------- -------- -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 10,542 12,231 31,555 32,004 -------- -------- -------- -------- Net increase (decrease) in net assets ................................ 18,173 24,853 97,963 56,777 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of year ..................................................... 80,753 55,900 164,702 107,925 -------- -------- -------- -------- End of year ........................................................... $ 98,926 $ 80,753 $262,665 $164,702 ======== ======== ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 4,270 3,570 7,013 5,532 Units issued .......................................................... 1,946 1,809 4,099 4,085 Units redeemed ........................................................ (1,402) (1,109) (2,894) (2,604) -------- -------- -------- -------- Units outstanding - end of year ....................................... 4,814 4,270 8,218 7,013 ======== ======== ======== ========
The notes to the financial statements are an integral part of this report. 14 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED ALL AMOUNTS IN THOUSANDS
AGGRESSIVE GROWTH SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ----------- ----------- OPERATIONS: Net investment income (loss) .......................................... $ 7,851 $ 7,795 Net gain (loss) on investment securities .............................. 44,348 6,524 -------- -------- Net increase (decrease) in net assets resulting from operations ....... 52,199 14,319 -------- -------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 53,159 40,282 -------- -------- Less cost of units redeemed: Administrative charges ............................................... 13,960 9,888 Policy loans ......................................................... 3,522 1,926 Surrender benefits ................................................... 4,423 2,485 Death benefits ....................................................... 248 58 -------- -------- 22,153 14,357 -------- -------- Increase (decrease) in net assets from capital unit transactions ..... 31,006 25,925 -------- -------- Net increase (decrease) in net assets ................................ 83,205 40,244 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 94,652 54,408 -------- -------- End of year ........................................................... $177,857 $ 94,652 ======== ======== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 5,230 3,702 Units issued .......................................................... 3,797 3,540 Units redeemed ........................................................ (2,358) (2,012) -------- -------- Units outstanding - end of year ....................................... 6,669 5,230 ======== ======== BALANCED GROWTH & INCOME SUB-ACCOUNT SUB-ACCOUNT DECEMBER 31, DECEMBER 31, --------------------- --------------------- 1998 1997 1998 1997 ---------- ---------- ----------- --------- OPERATIONS: Net investment income (loss) .......................................... $ 227 $ 992 $ 644 $1,214 Net gain (loss) on investment securities .............................. 576 226 (269) 283 ------- ------- ------- ------ Net increase (decrease) in net assets resulting from operations ....... 803 1,218 375 1,497 ------- ------- ------- ------ CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 5,658 4,373 8,963 3,232 ------- ------- ------- ------ Less cost of units redeemed: Administrative charges ............................................... 1,423 958 1,633 733 Policy loans ......................................................... 279 179 218 163 Surrender benefits ................................................... 596 153 431 260 Death benefits ....................................................... 15 3 72 11 ------- ------- ------- ------ 2,313 1,293 2,354 1,167 ------- ------- ------- ------ Increase (decrease) in net assets from capital unit transactions ..... 3,345 3,080 6,609 2,065 ------- ------- ------- ------ Net increase (decrease) in net assets ................................ 4,148 4,298 6,984 3,562 Depositor's equity contribution (redemption) .......................... 0 0 0 0 NET ASSETS: Beginning of year ..................................................... 10,716 6,418 9,063 5,501 ------- ------- ------- ------ End of year ........................................................... $14,864 $10,716 $16,047 $9,063 ======= ======= ======= ====== UNIT ACTIVITY: Units outstanding - beginning of year ................................. 756 526 563 422 Units issued .......................................................... 578 472 966 352 Units redeemed ........................................................ (344) (242) (553) (211) ------- ------- ------- ------ Units outstanding - end of year ....................................... 990 756 976 563 ======= ======= ======= ======
TACTICAL ASSET ALLOCATION SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ----------- ----------- OPERATIONS: Net investment income (loss) .......................................... $ 3,419 $ 1,913 Net gain (loss) on investment securities .............................. (1,087) 1,362 -------- ------- Net increase (decrease) in net assets resulting from operations ....... 2,332 3,275 -------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 13,703 11,386 -------- ------- Less cost of units redeemed: Administrative charges ............................................... 3,421 2,219 Policy loans ......................................................... 748 463 Surrender benefits ................................................... 925 742 Death benefits ....................................................... 160 60 -------- ------- 5,254 3,484 -------- ------- Increase (decrease) in net assets from capital unit transactions ..... 8,449 7,902 -------- ------- Net increase (decrease) in net assets ................................ 10,781 11,177 Depositor's equity contribution (redemption) .......................... 0 0 NET ASSETS: Beginning of year ..................................................... 29,123 17,946 -------- ------- End of year ........................................................... $ 39,904 $29,123 ======== ======= UNIT ACTIVITY: Units outstanding - beginning of year ................................. 1,867 1,330 Units issued .......................................................... 1,377 1,163 Units redeemed ........................................................ (861) (626) -------- ------- Units outstanding - end of year ....................................... 2,383 1,867 ======== ======= C.A.S.E. GROWTH VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT DECEMBER 31, DECEMBER 31, ----------------------- ----------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- OPERATIONS: Net investment income (loss) .......................................... $ 1,475 $ 994 $ 2,021 $ 183 Net gain (loss) on investment securities .............................. (1,114) (252) (4,683) 3,038 -------- ------- -------- ------- Net increase (decrease) in net assets resulting from operations ....... 361 742 (2,662) 3,221 -------- ------- -------- ------- CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................................ 8,731 8,029 6,086 17,023 -------- ------- -------- ------- Less cost of units redeemed: Administrative charges ............................................... 2,433 970 2,846 1,257 Policy loans ......................................................... 520 146 643 542 Surrender benefits ................................................... 295 144 401 388 Death benefits ....................................................... 60 6 165 0 -------- ------- -------- ------- 3,308 1,266 4,055 2,187 -------- ------- -------- ------- Increase (decrease) in net assets from capital unit transactions ..... 5,423 6,763 2,031 14,836 -------- ------- -------- ------- Net increase (decrease) in net assets ................................ 5,784 7,505 (631) 18,057 Depositor's equity contribution (redemption) .......................... 0 (25) 0 (230) NET ASSETS: Beginning of year ..................................................... 11,946 4,466 26,714 8,887 -------- ------- -------- ------- End of year ........................................................... $ 17,730 $11,946 $ 26,083 $26,714 ======== ======= ======== ======= UNIT ACTIVITY: Units outstanding - beginning of year ................................. 969 413 1,916 790 Units issued .......................................................... 1,317 931 1,748 1,772 Units redeemed ........................................................ (869) (375) (1,682) (646) -------- ------- -------- ------- Units outstanding - end of year ....................................... 1,417 969 1,982 1,916 ======== ======= ======== =======
The notes to the financial statements are an integral part of this report. 15 WRL SERIES LIFE ACCOUNT STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED ALL AMOUNTS IN THOUSANDS
INTERNATIONAL EQUITY U.S. EQUITY THIRD AVENUE REAL ESTATE SUB-ACCOUNT SUB-ACCOUNT VALUE SECURITIES DECEMBER 31, DECEMBER 31, SUB-ACCOUNT SUB-ACCOUNT --------------------- -------------------- DECEMBER 31, DECEMBER 31, 1998 1997(a) 1998 1997(a) 1998(b) 1998(c) ---------- ---------- ---------- --------- -------------- ------------- OPERATIONS: Net investment income (loss) ........................... $ (32) $ (4) $ 434 $ 107 $ (11) $ (4) Net gain (loss) on investment securities ............................................ 369 31 1,411 96 (142) (112) ------ ------ ------- ------ ------ ------ Net increase (decrease) in net assets resulting from operations ............................................ 337 27 1,845 203 (153) (116) ------ ------ ------- ------ ------ ------ CAPITAL UNIT TRANSACTIONS: Proceeds from units sold (transferred) ................. 3,972 2,458 10,178 3,208 2,932 472 ------ ------ ------- ------ ------ ------ Less cost of units redeemed: Administrative charges ................................ 433 117 862 91 138 4 Policy loans .......................................... 196 59 159 56 8 43 Surrender benefits .................................... 35 14 113 9 26 0 Death benefits ........................................ 107 0 63 0 0 0 ------ ------ ------- ------ ------ ------ 771 190 1,197 156 172 47 ------ ------ ------- ------ ------ ------ Increase (decrease) in net assets from capital unit transactions ................................... 3,201 2,268 8,981 3,052 2,760 425 ------ ------ ------- ------ ------ ------ Net increase (decrease) in net assets ................. 3,538 2,295 10,826 3,255 2,607 309 Depositor's equity contribution (redemption) ........... 0 (6) 0 3 200 400 NET ASSETS: Beginning of year ...................................... 2,289 0 3,258 0 0 0 ------ ------ ------- ------ ------ ------ End of year ............................................ $5,827 $2,289 $14,084 $3,258 $2,807 $ 709 ====== ====== ======= ====== ====== ====== UNIT ACTIVITY: Units outstanding - beginning of year .................. 215 0 259 0 0 0 Units issued ........................................... 767 484 1,266 393 495 113 Units redeemed ......................................... (493) (269) (606) (134) (191) (29) ------ ------ ------- ------ ------ ------ Units outstanding - end of year ........................ 489 215 919 259 304 84 ====== ====== ======= ====== ====== ======
(a) The inception date of this Sub-Account was January 2, 1997. (b) The inception date of this Sub-Account was January 2, 1998. (c) The inception date of this Sub-Account was May 1, 1998. The notes to the financial statements are an integral part of this report. 16 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
MONEY MARKET SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................... $ 16.13 $ 15.45 Income from operations: Net investment income (loss) ........................................... 0.70 0.68 Net realized and unrealized gain (loss) on investment .................. 0.00 0.00 ------- ------- Net income (loss) from operations ..................................... 0.70 0.68 ------- ------- Accumulation unit value, end of year ..................................... $ 16.83 $ 16.13 ======= ======= Total return (a) ......................................................... 4.36% 4.37% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $24,576 $16,440 Ratios of net investment income (loss) to average net assets (b) ........ 4.24% 4.28% MONEY MARKET SUB-ACCOUNT DECEMBER 31, ----------------------------------- 1996 1995 1994 ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 14.83 $ 14.19 $ 13.84 Income from operations: Net investment income (loss) ........................................... 0.62 0.64 0.35 Net realized and unrealized gain (loss) on investment .................. 0.00 0.00 0.00 ------- ------- ------- Net income (loss) from operations ..................................... 0.62 0.64 0.35 ------- ------- ------- Accumulation unit value, end of year ..................................... $ 15.45 $ 14.83 $ 14.19 ======= ======= ======= Total return (a) ......................................................... 4.17% 4.49% 2.58% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $12,740 $10,759 $ 9,706 Ratios of net investment income (loss) to average net assets (b) ........ 4.07% 4.37% 2.66%
BOND SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................... $ 21.12 $ 19.53 Income from operations: Net investment income (loss) ........................................... 1.01 1.01 Net realized and unrealized gain (loss) on investment .................. 0.76 0.58 ------- ------- Net income (loss) from operations ..................................... 1.77 1.59 ------- ------- Accumulation unit value, end of year ..................................... $ 22.89 $ 21.12 ======= ======= Total return (a) ......................................................... 8.34% 8.18% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $24,934 $17,657 Ratios of net investment income (loss) to average net assets (b) ........ 4.58% 5.06% BOND SUB-ACCOUNT DECEMBER 31, ----------------------------------- 1996 1995 1994 ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 19.67 $ 16.14 $ 17.50 Income from operations: Net investment income (loss) ........................................... 0.99 1.05 0.89 Net realized and unrealized gain (loss) on investment .................. (1.13) 2.48 (2.25) -------- ------- --------- Net income (loss) from operations ..................................... (0.14) 3.53 (1.36) -------- ------- --------- Accumulation unit value, end of year ..................................... $ 19.53 $ 19.67 $ 16.14 ======== ======= ========= Total return (a) ......................................................... (0.75)% 21.89% (7.77)% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $ 11,585 $10,066 $ 6,259 Ratios of net investment income (loss) to average net assets (b) ........ 5.34% 5.80% 5.57%
GROWTH SUB-ACCOUNT DECEMBER 31, ------------------------- 1998 1997 ------------ ------------ Accumulation unit value, beginning of year ....................... $ 56.48 $ 48.48 Income from operations: Net investment income (loss) ................................... 0.13 5.83 Net realized and unrealized gain (loss) on investment .......... 35.46 2.17 -------- -------- Net income (loss) from operations ............................. 35.59 8.00 -------- -------- Accumulation unit value, end of year ............................. $ 92.07 $ 56.48 ======== ======== Total return (a) ................................................. 63.01% 16.50% Ratios and supplemental data: Net assets at end of year (in thousands) ........................ $798,027 $450,271 Ratios of net investment income (loss) to average net assets (b) 0.19% 10.84% GROWTH SUB-ACCOUNT DECEMBER 31, -------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Accumulation unit value, beginning of year ....................... $ 41.47 $ 28.44 $ 31.30 Income from operations: Net investment income (loss) ................................... 2.88 3.89 0.04 Net realized and unrealized gain (loss) on investment .......... 4.13 9.14 (2.90) -------- -------- -------- Net income (loss) from operations ............................. 7.01 13.03 (2.86) -------- -------- -------- Accumulation unit value, end of year ............................. $ 48.48 $ 41.47 $ 28.44 ======== ======== ======== Total return (a) ................................................. 16.91% 45.81% (9.13)% Ratios and supplemental data: Net assets at end of year (in thousands) ........................ $349,491 $262,467 $161,490 Ratios of net investment income (loss) to average net assets (b) 6.41% 11.05% 0.16%
The notes to the financial statements are an integral part of this report. 17 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
GLOBAL SUB-ACCOUNT DECEMBER 31, ------------------------- 1998 1997 ------------ ------------ Accumulation unit value, beginning of year ............................ $ 17.80 $ 15.13 Income from operations: Net investment income (loss) ........................................ 0.82 2.30 Net realized and unrealized gain (loss) on investment ............... 4.32 0.37 -------- -------- Net income (loss) from operations .................................. 5.14 2.67 -------- -------- Accumulation unit value, end of year .................................. $ 22.94 $ 17.80 ======== ======== Total return (a) ...................................................... 28.86% 17.69% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $233,256 $145,017 Ratios of net investment income (loss) to average net assets (b) ..... 3.92% 13.39% GLOBAL SUB-ACCOUNT DECEMBER 31, ---------------------------------- 1996 1995 1994(c) ----------- ----------- ---------- Accumulation unit value, beginning of year ............................ $ 11.95 $ 9.80 $ 10.00 Income from operations: Net investment income (loss) ........................................ 1.50 0.45 0.71 Net realized and unrealized gain (loss) on investment ............... 1.68 1.70 (0.91) ------- ------- -------- Net income (loss) from operations .................................. 3.18 2.15 (0.20) ------- ------- -------- Accumulation unit value, end of year .................................. $ 15.13 $ 11.95 $ 9.80 ======= ======= ======== Total return (a) ...................................................... 26.60% 21.96% (2.02)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $83,159 $37,049 $ 21,672 Ratios of net investment income (loss) to average net assets (b) ..... 11.09% 4.25% 8.86%
STRATEGIC TOTAL RETURN SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................ $ 18.91 $ 15.66 Income from operations: Net investment income (loss) ........................................ 0.71 1.56 Net realized and unrealized gain (loss) on investment ............... 0.93 1.69 ------- ------- Net income (loss) from operations .................................. 1.64 3.25 ------- ------- Accumulation unit value, end of year .................................. $ 20.55 $ 18.91 ======= ======= Total return (a) ...................................................... 8.66% 20.77% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $98,926 $80,753 Ratios of net investment income (loss) to average net assets (b) ..... 3.67% 8.89% STRATEGIC TOTAL RETURN SUB-ACCOUNT DECEMBER 31, ----------------------------------- 1996 1995 1994 ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 13.74 $ 11.12 $ 11.28 Income from operations: Net investment income (loss) ........................................ 0.82 0.68 0.18 Net realized and unrealized gain (loss) on investment ............... 1.10 1.94 (0.34) ------- ------- -------- Net income (loss) from operations .................................. 1.92 2.62 (0.16) ------- ------- -------- Accumulation unit value, end of year .................................. $ 15.66 $ 13.74 $ 11.12 ======= ======= ======== Total return (a) ...................................................... 13.97% 23.55% (1.42)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $55,900 $39,648 $ 23,649 Ratios of net investment income (loss) to average net assets (b) ..... 5.76% 5.47% 1.93%
EMERGING GROWTH SUB-ACCOUNT DECEMBER 31, ------------------------- 1998 1997 ------------ ------------ Accumulation unit value, beginning of year ............................ $ 23.48 $ 19.51 Income from operations: Net investment income (loss) ........................................ 0.91 2.20 Net realized and unrealized gain (loss) on investment ............... 7.57 1.77 -------- -------- Net income (loss) from operations .................................. 8.48 3.97 -------- -------- Accumulation unit value, end of year .................................. $ 31.96 $ 23.48 ======== ======== Total return (a) ...................................................... 36.11% 20.37% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $262,665 $164,702 Ratios of net investment income (loss) to average net assets (b) ..... 3.44% 10.18% EMERGING GROWTH SUB-ACCOUNT DECEMBER 31, ------------------------------------ 1996 1995 1994 ------------ ----------- ----------- Accumulation unit value, beginning of year ............................ $ 16.56 $ 11.38 $ 12.40 Income from operations: Net investment income (loss) ........................................ 0.82 0.65 (0.09) Net realized and unrealized gain (loss) on investment ............... 2.13 4.53 (0.93) -------- ------- ------- Net income (loss) from operations .................................. 2.95 5.18 (1.02) -------- ------- ------- Accumulation unit value, end of year .................................. $ 19.51 $ 16.56 $ 11.38 ======== ======= ======= Total return (a) ...................................................... 17.82% 45.49% (8.18)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $107,925 $67,905 $36,687 Ratios of net investment income (loss) to average net assets (b) ..... 4.51% 4.66% (0.86)%
The notes to the financial statements are an integral part of this report. 18 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
AGGRESSIVE GROWTH SUB-ACCOUNT DECEMBER 31, ------------------------ 1998 1997 ------------ ----------- Accumulation unit value, beginning of year ............................ $ 18.10 $ 14.70 Income from operations: Net investment income (loss) ........................................ 1.33 1.75 Net realized and unrealized gain (loss) on investment ............... 7.24 1.65 -------- ------- Net income (loss) from operations .................................. 8.57 3.40 -------- ------- Accumulation unit value, end of year .................................. $ 26.67 $ 18.10 ======== ======= Total return (a) ...................................................... 47.36% 23.14% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $177,857 $94,652 Ratios of net investment income (loss) to average net assets (b) ..... 6.20% 10.26% AGGRESSIVE GROWTH SUB-ACCOUNT DECEMBER 31, ----------------------------------- 1996 1995 1994(c) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 13.43 $ 9.82 $10.00 Income from operations: Net investment income (loss) ........................................ 0.36 0.37 (0.06) Net realized and unrealized gain (loss) on investment ............... 0.91 3.24 (0.12) ------- ------- ------ Net income (loss) from operations .................................. 1.27 3.61 (0.18) ------- ------- ------ Accumulation unit value, end of year .................................. $ 14.70 $ 13.43 $ 9.82 ======= ======= ====== Total return (a) ...................................................... 9.46% 36.79% (1.85)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $54,408 $32,904 $8,909 Ratios of net investment income (loss) to average net assets (b) ..... 2.65% 2.93% (0.72)%
BALANCED SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................... $ 14.17 $ 12.21 Income from operations: Net investment income (loss) ........................................... 0.25 1.55 Net realized and unrealized gain (loss) on investment .................. 0.60 0.41 ------- ------- Net income (loss) from operations ..................................... 0.85 1.96 ------- ------- Accumulation unit value, end of year ..................................... $ 15.02 $ 14.17 ======= ======= Total return (a) ......................................................... 5.98% 16.06% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $14,864 $10,716 Ratios of net investment income (loss) to average net assets (b) ........ 1.76% 11.62% BALANCED SUB-ACCOUNT DECEMBER 31, ----------------------------------- 1996 1995 1994(c) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 11.13 $ 9.37 $ 10.00 Income from operations: Net investment income (loss) ........................................... 0.36 0.37 0.22 Net realized and unrealized gain (loss) on investment .................. 0.72 1.39 (0.85) ------- -------- --------- Net income (loss) from operations ..................................... 1.08 1.76 (0.63) ------- -------- --------- Accumulation unit value, end of year ..................................... $ 12.21 $ 11.13 $ 9.37 ======= ======== ========= Total return (a) ......................................................... 9.73% 18.73% (6.29)% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $ 6,418 $ 3,795 $ 2,145 Ratios of net investment income (loss) to average net assets (b) ........ 3.18% 3.59% 3.06%
GROWTH & INCOME SUB-ACCOUNT DECEMBER 31, ----------------------- 1998 1997 ----------- ----------- Accumulation unit value, beginning of year ............................ $ 16.09 $ 13.03 Income from operations: Net investment income (loss) ........................................ 0.77 2.61 Net realized and unrealized gain (loss) on investment ............... (0.42) 0.45 ------- -------- Net income (loss) from operations .................................. 0.35 3.06 ------- -------- Accumulation unit value, end of year .................................. $ 16.44 $ 16.09 ======= ======== Total return (a) ...................................................... 2.13% 23.54% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $16,047 $ 9,063 Ratios of net investment income (loss) to average net assets (b) ..... 4.83% 18.50% GROWTH & INCOME SUB-ACCOUNT DECEMBER 31, ----------------------------------- 1996 1995 1994(c) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................ $ 11.77 $ 9.49 $ 10.00 Income from operations: Net investment income (loss) ........................................ 0.76 0.49 0.29 Net realized and unrealized gain (loss) on investment ............... 0.50 1.79 (0.80) -------- -------- --------- Net income (loss) from operations .................................. 1.26 2.28 (0.51) -------- -------- --------- Accumulation unit value, end of year .................................. $ 13.03 $ 11.77 $ 9.49 ======== ======== ========= Total return (a) ...................................................... 10.64% 24.14% (5.15)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................. $ 5,501 $ 2,631 $ 1,215 Ratios of net investment income (loss) to average net assets (b) ..... 6.38% 4.57% 3.71%
The notes to the financial statements are an integral part of this report. 19 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
TACTICAL ASSET ALLOCATION SUB-ACCOUNT DECEMBER 31, ----------------------------------------------- 1998 1997 1996 1995(d) ----------- ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 15.60 $ 13.50 $ 11.90 $ 10.00 Income from operations: Net investment income (loss) ........................................... 1.58 1.20 0.53 0.61 Net realized and unrealized gain (loss) on investment .................. (0.44) 0.90 1.07 1.29 ------- ------- ------- -------- Net income (loss) from operations ..................................... 1.14 2.10 1.60 1.90 ------- ------- ------- -------- Accumulation unit value, end of year ..................................... $ 16.74 $ 15.60 $ 13.50 $ 11.90 ======= ======= ======= ======== Total return (a) ......................................................... 7.36% 15.55% 13.40% 19.03% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $39,904 $29,123 $17,946 $ 9,446 Ratios of net investment income (loss) to average net assets (b) ........ 9.69% 8.14% 4.35% 5.47%
C.A.S.E. GROWTH SUB-ACCOUNT DECEMBER 31, --------------------------------------- 1998 1997 1996(e) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 12.32 $ 10.81 $ 10.00 Income from operations: Net investment income (loss) ........................................... 1.24 1.51 0.37 Net realized and unrealized gain (loss) on investment .................. (1.05) 0.00 0.44 ------- ------- ------- Net income (loss) from operations ..................................... 0.19 1.51 0.81 ------- ------- ------- Accumulation unit value, end of year ..................................... $ 12.51 $ 12.32 $ 10.81 ======= ======= ======= Total return (a) ......................................................... 1.56% 14.00% 8.09% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $17,730 $11,946 $ 4,466 Ratios of net investment income (loss) to average net assets (b) ........ 10.21% 12.65% 6.11%
VALUE EQUITY SUB-ACCOUNT DECEMBER 31, --------------------------------------- 1998 1997 1996(e) ----------- ----------- ----------- Accumulation unit value, beginning of year ............................... $ 13.94 $ 11.25 $ 10.00 Income from operations: Net investment income (loss) ........................................... 0.95 0.14 0.05 Net realized and unrealized gain (loss) on investment .................. (1.73) 2.55 1.20 -------- ------- -------- Net income (loss) from operations ..................................... (0.78) 2.69 1.25 -------- ------- -------- Accumulation unit value, end of year ..................................... $ 13.16 $ 13.94 $ 11.25 ======== ======= ======== Total return (a) ......................................................... (5.63)% 23.93% 12.51% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $ 26,083 $26,714 $ 8,887 Ratios of net investment income (loss) to average net assets (b) ........ 6.84% 1.05% 0.77%
The notes to the financial statements are an integral part of this report. 20 WRL SERIES LIFE ACCOUNT FINANCIAL HIGHLIGHTS* FOR THE YEAR ENDED
INTERNATIONAL EQUITY U.S. EQUITY SUB-ACCOUNT SUB-ACCOUNT DECEMBER 31, DECEMBER 31, ----------------------- ------------------------- 1998 1997(f) 1998 1997(f) ---------- ---------- ----------- ----------- Accumulation unit value, beginning of year ............................... $10.65 $10.00 $ 12.59 $ 10.00 Income from operations: Net investment income (loss) ........................................... (0.09) (0.03) 0.73 0.99 Net realized and unrealized gain (loss) on investment .................. 1.36 0.68 2.01 1.60 ------- ------- ------- -------- Net income (loss) from operations ..................................... 1.27 0.65 2.74 2.59 ------- ------- ------- -------- Accumulation unit value, end of year ..................................... $11.92 $10.65 $ 15.33 $ 12.59 ======= ======= ======= ======== Total return (a) ......................................................... 11.84% 6.54% 21.78% 25.89% Ratios and supplemental data: Net assets at end of year (in thousands) ................................ $5,827 $2,289 $14,084 $ 3,258 Ratios of net investment income (loss) to average net assets (b) ........ (0.81)% (0.28)% 5.30% 8.28%
THIRD AVENUE REAL ESTATE VALUE SECURITIES SUB-ACCOUNT SUB-ACCOUNT DECEMBER 31, DECEMBER 31, 1998(g) 1998(h) -------------- ------------- Accumulation unit value, beginning of year ........................... $ 10.00 $ 10.00 Income from operations: Net investment income (loss) ....................................... (0.05) (0.05) Net realized and unrealized gain (loss) on investment .............. (0.72) (1.49) ------- -------- Net income (loss) from operations ................................. (0.77) (1.54) ------- -------- Accumulation unit value, end of year ................................. $ 9.23 $ 8.46 ======= ======== Total return (a) ..................................................... (7.67)% (15.44)% Ratios and supplemental data: Net assets at end of year (in thousands) ............................ $ 2,807 $ 709 Ratios of net investment income (loss) to average net assets (b) .... (0.52)% (0.90)%
NOTES TO FINANCIAL HIGHLIGHTS: * Per unit information has been computed using average units outstanding throughout each period. (a) Not annualized for periods less than one year. (b) Annualized for periods less than one year. (c) The inception date of this Sub-Account was March 1, 1994. (d) The inception date of this Sub-Account was January 3, 1995. (e) The inception date of this Sub-Account was May 1, 1996. (f) The inception date of this Sub-Account was January 2, 1997. (g) The inception date of this Sub-Account was January 2, 1998. (h) The inception date of this Sub-Account was May 1, 1998. The notes to the financial statements are an integral part of this report. 21 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 1998 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The WRL Series Life Account (the "Life Account"), was established as a variable life insurance separate account of Western Reserve Life Assurance Co. of Ohio ("WRL") and is registered as a unit investment trust ("Trust") under the Investment Company Act of 1940, as amended. The Life Account contains sixteen investment options referred to as sub-accounts. Each sub-account invests in the corresponding Portfolio of the WRL Series Fund, Inc. (collectively referred to as the "Fund" and individually as a "Portfolio"), a registered management investment company under the Investment Company Act of 1940, as amended. The Fund has entered into annually renewable investment advisory agreements for each Portfolio with WRL Investment Management, Inc. ("WRL Management") as investment adviser. Costs incurred in connection with the advisory services rendered by WRL Management are paid by each Portfolio. WRL Management has entered into sub-advisory agreements with various management companies, some of which are affiliates of WRL. Each sub-adviser is compensated directly by WRL Management. On January 2, 1998 and May 1, 1998, WRL made initial contributions totaling $600,000 to the Life Account. The respective amounts of the contributions and units received are as follows: SUB-ACCOUNT CONTRIBUTION UNITS ----------- ------------ ----- Third Avenue Value ............. $200,000 20,000 Real Estate Securities ......... $400,000 40,000 The Life Account holds assets to support the benefits under certain flexible premium variable universal life insurance policies (the "Policies") issued by WRL. The Life Account's equity transactions are accounted for using the appropriate effective date at the corresponding accumulation unit value. The following significant accounting policies, which are in conformity with generally accepted accounting principles, have been consistently applied in the preparation of the Trust's financial statements. The preparation of financial statements required management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS Investments in the Fund's shares are stated at the closing net asset value ("NAV") per share as determined by the Fund. Investment transactions are accounted for on the trade date at the Fund NAV next determined after receipt of sale or redemption orders without sales charges. Dividend income and capital gains distributions are recorded on the ex-dividend date. The cost of investments sold is determined on a first-in, first-out basis. 22 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1998 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) B. FEDERAL INCOME TAXES The operations of the Life Account are a part of and are taxed with the total operations of WRL, which is taxed as a life insurance company under the Internal Revenue Code. Under the Internal Revenue Code law, the investment income of the Life Account, including realized and unrealized capital gains, is not taxable to WRL. Accordingly, no provision for Federal income taxes has been made. NOTE 2. CHARGES AND DEDUCTIONS Charges are assessed by WRL in connection with the issuance and administration of the Policies. A. POLICY CHARGES Under some forms of the Policies, a sales charge and premium taxes are deducted by WRL prior to allocation of policy owner payments to the sub-accounts. Thereafter, monthly administrative and cost of insurance charges are deducted from the policies. Contingent surrender charges also apply. Under the other forms of the Policies, such "front-end" and other administrative charges are deducted prior to allocation of the initial premium payment but may be subject to contingent surrender charges. Under all forms of the Policy, monthly charges against policy cash values are made to compensate WRL for costs of insurance provided. B. LIFE ACCOUNT CHARGES A daily charge equal to an annual rate of .90% of average daily net assets is assessed to compensate WRL for assumption of mortality and expense risks and administrative services in connection with issuance and administration of the Policies. This charge (not assessed at the individual contract level) effectively reduces the value of a unit outstanding during the year. NOTE 3. DIVIDENDS AND DISTRIBUTIONS Dividends are not declared by the Life Account, since the increase in the value of the underlying investment in the Fund is reflected daily in the accumulation unit value used to calculate the equity value within the Life Account. Consequently, a dividend distribution by the underlying Fund does not change either the accumulation unit value or equity values within the Life Account. 23 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1998 NOTE 4. SECURITIES TRANSACTIONS Securities transactions for the year ended December 31, 1998 are as follows (in thousands): PURCHASE PROCEEDS SUB-ACCOUNT OF SECURITIES OF SECURITIES ----------- --------------- -------------- Money Market ....................... $54,231 $46,140 Bond ............................... 14,451 7,857 Growth ............................. 72,758 20,484 Global ............................. 59,238 9,357 Strategic Total Return ............. 17,619 3,754 Emerging Growth .................... 49,088 10,679 Aggressive Growth .................. 44,611 5,689 Balanced ........................... 4,604 1,017 Growth & Income .................... 10,694 3,411 Tactical Asset Allocation .......... 14,060 2,009 C.A.S.E. Growth .................... 9,433 2,525 Value Equity ....................... 13,179 9,081 International Equity ............... 6,220 3,048 U.S. Equity ........................ 12,496 3,076 Third Avenue Value (a) ............. 3,849 906 Real Estate Securities (b) ......... 1,047 226 (a) The inception date of this Sub-Account was January 2, 1998. (b) The inception date of this Sub-Account was May 1, 1998. 24 WRL SERIES LIFE ACCOUNT NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1998 NOTE 5. OTHER MATTERS At December 31, 1998 net unrealized appreciation (depreciation) on investments was as follows (in thousands): SUB-ACCOUNT ----------- Money Market ...................... $ 0 Bond .............................. 402 Growth ............................ 374,036 Global ............................ 43,882 Strategic Total Return ............ 17,020 Emerging Growth ................... 85,696 Aggressive Growth ................. 50,985 Balanced .......................... 991 Growth & Income ................... (177) Tactical Asset Allocation ......... 973 C.A.S.E. Growth ................... (1,524) Value Equity ...................... (2,759) International Equity .............. 119 U.S. Equity ....................... 1,068 Third Avenue Value ................ (103) Real Estate Securities ............ (76) 25 REPORT OF INDEPENDENT AUDITORS The Board of Directors Western Reserve Life Assurance Co. of Ohio We have audited the accompanying statutory-basis balance sheets of Western Reserve Life Assurance Co. of Ohio as of December 31, 1998 and 1997, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the statutory-basis financial statement schedules required by Regulation S-X, Article 7. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the "Separate Account Assets" and "Separate Account Liabilities" in the balance sheets of the Company. The Separate Account financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the data included for the Separate Account, is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio, which practices differ from generally accepted accounting principles. The variances between such practices and generally accepted accounting principles are also described in Note 1. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material. In our opinion, because of the effects of the matters described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of Western Reserve Life Assurance Co. of Ohio at December 31, 1998 and 1997, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 1998. However, in our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Western Reserve Life Assurance Co. of Ohio at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic statutory-basis financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Des Moines, Iowa February 19, 1999 26 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO BALANCE SHEETS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------------- 1998 1997 ------------ ------------ ADMITTED ASSETS Cash and invested assets: Cash and short-term investments .............................. $ 73,808 $ 13,896 Bonds ........................................................ 184,697 255,919 Common stocks: Affiliated entities (cost: 1998 - $243; 1997 - $150)......... 704 319 Other (cost: 1998 and 1997 - $302)........................... 384 428 Mortgage loans on real estate ................................ 9,916 4,824 Home office properties ...................................... 34,583 19,964 Investment properties ....................................... 11,594 -- Policy loans ................................................ 112,982 76,741 Other invested assets ....................................... 396 -- ---------- ---------- Total cash and invested assets ................................ 429,064 372,091 Premiums deferred and uncollected ............................. 900 1,928 Accrued investment income ..................................... 2,867 4,088 Transfers from separate accounts .............................. 350,633 279,958 Cash surrender value of life insurance policies ............... 45,445 -- Other assets .................................................. 9,239 5,221 Separate account assets ....................................... 6,999,290 4,814,594 ---------- ---------- Total admitted assets ......................................... $7,837,438 $5,477,880 ========== ==========
SEE ACCOMPANYING NOTES. 27 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO BALANCE SHEETS -- STATUTORY BASIS (CONTINUED) (DOLLARS IN THOUSANDS)
DECEMBER 31, ----------------------------- 1998 1997 ------------- ------------- LIABILITIES AND CAPITAL AND SURPLUS Liabilities: Aggregate reserves for policies and contracts: Life ............................................ $ 231,596 $ 186,523 Annuity ......................................... 265,418 296,290 Policy and contract claim reserves ............... 9,233 10,929 Other policyholders' funds ....................... 38,080 3,877 Remittances and items not allocated .............. 20,569 9,184 Federal income taxes payable ..................... 5,716 2,283 Asset valuation reserve .......................... 2,848 2,436 Interest maintenance reserve ..................... 9,684 9,134 Short-term note payable to affiliate ............. 44,200 8,200 Payable to affiliate ............................. 37,907 1,925 Other liabilities ................................ 31,151 19,257 Separate account liabilities ..................... 6,997,456 4,812,979 ---------- ---------- Total liabilities ................................. 7,693,858 5,363,017 Commitments and contingencies Capital and surplus: Common stock, $1.00 par value, 1,500 shares authorized, issued and outstanding ............. 1,500 1,500 Paid-in surplus .................................. 120,107 88,015 Unassigned surplus ............................... 21,973 25,348 ---------- ---------- Total capital and surplus ......................... 143,580 114,863 ---------- ---------- Total liabilities and capital and surplus ......... $7,837,438 $5,477,880 ========== ==========
SEE ACCOMPANYING NOTES. 28 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF OPERATIONS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------------------------------- 1998 1997 1996 ------------- ------------- ------------- Revenues: Premiums and other considerations, net of reinsurance: Life ........................................................... $ 476,053 $ 394,370 $ 293,590 Annuity ........................................................ 794,841 822,149 740,125 Net investment income ........................................... 36,315 40,013 36,067 Amortization of interest maintenance reserve .................... 744 1,576 1,335 Commissions and expense allowances on reinsurance ceded ......... 15,333 11 11 Other income .................................................... 67,751 3,016 13,398 ---------- ---------- ---------- 1,391,037 1,261,135 1,084,526 Benefits and expenses: Benefits paid or provided for: Life ........................................................... 42,982 28,060 21,256 Surrender benefits ............................................. 551,528 431,939 286,406 Other benefits ................................................. 31,280 28,112 23,270 Increase (decrease) in aggregate reserves for policies and contracts: Life .......................................................... 42,940 29,485 80,139 Annuity ....................................................... (30,872) (35,940) 12,877 Other ......................................................... 32,178 794 422 ---------- ---------- ---------- 670,036 482,450 424,370 Insurance expenses: Commissions .................................................... 205,939 179,106 140,261 General insurance expenses ..................................... 102,611 70,546 47,406 Taxes, licenses and fees ....................................... 15,545 13,101 10,848 Net transfer to separate accounts .............................. 402,618 519,214 452,471 Other expenses ................................................. 59 21 60 ---------- ---------- ---------- 726,772 781,988 651,046 ---------- ---------- ---------- 1,396,808 1,264,438 1,075,416 ---------- ---------- ---------- Gain (loss) from operations before federal income taxes (benefit) and realized capital gains (losses) on investments ............. (5,771) (3,303) 9,110 Federal income tax expense (benefit) ............................. (347) 469 9,297 ---------- ---------- ---------- Loss from operations before realized capital gains (losses) on investments ........................................ (5,424) (3,772) (187) Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to interest maintenance reserve) ........................................... 1,494 747 (811) ---------- ---------- ---------- Net loss ......................................................... $ (3,930) $ (3,025) $ (998) ========== ========== ==========
SEE ACCOMPANYING NOTES. 29 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
TOTAL CAPITAL COMMON PAID-IN UNASSIGNED AND STOCK SURPLUS SURPLUS SURPLUS -------- ----------- ------------ ------------ Balance at January 1, 1996 ....................... $1,500 $ 68,015 $ 28,424 $ 97,939 Net loss for 1996 ............................... -- -- (998) (998) Net unrealized capital gains .................... -- -- 1,294 1,294 Change in non-admitted assets ................... -- -- 199 199 Change in asset valuation reserve ............... -- -- (120) (120) Change in surplus in separate accounts .......... -- -- 237 237 Change in reserve valuation ..................... -- -- (2,995) (2,995) ------ -------- -------- -------- Balance at December 31, 1996 ..................... 1,500 68,015 26,041 95,556 Net loss for 1997 ............................... -- -- (3,025) (3,025) Change in non-admitted assets ................... -- -- (702) (702) Change in asset valuation reserve ............... -- -- 3,274 3,274 Change in surplus in separate accounts .......... -- -- (2,115) (2,115) Change in reserve valuation ..................... -- -- (1,872) (1,872) Capital contribution ............................ -- 20,000 -- 20,000 Tax effect of capital loss carry-forward utilized by affiliates ................................. -- -- 3,747 3,747 ------ -------- -------- -------- Balance at December 31, 1997 ..................... 1,500 88,015 25,348 114,863 Net loss for 1998 ............................... -- -- (3,930) (3,930) Net unrealized capital gains .................... -- -- 248 248 Change in non-admitted assets ................... -- -- (1,815) (1,815) Change in asset valuation reserve ............... -- -- (412) (412) Change in surplus in separate accounts .......... -- -- (341) (341) Change in reserve valuation ..................... -- -- (2,132) (2,132) Capital contribution ............................ -- 32,092 -- 32,092 Settlement of prior period tax returns .......... -- -- 353 353 Tax benefits on stock options exercised ......... -- -- 4,654 4,654 ------ -------- -------- -------- Balance at December 31, 1998 ..................... $1,500 $120,107 $ 21,973 $143,580 ====== ======== ======== ========
SEE ACCOMPANYING NOTES. 30 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO STATEMENTS OF CASH FLOWS -- STATUTORY BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------------------------------- 1998 1997 1996 ------------- ------------- ------------- OPERATING ACTIVITIES Premiums and other considerations, net of reinsurance .......... $1,356,732 $1,223,898 $1,046,548 Net investment income .......................................... 38,294 43,802 38,666 Life and accident and health claims ............................ (44,426) (26,005) (20,655) Surrender benefits and other fund withdrawals .................. (551,528) (431,939) (286,406) Other benefits to policyholders ................................ (31,231) (28,147) (22,129) Commissions, other expenses and other taxes .................... (326,080) (262,901) (196,373) Net transfers to separate accounts ............................. (461,982) (596,347) (658,326) Federal income taxes received (paid) ........................... 11,956 5,006 (9,449) Interest paid .................................................. -- (731) -- Other, net ..................................................... (7,109) (14,901) 28,325 ---------- ---------- ---------- Net cash used in operating activities .......................... (15,374) (88,265) (79,799) INVESTING ACTIVITIES Proceeds from investments sold, matured or repaid: Bonds and preferred stocks .................................... 143,449 146,963 122,820 Mortgage loans on real estate ................................. 221 2,116 132 Real estate ................................................... -- -- 4,304 Other ......................................................... -- -- 175 ---------- ---------- ---------- 143,670 149,079 127,431 Cost of investments acquired ................................... Bonds and preferred stocks .................................... (68,202) (40,418) (26,826) Common stocks ................................................. (93) (150) (4) Mortgage loans on real estate ................................. (5,313) (891) -- Real estate ................................................... (26,213) (12,002) (7,837) Policy loans .................................................. (36,241) (24,137) (15,479) Other ......................................................... (414) -- (5) ---------- ---------- ----------- (136,476) (77,598) (50,151) ---------- ---------- ---------- Net cash provided by investing activities ...................... 7,194 71,481 77,280 FINANCING ACTIVITIES Issuance of short-term note payable to affiliate ............... 36,000 8,200 -- Capital contribution ........................................... 32,092 20,000 -- ---------- ---------- ---------- Net cash provided by financing activities ...................... 68,092 28,200 -- ---------- ---------- ---------- Increase (decrease) in cash and short-term investments ......... 59,912 11,416 (2,519) Cash and short-term investments at beginning of year ........... 13,896 2,480 4,999 ---------- ---------- ---------- Cash and short-term investments at end of year ................. $ 73,808 $ 13,896 $ 2,480 ========== ========== ==========
SEE ACCOMPANYING NOTES. 31 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS (DOLLARS IN THOUSANDS) DECEMBER 31, 1998 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Western Reserve Life Assurance Co. of Ohio ("the Company") is a stock life insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance Company which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON"). AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company organized under the laws of The Netherlands. NATURE OF BUSINESS The Company operates predominantly in the variable universal life and variable annuity areas of the life insurance business. The Company is licensed in 49 states, District of Columbia, Puerto Rico and Guam. Sales of the Company's products are through financial planners, independent representatives, financial institutions and stockbrokers. The majority of the Company's new life insurance written and a substantial portion of new annuities written is done through one marketing organization; the Company expects to maintain this relationship for the foreseeable future. BASIS OF PRESENTATION The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of Ohio ("Insurance Department"), which practices differ from generally accepted accounting principles. The more significant of these differences are as follows: (a) bonds are generally reported at amortized cost rather than segregating the portfolio into held-to-maturity (reported at amortized cost), available-for-sale (reported at fair value), and trading (reported at fair value) classifications; (b) acquisition costs of acquiring new business are expensed as incurred rather than deferred and amortized over the life of the policies; (c) policy reserves on traditional life products are based on statutory mortality rates and interest which may differ from reserves based on reasonable assumptions of expected mortality, interest, and withdrawals which include a provision for possible unfavorable deviation from such assumptions; (d) policy reserves on certain investment products use discounting methodologies utilizing statutory interest rates rather than full 32 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) account values; (e) reinsurance amounts are netted against the corresponding asset or liability rather than shown as gross amounts on the balance sheet; (f) deferred income taxes are not provided for the difference between the financial statement amounts and income tax bases of assets and liabilities; (g) net realized gains or losses attributed to changes in the level of interest rates in the market are deferred and amortized over the remaining life of the bond or mortgage loan, rather than recognized as gains or losses in the statement of operations when the sale is completed; (h) declines in the estimated realizable value of investments are provided for through the establishment of a formula- determined statutory investment reserve (reported as a liability) changes to which are charged directly to surplus, rather than through recognition in the statement of operations for declines in value, when such declines are judged to be other than temporary; (i) certain assets designated as "non-admitted assets" have been charged to surplus rather than being reported as assets; (j) revenues for universal life and investment products consist of the entire premiums received rather than policy charges for the cost of insurance, policy administration charges, amortization of policy initiation fees and surrender charges assessed; (k) pension expense is recorded as amounts are paid rather than accrued and expensed during the periods in which the employers provide service; and (l) the financial statements of wholly-owned affiliates are not consolidated with those of the Company. The effects of these variances have not been determined by the Company, but are presumed to be material. In 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles ("Codification"). Codification will likely change, to some extent, prescribed statutory accounting practices and may result in changes to the accounting practices that the Company uses to prepare its statutory-basis financial statements. Codification will require adoption by the various states before it becomes the prescribed statutory basis of accounting for insurance companies domesticated within those states. Accordingly, before Codification becomes effective for the Company, the State of Ohio must adopt Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results to the Insurance Department. At this time it is unclear whether the State of Ohio will adopt Codification. However, based on current guidance, management believes that the impact of Codification will not be material to the Company's statutory-basis financial statements. 33 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Other significant statutory accounting practices are as follows: CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid investments with remaining maturities of one year or less when purchased to be cash equivalents. INVESTMENTS Investments in bonds (except those to which the Securities Valuation office of the NAIC has ascribed a value), mortgage loans on real estate and short-term investments are reported at cost adjusted for amortization of premiums and accrual of discounts. Amortization is computed using methods which result in a level yield over the expected life of the investment. The Company reviews its prepayment assumptions on mortgage and other asset backed securities at regular intervals and adjusts amortization rates retrospectively when such assumptions are changed due to experience and/or expected future patterns. Common stocks of unaffiliated companies are carried at market and include shares of mutual funds (money market and other), and the related unrealized capital gains/(losses) are reported in unassigned surplus without any adjustment for federal income taxes. Common stocks of the Company's wholly-owned affiliates are recorded at the equity in net assets. Home office and investment properties are reported at cost less allowances for depreciation. Depreciation is computed principally by the straight-line method. Policy loans are reported at unpaid principal. Other "admitted assets" are valued, principally at cost, as required or permitted by Ohio Insurance Laws. Realized capital gains and losses are determined on the basis of specific identification and are recorded net of related federal income taxes. The Asset Valuation Reserve (AVR) is established by the Company to provide for anticipated losses in the event of default by issuers of certain invested assets. These amounts are determined using a formula prescribed by the NAIC and are reported as a liability. The formula for the AVR provides for a corresponding adjustment for realized gains and losses. Under a formula prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve (IMR), the portion of realized gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the security. During 1998, 1997 and 1996, net realized capital gains of $1,294, $3,259 and $2,394, respectively, were credited to the IMR rather than being immediately recognized in the statements of operations. Amortization of these net gains aggregated $744, $1,576 and $1,335 for the years ended December 31, 1998, 1997 and 1996, respectively. 34 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or which are delinquent more than twelve months, or real estate where rent is in arrears for more than three months. Further, income is not accrued when collection is uncertain. No investment income due and accrued has been excluded for the years ended December 31, 1998, 1997 and 1996, with respect to such practices. AGGREGATE RESERVES FOR POLICIES Life and annuity reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum required by law. The aggregate policy reserves for life insurance policies are based principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality Tables. The reserves are calculated using interest rates ranging from 2.25 to 5.50 percent and are computed principally on the Net Level Premium Valuation and the Commissioners' Reserve Valuation Methods. Reserves for universal life policies are based on account balances adjusted for the Commissioners' Reserve Valuation Method. Deferred annuity reserves are calculated according to the Commissioners' Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest. Reserves for immediate annuities and supplementary contracts with life contingencies are equal to the present value of future payments assuming interest rates ranging from 5.75 to 8.75 percent and mortality rates, where appropriate, from a variety of tables. POLICY AND CONTRACT CLAIM RESERVES Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the statement date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available. SEPARATE ACCOUNTS Assets held in trust for purchases of variable universal life and variable annuity contracts and the Company's corresponding obligation to the contract owners are shown 35 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) separately in the balance sheets. The assets in the separate accounts are valued at market. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the policyholders and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The separate accounts do not have any minimum guarantees and the investment risks associated with market value changes are borne entirely by the policyholders. The Company received variable contract premiums of $1,240,858, $1,164,013 and $997,513 in 1998, 1997 and 1996, respectively. All variable account contracts are subject to discretionary withdrawal by the policyholder at the market value of the underlying assets less the current surrender charge. Separate account contractholders have no claim against the assets of the general account. STOCK OPTION PLAN AEGON N.V. sponsors a stock option plan for eligible employees of the Company. Under this plan, certain employees have indicated a preference to immediately sell shares received as a result of their exercise of the stock options; in these situations, AEGON N.V. has settled such options in cash rather than issuing stock to these employees. These cash settlements are paid by the Company and AEGON N.V. subsequently reimburses the Company for such payments. Under statutory accounting principles, the Company does not record any expense related to this plan, as the expense is recognized by AEGON N.V. However, the Company is allowed to record a deduction in the consolidated tax return filed by the Company and certain affiliates. The tax benefit of this deduction has been credited directly to surplus. RECLASSIFICATIONS Certain reclassifications have been made to the 1997 and 1996 financial statements to conform to the 1998 presentation. 2. FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value information about financial instruments, whether or not recognized in the statutory-basis balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement of Financial Accounting Standards No. 107 excludes certain 36 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED) financial instruments and all nonfinancial instruments from its disclosure requirements and allows companies to forego the disclosures when those estimates can only be made at excessive cost. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the statutory-basis balance sheet for these instruments approximate their fair values. INVESTMENT SECURITIES: Fair values for fixed maturity securities (including redeemable preferred stocks) are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or (in the case of private placements) are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values for equity securities are based on quoted market prices. MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are estimated utilizing discounted cash flow analyses, using interest rates reflective of current market conditions and the risk characteristics of the loans. The fair value of policy loans are assumed to equal their carrying value. INVESTMENT CONTRACTS: Fair values for the Company's liabilities under investment-type insurance contracts are estimated using discounted cash flow calculations, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. Fair values for the Company's insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. 37 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED) The following sets forth a comparison of the fair values and carrying values of the Company's financial instruments subject to the provisions of Statement of Financial Accounting Standards No. 107:
DECEMBER 31, --------------------------------------------------- 1998 1997 ------------------------- ------------------------- CARRYING CARRYING VALUE FAIR VALUE VALUE FAIR VALUE ------------ ------------ ------------ ------------ ADMITTED ASSETS Cash and short-term investments .......... $ 73,808 $ 73,808 $ 13,896 $ 13,896 Bonds .................................... 184,697 192,556 255,919 267,763 Common stocks, other than affiliates ..... 384 384 428 428 Mortgage loans on real estate ............ 9,916 10,390 4,824 5,143 Policy loans ............................. 112,982 112,982 76,741 76,741 Separate account assets .................. 6,999,290 6,999,290 4,814,594 4,814,594 LIABILITIES Investment contract liabilities .......... 297,349 294,105 280,121 276,113 Separate account annuities ............... 5,096,680 5,038,296 3,615,255 3,565,557
38 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 3. INVESTMENTS The carrying value and estimated fair value of investments in debt securities are as follows:
GROSS GROSS ESTIMATED CARRYING UNREALIZED UNREALIZED FAIR VALUE GAINS LOSSES VALUE ---------- ------------ ------------ ---------- DECEMBER 31, 1998 Bonds: United States Government and agencies ..... $ 4,749 $ 83 $ -- $ 4,832 State, municipal and other government ..... 3,234 117 -- 3,351 Public utilities .......................... 18,792 818 251 19,359 Industrial and miscellaneous .............. 96,332 6,685 577 102,440 Mortgage-backed securities ................ 61,590 1,235 251 62,574 -------- ------- ------ -------- Total bonds ................................ $184,697 $ 8,938 1,079 $192,556 ======== ======= ====== ======== DECEMBER 31, 1997 Bonds: United States Government and agencies ..... $ 3,675 $ 9 $ 30 $ 3,654 State, municipal and other government ..... 3,855 360 -- 4,215 Public utilities .......................... 15,794 904 403 16,295 Industrial and miscellaneous .............. 121,513 7,700 710 128,503 Mortgage-backed securities ................ 111,082 4,198 184 115,096 -------- ------- ------ -------- Total bonds ................................ $255,919 $13,171 $1,327 $267,763 ======== ======= ====== ========
The carrying value and fair value of bonds at December 31, 1998 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
ESTIMATED CARRYING FAIR VALUE VALUE ---------- ---------- Due in one year or less ............................ $ 2,706 $ 2,743 Due one through five years ......................... 61,340 64,696 Due five through ten years ......................... 43,233 45,352 Due after ten years ................................ 15,828 17,191 -------- -------- 123,107 129,982 Mortgage and other asset backed securities ......... 61,590 62,574 -------- -------- $184,697 $192,556 ======== ========
39 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 3. INVESTMENTS--(CONTINUED) A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- Interest on bonds ....................................... $ 17,150 $ 25,723 $ 33,969 Dividends on equity investments from subsidiary ......... 13,233 10,855 -- Interest on mortgage loans .............................. 499 478 559 Rental income on real estate ............................ 2,839 1,371 919 Interest on policy loans ................................ 6,241 4,656 3,339 Other investment income ................................. 540 26 9 -------- -------- -------- Gross investment income ................................. 40,502 43,109 38,795 Investment expenses ..................................... (4,187) (3,096) (2,728) -------- -------- -------- Net investment income ................................... $ 36,315 $ 40,013 $ 36,067 ======== ======== ========
Proceeds from sales and maturities of debt securities and related gross realized gains and losses were as follows: YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Proceeds ...................... $143,449 $146,963 $122,820 ======== ======== ======== Gross realized gains .......... $ 4,641 $ 3,921 $ 2,984 Gross realized losses ......... 899 626 791 -------- -------- -------- Net realized gains ............ $ 3,742 $ 3,295 $ 2,193 ======== ======== ======== At December 31, 1998, bonds with an aggregate carrying value of $4,297 were on deposit with certain state regulatory authorities or were restrictively held in bank custodial accounts for benefit of such state regulatory authorities, as required by statute. 40 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 3. INVESTMENTS--(CONTINUED) Realized investment gains (losses) and changes in unrealized gains (losses) for investments are summarized below:
REALIZED --------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Debt securities .................................. $ 3,742 $ 3,295 $ 2,193 Real estate ...................................... -- -- (606) Other invested assets ............................ (18) -- (4) -------- -------- --------- 3,724 3,295 1,583 Tax expense ...................................... (936) (711) -- Transfer to interest maintenance reserve ......... (1,294) (3,259) (2,394) -------- -------- -------- Net realized gains (losses) ...................... $ 1,494 $ 747 $ (811) ======== ======== ========
CHANGE IN UNREALIZED ----------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1997 1996 ------------ ---------- ------------- Debt securities .......................................... $ (3,985) $ (896) $ (14,442) Common stock ............................................. 248 -- (66) -------- ------ --------- Change in unrealized appreciation (depreciation) ......... $ (3,737) $ (896) $ (14,508) ======== ====== =========
Gross unrealized gains (losses) on common stocks were as follows: REALIZED --------------------------- YEAR ENDED DECEMBER 31, --------------------------- 1998 1997 1996 -------- ------ ------- Unrealized gains ............. $ 579 $295 $295 Unrealized losses ............ (36) -- -- ----- ---- ---- Net unrealized gains ......... $ 543 $295 $295 ===== ==== ==== During 1998, the Company issued one mortgage loan with an interest rate of 6.71%. The maximum percentage of any one mortgage loan to the value of the underlying real estate at origination was 75%. The Company requires all mortgagees to carry fire insurance equal to the value of the underlying property. During 1998, 1997 and 1996, no mortgage loans were foreclosed and transferred to real estate. During 1998 and 1997, the Company held a mortgage loan loss reserve in the asset valuation reserve of $112 and $54, respectively. At December 31, 1998, the Company had no investments (excluding U. S. Government guaranteed or insured issues) which individually represented more than ten percent of capital and surplus and the asset valuation reserve. 41 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 4. REINSURANCE The Company reinsures portions of certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligations under the reinsurance treaty.
1998 1997 1996 ------------- ------------- ------------- Direct premiums .............. $1,345,752 $1,219,271 $1,034,757 Reinsurance assumed .......... 461 2,389 2,063 Reinsurance ceded ............ (75,319) (5,141) (3,105) ---------- ---------- ---------- Net premiums earned .......... $1,270,894 $1,216,519 $1,033,715 ---------- ---------- ----------
The Company received reinsurance recoveries in the amount of $5,260, $2,288 and $2,156 during 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $1,003 and $2,721, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 1998 and 1997 of $2,849 and $1,369, respectively. 5. INCOME TAXES For federal income tax purposes, the Company joins in a consolidated tax return filing with certain affiliated companies. Under the terms of a tax-sharing agreement between the Company and its affiliates, the Company computes federal income tax expense as if it were filing a separate income tax return, except that tax credits and net operating loss carryforwards are determined on the basis of the consolidated group. Additionally, the alternative minimum tax is computed for the consolidated group and the resulting tax, if any, is allocated back to the separate companies on the basis of the separate companies' alternative minimum taxable income. 42 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 5. INCOME TAXES--(CONTINUED) Federal income tax expense (benefit) differs from the amount computed by applying the statutory federal income tax rate to gain (loss) from operations before income taxes (benefit) and realized capital gains (losses) on investments for the following reasons:
1998 1997 1996 ------------ ------------ --------- Computed tax (benefit) at federal statutory rate (35%) .......... $ (2,019) $ (1,156) $3,189 Deferred acquisition costs -- tax basis ......................... 9,672 9,164 7,172 Tax reserve valuation ........................................... 1,513 (194) (696) Excess tax depreciation ......................................... (442) (127) (65) Amortization of IMR ............................................. (260) (552) (467) Dividend received deduction ..................................... (6,657) (5,326) -- Prior year over-accrual ......................................... (2,322) (1,541) (9) Other, net ...................................................... 168 201 173 -------- -------- ------ Federal income tax expense (benefit) ............................ $ (347) $ 469 $9,297 -------- -------- ------
Federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to realized gains (losses) due to the differences in book and tax asset bases at the time certain investments are sold. Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959, a portion of statutory income was not subject to current taxation, but was accumulated for income tax purposes in a memorandum account referred to as the policyholders' surplus account. No federal income taxes have been provided for in the financial statements on income deferred in the policyholders' surplus account ($293 at December 31, 1998). To the extent dividends are paid from the amount accumulated in the policyholders' surplus account, net earnings would be reduced by the amount of tax required to be paid. Should the entire amount in the policyholders' surplus account become taxable, the tax thereon computed at current rates would amount to approximately $103. At December 31, 1996, the Company had capital loss carryforwards of approximately $10,705, which were utilized by the Company's affiliates in the consolidated tax return filing in 1997. This transaction resulted in a receipt from the Company's affiliate of $3,747, which was credited directly to unassigned surplus. In 1998, the Company reached a final settlement with the Internal Revenue Service for 1994 and 1995 resulting in a tax refund of $300 and interest received of $53. 43 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 6. POLICY AND CONTRACT ATTRIBUTES A portion of the Company's policy reserves and other policyholders' funds relate to liabilities established on a variety of the Company's products, primarily separate accounts, that are not subject to significant mortality or morbidity risk; however, there may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on these products, by withdrawal characteristics are summarized as follows:
DECEMBER 31, ---------------------------------------------- 1998 1997 ----------------------- ---------------------- PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL ------------ ---------- ------------ --------- Subject to discretionary withdrawal with market value adjustment ................................. $ 12,810 $ 13,812 1% Subject to discretionary withdrawal at book value less surrender charge ............................ 76,289 1% 68,376 2 Subject to discretionary withdrawal at market value 5,096,680 94 3,615,255 91 Subject to discretionary withdrawal at book value (minimal or no charges or adjustments) ........... 210,270 4 201,457 5 Not subject to discretionary withdrawal provision . 15,681 1 16,572 1 ---------- -- ---------- -- 5,411,730 100% 3,915,472 100% === === Less reinsurance ceded ............................ 1,131 -- ---------- ---------- Total policy reserves on annuities and deposit fund liabilities ...................................... $5,410,599 $3,915,472 ========== ==========
A reconciliation of the amounts transferred to and from the separate accounts is presented below:
1998 1997 1996 ------------- ------------- ------------- Transfers as reported in the summary of operations of the separate accounts statement: Transfers to separate accounts ........................ $1,240,858 $1,164,013 $ 997,513 Transfers from separate accounts ...................... 847,507 646,477 339,523 ---------- ---------- ---------- Net transfers to separate accounts ..................... 393,351 517,536 657,990 Reconciling adjustments -- change in accruals for investment management, administration fees and contract guarantees, and separate account surplus ..... 9,267 1,678 (205,519) ---------- ---------- ---------- Transfers as reported in the summary of operations of the life, accident and health annual statement ..... $ 402,618 $ 519,214 $ 452,471 ========== ========== ==========
44 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED) Reserves on the Company's traditional life products are computed using mean reserving methodologies. These methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policy's paid-through date to the policy's next anniversary date. At December 31, 1998 and 1997, these assets (which are reported as premiums deferred and uncollected) and the amounts of the related gross premiums and loadings, are as follows:
GROSS LOADING NET --------- --------- --------- DECEMBER 31, 1998 Ordinary direct renewal business ............ $1,101 $201 $ 900 ------ ---- ------ $1,101 $201 $ 900 ====== ==== ====== DECEMBER 31, 1997 Ordinary direct first year business ......... $ 2 $ 1 $ 1 Ordinary direct renewal business ............ 1,350 140 1,210 Group life direct business .................. 717 -- 717 ------ ---- ------ $2,069 $141 $1,928 ====== ==== ======
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for contracts that require immediate payment of claims upon proof of death of the insured. Companies were allowed to grade the effects of the change in reserving methodologies over five years. A direct charge to surplus of $2,132, $1,872 and $2,995 was made for the years ended December 31, 1998, 1997 and 1996, respectively, related to the change in reserve methodology. 7. DIVIDEND RESTRICTIONS The Company is subject to limitations, imposed by the State of Ohio, on the payment of dividends to its parent company. Generally, dividends during any twelve month period may not be paid; without prior regulatory approval, in excess of the lesser of (a) 10 percent of statutory capital and surplus as of the preceding December 31, or (b) statutory gain from operations for the preceding year. Subject to the availability of unassigned surplus at the time of such dividend, the maximum payment which may be made in 1999, without the prior approval of insurance regulatory authorities, is $14,657. 8. RETIREMENT AND COMPENSATION PLANS The Company's employees participate in a qualified benefit plan sponsored by AEGON. The Company has no legal obligation for the plan. The Company recognizes pension expense equal to its allocation from AEGON. The pension expense is allocated among the participating companies based on the FASB Statement No. 87 expense as a percent of salaries. The benefits are based on years of service and the employee's 45 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 8. RETIREMENT AND COMPENSATION PLANS--(CONTINUED) compensation during the highest five consecutive years of employment. Pension expense aggregated $917, $659 and $581 for the years ended December 31, 1998, 1997 and 1996, respectively. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. The Company's employees also participate in a contributory defined contribution plan sponsored by AEGON which is qualified under Section 401(k) of the Internal Revenue Service Code. Employees of the Company who customarily work at least 1,000 hours during each calendar year and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to fifteen percent of their salary to the plan. The Company will match an amount up to three percent of the participant's salary. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement and Income Security Act of 1974. Pension expense related to this plan was $632, $448 and $184 for the years ended December 31, 1998, 1997 and 1996, respectively. AEGON sponsors supplemental retirement plans to provide the Company's senior management with benefits in excess of normal pension benefits. The plans are noncontributory and benefits are based on years of service and the employee's compensation level. The plans are unfunded and nonqualified under the Internal Revenue Code. In addition, AEGON has established incentive deferred compensation plans for certain key employees of the Company. AEGON also sponsors an employee stock option plan for individuals employed at least three years and a stock purchase plan for its producers, with the participating affiliated companies establishing their own eligibility criteria, producer contribution limits and company matching formula. These plans have been accrued for or funded as deemed appropriate by management of AEGON and the Company. In addition to pension benefits, the Company participates in plans sponsored by AEGON that provide postretirement medical, dental and life insurance benefits to employees meeting certain eligibility requirements. Portions of the medical and dental plans are contributory. The expenses of the postretirement plans calculated on the pay-as-you-go basis are charged to affiliates in accordance with an intercompany cost sharing arrangement. The Company expensed $157, $99 and $98 for the years ended December 31, 1998, 1997 and 1996, respectively. 9. RELATED PARTY TRANSACTIONS The Company shares certain officers, employees and general expenses with affiliated companies. 46 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 9. RELATED PARTY TRANSACTIONS--(CONTINUED) The Company receives data processing, investment advisory and management, marketing and administration services from certain affiliates. During 1998, 1997 and 1996, the Company paid $12,763, $10,040 and $10,038, respectively, for such services, which approximates their costs to the affiliates. The Company provides office space, marketing and administrative services to certain affiliates. During 1998, 1997 and 1996, the Company received $5,125, $4,395 and $3,271, respectively, for such services, which approximates their cost. The Company had a net payable with affiliates of $33,449 and $1,925 at December 31, 1998 and 1997, respectively. Payable to affiliates and intercompany borrowings bear interest at the thirty-day commercial paper rate of 4.74% at December 31, 1998. During 1998, 1997 and 1996, the Company paid net interest of $1,090, $364 and $138, respectively, to affiliates. The Company received capital contributions of $32,092 and $20,000 from its parent in 1998 and 1997, respectively. At December 31, 1998 and 1997, the Company had short-term note payables to an affiliate of $44,200 and $8,200, respectively. Interest on these notes ranged from 5.13% to 5.54% at December 31, 1998 and was 5.60% at December 31. 1997. During 1998, the Company purchased life insurance policies covering the lives of certain employees of the Company. Premiums of $43,500 were paid to an affiliate for these policies. At December 31, 1998, the cash surrender value of these policies is $45,445. 10. COMMITMENTS AND CONTINGENCIES The Company is a party to legal proceedings incidental to its business. Although such litigation sometimes includes substantial demands for compensatory and punitive damages in addition to contract liability, it is management's opinion, after consultation with counsel and a review of available facts, that damages arising from such demands will not be material to the Company's financial position. The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company except where right of offset against other taxes paid is allowed by law; amounts available for future offsets are recorded as an asset on the Company's balance sheet. The future obligation has been based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Association. Potential future obligations for unknown insolvencies are not determinable by the Company. The 47 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) Company has established a reserve of $3,489 and $4,007 and an offsetting premium tax benefit of $828 and $1,070 at December 31, 1998 and 1997, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund expense (credit) was $(74), $0 and $212 at December 31, 1998, 1997 and 1996, respectively. 11. YEAR 2000 (UNAUDITED) The term Year 2000 Issue generally refers to the improper processing of dates and incorrect date calculations that might occur in computer software and hardware and embedded systems as the Year 2000 is approached. The use of computer programs that rely on two-digit date fields to perform computations and decision-making functions may cause systems to malfunction when processing information involving dates after 1999. For example, any computer software that has date-sensitive coding might recognize a code of 00 as the year 1900 rather than the year 2000. The Company has developed a Year 2000 Project Plan (the Plan) to address the Year 2000 issue as it affects the Company's internal IT and non-IT systems, and to assess Year 2000 issues relating to third parties with whom the Company has critical relationships. The Plan for addressing internal systems generally includes an assessment of internal IT and non-IT systems and equipment affected by the Year 2000 issue; definition of strategies to address affected systems and equipment; remediation of identified systems and equipment; internal testing and certification that each internal system is Year 2000 compliant; and a review of existing and revised business resumption and contingency plans to address potential Year 2000 issues. The Company has remediated and tested substantially all of its mission-critical internal IT systems as of December 31, 1998. The Company continues to remediate and test certain non-critical internal IT systems, internal non-IT systems and will continue with a revalidation testing program throughout 1999. The Company's Year 2000 issues are more complex because a number of its systems interface with other systems not under the Company's control. The Company's most significant interfaces and uses of third-party vendor systems are in the bank, financial services and trust areas. The Company utilizes various banks to handle numerous types of financial and sales transactions. Several of these banks also provide trustee and custodial services for the Company's investment holdings and transactions. These services are critical to a financial services company such as the Company as its business centers around cash receipts and disbursements to policyholders and the investment of policyholder funds. The Company has received written confirmation from 48 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 11. YEAR 2000 (UNAUDITED)--(CONTINUED) its vendor banks regarding their status on Year 2000. The banks indicate their dedication to resolving any Year 2000 issues related to their systems and services prior to December 31, 1999. The Company anticipates that a considerable effort will be necessary to ensure that its corrected or new systems can properly interface with those business partners with whom it transmits and receives data and other information (external systems). The Company has undertaken specific testing regimes with these third-party business partners and expects to continue working with its business partners on any interfacing of systems. However, the timing of external system compliance cannot currently be predicted with accuracy because the implementation of Year 2000 readiness will vary from one company to another. The Company does have some exposure to date sensitive embedded technology such as micro-controllers, but the Company views this exposure as minimal. Unlike other industries that may be equipment intensive, like manufacturing, the Company is a life insurance and financial services organization providing insurance, annuities and pension products to its customers. As such, the primary equipment and electronic devices in use are computers and telephone related equipment. This type of hardware can have date sensitive embedded technology which could have Year 2000 problems. Because of this exposure, the Company has reviewed its computer hardware and telephone systems, with assistance from the applicable vendors, and has upgraded, or replaced, or is in the process of replacing any equipment that will not properly process date sensitive data in the Year 2000 or beyond. For the Company, a reasonably likely worst case scenario might include one or more of the Company's significant policyholder systems being non-compliant. Such an event could result in a material disruption of the Company's operations. Specifically, a number of the Company's operations could experience an interruption in the ability to collect and process premiums or deposits, process claim payments, accurately maintain policyholder information, accurately maintain accounting records, and or perform adequate customer service. Should the worst case scenario occur, it could, dependent upon its duration, have a material impact on the Company's business and financial condition. Simple failures can be repaired and returned to production within a matter of hours with no material impact. Unanticipated failures with a longer service disruption period could have a more serious impact. For this reason, the Company is placing significant emphasis on risk management and Year 2000 business resumption contingency planning in 1999 by modifying its existing business resumption and disaster recovery plans to address potential Year 2000 issues. The actions taken by management under the Year 2000 Project Plans are intended to significantly reduce the Company's risk of a material business interruption based on the Year 2000 issues. It should be noted that the Year 2000 computer problem, and its 49 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO NOTES TO FINANCIAL STATEMENTS -- STATUTORY-BASIS--(CONTINUED) (DOLLARS IN THOUSANDS) 11. YEAR 2000 (UNAUDITED)--(CONTINUED) resolution, is complex and multifaceted, and any company's success cannot be conclusively known until the Year 2000 is reached. In spite of its efforts or results, the Company's ability to function unaffected to and through the Year 2000 may be adversely affected by actions (or failure to act) of third parties beyond our knowledge or control. It is anticipated that there may be problems that will have to be resolved in the ordinary course of business on and after the Year 2000. However, the Company does not believe that the problems will have a material adverse affect on the Company's operations or financial condition. 12. RECONCILIATION OF CAPITAL AND SURPLUS AND NET INCOME The following table reconciles capital and surplus and net income as reported in the Annual Statement filed with the Insurance Department of the State of Ohio, to the amounts reported in the accompanying financial statements:
YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 -------------- ------------------ TOTAL CAPITAL AND SURPLUS NET INCOME/(LOSS) -------------- ------------------ Amounts reported in Annual Statement ............. $148,038 $ 528 Adjustment to federal income tax benefit ......... (4,458) (4,458) -------- -------- Amounts reported herein .......................... $143,580 $ (3,930) ======== ========
50 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES (DOLLARS IN THOUSANDS) DECEMBER 31, 1998 SCHEDULE I
AMOUNT AT WHICH SHOWN IN THE TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET - ------------------ -------- ----- ------------- FIXED MATURITIES Bonds: United States Government and government agencies and authorities ................................ $ 19,899 $ 20,673 $ 19,899 States, municipalities and political subdivisions ......... 6,676 6,930 6,676 Public utilities .......................................... 18,792 19,359 18,792 All other corporate bonds ................................. 139,330 145,594 139,330 --------- -------- --------- Total fixed maturities ..................................... 184,697 192,556 184,697 EQUITY SECURITIES Common stocks: Affiliated entities ....................................... 243 704 Industrial, miscellaneous and all other ................... 302 384 --------- --------- Total equity securities .................................... 545 1,088 Mortgage loans on real estate .............................. 9,916 9,916 Real estate ................................................ 34,583 34,583 Policy loans ............................................... 112,982 112,982 Other invested assets ...................................... 396 396 Cash and short-term investments ............................ 73,808 73,808 Investment properties ...................................... 11,594 11,594 --------- --------- Total investments .......................................... $ 429,655 $ 429,064 ========= =========
- ---------------- (1) Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accruals of discounts. 51 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO SUPPLEMENTARY INSURANCE INFORMATION (DOLLARS IN THOUSANDS) SCHEDULE III
BENEFITS, CLAIMS, FUTURE POLICY POLICY AND NET LOSSES AND OTHER BENEFITS AND CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING EXPENSES LIABILITIES REVENUE INCOME* EXPENSES EXPENSES* --------------- ------------- -------------- ------------ ------------ ------------ YEAR ENDED DECEMBER 31, 1998 Individual life ................ $ 221,050 $ 8,624 $ 474,120 $ 9,884 $ 122,542 $ 230,368 Group life ..................... 10,546 100 1,933 723 1,962 2,281 Annuity ........................ 265,418 509 794,841 25,708 545,532 91,505 --------- -------- ----------- -------- --------- --------- $ 497,014 $ 9,233 $ 1,270,894 $ 36,315 $ 670,036 $ 324,154 ========= ======== =========== ======== ========= ========= YEAR ENDED DECEMBER 31, 1997 Individual life ................ $ 177,088 $ 9,533 $ 390,452 $ 13,742 $ 88,738 $ 176,303 Group life ..................... 9,435 805 3,918 810 3,986 3,292 Annuity ........................ 296,290 591 822,149 25,461 389,726 83,179 --------- -------- ----------- -------- --------- --------- $ 482,813 $ 10,929 $ 1,216,519 $ 40,013 $ 482,450 $ 262,774 ========= ======== =========== ======== ========= ========= YEAR ENDED DECEMBER 31, 1996 Individual life ................ $ 145,964 $ 7,017 $ 289,375 $ 8,228 $ 125,861 $ 124,181 Group life and health .......... 9,202 713 4,215 3,940 3,828 2,818 Annuity ........................ 332,230 854 740,125 23,899 294,681 71,576 --------- -------- ----------- -------- --------- --------- $ 487,396 $ 8,584 $ 1,033,715 $ 36,067 $ 424,370 $ 198,575 ========= ======== =========== ======== ========= =========
- ---------------- * Allocations of net investment income and other operating expenses are based on a number of assumptions and estimates, and the results would change if different methods were applied. 52 WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO REINSURANCE (DOLLARS IN THOUSANDS) SCHEDULE IV
ASSUMED PERCENTAGE CEDED TO FROM OF AMOUNT GROSS OTHER OTHER NET ASSUMED AMOUNT COMPANIES COMPANIES AMOUNT TO NET --------------- -------------- -------------- --------------- ----------- YEAR ENDED DECEMBER 31, 1998 Life insurance in force ........ $ 51,064,173 $ 9,862,460 $ -- $ 41,201,713 0.0% ============ =========== =========== ============ === Premiums: Individual life ............... $ 493,633 $ 19,512 $ -- $ 474,121 0.0% Group life and health ......... 1,691 220 461 1,932 23.8 Annuity ....................... 850,428 55,587 -- 794,841 0.0 ------------ ----------- ----------- ------------ ---- $ 1,345,752 $ 75,319 $ 461 $ 1,270,894 .03% ============ =========== =========== ============ ==== YEAR ENDED DECEMBER 31, 1997 Life insurance in force ........ $ 40,221,361 $ 6,776,447 $ 2,692,822 $ 36,137,736 7.5% ============ =========== =========== ============ ==== Premiums: Individual life ............... $ 395,361 $ 4,910 $ -- $ 390,452 0.0% Group life and health ......... 1,761 231 2389 3,918 61.0 Annuity ....................... 822,149 -- -- 822,149 0.0 ------------ ----------- ----------- ------------ ---- $ 1,219,271 $ 5,141 $ 2,389 $ 1,216,519 0.2% ============ =========== =========== ============ ==== YEAR ENDED DECEMBER 31, 1996 Life insurance in force ........ $ 28,168,880 $ 4,463,986 $ 2,210,601 $ 25,915,495 8.5% ============ =========== =========== ============ ==== Premiums: Individual life ............... $ 292,239 $ 2,863 $ -- $ 289,376 0.0% Group life and health ......... 2,393 242 2,063 4,214 49.0 Annuity ....................... 740,125 -- -- 740,125 0.0 ------------ ----------- ----------- ------------ ---- $ 1,034,757 $ 3,105 $ 2,063 $ 1,033,715 0.2% ============ =========== =========== ============ ====
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