As filed with the Securities and Exchange Commission on February 5, 1996
Registration No. 33-507
1940 Act File No. 811-4419
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 22 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 23 [X]
(Check appropriate box or boxes)
WRL SERIES FUND, INC
(Exact Name of Registrant as Specified in Charter)
201 HIGLAND AVENUE, LARGO, FLORIDA 34640
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (813) 585-6565
THOMAS E. PIERPAN P.O. BOX 5068
CLEARWATER, FLORIDA 34618-5068
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on DATE , pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on DATE , pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[X] on MAY 1, 1996 , pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Registrant has registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2(a) under the Investment Company Act of 1940
and intends to file a Rule 24f-2 Notice on or before February 29, 1996, for the
fiscal year ended December 31, 1995.
<PAGE>
WRL SERIES FUND, INC.
Money Market Portfolio
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A LOCATION IN
ITEM NUMBER PROSPECTUS
- ----------- -----------
<S> <C>
PART A.
Item 1. Cover Page ............................................Cover Page
Item 2. Synopsis ..............................................Not Applicable
Item 3. Financial Highlights ..................................Financial Highlights
Item 4. General Description of Registrant .....................The Money Market Portfolio and The
Fund; The Fund and its Shares
Item 5. Management of the Fund ................................Management of the Fund
Item 5A. Management's Discussion of
Fund Performance ..................................Not Applicable
Item 6. Capital Stock and other Securities ....................The Fund and its Shares
Item 7. Purchase of Securities Being Offered ..................Purchase and Redemption
of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase ..............................Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings .............................Not Applicable
<CAPTION>
LOCATION IN STATEMENT
OF ADDITIONAL INFORMATION
-------------------------
PART B.
Item 10. Cover Page ............................................Cover Page
Item 11. Table of Contents .....................................Table of Contents
Item 12. General Information and History .......................Not Applicable
Item 13. Investment Objective and Policies .....................Investment Objective and
Policies
</TABLE>
(i)
<PAGE>
WRL SERIES FUND, INC.
Money Market Portfolio
Cross Reference Sheet (Continued)
<TABLE>
<CAPTION>
LOCATION IN
STATEMENT OF
FORM N-1A ADDITIONAL
ITEM NUMBER INFORMATION
- ----------- ------------
<S> <C>
Item 14. Management of the Registrant ......................... Management of the Fund
Item 15. Control Persons and Principal Purchase and Redemption
Holders of Securities................................. of Shares
Item 16. Investment Advisory and Other
Services ............................................. Management of the Fund
Item 17. Brokerage Allocation and Portfolio Transactions
Other Practices ...................................... and Brokerage
Item 18. Capital Stock and Other Securities ................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Purchase and Redemption
Securities Being Offered .......................... of Shares
Item 20. Tax Status ........................................... Taxes
Item 21. Underwriter .......................................... Not Applicable
Item 22. Calculations of Performance Data ..................... Calculation of Performance
Related Information
Item 23. Financial Statements ................................. Financial Statements
</TABLE>
(ii)
<PAGE>
WRL SERIES FUND, INC.
Value Equity Portfolio
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A LOCATION IN
ITEM NUMBER PROSPECTUS
- ----------- -----------
<S> <C>
PART A.
Item 1. Cover Page ...............................................Cover Page
Item 2. Synopsis .................................................Not Applicable
Item 3. Financial Highlights .....................................Not Applicable
Item 4. General Description of Registrant ........................The Value Equity Portfolio and the
Fund; The Fund and its Shares
Item 5. Management of the Fund ...................................Management of the Fund
Item 5A. Management's Discussion of
Fund Performance .........................................Not Applicable
Item 6. Capital Stock and other Securities .......................The Fund and its Shares
Item 7. Purchase of Securities Being Offered .....................Purchase and Redemption
of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase .................................Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings ................................Not Applicable
<CAPTION>
LOCATION IN STATEMENT
OF ADDITIONAL INFORMATION
-------------------------
PART B.
Item 10. Cover Page ...............................................Cover Page
Item 11. Table of Contents ........................................Table of Contents
Item 12. General Information and History ..........................Not Applicable
Item 13. Investment Objective and Policies ........................Investment Objective and
Policies
</TABLE>
(iii)
<PAGE>
WRL SERIES FUND, INC.
Value Equity Portfolio
Cross Reference Sheet (Continued)
<TABLE>
<CAPTION>
LOCATION IN
STATEMENT OF
FORM N-1A ADDITIONAL
ITEM NUMBER INFORMATION
- ----------- ------------
<S> <C>
Item 14. Management of the Registrant ..............................Management of the Fund
Item 15. Control Persons and Principal Purchase and Redemption
Holders of Securities .....................................of Shares
Item 16. Investment Advisory and Other
Services ..................................................Management of the Fund
Item 17. Brokerage Allocation and Portfolio Transactions
Other Practices ...........................................and Brokerage
Item 18. Capital Stock and Other Securities ........................Not Applicable
Item 19. Purchase, Redemption and Pricing of Purchase and Redemption
Securities Being Offered ...............................of Shares
Item 20. Tax Status ................................................Taxes
Item 21. Underwriter ...............................................Not Applicable
Item 22. Calculations of Performance Data ..........................Calculation of Performance
Related Information
Item 23. Financial Statements ......................................Not Applicable
</TABLE>
(iv)
<PAGE>
WRL SERIES FUND, INC.
Meridian/INVESCO Global Sector Portfolio
Meridian/INVESCO US Sector Portfolio
Meridian/INVESCO Foreign Sector Portfolio
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A LOCATION IN
ITEM NUMBER PROSPECTUS
- ----------- -----------
<S> <C>
PART A.
Item 1. Cover Page ................................................Cover Page
Item 2. Synopsis ..................................................Not Applicable
Item 3. Financial Highlights ......................................Not Applicable
Item 4. General Description of Registrant .........................The Meridian/INVESCO Global Sector
Portfolio, Meridian/INVESCO US
Sector Portfolio and
Meridian/INVESCO Foreign Sector
Portfolio and The Fund; The Fund and
its Shares
Item 5. Management of the Fund ....................................Management of the Fund
Item 5A. Management's Discussion of
Fund Performance ..........................................Not Applicable
Item 6. Capital Stock and other Securities ........................The Fund and its Shares
Item 7. Purchase of Securities Being Offered ......................Purchase and Redemption
of Shares; Valuation of
Shares
Item 8. Redemption or Repurchase ..................................Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings .................................Not Applicable
<CAPTION>
LOCATION IN STATEMENT
OF ADDITIONAL INFORMATION
-------------------------
PART B.
Item 10. Cover Page ................................................Cover Page
Item 11. Table of Contents .........................................Table of Contents
Item 12. General Information and History ...........................Not Applicable
Item 13. Investment Objective and Policies .........................Investment Objective and
Policies
</TABLE>
(v)
<PAGE>
WRL SERIES FUND, INC.
Meridian/INVESCO Global Sector Portfolio
Meridian/INVESCO US Sector Portfolio
Meridian/INVESCO Foreign Sector Portfolio
Cross Reference Sheet (Continued)
<TABLE>
<CAPTION>
LOCATION IN
STATEMENT OF
FORM N-1A ADDITIONAL
ITEM NUMBER INFORMATION
- ----------- ------------
<S> <C>
Item 14. Management of the Registrant .............................Management of the Fund
Item 15. Control Persons and Principal Purchase and Redemption
Holders of Securities ....................................of Shares
Item 16. Investment Advisory and Other
Services .................................................Management of the Fund
Item 17. Brokerage Allocation and Portfolio Transactions
Other Practices ..........................................and Brokerage
Item 18. Capital Stock and Other Securities .......................Not Applicable
Item 19. Purchase, Redemption and Pricing of Purchase and Redemption
Securities Being Offered .................................of Shares
Item 20. Tax Status ...............................................Taxes
Item 21. Underwriter ..............................................Not Applicable
Item 22. Calculations of Performance Data .........................Calculation of Performance
Related Information
Item 23. Financial Statements .....................................Not Applicable
</TABLE>
(vi)
<PAGE>
PROSPECTUS
WRL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
201 Highland Avenue
Largo, Florida 34640
[WRL LOGO] Telephone: (800) 851-9777 [J.P. MORGAN LOGO]
(813) 585-6565
WRL Series Fund, Inc. (the "Fund") is a diversified, open-end management
investment company consisting of separate series or investment portfolios.
This Prospectus pertains only to the Money Market Portfolio of the Fund (the
"Portfolio").
The investment objective of the Portfolio is to obtain maximum current
income consistent with preservation of principal and maintenance of
liquidity. There can be, of course, no assurance that the Portfolio will
achieve its objective.
Shares of the Fund are sold only to insurance company separate accounts
(the "Separate Accounts") of Western Reserve Life Assurance Co. of Ohio
("WRL"), PFL Life Insurance Company ("PFL"), and AUSA Life Insurance Company,
Inc. ("AUSA") (WRL, PFL, and AUSA together, the "Life Companies") to fund the
benefits under certain individual variable life insurance policies (the
"Policies") and individual and group variable annuity contracts (the "Annuity
Contracts"). The Life Companies are affiliates. The Separate Accounts, which
may or may not be registered with the Securities and Exchange Commission,
invest in shares of one or more of the portfolios in accordance with the
allocation instructions received from holders of the Policies and the Annuity
Contracts (collectively, the "Policyholders"). Such allocation rights are
further described in the prospectuses or disclosure documents for the
Policies and the Annuity Contracts.
WRL and J.P. Morgan Investment Management Inc. serve as the investment
adviser ("Investment Adviser") and the sub-adviser ("Sub-Adviser"),
respectively, to the Portfolio. See "The Investment Adviser" and "The
Sub-Adviser."
This Prospectus sets forth concisely the information about the Portfolio
that prospective investors ought to know before investing. Investors should
read this Prospectus and retain it for future reference.
Additional information about the Fund, the Portfolio and other portfolios
of the Fund has been filed with the Securities and Exchange Commission and is
available upon request without charge by calling or writing the Fund. The
Statement of Additional Information pertaining to the Portfolio bears the
same date as this Prospectus and is incorporated by reference into this
Prospectus in its entirety.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, A BANK OR OTHER FINANCIAL INSTITUTION, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Prospectus Dated May 1, 1996
<PAGE>
WRL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
201 Highland Avenue
Largo, FL 34640
Telephone (813) 585-6565
(800) 851-9777
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FINANCIAL HIGHLIGHTS ..................... 1
THE MONEY MARKET PORTFOLIO AND THE FUND . 2
MANAGEMENT OF THE FUND ................... 4
DIVIDENDS AND DISTRIBUTIONS .............. 5
TAXES .................................... 5
PURCHASE AND REDEMPTION OF SHARES ....... 6
VALUATION OF SHARES ...................... 6
THE FUND AND ITS SHARES .................. 6
PERFORMANCE INFORMATION .................. 7
GENERAL INFORMATION ...................... 7
</TABLE>
i
<PAGE>
FINANCIAL HIGHLIGHTS
The information contained in the tables below for a share of capital stock
outstanding of the Portfolio, for the years ended December 31, 1995, 1994,
1993, 1992, 1991, 1990, 1989, 1988 and 1987 and for the period October 2,
1986 through December 31, 1986 is based on the Portfolio's audited financial
statements incorporated by reference in the Statement of Additional
Information. The per share data and ratios for the period October 2, 1986,
through December 31, 1986 are not annualized amounts or percentages. The
Fund's Annual Report contains additional performance information for the
Portfolio. A copy of the Annual Report may be obtained without charge upon
request.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME ................... .04 .02 .03 .05 .07 .07
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) ........ .00 .00 .00 .00 .00 .00
---------- ---------- ---------- ---------- ---------- ---------- ---------
TOTAL FROM INVESTMENT OPERATIONS ..... .04 .02 .03 .05 .07 .07
---------- ---------- ---------- ---------- ---------- ---------- ---------
LESS DISTRIBUTIONS
DIVIDENDS (FROM NET INVESTMENT INCOME) . (.04) (.02) (.03) (.05) (.07) (.07)
DISTRIBUTIONS (FROM CAPITAL GAINS) ..... .00 .00 .00 .00 .00 .00
---------- ---------- ---------- ---------- ---------- ---------- ---------
TOTAL DISTRIBUTIONS ................... (.04) (.02) (.03) (.05) (.07) (.07)
---------- ---------- ---------- ---------- ---------- ---------- ---------
NET ASSET VALUE, END OF PERIOD ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== =========
TOTAL RETURN* ............................. 3.44% 2.45% 3.03% 5.25% 7.09% 8.09%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) .. $93,081 $45,782 $45,600 $33,695 $24,931 $6,233
RATIO OF EXPENSES TO AVERAGE NET ASSETS** .60% .66% .70% .70% .66% .70%
RATIO OF NET INCOME TO AVERAGE NET ASSETS 3.59% 2.41% 2.99% 5.07% 7.09% 7.82%
PORTFOLIO TURNOVER RATE ................... N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
---------------------- 10/2/86 TO
1988 1987 12/31/86
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..... $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME ................... .05 .04 .01
NET GAINS OR LOSSES ON SECURITIES
(BOTH REALIZED AND UNREALIZED) ........ .00 .00 .00
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ..... .05 .04 .01
------ ------ ------
LESS DISTRIBUTIONS
DIVIDENDS (FROM NET INVESTMENT INCOME). . (.05) (.04) (.01)
DISTRIBUTIONS (FROM CAPITAL GAINS) ..... .00 .00 .00
------ ------ ------
TOTAL DISTRIBUTIONS ................... (.05) (.04) (.01)
------ ------ ------
NET ASSET VALUE, END OF PERIOD ............ $ 1.00 $ 1.00 $ 1.00
====== ====== ======
TOTAL RETURN* ............................. 5.77% 4.56% 1.14%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) .. $5,114 $ 582 $ 101
RATIO OF EXPENSES TO AVERAGE NET ASSETS** .70% .89% .12%
RATIO OF NET INCOME TO AVERAGE NET ASSETS 6.26% 4.83% 1.14%
PORTFOLIO TURNOVER RATE ................... N/A N/A N/A
</TABLE>
* The total return shown for 1986 is for the three month period ended December
31, 1986 and is not annualized. The total return of the Portfolio reflects
the advisory fee and all other Portfolio expenses and includes reinvestment
of dividends and capital gains; it does not reflect the charges against the
corresponding sub-accounts or the charges and deductions under the applicable
Policy or Annuity Contract.
** Ratio is not annualized and is net of advisory fee waiver for the periods
ended December 31, 1986, 1987, 1988 and 1989, for which periods the
annualized ratio of expenses to average net assets would have been 6.33%,
1.63%, 1.16% and 0.84%, respectively, absent the advisory fee waiver by
Western Reserve Life.
1
<PAGE>
THE MONEY MARKET PORTFOLIO
AND THE FUND
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Portfolio is a series of the Fund. The Fund consists of several
series, or separate investment portfolios, which offer shares for investment
by the Separate Accounts. This Prospectus describes only the Portfolio.
A particular portfolio of the Fund may not be available under the Policy
or Annuity Contract you have chosen or may not be available in your state due
to certain state insurance law considerations. The prospectus or disclosure
document for the particular Policy or Annuity Contract you have chosen will
indicate the portfolios which are generally available under the applicable
Policy or Annuity Contract and should be read in conjunction with this
Prospectus.
INVESTMENT OBJECTIVE
The Portfolio's investment objective and, unless otherwise noted, its
investment policies and techniques, may be changed by the Board of Directors
of the Fund without shareholder or Policyholder approval. A change in the
investment objective or policies of the Portfolio may result in the Portfolio
having an investment objective or policies different from that which a
Policyholder deemed appropriate at the time of investment.
The objective of the Portfolio is to obtain maximum current income
consistent with preservation of principal and maintenance of liquidity. The
Portfolio seeks to maintain a constant net asset value of $1.00 per share,
although there can be no assurance that this will be achieved. The Portfolio
uses the amortized cost method of securities valuation.
The Portfolio seeks to achieve its objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days by
investing in the following U.S. dollar-denominated securities which have
effective maturities of not more than 13 months and which, in accordance with
guidelines adopted by the Board of Directors, are determined to present
minimal credit risks. (See Appendix A of the Statement of Additional
Information for a more detailed description of certain of these instruments.)
Such instruments may include the following:
1. Obligations issued or guaranteed by the U.S. Government and backed by the
full faith and credit of the United States. These securities include U.S.
Treasury securities, obligations of the Government National Mortgage
Association, the Farmers Home Administration and the Export Import Bank.
The Portfolio may also invest in obligations issued or guaranteed by U.S.
Government agencies or instrumentalities where the Portfolio must look
principally to the issuing or guaranteeing agency for ultimate repayment.
Some examples of agencies or instrumentalities issuing these obligations
are the Federal Farm Credit System, the Federal Home Loan Banks and the
Federal National Mortgage Association.
2. Domestic and certain foreign bank obligations including time deposits,
certificates of deposit, bankers' acceptances and other bank obligations.
The Portfolio may invest in high quality U.S. dollar-denominated
obligations of (i) banks, savings and loan associations and savings banks
which have more than $2 billion in total assets and are organized under
U.S. Federal or state law, (ii) foreign branches of these banks or of
foreign banks of equivalent size (Euros) and (iii) U.S. branches or
subsidiaries of foreign banks of equivalent size (Yankees). The Portfolio
may also invest in obligations of international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).
These obligations may be supported by appropriated but unpaid commitments
of their member countries, and there is no assurance these commitments
will be undertaken or met in the future.
3. Asset-backed securities, which directly or indirectly represent a
participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets such as motor vehicle or credit
card receivables. Asset-backed securities provide periodic payments that
generally consist of both interest and principal payments. Consequently,
the life of an asset-backed security varies with the prepayment experience
of the underlying debt instruments.
4. Commercial paper, including variable amount master demand notes (see
Appendix A of the Statement of Additional Information), and corporate
bonds issued by U.S. corporations. The Portfolio may also invest in bonds
and commercial paper of foreign issuers if the obligation is U.S.
dollar-denominated and is not subject to foreign withholding tax.
5. Repurchase and reverse repurchase agreements. (See "Certain Portfolio
Policies and Techniques - Repurchase and Reverse Repurchase Agreements",
below.)
The Portfolio will limit its investments to those securities which, in
accordance with guidelines adopted by the Board of Directors of the Fund,
present minimal credit risks. In addition, the Portfolio will limit its
investment in the securities (other than U.S. Government securities) of any
one issuer to no more than 5% of the Portfolio's total assets, measured at
the time of purchase, except at any time for an investment in a single issuer
held for not more than three business days. Also, the Portfolio will not
purchase any security (other than a U.S. Government security) unless (i) it
is rated with the highest rating assigned to short-term debt securities by at
least two nationally recognized statistical rating organizations ("NRSROs"),
such as Moody's Investors Service, Inc. and Standard & Poor's Corporation,
(ii) it is rated by only one NRSRO, and is rated by that NRSRO with the
highest such rating, or (iii) it is not rated and is determined to be of
comparable quality as determined by the Board of
2
<PAGE>
Directors of the Fund. The Board of Directors of the Fund must approve or
ratify the acquisition of any unrated security or a security rated by only
one NRSRO. For a more detailed discussion of applicable quality requirements,
see "Investment Objective and Policies" in the Statement of Additional
Information. These standards must be satisfied at the time an investment is
made. If the quality of the investment later declines below the quality
required for purchase, the Portfolio shall dispose of the investment in
accordance with procedures adopted by the Board of Directors, except in
certain circumstances where there is a finding by the Fund's Directors that
disposing of the investment would not be in the Portfolio's best interest.
For a description of NRSRO ratings, see Appendix B to the Statement of
Additional Information.
The Portfolio may also invest in securities on a when-issued or delayed
delivery basis and in certain privately-placed securities. The Portfolio may
also loan its portfolio securities. For a discussion of these investments and
for more information on foreign investments, see "Certain Portfolio Policies
and Techniques" below.
The Portfolio operates under a rule of the Securities and Exchange
Commission ("SEC") that permits it, subject to certain conditions, to use the
amortized cost method of valuing its shares. See "Quality and Diversification
Requirements" and "Purchase and Redemption of Shares -Net Asset Valuation" in
the Statement of Additional Information for a description of certain of these
conditions.
CERTAIN PORTFOLIO POLICIES AND TECHNIQUES
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain U.S.
dollar-denominated foreign securities including, but not limited to certain
foreign bank obligations and American Depositary Receipts. See "Foreign
Investments" in the Statement of Additional Information. Investment in
securities of foreign issuers and in obligations of foreign branches of
domestic banks involves somewhat different investment risks from those
affecting securities of U.S. domestic issuers. There may be limited publicly
available information with respect to foreign issuers, and foreign issuers
are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic
companies. The Portfolio may only invest in foreign securities that are not
subject to foreign withholding tax.
Investors should realize that the value of the Portfolio's investments in
foreign securities may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds or assets,
or imposition of (or change in) exchange control or tax regulations in those
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Portfolio's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether
favorably or unfavorably, in areas such as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position; it may also be more difficult to obtain and
enforce a judgment against a foreign issuer. Any foreign investments made by
the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
BANK OBLIGATIONS. Since the Portfolio may invest (up to 100%) of its
assets in bank obligations, an investment in the Portfolio should be made
with an understanding of the characteristics of the banking industry and the
risks which such an investment may entail. Banks are subject to extensive
governmental regulations which may limit both the amounts and types of loans
and other financial commitments which may be made and interest rates and fees
which may be charged. The profitability of this industry is largely dependent
upon the availability and cost of capital funds for the purpose of financing
lending operations under prevailing money market conditions. Also, general
economic conditions play an important part in the operations of this
industry, and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its
obligations.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may invest in
repurchase and reverse repurchase agreements. A repurchase agreement involves
the purchase of a security by the Portfolio and a simultaneous agreement
(generally by a bank or dealer) to repurchase that security back from the
Portfolio at a specified price and date or upon demand. This technique offers
a method of earning income on idle cash. The repurchase agreement is
effectively secured by the value of the underlying security. A risk
associated with repurchase agreements is the failure of the seller to
repurchase the securities as agreed, which may cause the Portfolio to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. In the event of bankruptcy or insolvency of
the seller, the Portfolio may encounter delays and incur costs in liquidating
the underlying security. Repurchase agreements not terminable within seven
days are considered illiquid securities and are subject to the limit stated
below.
When the Portfolio invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in
return for cash, and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests or for other temporary or emergency
purposes without the necessity of selling portfolio securities, or to earn
additional income on portfolio securities such as U.S. Treasury bills and
notes. While a reverse repurchase agreement is outstanding, the Portfolio
will maintain cash and other liquid assets in a segregated custodial account
to cover its obligation under the agreement. Reverse repurchase agreements
are considered a form of borrowing by the Portfolio for purposes of the 1940
Act and, therefore, a form of leverage. Leverage may cause any gains or
losses of the Portfolio to be magnified.
3
<PAGE>
ILLIQUID SECURITIES. The Portfolio may invest up to 10% of the market
value of its net assets in securities that are considered illiquid because of
the absence of a readily available market or due to legal or contractual
restrictions on resale ("restricted securities"). However, certain restricted
securities that are not registered for sale to the general public but that
can be resold to institutional investors ("Rule 144A Securities") may not be
considered illiquid, provided that a dealer or institutional trading market
exists. The institutional trading market is relatively new and liquidity of
the Portfolio's investments could be impaired if such trading does not
further develop or declines. The Sub-Adviser will determine the liquidity of
Rule 144A Securities under guidelines approved by the Board of Directors of
the Fund.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a
"when-issued" basis. However, the Portfolio does not intend to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Portfolio's total assets less liabilities other than the obligations
created by these commitments. Because actual payment for and delivery of
when-issued securities generally take place 15 to 45 days after the purchase
date, the Portfolio bears the risk that interest rates and the security's
value at the time of delivery may have changed prior to delivery of the
when-issued security. While a commitment is outstanding, the Portfolio
maintains with its custodian a segregated account with high-grade liquid
securities in an amount at least equal to these commitments.
LENDING AND BORROWING. The Portfolio may lend its portfolio securities for
the purpose of realizing additional income. Such loans must be continuously
secured by liquid assets at least equal to the market value of the securities
loaned and may not together with any other outstanding loans exceed 25% of
the Portfolio's total assets. Securities lending may involve some credit risk
to the Portfolio if the borrower defaults and the Portfolio is delayed or
prevented from recovering the collateral or is otherwise required to cover a
transaction in the security loaned. The Portfolio does not presently intend
to lend securities in excess of 5% of its total assets.
The Portfolio may borrow money only for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the
value of the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that exceed 25% of the
value of the Portfolio's total assets by reason of a decline in net assets
will be reduced within three business days to the extent necessary to comply
with the 25% restriction. To secure borrowings, the Portfolio may not
mortgage or pledge its securities in amounts that exceed 15% of its net
assets at the time the borrowing is made.
OTHER INVESTMENT POLICIES AND RESTRICTIONS
The Portfolio is subject to certain other investment policies and
restrictions which are described in the Statement of Additional Information,
some of which are fundamental policies of the Portfolio and as such may not
be changed without the approval of the shareholders of the Portfolio.
PORTFOLIO TURNOVER
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities (excluding
certain short-term securities) for a year and dividing it by the monthly
average of the market value of such securities during the year. The Portfolio
does not have a stated portfolio turnover rate, as securities of the type in
which it invests are excluded in the usual calculation of that rate.
MANAGEMENT OF THE FUND
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. There are currently five Directors, three
of whom are not "interested persons" of the Fund within the meaning of that
term under the 1940 Act. The Board meets regularly four times each year and
at other times as necessary. By virtue of the functions performed by WRL as
Investment Adviser and J.P. Morgan Investment Management Inc. as Sub-Adviser,
the Fund requires no employees other than its executive officers, none of
whom devotes full time to the affairs of the Fund. These officers are
employees of WRL and receive no compensation from the Fund. The Statement of
Additional Information contains the names of and general background
information regarding each Director and executive officer of the Fund.
THE INVESTMENT ADVISER
WRL, a life insurance company located at 201 Highland Avenue, Largo,
Florida 34640, serves as the Fund's Investment Adviser. The Investment
Adviser is a wholly-owned subsidiary of First AUSA Life Insurance Company
("First AUSA"), a stock life insurance company which is wholly-owned by
AEGON USA, Inc. ("AEGON"). AEGON is a financial services holding company
whose primary emphasis is on life and health insurance and annuity and
investment products. AEGON is a wholly-owned indirect subsidiary of AEGON nv,
a Netherlands corporation, which is a publicly traded international insurance
group. The Investment Adviser has served as the investment adviser to the
Fund since its inception in 1986.
Subject to the supervision and direction of the Fund's Board of Directors,
the Investment Adviser is responsible for managing the Portfolio in
accordance with the Portfolio's stated investment objective and policies. As
compensation for its services to the Portfolio, the Investment Adviser
receives monthly compensation at the annual rate of 0.40% of the average
daily net assets of the Portfolio. Prior to May 1, 1996, the Investment
Adviser received monthly compensation for its services at the annual rate of
0.50% of the average daily net assets of the Portfolio.
The Investment Adviser is responsible for providing investment advisory
services and furnishes or makes available to the Portfolio the services of
executive and management personnel to supervise the performance of all
administrative, recordkeeping, regulatory reporting and compliance services,
including the supervision of the Portfolio's custodian. The Investment
Adviser also assists the Portfolio in maintaining
4
<PAGE>
communications and relations with the shareholders of the Portfolio,
including assisting in the preparation of reports to shareholders. The
Investment Adviser may incur and will pay certain additional expenses,
including legal and accounting fees, in connection with the formation and
maintenance of the Portfolio, including the preparation and filing, when
appropriate, of all documents, including registration statements, post-
effective amendments and any qualification under state securities laws
required in connection with the Portfolio's offering of shares. The
Investment Adviser will also pay all reasonable compensation and related
expenses of the officers and Directors of the Fund, except for such Directors
who are not interested persons (as that term is defined in the 1940 Act) of
the Investment Adviser, and the rental of offices. The Portfolio pays all
other expenses incurred in its operations, including general administrative
expenses. Accounting services are provided for the Portfolio by the
Investment Adviser. The Investment Adviser has voluntarily undertaken, until
at least April 30, 1996, to pay expenses on behalf of the Portfolio to the
extent normal operating expenses (including investment advisory fees but
excluding interest, taxes, brokerage fees, commissions and extraordinary
charges) exceed 0.70% as a percentage of the Portfolio's average daily net
assets.
THE SUB-ADVISER
J.P. Morgan Investment Management Inc., located at 522 Fifth Avenue, New
York, New York 10036, serves as the Sub-Adviser to the Portfolio. Keith M.
Schappert is the President and Chief Executive Officer of the Sub-Adviser.
The Sub-Adviser is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated. The Sub-Adviser provides investment management and related
services for corporate, public, and union employee benefit funds,
foundations, endowments, insurance companies and government agencies.
The Sub-Adviser provides investment advisory assistance and portfolio
management advice to the Investment Adviser for the Portfolio. Subject to
review and supervision by the Investment Adviser and the Board of Directors
of the Fund, the Sub-Adviser is responsible for the actual management of the
Portfolio and for making decisions to buy, sell or hold any particular
security, and it places orders to buy or sell securities on behalf of the
Portfolio. The Sub-Adviser also provides statistical and analytical
information and reports as may reasonably be required by the Investment
Adviser. The Sub-Adviser bears all of its expenses in connection with the
performance of its services, such as compensating and furnishing office space
for its officers and employees connected with investment and economic
research, trading and investment management of the Portfolio.
For its services, the Sub-Adviser receives monthly compensation from the
Investment Adviser at the annual rate of 0.15% of the average daily net
assets of the Portfolio. Prior to May 1, 1996, the Portfolio's previous
Sub-Adviser, Janus Capital Corporation, received for its services 0.25% of
the average daily net assets of the Portfolio.
The Sub-Adviser is also responsible for selecting the broker-dealers who
execute the portfolio transactions for the Portfolio. The Sub-Adviser is
authorized to consider sales of the Policies or Annuity Contracts described
in the accompanying prospectus by a broker-dealer as a factor in the
selection of broker-dealers to execute portfolio transactions. In placing
portfolio business with all dealers, the Sub-Adviser seeks best execution of
each transaction and all brokerage placement must be consistent with the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc. In addition, the Sub-Adviser may occasionally place portfolio business
with broker-dealers affiliated with the Investment Adviser or the
Sub-Adviser; in such event, the Sub-Adviser always will seek best execution.
PERSONAL SECURITIES TRANSACTIONS
The Fund permits "Access Persons" as defined by Rule 17j-1 under the 1940
Act to engage in personal securities transactions, subject to the terms of
the Code of Ethics and Insider Trading Policy (the "Ethics Policy") that has
been adopted by the Board of Directors of the Fund pursuant to Rule 17j-1 and
other applicable laws. Pursuant to the Ethics Policy, Access Persons
generally must preclear all personal securities transactions prior to
trading, and are subject to certain prohibitions on personal trading.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio intends to distribute substantially all of the net
investment income, if any. Dividends from investment income of the Portfolio
normally are declared daily and reinvested monthly in additional shares of
the Portfolio at net asset value. Distributions of net realized capital gains
from security transactions normally are declared and paid in additional
shares of the Portfolio at the end of the fiscal year.
TAXES
The Portfolio has qualified and expects to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended ("Code"). As such, the Portfolio is not subject to
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income and net short-term capital
gain, if any) and any net capital gain (the excess of net long-term capital
gain over net short-term capital loss) that it distributes to its
shareholders. It is the Portfolio's intention to distribute all such income
and gains.
Shares of the Portfolio are offered only to the Separate Accounts (which
are insurance company separate accounts that fund the Policies and the
Annuity Contracts). Under the Code, no tax is imposed on an insurance company
with respect to income of a qualifying separate account properly allocable to
the value of eligible variable annuity or variable life insurance contracts.
For a discussion of the taxation of life insurance companies and the Separate
Accounts, as well as the tax treatment of the Policies and Annuity Contracts
and the holders thereof, see "Federal Tax Matters" included in the
5
<PAGE>
respective prospectuses for the Policies and the Annuity Contracts.
The Portfolio intends to comply with the diversification requirements
imposed by section 817(h) of the Code and the regulations thereunder. These
requirements are in addition to the diversification requirements imposed on
the Portfolio by Subchapter M and the 1940 Act. These requirements place
certain limitations on the assets of each separate account that may be
invested in securities of a single issuer, and, because section 817(h) and
the regulations thereunder treat the Portfolio's assets as assets of the
related separate account, these limitations also apply to the Portfolio's
assets that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor"
described below, as of the end of each calendar quarter or within 30 days
thereafter no more than 55% of the Portfolio's total assets may be
represented by any one investment, no more than 70% by any two investments,
no more than 80% by any three investments, and no more than 90% by any four
investments.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of section
817(h), all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are treated as a
single investment. In addition, each U.S. Government agency or
instrumentality is treated as a separate issuer, while a particular foreign
government and its agencies, instrumentalities, and political subdivisions
all will be considered the same issuer. Failure of the Portfolio to satisfy
the section 817(h) requirements would result in taxation of the Separate
Accounts, the insurance companies, the Policies, and the Annuity Contracts,
and tax consequences to the holders thereof, other than as described in the
respective prospectuses for the Policies and the Annuity Contracts.
The foregoing is only a summary of some of the important Federal income
tax considerations generally affecting the Portfolio and its shareholders;
see the Statement of Additional Information for a more detailed discussion.
Prospective investors are urged to consult their tax advisors.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolio are sold and redeemed at their net asset value
next determined after receipt of a purchase order or notice of redemption in
proper form. Shares are sold and redeemed without the imposition of any sales
commission or redemption charge. However, certain sales and other charges may
apply to the Policies and the Annuity Contracts. Such charges are described
in the respective prospectuses for the Policies and the Annuity Contracts.
VALUATION OF SHARES
The Portfolio's net asset value per share is ordinarily determined, once
daily, as of the close of the regular session of business on the New York
Stock Exchange ("Exchange") (usually 4:00 p.m., Eastern time), on each day
the Exchange is open.
The Board of Directors has determined that the most appropriate method for
valuing the securities of the Portfolio is the amortized cost method. Under
this method, the net asset value of Portfolio shares is expected to remain at
a constant $1.00 per share, although there can be no assurance that the
Portfolio will be able to maintain a stable net asset value. (See the
Statement of Additional Information for details concerning the valuation
method, including the conditions under which it may be used.)
THE FUND AND ITS SHARES
The Fund was incorporated under the laws of the State of Maryland on
August 21, 1985 and is registered with the SEC as a diversified, open-end,
management investment company.
The Fund offers its shares only for purchase by the Separate Accounts of
Life Companies to fund benefits under variable life insurance or variable
annuity contracts issued by the Life Companies. Because Fund shares are sold
to Separate Accounts established to receive and invest premiums received
under variable life insurance policies and purchase payments received under
the variable annuity contracts, it is conceivable that, in the future, it may
become disadvantageous for variable life insurance Separate Accounts and
variable annuity Separate Accounts to invest in the Fund simultaneously.
Neither the Life Companies nor the Fund currently foresees any such
disadvantages or conflicts, either to variable life insurance policyowners or
to variable annuity contractowners. After being notified by one or more of
the Life Companies of a potential or existing conflict, the Fund's Board of
Directors will determine if a material conflict exists and what action, if
any, should be taken in response thereto. Such action could include the sale
of Fund shares by one or more of the Separate Accounts, which could have
adverse consequences. Material conflicts could result from, for example, (1)
changes in state insurance laws, (2) changes in Federal income tax laws, or
(3) differences in voting instructions between those given by variable life
insurance policyowners and those given by variable annuity contractowners. If
the Board of Directors were to conclude that separate funds should be
established for variable life and variable annuity separate accounts, the
affected Life Companies will bear the attendant expenses, but variable life
insurance policyowners and variable annuity contractowners would no longer
have the economies of scale typically resulting from a larger combined fund.
The Fund offers a separate class of common stock for each portfolio. All
shares of the Portfolio and of each of the other portfolios have equal voting
rights, except that only shares of a particular portfolio will be entitled to
vote on matters concerning only that portfolio. Each issued and outstanding
share of the Portfolio is entitled to one vote and to participate equally in
dividends and distributions declared by the Portfolio and, upon liquidation
or dissolution, to participate equally in the net assets of the Portfolio
remaining after
6
<PAGE>
satisfaction of outstanding liabilities. The shares of the Portfolio, when
issued, will be fully paid and nonassessable, have no preference, preemptive,
conversion, exchange or similar rights, and will be freely transferable.
Shares do not have cumulative voting rights and the holders of more than 50%
of the shares of the Fund voting for the election of directors can elect all
of the directors of the Fund if they choose to do so, and in such event
holders of the remaining shares would not be able to elect any directors.
Only the Separate Accounts of the Life Companies may hold shares of the
Fund and are entitled to exercise the rights directly as described above. If
and to the extent required by law, Life Companies will vote the Fund's shares
held in the Separate Accounts, including Fund shares which are not
attributable to Policyholders, at meetings of the Fund in accordance with
instructions received from Policyholders having voting interests in the
corresponding sub-accounts of the Separate Accounts. Except as required by
the 1940 Act, the Fund does not hold regular or special shareholder meetings.
If the 1940 Act or any regulation thereunder should be amended, or if present
interpretation thereof should change, and as a result it is determined that
the Life Companies are permitted to vote Fund shares in their own right, they
may elect to do so. The rights of Policyholders are described in more detail
in the prospectuses or disclosure documents for the Policies and the Annuity
Contracts, respectively.
PERFORMANCE INFORMATION
The Portfolio may, from time to time, include quotations of its total
return or yield in connection with the total return for any Separate Account
in advertisements, sales literature or reports to Policyholders or to
prospective investors. Total return and yield quotations reflect only the
performance of a hypothetical investment in the Portfolio during the
particular time period shown as calculated based on the historical
performance of the Portfolio during that period. Such quotations do not in
any way indicate or project future performance. Quotations of total return
and yield will not reflect charges or deductions against the Separate
Accounts or charges and deductions against the Policies or the Annuity
Contracts. Where relevant, the prospectuses for the Policies and the Annuity
Contracts contain additional performance information.
The total return of the Portfolio refers to the average annual percentage
change in value of an investment in the Portfolio held for various periods of
time, including, but not limited to, one year, five years, ten years and
since the Portfolio began operations, as of a stated ending date. When the
Portfolio has been in operation for these periods, the total return for such
periods will be provided if performance information is quoted. Total return
quotations for the Portfolio are expressed as average annual compound rates
of return for each of the periods quoted, reflect the deduction of a
proportionate share of the Portfolio's investment advisory fees and Portfolio
expenses, and assume that all dividends and capital gains distributions
during the period are reinvested in the Portfolio when made.
The Portfolio may, from time to time, disclose in advertisements, sales
literature and reports to Policyholders or to prospective investors, total
returns for the Portfolio for periods in addition to those required to be
presented, or disclose other nonstandardized data such as cumulative total
returns, actual year-by-year returns, or any combination thereof.
The Portfolio may also, from time to time, compare performance information
for the Portfolio in advertisements, sales literature and reports to
Policyholders or to prospective investors to: (1) the Standard & Poor's Index
of 500 Common Stocks, the Dow Jones Industrial Average or other widely
recognized indices; (2) other mutual funds whose performance is reported by
Lipper Analytical Services, Inc., ("Lipper"), Variable Annuity Research &
Data Service ("VARDS") and Morningstar, Inc. ("Morningstar") or reported by
other services, companies, individuals or other industry or financial
publications of general interest, such as Forbes, Money, The Wall Street
Journal, Business Week, Barron's, Kiplinger's Personal Finance and Fortune,
which rank and/or rate mutual funds by overall performance or other criteria;
(3) an appropriate industry average such as Donoghue's Money Fund Average;
and (4) the Consumer Price Index. Lipper, VARDS and Morningstar are widely
quoted independent research firms which rank mutual funds according to
overall performance, investment objective, and assets. Unmanaged indices may
assume the reinvestment of dividends but usually do not reflect any
"deduction" for the expense of operating or managing a fund. In connection
with a ranking, the Portfolio will also provide additional information with
respect to the ranking, including the particular category to which it
relates, the number of funds in the category, the period and criteria on
which the ranking is based, and the effect of fee waivers and/or expense
reimbursements.
The Portfolio yield quotation refers to the income generated by a
hypothetical investment in the Portfolio over a specified seven-day period if
that level of income were generated for 52 consecutive weeks and expressed as
an annual percentage rate of return. The quotation of compound effective
yield for the Portfolio refers to the same calculation adjusted to reflect
the compounding effect of earnings on reinvested dividends. For the seven-day
period ended December 31, 1995, the Portfolio yield was % and was
equivalent to a compound effective yield of %.
(See the Statement of Additional Information for more information about
the Portfolio's performance.)
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The fiscal year of the Portfolio ends on December 31 of each year. The
Fund will send to the Portfolio's Policyholders, at least semi-annually,
reports showing the Portfolio's compositions and other information. An annual
report, containing financial statements audited by the Fund's independent
accountants, will be sent to Policyholders each year.
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<PAGE>
CUSTODIAN AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts
02111 acts as Custodian and Dividend Disbursing Agent of the Portfolio's
assets.
ADDITIONAL INFORMATION
The telephone number or the address of the Fund appearing on the first
page of this Prospectus should be used for requests for additional
information.
8
<PAGE>
WRL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
OFFICE OF THE FUND:
WRL Series Fund, Inc.
201 Highland Avenue
Largo, Florida 34640
(800) 851-9777
(813) 585-6565
INVESTMENT ADVISER:
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, FL 34640
SUB-ADVISER:
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
CUSTODIAN:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
INDEPENDENT ACCOUNTANTS:
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR
AN OFFER TO ANY PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES
OR ANY COUNTRY WHERE SUCH OFFER WOULD BE UNLAWFUL.
WRL00078-05/96
9
<PAGE>
WRL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Prospectus for the
Money Market Portfolio of the WRL Series Fund, Inc. (the "Fund"). A copy of
the Prospectus may be obtained from the Fund by writing the Fund at 201
Highland Avenue, Largo, Florida 34640 or by calling the Fund at (800)
851-9777.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Investment Adviser
J.P. MORGAN INVESTMENT MANAGEMENT INC.
Sub-Adviser
The date of the Prospectus to which this Statement of Additional
Information relates and the date of this Statement of Additional Information
is May 1, 1996.
WRL00095 - 05/96
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE IN THIS STATEMENT CROSS-REFERENCE
OF ADDITIONAL INFORMATION TO PAGE IN PROSPECTUS
------------------------------ --------------------------
<S> <C> <C>
Investment Objective and Policies 1 2
Investment Restrictions 1 5
Foreign Investments 2 3
Repurchase and Reverse Repurchase
Agreements 2 3
Lending of Portfolio Securities 3 5
Quality and Diversification Requirements 3 3
Management of the Fund 4 5
Directors and Officers 4 5
The Investment Adviser 5 5
The Sub-Adviser 7 6
Portfolio Transactions and Brokerage 7 6
Portfolio Turnover 7 5
Placement of Portfolio Brokerage 7 6
Purchase and Redemption of Shares 9 8
Offering of the Shares and Determination of
Offering Price 9 8
Net Asset Valuation 10 8
Investment Experience Information 10 8
Calculation of Performance Related Information 10 9
Total Return 10 9
Total Return 11 9
Yield Quotations 11 10
Taxes 12 7
Capital Stock of the Fund 13 8
Registration Statement 13 N/A
Financial Statements 13 10
Appendix A - Description of Portfolio Securities A-1 3
Appendix B - Description of Selected Corporate Bond
and Commercial Paper Ratings B-1 3
</TABLE>
i
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Money Market Portfolio (the "Portfolio")
of the Fund is described in the Portfolio's Prospectus. Shares of the
Portfolio are sold only to the insurance company separate accounts of Western
Reserve Life Assurance Co. of Ohio ("WRL") and to separate accounts of
certain of its affiliated life insurance companies (collectively, the
"Separate Accounts") to fund the benefits under certain variable life
insurance policies (the "Policies") and variable annuity contracts (the
"Annuity Contracts").
As indicated in the Prospectus, the Portfolio's investment objective and,
unless otherwise noted, its investment policies and techniques may be changed
by the Board of Directors of the Fund without approval of shareholders or
holders of the Policies or of the Annuity Contracts (collectively,
"Policyholders"). A change in the investment objective or policies of the
Portfolio may result in the Portfolio having an investment objective or
policies different from those which a Policyholder deemed appropriate at the
time of investment.
INVESTMENT RESTRICTIONS
As indicated in the Prospectus, the Portfolio is subject to certain
fundamental policies and restrictions which may not be changed without the
approval of the holders of a majority of the outstanding voting shares of the
Portfolio. "Majority" for this purpose and under the Investment Company Act
of 1940, as amended (the "1940 Act") means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares of the Portfolio are represented or (ii) more than 50% of the
outstanding shares of the Portfolio. A complete statement of all such
fundamental policies is set forth below.
The Portfolio may not, as a matter of fundamental policy:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (other than cash items and "Government
securities" as defined in the 1940 Act) if immediately after and as a result
of such purchase (a) the value of the holdings of the Portfolio in the
securities of such issuer exceeds 5% of the value of the Portfolio's total
assets, or (b) the Portfolio owns more than 10% of the outstanding voting
securities of any one class of securities of such issuer;
2. Invest more than 25% of the value of the Portfolio's assets in any
particular industry (other than Government securities or obligations of U.S.
branches of U.S. banks);
3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities;
4. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate (including real estate limited partnerships),
commodities, or commodity contracts or interests in oil, gas or mineral
exploration or development programs or leases. However, the Portfolio may
purchase debt securities or commercial paper issued by companies which invest
in real estate or interests therein, including real estate investment trusts;
5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio; and
6. Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does
not apply to purchases of commercial paper, debt securities or to repurchase
agreements).
Furthermore, the Portfolio has adopted the following non-fundamental
investment restrictions which may be changed by the Board of Directors of the
Fund without shareholder or Policyholder approval:
(A) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net assets, provided that this limitation does not apply to
reverse repurchase agreements or the segregation of assets in connection with
such transactions;
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<PAGE>
(B) The Portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities
sold short;
(C) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the
clearance of transactions;
(D) The Portfolio may borrow money only for temporary or emergency
purposes (not for leveraging or investment) in an amount not exceeding 25% of
the value of the Portfolio's total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that exceed 25% of
the value of the Portfolio's total assets by reason of a decline in net
assets will be reduced within three business days to the extent necessary to
comply with the 25% restriction. This policy shall not prohibit reverse
repurchase agreements or the segregation of assets in connection with such
transactions;
(E) The Portfolio may not invest more than 10% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any securities for
which the Board of Directors or the Sub-Adviser has made a determination of
liquidity, as permitted under the 1940 Act;
(F) The Portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Restrictions (i) and (ii) do not apply
to securities received as dividends, through offers to exchange, or as a
result of reorganization, consolidation, or merger;
(G) The Portfolio may not invest directly in oil, gas or other mineral
development or exploration programs or leases; however, the Portfolio may own
securities of companies engaged in those businesses;
(H) The Portfolio may not invest in companies for the purpose of
exercising control or management; and
(I) The Portfolio may not issue senior securities, except as permitted by
the 1940 Act.
Except with respect to borrowing money, if a percentage limitation set
forth above is complied with at the time of the investment, a subsequent
change in the percentage resulting from any change in value or of the
Portfolio's net assets will not result in a violation of such restriction.
State insurance laws and regulations may impose additional limitations on
borrowing, lending, and the use of options, futures, and other derivative
instruments. In addition, such laws and regulations may require the
Portfolio's investments in foreign securities to meet additional
diversification and other requirements.
FOREIGN INVESTMENTS
The Portfolio may invest in certain U.S. dollar denominated foreign
securities that are not subject to foreign withholding tax at the time of
purchase. Foreign investment may be made directly in securities of foreign
issuers.
For a description of the risks associated with investing in foreign
securities, see "Certain Portfolio Policies and Techniques", in the
Prospectus.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
In a repurchase agreement, the Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon incremental amount that is unrelated to the coupon
rate or maturity of the purchased security. A repurchase agreement involves
the obligation of the seller to pay the agreed upon price, which obligation
is in effect secured by the value (at least equal to the amount of the agreed
upon resale price and marked-to-market daily) of the underlying security. The
Portfolio may
2
<PAGE>
engage in a repurchase agreement with respect to any security in which it is
authorized to invest. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility of
a decline in the market value of the underlying securities, as well as delays
and costs to the Portfolio in connection with bankruptcy proceedings), it is
the policy of the Portfolio to limit repurchase agreements to those parties
whose creditworthiness has been reviewed and found satisfactory by the
Sub-Adviser.
In a reverse repurchase agreement, the Portfolio sells a portfolio
security to another party, such as a bank or broker-dealer, in return for
cash and agrees to repurchase the instrument at a particular price and time.
While a reverse repurchase agreement is outstanding, the Portfolio will
maintain cash and appropriate liquid assets in a segregated custodial account
to cover its obligation under the agreement. The Portfolio will enter into
reverse repurchase agreements only with parties that the Sub-Adviser deems
creditworthy.
LENDING OF PORTFOLIO SECURITIES
The Portfolio may lend its portfolio securities subject to the
restrictions stated in this Statement of Additional Information. Under
applicable regulatory requirements (which are subject to change), the
following conditions apply to securities loans: (a) the loan must be
continuously secured by liquid assets maintained on a current basis in an
amount at least equal to the market value of the securities loaned; (b) the
Portfolio must receive any dividends or interest paid by the issuer on such
securities; (c) the Portfolio must have the right to call the loan and obtain
the securities loaned at any time upon notice of not more than five business
days, including the right to call the loan to permit voting of the
securities; and (d) the Portfolio must receive either interest from the
investment of collateral or a fixed fee from the borrower. Securities loaned
by the Portfolio remain subject to fluctuations in market value. The
Portfolio may pay reasonable finders, custodian and administrative fees in
connection with a loan. Securities lending, as with other extensions of
credit, involves the risk that the borrower may default. Although securities
loans will be fully collateralized at all times, the Portfolio may experience
delays in, or be prevented from, recovering the collateral. During the period
that the Portfolio seeks to enforce its rights against the borrower, the
collateral and the securities loaned remain subject to fluctuations in market
value. The Portfolio may also incur expenses in enforcing its rights. If the
Portfolio has sold a loaned security, it may not be able to settle the sale
of the security and may incur potential liability to the buyer of the
security on loan for its costs to cover the purchase.
QUALITY AND DIVERSIFICATION REQUIREMENTS
In order to maintain a stable net asset value per share, the Portfolio
will (i) limit its investment in the securities (other than U.S. Government
securities) of any one issuer to no more than 5% of its total assets,
measured at the time of purchase, except at any time for an investment in a
single issuer held for not more than three business days; and (ii) limit
investments to securities that present minimal credit risks and securities
(other than U.S. Government securities) that are rated within the highest
short-term rating category by at least two nationally recognized statistical
rating organizations ("NRSROs") or by the only NRSRO that has rated the
security. Securities which originally had a maturity of over one year are
subject to more complicated, but generally similar rating requirements. A
description of illustrative credit ratings is set forth in Appendix B to this
Statement of Additional Information. The Portfolio may also purchase unrated
securities that are of comparable quality to the rated securities described
above as determined by the Board of Directors. Additionally, if the issuer of
a particular security has issued other securities of comparable priority and
security and which have been rated in accordance with (ii) above, that
security will be deemed to have the same rating as such other rated
securities.
In addition, the Board of Directors of the Fund has adopted procedures
which (i) require the Fund's Directors to approve or ratify purchases by the
Portfolio of securities (other than U.S. Government securities) that are
rated by only one NRSRO or that are unrated; (ii) require the Portfolio to
maintain a dollar-weighted average portfolio maturity of not more than 90
days and to invest only in securities with a remaining maturity of not more
than 13 months; and (iii) require the Portfolio, in the
3
<PAGE>
event of certain downgradings of or defaults on portfolio holdings, to
dispose of the holdings, subject in certain circumstances to a finding by the
Fund's Directors that disposing of the holding would not be in the
Portfolio's best interest.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below:
PETER R. BROWN, DIRECTOR (DOB 5/10/28), 1475 South Belcher Road, Largo,
Florida 34641. Chairman of the Board, Peter Brown Construction Company,
(construction contractors and engineers), Largo, Florida (1963 - present);
Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3; Rear Admiral
(Ret.) U.S. Navy Reserve, Civil Engineer Corps.
CHARLES C. HARRIS, DIRECTOR (DOB 7/15/30), 35 Winston Drive, Clearwater,
Florida 34616. Retired (1988 - present); Senior Vice-President, Treasurer
(1966 - 1988), Western Reserve Life Assurance Co. of Ohio; Vice President,
Treasurer (1968 - 1988), Director (1968 - 1987), Pioneer Western Corporation;
Vice President of the Fund (1986 to December, 1990).
RUSSELL A. KIMBALL, JR., DIRECTOR (DOB 8/17/44), 1160 Gulf Boulevard,
Clearwater Beach, Florida 34630. General Manager, Sheraton Sand Key Resort
(resort hotel), Clearwater, Florida (1975 - present).
G. JOHN HURLEY (1, 2), DIRECTOR AND EXECUTIVE VICE PRESIDENT (DOB 9/12/48).
Executive Vice President (June, 1993 - present), Chief Operating Officer
(March, 1994 - present) Western Reserve Life Assurance Co. of Ohio;
President and Chief Executive Officer (September, 1990 - present), Trustee
(June, 1990 - present) and Executive Vice President (June, 1988 - September,
1990) of IDEX Fund, IDEX II Series Fund and IDEX Fund 3; President, Chief
Executive Officer and Director of InterSecurities, Inc. (May, 1988 -
present); Assistant Vice President of AEGON USA Managed Portfolios, Inc.
(September, 1991 - August, 1992); Vice President of Pioneer Western
Corporation (May, 1988 - February, 1991).
JOHN R. KENNEY (1, 2) CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT (DOB
2/8/38). Chairman of the Board of Directors (1987 - present), Chief
Executive Officer (1982 - present) President (1978 - 1987 and December, 1992
- present), Director (1978 - present), Western Reserve Life Assurance Co. of
Ohio; Chairman of the Board of Directors and Chief Executive Officer (1988 -
February, 1991), President (1988 - 1989), Director (1976 - February, 1991),
Executive Vice President (1972 - 1988), Pioneer Western Corporation
(financial services), Largo, Florida; President and Director (1985 -
September, 1990) and Director (December, 1990 - present); Idex Management,
Inc. (investment adviser), Largo, Florida; Trustee (1987 - present) Chairman
(December, 1989 - September, 1990 and November, 1990 - present) and
President and Chief Executive Officer (November, 1986 - September, 1990),
IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all
of Largo, Florida.
RICHARD B. FRANZ, II (1, 2) TREASURER (DOB 7/12/50). Senior Vice President
(1987 - present), Chief Financial Officer (1987 -December, 1995) and
Treasurer (1988 - present), Western Reserve Life Assurance Co. of Ohio;
Senior Vice President and Treasurer (1988 - February, 1991), Pioneer Western
Corporation (financial services), Largo, Florida; Treasurer (1988 -
September, 1990 and November, 1990 - present), IDEX Fund, IDEX II Series
Fund and IDEX Fund 3 (investment companies), all of Largo, Florida.
- ----------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
(2) Interested person as defined in the 1940 Act and affiliated person of the
Investment Adviser.
4
<PAGE>
REBECCA A. FERRELL (1, 2) SECRETARY, VICE PRESIDENT AND COUNSEL (DOB
12/10/60). Attorney (August, 1993 - June, 1995), Assistant Vice President
and Counsel (June, 1993 - present), Western Reserve Life Assurance Co. of
Ohio; Secretary and Assistant Vice President (March, 1994 - September,
1995), Secretary, Vice President and Counsel (September, 1995 - present) of
IDEX Fund, IDEX II Series Fund and IDEX Fund 3; Attorney, (September, 1992 -
August, 1993), Hearne, Graziano, Nader & Buhr, P.A.; Legal Writing
Instructor, (August, 1991 - June, 1992), Florida State University College of
Law; Teaching Assistant, English, University of South Florida (August, 1990
- July, 1991).
ALAN M. YAEGER (1, 2) EXECUTIVE VICE PRESIDENT (DOB 10/21/46). Executive Vice
President (June, 1993 - present), Chief Financial Officer (December, 1995 -
present), Senior Vice President (1981 - June, 1993) and Actuary (1972 -
present), Western Reserve Life Assurance Co. of Ohio.
- ---------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
(2) Interested person as defined in the 1940 Act and affiliated person of
Investment Adviser.
The Fund pays no salaries or compensation to any of its officers, all of
whom are employees of WRL. The Fund pays an annual fee of $6,000 to each
Director who is not affiliated with the Investment Adviser or the
Sub-Adviser. Each Director also receives $500, plus expenses, per each
regular and special Board meeting attended. For the year ended December 31,
1995, the Money Market Portfolio's share of Directors' fees and expenses paid
by the Fund was $ . The following table provides compensation amounts
paid to disinterested Directors of the Fund for the fiscal year ended
December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION PAID TO
DIRECTORS FROM WRL SERIES
AGGREGATE COMPENSATION FROM FUND, INC., IDEX FUND, IDEX II
NAME OF PERSON, POSITION WRL SERIES FUND, INC. SERIES FUND AND IDEX FUND 3
- -------------------------------------- -------------------------------- -----------------------------------
<S> <C> <C>
Peter R. Brown, Director $ $
Charles C. Harris, Director $ $
Russell A. Kimball, Jr., Director $ $
</TABLE>
Commencing on January 1, 1996, a non-qualified deferred compensation plan
(the "Plan") became available to directors who are not interested persons of
the Fund. Under the Plan, compensation may be deferred that would otherwise
be payable by the Fund, IDEX Fund, IDEX II Series Fund, and/or IDEX Fund 3 to
a disinterested Director or Trustee on a current basis for services rendered
as director. Once any necessary regulatory approvals are obtained, deferred
compensation amounts will accumulate based on the value of Class A shares of
a portfolio of IDEX II Series Fund (without imposition of sales charge), as
elected by the director. It is not anticipated that the Plan will have any
impact on the Fund.
As of December 31, 1995, the Directors and officers of the Fund
beneficially owned in the aggregate less than 1% of the Fund's shares through
ownership of Policies and Annuity Contracts indirectly invested in the Fund.
The Board of Directors has established an Audit Committee consisting of
Messrs. Brown, Harris and Kimball.
THE INVESTMENT ADVISER
The information that follows supplements the information provided about
the Investment Adviser under the caption "Management of the Fund -The
Investment Adviser" in the Prospectus.
Western Reserve Life Assurance Co. of Ohio ("WRL" or the "Investment
Adviser") serves as the investment adviser to the Portfolio pursuant to an
Investment Advisory Agreement dated April 30, 1996 with the Fund. The
Investment Adviser is a wholly-owned subsidiary of First AUSA Life Insurance
Company ("First AUSA"), a stock life insurance company which is wholly-owned
by AEGON USA, Inc. ("AEGON"). AEGON is a financial services holding company
whose primary emphasis is on life and
5
<PAGE>
health insurance and annuity and investment products. AEGON is a wholly-owned
indirect subsidiary of AEGON nv, a Netherlands corporation, which is a
publicly traded international insurance group.
The Investment Advisory Agreement was approved by the Fund's Board of
Directors, including a majority of the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act), on December 4, 1995. The
Investment Advisory Agreement provides that subsequent to its approval by the
Portfolio's initial shareholder, it will continue in effect for an initial
term ending April 22, 1998, and will continue in effect from year to year
thereafter, if approved annually (a) by the Board of Directors of the Fund or
by a majority of the outstanding shares of the Portfolio, and (b) by a
majority of the Directors who are not parties to such contract or "interested
persons" of any such party. The Investment Advisory Agreement may be
terminated without penalty on 60 days' written notice at the option of either
party or by the vote of the shareholders of the Portfolio and terminate
automatically in the event of assignment (within the meaning of the 1940
Act).
While the Investment Adviser is at all times subject to the direction of
the Board of Directors of the Fund, the Investment Advisory Agreement
provides that the Investment Adviser, subject to review by the Board of
Directors, is responsible for the actual management of the Portfolio and has
responsibility for making decisions to buy, sell or hold any particular
security. The Investment Adviser also is obligated to provide all the office
space, facilities, equipment and personnel necessary to perform its duties
under the Agreement. For further information about the management of the
Portfolio, see "The Sub-Adviser", below.
ADVISORY FEE. The method of computing the investment advisory fee is fully
described in the Prospectus. For the years ended December 31, 1995, 1994 and
1993, the Investment Adviser was paid fees for its services to the Portfolio
in the amount of $ , $351,798 and $224,406, respectively.
PAYMENT OF EXPENSES. The Investment Adviser provides investment advisory
services and pays all compensation of and furnishes office space for officers
and employees of the Investment Adviser connected with investment management
of the Portfolio, as well as the fees of all directors of the Fund who are
affiliated persons of WRL or any of its subsidiaries. Accounting services are
provided for the Portfolio by the Investment Adviser. The Fund pays all other
expenses incurred in its operation and all of the Portfolio's general
administrative expenses.
Expenses that are borne directly by the Fund include redemption expenses,
expenses of portfolio transactions, expenses of registering the shares under
Federal and state securities laws, pricing costs (including the daily
calculation of net asset value), interest, certain taxes, charges of the
custodian, fees and expenses of Fund non-interested directors, legal
expenses, state franchise taxes, cost of auditing services, costs of printing
proxies, Securities and Exchange Commission ("SEC") fees, advisory fees,
certain insurance premiums, costs of corporate meetings, costs of maintenance
of corporate existence, investor services (including allocable telephone and
personnel expenses), extraordinary expenses, and other expenses properly
payable by the Fund. Depending upon the nature of the lawsuit, litigation
costs may be borne by the Fund.
Expenses that relate exclusively to a particular portfolio of the Fund,
such as brokerage commissions, custodian fees, and registration fees for
shares, are paid by that portfolio. Other expenses are allocated to the
portfolio in an equitable manner determined by the Portfolio's Investment
Adviser.
The Investment Adviser has voluntarily undertaken, until as least April
30, 1996, to pay expenses on behalf of the Portfolio to the extent normal
operating expenses (including investment advisory fees but excluding
interest, taxes, brokerage fees, commissions and extraordinary charges)
exceed, as a percentage of the Portfolio's average daily net assets, 0.70%.
There were no expenses paid by the Investment Adviser on behalf of the
Portfolio for the fiscal years ended December 31, 1995, 1994 and 1993
inasmuch as the normal operating expenses of the Portfolio did not exceed the
limitations described above.
6
<PAGE>
THE SUB-ADVISER
This discussion supplements the information provided about the Sub-Adviser
under the caption "Management of the Fund - The Sub-Adviser" in the
Prospectus.
J.P. Morgan Investment Management Inc. (the "Sub-Adviser") serves as the
Sub-Adviser for the Portfolio pursuant to a Sub-Advisory Agreement dated
April 30, 1996. The Sub-Advisory Agreement was approved by the Board of
Directors of the Fund, including a majority of the Directors who were not
"interested persons" of the Fund (as defined in the 1940 Act), on December 4,
1995. The Sub-Advisory Agreement provides that subsequent to its approval by
a majority of the outstanding shares of the Portfolio, it will continue in
effect for an initial term ending April 22, 1998, and will continue in effect
from year to year thereafter, if approved annually (a) by the Board of
Directors of the Fund or by a majority of the outstanding shares of the
Portfolio, and (b) by a majority of the Directors who are not parties to such
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. The Sub-Advisory Agreement may be terminated without penalty on 60
days' written notice at the option of either party or by the vote of the
shareholders of the Portfolio and terminates automatically in the event of
assignment (within the meaning of the 1940 Act) or termination of the
Investment Advisory Agreement.
Pursuant to the Sub-Advisory Agreement, the Sub-Adviser provides
investment advisory assistance and portfolio management advice to the
Investment Adviser with respect to the Portfolio. Subject to review by the
Investment Adviser and the Board of Directors of the Fund, the Sub-Adviser is
responsible for the actual management of the Portfolio and for making
decisions to buy, sell or hold any particular security. The Sub-Adviser
provides the portfolio managers for the Portfolio. Such managers consider
analyses from various sources, make the necessary decisions and effect
transactions accordingly. The Sub-Adviser bears all of its expenses in
connection with the performance of its services under the Sub-Advisory
Agreement, such as compensating and furnishing office space for its officers
and employees connected with investment and economic research, trading and
investment management of the Portfolio. The method of computing the
Sub-Adviser's fee is set forth in the Prospectus.
For the years ended December 31, 1995, 1994 and 1993, Janus Capital
Corporation, the Portfolio's previous sub-adviser, was paid fees in the
amount of $ , $176,549 and $112,155, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
PORTFOLIO TURNOVER
The information that follows supplements the information provided about
portfolio turnover under the caption "The Money Market Portfolio and the Fund
- - Portfolio Turnover" in the Prospectus. In computing the portfolio turnover
rate for a portfolio, securities whose maturities or expiration dates at the
time of acquisition are one year or less are excluded. Subject to this
exclusion, the turnover rate for a portfolio is calculated by dividing (a)
the lesser of purchases or sales of portfolio securities for the fiscal year
by (b) the monthly average of portfolio securities owned by the portfolio
during the fiscal year. The Portfolio does not have a stated portfolio
turnover rate, as securities of the type in which it invests are excluded in
the usual calculation of that rate.
PLACEMENT OF PORTFOLIO BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Sub-Adviser is primarily responsible for placement of the Portfolio's
securities transactions. In placing orders, it is the policy of the Portfolio
to seek the best overall terms available, taking into account various
factors, including price, dealer spread or commissions, if any, size of the
transaction and difficulty of execution. While the Sub-Adviser generally will
seek reasonably competitive spreads or commissions, the Portfolio will not
necessarily be paying the lowest spread or commission available. The
Portfolio does not have any obligation to deal with any broker, dealer or
group of brokers or dealers in the execution of transactions in portfolio
securities.
7
<PAGE>
Decisions as to the assignment of portfolio brokerage business for the
Portfolio and negotiation of its commission rates are made by the
Sub-Adviser, whose policy is to obtain "best overall terms" (prompt and
reliable execution at the most favorable security price) of all portfolio
transactions. In placing portfolio transactions, the Sub-Adviser may give
consideration to brokers who provide supplemental investment research, in
addition to such research obtained for a flat fee, to the Sub-Adviser, and
pay spreads or commissions to such brokers or dealers furnishing such
services which are in excess of spreads or commissions which another broker
or dealer may charge for the same transaction.
In selecting brokers and in negotiating commissions, the Sub-Adviser
considers such factors as: the Sub-Adviser's knowledge of currently available
negotiated commission rates or prices of securities currently available and
other current transaction costs; the nature of the security being traded; the
size and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the desired timing of the trade; the
activity existing and expected in the market for the particular security;
confidentiality; the quality of execution, clearance, and settlement
services; financial stability; the existence of actual or apparent
operational problems of any broker or dealer; and research products or
services to be provided.
These products and services may include furnishing advice, either directly
or through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the
availability of securities or purchasers or sellers of securities; furnishing
seminars, information, analyses and reports concerning issuers, industries,
securities, trading markets and methods, legislative developments, changes in
accounting practices, economic factors and trends and portfolio strategy;
access to research analysts, corporate management personnel, industry
experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software,
information and accessories that deliver, process or otherwise utilize
information), including the research described above.
Supplemental research obtained through brokers or dealers will be in
addition to and not in lieu of the services required to be performed by the
Sub-Adviser. The expenses of the Sub-Adviser will not necessarily be reduced
as a result of the receipt of such supplemental information. The Sub-Adviser
may use such research products and services in servicing other accounts in
addition to the Portfolio. If the Sub-Adviser determines that any research
product or service has a mixed use, such that it also serves functions that
do not assist in the investment decision-making process, the Sub-Adviser will
allocate the costs of such service or product accordingly. The portion of the
product or service that a Sub-Adviser determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for the
Sub-Adviser. Conversely, such supplemental information obtained by the
placement of business for the Sub-Adviser will be considered by and may be
useful to the Sub-Adviser in carrying out its obligations to the Portfolio.
When the Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where, in the
opinion of the Sub-Adviser, better prices and executions are likely to be
achieved through the use of a broker.
Purchases and sales of securities for the Portfolio usually are principal
transactions, and normally, the Portfolio will deal directly with the
underwriters or dealers who make a market in the securities involved unless
better prices and execution are available elsewhere. Such dealers usually act
as principals for their own account. On occasion, securities may be purchased
directly from the issuer. Bonds and money market securities are generally
traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. The cost of portfolio securities transactions
of the Portfolio that are transactions with principals will consist primarily
of brokerage commissions or dealer or underwriter spreads between the bid and
asked price, although purchases from underwriters of portfolio securities
include a commission or concession paid by the issuer. No stated commission
is
8
<PAGE>
generally applicable to securities traded in the U.S. over-the-counter
markets, but the prices of those securities include undisclosed commissions
or mark-ups.
Securities held by the Portfolio may also be held by other separate
accounts, mutual funds or other accounts for which the Investment Adviser or
Sub-Adviser serves as an adviser, or held by the Investment Adviser or
Sub-Adviser for their own accounts. Because of different investment
objectives or other factors, a particular security may be bought by the
Investment Adviser or Sub-Adviser for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities
for the Portfolio or other entities for which they act as investment adviser
or for their advisory clients arise for consideration at or about the same
time, transactions in such securities will be made, insofar as feasible, for
the respective entities and clients in a manner deemed equitable to all. To
the extent that transactions on behalf of more than one client of the
Investment Adviser or Sub-Adviser during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
On occasions when the Investment Adviser or the Sub-Adviser deems the
purchase or sale of a security to be in the best interests of the Portfolio
as well as other accounts or companies, it may to the extent permitted by
applicable laws and regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for such other accounts or companies in order to obtain favorable
execution and lower brokerage commissions. In that event, allocation of the
securities purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it considers to be
most equitable and consistent with its fiduciary obligations to the Portfolio
and to such other accounts or companies. In some cases this procedure may
adversely affect the size of the position obtainable for the Portfolio.
The Board of Directors of the Fund periodically reviews the brokerage
placement practices of the Sub-Adviser on behalf of the Portfolio, and
reviews the prices and commissions, if any, paid by the Portfolio to
determine if they were reasonable.
The Board of Directors of the Fund has authorized the Sub-Adviser to
consider sales of the Policies and Annuity Contracts by a broker-dealer as a
factor in the selection of broker-dealers to execute Portfolio transactions.
In addition, the Sub-Adviser may occasionally place portfolio business with
affiliated brokers of the Investment Adviser or the Sub-Adviser, including:
InterSecurities, Inc., P.O. Box 5068, Clearwater, Florida 34618. As stated
above, any such placement of portfolio business will be subject to the
ability of the broker-dealer to provide best execution and to the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
For the years ended December 31, 1995, 1994 and 1993, the Portfolio did
not pay any brokerage commissions.
PURCHASE AND REDEMPTION OF SHARES
OFFERING OF THE SHARES AND DETERMINATION OF OFFERING PRICE
Shares of the Portfolio are sold only to the insurance company separate
accounts of WRL and to separate accounts of certain of its affiliated life
insurance companies (collectively, the "Separate Accounts") to fund the
benefits under the Policies and the Annuity Contracts. The Separate Accounts
invest in shares of the Portfolio in accordance with the allocation
instructions received from holders of the Policies and the Annuity Contracts.
Such allocation rights are further described in the prospectuses for the
Policies and the Annuity Contracts. Shares of the Portfolio are sold and
redeemed at their respective net asset value as described in the Prospectus.
Net asset value of the Portfolio's shares is determined, once daily, as of
the close of the regular session of business on the New York Stock Exchange
("Exchange") (usually 4:00 p.m., Eastern time), on each day in which the
Exchange is open. (Currently the Exchange is closed on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.)
Net asset value of the Portfolio's share is computed by dividing the value
of the net assets of the Portfolio by the total number of shares of the
Portfolio outstanding.
9
<PAGE>
NET ASSET VALUATION
The Portfolio seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. It operates under Rule 2a-7 (the "Rule") of the
SEC under the 1940 Act, which permits the Portfolio to value its portfolio on
the basis of amortized cost. Under the amortized cost method of valuation, a
security is initially valued at its cost, and thereafter there is assumed a
constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the security.
The method does not take into account unrealized capital gains or losses.
As long as it uses the Rule, the Portfolio will be required to abide by a
number of conditions. Those conditions which affect its investment policies
are that the Portfolio must (i) not maintain a dollar weighted portfolio
average in excess of 90 days; (ii) limit its investments, including
repurchase agreements, to those instruments which are denominated in U.S.
dollars, which the Board of Directors (or its delegatee) determines present
minimal credit risks and which are, or whose issuers are rated with respect
to comparable securities, with the highest rating category as determined by
at least two NRSROs (that are not affiliated persons, as defined in Section
2(a)(3)(C) of the 1940 Act, of the issuer, guarantor or provider of credit
support for the instrument) or otherwise by the NRSRO(s) required under the
Rule as amended, or, in the case of an instrument that is not rated, of
comparable quality as determined by the Board; (iii) not invest more than 5%
of its total assets in securities issued by, subject to puts from, or
guaranteed by, a particular issuer, except as permitted by the Rule; (iv) not
invest more than 5% of its total assets in Second Tier Securities, as defined
in the Rule, and shall further limit the amount of any such investment in
Second Tier Securities, as required by the Rule; and (v) not purchase any
instruments with a remaining maturity of more than one year (397 days for
when-issued securities). Under the Rule, the maturity of an instrument is
generally considered to be its stated maturity (or in the case of an
instrument called for redemption, the date on which the redemption payment
must be made), with special exceptions for certain variable and floating rate
instruments. Repurchase agreements and securities loan agreements are, in
general, treated as having a maturity equal to the period scheduled until
repurchase or return, or, if subject to demand, equal to the notice period.
Use of the amortized cost method may result in periods during which value,
as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of the Portfolio may tend
to be higher than a like computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by the Portfolio resulted in lower aggregate portfolio
value on a particular day, a prospective investor in the Portfolio would be
able to obtain a somewhat higher yield than would result from investment in a
fund utilizing solely market values, and existing investors in that fund
would receive less investment income. The converse would apply in a period of
rising interest rates.
INVESTMENT EXPERIENCE INFORMATION
THE INFORMATION PROVIDED IN THIS SECTION SHOWS THE HISTORICAL INVESTMENT
EXPERIENCE OF THE PORTFOLIO. IT DOES NOT REPRESENT OR PROJECT FUTURE
INVESTMENT PERFORMANCE.
The Portfolio commenced operations on October 2, 1986. The rates of return
shown below depict the actual investment experience of the Portfolio for the
periods shown.
CALCULATION OF PERFORMANCE RELATED INFORMATION
TOTAL RETURN
The rates of return shown below are based on the actual investment
performance, after the deduction of investment advisory fees and direct
Portfolio expenses. The rates are average annual compounded rates of return
for the periods ended on December 31, 1995.
The rates of return do not reflect charges or deductions against the
Series Life Account or the Series Annuity Account, or charges and deductions
against the Policies or the Annuity Contracts.
10
<PAGE>
Accordingly, these rates of return do not illustrate how actual investment
performance will affect benefits under the Policies or the Annuity Contracts.
Where relevant, the prospectuses for the Policies and the Annuity Contracts
contain performance information about these products. Moreover, these rates
of return are not an estimate, projection or guarantee of future performance.
Also shown are comparable figures for the unmanaged Standard and Poor's
Index of 500 Common Stocks, a widely used measure of stock market
performance.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1995
<TABLE>
<CAPTION>
PORTFOLIO INCEPTION* 5 YEARS 4 YEARS 3 YEARS 2 YEARS 1 YEAR
- ------------------------------- --------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Money Market % % % % % %
Standard & Poor's % % % % % %
Index of 500 Common Stocks
</TABLE>
- --------
* The Portfolio commenced operations on October 2, 1986.
Additional information regarding the investment performance of the
Portfolio appears in the Prospectus.
A. Total Return
Total return quotations for the Portfolio are computed by finding the
average annual compounded rates of return over the relevant periods that
would equate the initial amount invested to the ending redeemable value,
according to the following equation:
P (1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value (at the end of the applicable period
of a hypothetical $1,000 payment made at the beginning of
the applicable period).
The total return quotation calculations for the Portfolio reflect the
deduction of a proportionate share of the Portfolio's investment advisory fee
and Portfolio expenses and assume that all dividends and capital gains during
the period are reinvested in the Portfolio when made. The calculations also
assume a complete redemption as of the end of the particular period.
B. YIELD QUOTATIONS
From time to time the Portfolio may quote its yield in reports or other
communications to policyholders or in advertising material. Yield quotations
are expressed in annualized terms and reflect dividends of the Portfolio
declared and reinvested daily based upon the net investment income earned by
the Portfolio each day. The Portfolio's yields fluctuate and the yield on any
day for any past period is not an indication as to future yields on any
investment in the Portfolio's shares. Future yields are not guaranteed.
Yield is computed in accordance with a standardized method required by the
SEC. The yields set forth on page 9 of the Prospectus were for the seven day
period ended on December 31, 1995. The current yield for the Portfolio is an
annualization, without compounding, of the portfolio rate of return, and is
computed by determining the net change in the value of a hypothetical
pre-existing account in the Portfolio having a balance of one share at the
beginning of a seven calendar day period for which yield is to be quoted,
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and annualizing the results (I.E.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional shares purchased with dividends
declared on the original shares and any such additional shares, but does not
include realized gains and losses or unrealized appreciation and
depreciation. The Portfolio may also calculate the compound effective
annualized yields by adding 1 to the base period return (calculated as
11
<PAGE>
described above), raising that sum to a power equal to 365/7, and subtracting
1. The yield quotations for the Portfolio do not take into consideration any
deductions imposed by the Series Life Account or the Series Annuity Account.
Yield information is useful in reviewing the Portfolio's performance in
seeking to meet its investment objective, but, because yields fluctuate, such
information cannot necessarily be used to compare an investment in shares of
the Portfolio with bank deposits, savings accounts and similar investment
alternatives, which often provide an agreed or guaranteed fixed yield for a
stated period of time. Also, the Portfolio's yields cannot always be compared
with yields determined by different methods used by other funds. It should be
emphasized that yield is a function of the kind and quality of the
instruments in the Portfolio, portfolio maturity and operating expenses.
TAXES
Shares of the Portfolio are offered only to the Separate Accounts that
fund the Policies and Annuity Contracts. See the respective prospectuses for
the Policies and Annuity Contracts for a discussion of the special taxation
of insurance companies with respect to the Separate Accounts and of the
Policies, the Annuity Contracts, and the holders thereof.
The Portfolio has qualified and expects to continue to qualify as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended (the "Code"). In order to qualify for that treatment, the
Portfolio must distribute to its Policyholders for each taxable year at least
90% of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions) ("Distribution Requirement") and must meet
several additional requirements. These requirements include the following:
(1) the Portfolio must derive at least 90% of its gross income each taxable
year from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or other income
derived with respect to its business of investing in securities ("Income
Requirement"); (2) the Portfolio must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities,
that were held for less than three months ("Short-Short Limitation"); (3) at
the close of each quarter of the Portfolio's taxable year, at least 50% of
the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs, and other securities
that, with respect to any one issuer, do not exceed 5% of the value of the
Portfolio's total assets and that do not represent more than 10% of the
outstanding voting securities of the issuer; and (4) at the close of each
quarter of the Portfolio's taxable year, not more than 25% of the value of
its total assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer.
As noted in the Prospectus, the Portfolio must, and intends to, comply
with the diversification requirements imposed by section 817(h) of the Code
and the regulations thereunder. These requirements, which are in addition to
the diversification requirements mentioned above, place certain limitations
on the proportion of the Portfolio's assets that may be represented by any
single investment (which includes all securities of the same issuer). For
these purposes, each U.S. Government agency or instrumentality is treated as
a separate issuer, while a particular foreign government and its agencies,
instrumentalities and political subdivisions all are considered the same
issuer. For information concerning the consequences of failure to meet the
requirements of section 817(h), see the respective prospectuses for the
Policies or the Annuity Contracts.
The Portfolio will not be subject to the 4% Federal excise tax imposed on
RICs that do not distribute substantially all their income and gains each
calendar year because that tax does not apply to a RIC whose only
shareholders are segregated asset accounts of life insurance companies held
in connection with variable annuity contracts and/or variable life insurance
policies.
Interest received by the Portfolio may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate these foreign taxes, however,
and foreign countries generally do not impose taxes on capital gains in
respect of investments by foreign investors.
12
<PAGE>
The foregoing is only a general summary of some of the important Federal
income tax considerations generally affecting the Portfolio and its
Policyholders. No attempt is made to present a complete explanation of the
Federal tax treatment of the Portfolio's activities, and this discussion and
the discussion in the prospectuses and/or statements of additional
information for the Policies and Annuity Contracts are not intended as a
substitute for careful tax planning. Accordingly, potential investors are
urged to consult their own tax advisors for more detailed information and for
information regarding any state, local, or foreign taxes applicable to the
Policies, Annuity Contracts and the holders thereof.
CAPITAL STOCK OF THE FUND
As described in the Prospectus, the Fund offers a separate class of common
stock for each Portfolio. The Fund is currently comprised of the following
portfolios: Bond Portfolio, Growth Portfolio, Global Portfolio,
Short-to-Intermediate Government Portfolio, Emerging Growth Portfolio,
Equity-Income Portfolio, Aggressive Growth Portfolio, Balanced Portfolio,
Utility Portfolio, Tactical Asset Allocation Portfolio, C.A.S.E. Quality
Growth Portfolio, C.A.S.E. Growth & Income Portfolio, C.A.S.E. Growth
Portfolio, Janus Balanced Portfolio, Leisure Portfolio, International Equity
Portfolio, T. Rowe Price-WRL Equity Income Portfolio, Meridian/INVESCO US
Sector Portfolio, Meridian/INVESCO Foreign Sector Portfolio, Meridian/INVESCO
Global Sector Portfolio, Value Equity Portfolio and Money Market Portfolio.
REGISTRATION STATEMENT
The Fund has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this Statement of Additional Information relates. If
further information is desired with respect to the Portfolio or such
securities, reference is made to the Registration Statement and the exhibits
filed as part thereof.
FINANCIAL STATEMENTS
The audited financial statements for each Portfolio of the Fund for the
year ended December 31, 1995 and the report of the Fund's independent
accountants are included in the Fund's 1995 Annual Report and are
incorporated by reference to such report.
13
<PAGE>
APPENDIX A
DESCRIPTION OF PORTFOLIO SECURITIES
The following is intended only as a supplement to the information
contained in the Prospectus and should be read only in conjunction with the
Prospectus. Terms defined in the Prospectus and not defined herein have the
same meanings as those in the Prospectus.
1. CERTIFICATE OF DEPOSIT. A certificate of deposit generally is a
short-term, interest bearing negotiable certificate issued by a commercial
bank or savings and loan association against funds deposited in the issuing
institution.
2. EURODOLLAR CERTIFICATE OF DEPOSIT. A Eurodollar certificate of deposit
is a short-term obligation of a foreign subsidiary of a U.S. bank payable in
U.S. dollars.
3. FLOATING RATE NOTE. A floating rate note is debt issued by a
corporation or commercial bank that is typically several years in term but
whose interest rate is reset every one to six months.
4. TIME DEPOSIT. A time deposit is a deposit in a commercial bank for a
specified period of time at a fixed interest rate for which a negotiable
certificate is not received.
5. BANKERS' ACCEPTANCE. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with international
commercial transactions (to finance the import, export, transfer or storage
of goods). The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the
maturity date. Most acceptances have maturities of six months or less and are
traded in secondary markets prior to maturity.
6. VARIABLE AMOUNT MASTER DEMAND NOTE. A variable amount master demand
note is a note which fixes a minimum and maximum amount of credit and
provides for lending and repayment within those limits at the discretion of
the lender. Before investing in any variable amount master demand notes, the
Portfolio will consider the liquidity of the issuer through periodic credit
analysis based upon publicly available information.
7. COMMERCIAL PAPER. Commercial paper is a short-term promissory note
issued by a corporation primarily to finance short-term credit needs.
8. REPURCHASE AGREEMENT. A repurchase agreement is an instrument under
which the Portfolio acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a mutually agreed upon time and price.
The total amount received on repurchase is calculated to exceed the price
paid by the Portfolio, reflecting an agreed upon market rate of interest for
the period from the time of the Portfolio's purchase of the security to the
settlement date (I.E., the time of repurchase), and would not necessarily
relate to the interest rate on the underlying securities. The Portfolio will
only enter into repurchase agreements with underlying securities consisting
of U.S. Government or government agency securities, certificates of deposit,
commercial paper or bankers' acceptances, and will be entered only with
primary dealers. While the Portfolio may invest in repurchase agreements for
periods up to 30 days, it is expected that typically such periods will be for
a week or less. The staff of the SEC has taken the position that repurchase
agreements of greater than seven days together with other illiquid
investments should be limited to an amount not in excess of 10% of the
Portfolio's net assets.
Although repurchase transactions usually do not impose market risks on the
purchaser, the Portfolio would be subject to the risk of loss if the seller
fails to repurchase the securities for any reason and the value of the
securities is less than the agreed upon repurchase price. In addition, if the
seller defaults, the Portfolio may incur disposition costs in connection with
liquidating the securities. Moreover, if the seller is insolvent and
bankruptcy proceedings are commenced, under current law, the Portfolio could
be ordered by a court not to liquidate the securities for an indeterminate
period of time and the amount realized by the Portfolio upon liquidation of
the securities may be limited.
A-1
<PAGE>
9. REVERSE REPURCHASE AGREEMENT. A reverse repurchase agreement involves
the sale of securities held by the Portfolio, with an agreement to repurchase
the securities at an agreed upon price, date and interest payment. The
Portfolio will use the proceeds of the reverse repurchase agreements to
purchase other money market securities maturing, or under an agreement to
resell, at a date simultaneous with or prior to the expiration of the reverse
repurchase agreement. The Portfolio will utilize reverse repurchase
agreements when the interest income to be earned from the investment of the
proceeds from the transaction is greater than the interest expense of the
reverse repurchase transaction.
10. ASSET-BACKED SECURITIES. The Portfolio may invest in securities backed
by automobile receivables and credit-card receivables and other securities
backed by other types of receivables or other assets. Credit support for
asset-backed securities may be based on the underlying assets and/or provided
through credit enhancements by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are
generally provided by the issuer), senior-subordinated structures and
over-collateralization. The Portfolio will only purchase an asset-backed
security if it is rated at least "A" by S&P or Moody's.
A-2
<PAGE>
APPENDIX B
Description of the highest commercial paper, bond and other short-and
long-term rating categories assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors
Service, Inc. ("Fitch") and Duff and Phelps, Inc. ("Duff").
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus sign
(+) designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high
as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment
of short-term promissory obligations and ordinarily will be evidenced by
leading market positions in well established industries, high rates of return
of funds employed, conservative capitalization structures with moderate
reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well established access to a range of financial markets and assured sources
of alternative liquidity. Issues rated Prime-2 (P-2) have a strong capacity
for repayment of short-term promissory obligations. This ordinarily will be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is
maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade)
is the second highest commercial paper rating assigned by Fitch which
reflects an assurance of timely payment only slightly less in degree than the
strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of a timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
BOND AND LONG-TERM RATINGS
Bonds rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position on such issues.
Bonds rated AAA is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and subject to slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such
stability of applicable earnings that safety is beyond reasonable question
whatever changes occur in conditions. Bonds rated AA by Fitch are judged by
Fitch to be of safety virtually beyond question and are readily salable,
whose merits are not unlike those of the AAA class, but whose margin of
safety is less strikingly broad. The issue may be the obligation of a small
company, strongly secured but influenced as to rating by the lesser financial
power of the enterprise and more local type of market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors; only slightly more than U.S. Treasury debt.
B-1
<PAGE>
PROSPECTUS
WRL SERIES FUND, INC.
VALUE EQUITY PORTFOLIO
201 Highland Avenue
Largo, Florida 34640
Telephone: (800) 851-9777
[WRL LOGO] (813) 585-6565 [NWQ LOGO]
WRL Series Fund, Inc. (the "Fund") is a diversified, open-end management
investment company consisting of separate series or investment portfolios.
This Prospectus pertains only to the Value Equity Portfolio of the Fund.
The investment objective of the Value Equity Portfolio is to achieve
maximum, consistent total return with minimum risk to principal. The Value
Equity Portfolio seeks to achieve its objective by investing primarily in
common stocks with above-average statistical value which, in the
Sub-Adviser's opinion, are in fundamentally attractive industries, and are
undervalued at the time of purchase. There can be, of course, no assurance
that the Value Equity Portfolio will achieve its objective.
Shares of the Fund are sold only to insurance company separate accounts
(the "Separate Accounts") of Western Reserve Life Assurance Co. of Ohio
("WRL"), PFL Life Insurance Company ("PFL"), and AUSA Life Insurance Company,
Inc. ("AUSA") (WRL, PFL, and AUSA together, the "Life Companies") to fund the
benefits under certain individual variable life insurance policies (the
"Policies") and individual and group variable annuity contracts (the "Annuity
Contracts"). The Life Companies are affiliates. The Separate Accounts, which
may or may not be registered with the Securities and Exchange Commission,
invest in shares of one or more of the portfolios in accordance with the
allocation instructions received from holders of the Policies and the Annuity
Contracts (collectively, the "Policyholders"). Such allocation rights are
further described in the prospectuses or disclosure documents for the
Policies and the Annuity Contracts.
WRL and NWQ Investment Management Company, Inc. serve as the investment
adviser (the "Investment Adviser") and the sub-adviser (the "Sub-Adviser"),
respectively, to the Value Equity Portfolio. See "The Investment Adviser" and
"The Sub-Adviser."
This Prospectus sets forth concisely the information about the Value
Equity Portfolio that prospective investors ought to know before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about the Fund, the Value Equity Portfolio and the
other portfolios of the Fund has been filed with the Securities and Exchange
Commission and is available upon request without charge by calling or writing
the Fund. The Statement of Additional Information pertaining to the Value
Equity Portfolio bears the same date as this Prospectus and is incorporated
by reference into this Prospectus in its entirety.
--------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, A BANK OR OTHER FINANCIAL INSTITUTION, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Prospectus dated May 1, 1996
<PAGE>
WRL SERIES FUND, INC.
VALUE EQUITY PORTFOLIO
201 Highland Avenue
Largo, FL 34640
Telephone (813) 585-6565
(800) 851-9777
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
The Value Equity Portfolio and the Fund ... 1
Management of the Fund ..................... 4
Dividends and Other Distributions .......... 6
Taxes ...................................... 6
Purchase and Redemption of Shares .......... 6
Valuation of Shares ........................ 6
The Fund and Its Shares .................... 7
Performance Information .................... 7
General Information ........................ 8
</TABLE>
i
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THE VALUE EQUITY PORTFOLIO
AND THE FUND
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Value Equity Portfolio is a series of the Fund. The Fund consists
of several series, or separate investment portfolios, which offer shares for
investment by the Separate Accounts. This Prospectus describes only the Value
Equity Portfolio.
A particular portfolio of the Fund may not be available under the Policy
or Annuity Contract you have chosen or may not be available in your state due
to certain state insurance law considerations. The prospectus or disclosure
document for the particular Policy or Annuity Contract you have chosen will
indicate the portfolios which are generally available under the applicable
Policy or Annuity Contract and should be read in conjunction with this
Prospectus.
INVESTMENT OBJECTIVE
The investment objective of the Value Equity Portfolio (the "Portfolio")
is to achieve maximum, consistent total return with minimum risk to principal
by investing primarily in common stocks with above-average statistical value
which, in the Sub-Adviser's opinion, are in fundamentally attractive
industries and are undervalued at the time of purchase.
There can be, of course, no assurance that the Portfolio will achieve its
investment objective. The Portfolio's investment objective and, unless
otherwise noted, its investment policies and techniques, may be changed by
the Board of Directors of the Fund without shareholder or Policyholder
approval. A change in the investment objective or policies of the Portfolio
may result in the Portfolio having an investment objective or policies
different from that which a Policyholder deemed appropriate at the time of
investment.
PORTFOLIO POLICIES AND TECHNIQUES
The Portfolio seeks to achieve its objective by investing at least 65% of
its total assets in common stocks with above-average statistical value
which, in the Sub-Adviser's opinion, are in fundamentally attractive
industries and are undervalued at the time of purchase. The Sub-Adviser will
seek to identify companies with stock of above-average statistical value by
using statistical measures to screen for below-average price-to-earnings and
price-to-book ratios, above-average dividend yields and strong financial
stability. The Portfolio may also invest in other equity-related securities
consisting of convertible bonds, convertible preferred stocks, rights and
warrants.
The Sub-Adviser will begin the process of evaluating potential common
stock and equity-related securities investments by screening a universe of
1100 companies, primarily of medium to large capitalization. For these
purposes, the Sub-Adviser considers medium capitalization stocks to be stocks
issued by companies with market capitalization of between $500 million and $3
billion, and large capitalization stocks to be those stocks issued by
companies with market capitalization in excess of $3 billion. Investments in
companies with market capitalization under $500 million (considered to be
small capitalization stocks by the Sub-Adviser) will be limited to 10% of the
Portfolio's total assets. The process used by the Sub-Adviser to identify
promising under-valued companies within this universe of companies may be
differentiated from those of other value-oriented investment managers in the
following ways: the use of normalized earnings to value cyclical companies; a
focus on quality of earnings; investment in relative value; and concentration
in industries/sectors having strong long-term fundamentals. As part of a
multi-disciplined approach to capturing value, the Sub-Adviser first seeks to
identify market sectors early in their cycle of fundamental improvement,
investor recognition and market exploitation. Industry fundamentals used in
this decision making process are business trend analysis to analyze industry
and company fundamentals for the impact of changing worldwide product
demand/supply, direction of inflation and interest rates, and
expansion/contraction of business cycles. The Sub-Adviser utilizes in-house
capabilities, in addition to independent resources, for economic, industry
and securities research.
Following this initial phase, approximately 200 companies that the
Sub-Adviser believes have above-average statistical value and are in a sector
identified as having positive fundamentals on a long-term basis will be
actively followed by the Sub-Adviser. Company visits and interviews with
management augment fundamental research in seeking to identify the potential
value in these investments. The Portfolio will be concentrated in those
industries with positive fundamentals and likewise will minimize risk by
avoiding industries with deteriorating long-term fundamentals.
The Sub-Adviser anticipates that the majority of the investments in the
Portfolio will be in United States-based companies. However, from time to
time, securities of foreign based companies may be purchased, in accordance
with the selection process outlined above. The Portfolio may invest up to 20%
of its assets in foreign securities and American Depositary Receipts
("ADRs"), which are dollar-denominated receipts issued generally by domestic
banks and which represent the deposit with the bank of a security of a
foreign issuer. ADRs are publicly traded in the United States on exchanges or
over-the-counter. (See "Types of Securities--Foreign Securities" below for a
description of certain risks involved in foreign investing and "Investment
Objectives and Policies--Foreign Securities" in the Statement of Additional
Information.)
TYPES OF SECURITIES
In seeking to meet its investment objective, the Portfolio may invest in
any type of security whose investment characteristics are consistent with the
Portfolio's investment policies and techniques. These and some of the other
investment techniques the Portfolio may use are described below.
CONVERTIBLE SECURITIES. The Portfolio may invest up to 10% of its assets
in convertible securities. Convertible securities may include corporate notes
or preferred stock, but ordinarily are a long-term debt obligation of the
issuer convertible at a stated exchange rate into common stock of the issuer.
As
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with all debt securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent
as the underlying common stock. Convertible securities generally rank senior
to common stocks in an issuer's capital structure and are consequently of
higher quality and entail less risk of declines in market value than the
issuer's common stock. However, the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security. In evaluating investment in
a convertible security, primary emphasis will be given to the attractiveness
of the underlying common stock. (See p. , "The Value Equity Portfolio and
the Fund - Risk Factors" below for a description of risks involved.
WARRANTS AND RIGHTS. The Portfolio may invest in warrants and rights. A
warrant is a type of security that entitles the holder to buy a proportionate
amount of common stock at a specified price, usually higher than the market
price at the time of issuance, for a period of years or to perpetuity. In
contrast, rights, which also represent the right to buy common shares,
normally have a subscription price lower than the current market value of the
common stock and a life of two to four weeks. Warrants in which the Portfolio
may invest are freely transferrable and are traded on the major securities
exchanges.
FOREIGN SECURITIES. The Portfolio may, from time to time, invest up to
20% of its total assets in foreign securities and ADRs. Investments in
foreign securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investing in domestic
issuers. For example, changes in currency exchange rates and exchange rate
controls may affect the value of foreign securities and the value of their
dividend or interest payments, and therefore the Portfolio's share price and
return. Foreign companies generally are subject to tax laws and accounting,
auditing, and financial reporting standards, practices and requirements that
differ from those applicable to U.S. companies. There is generally less
publicly available information about foreign companies and less securities
and other governmental regulation and supervision of foreign companies, stock
exchanges and securities brokers and dealers. The Portfolio may encounter
difficulties in enforcing obligations in foreign countries and negotiating
favorable brokerage commission rates. Securities of some foreign companies
are less liquid, and their prices more volatile, than securities of
comparable U.S. companies. Transaction costs with respect to foreign
securities may be higher.
In addition, with respect to some foreign countries, there is the
possibility of: expropriation or confiscatory taxation; limitations on the
removal of securities, property or other assets of the Portfolio; political
or social instability or war; or diplomatic developments which could affect
U.S. investment in those countries. The Sub-Adviser will consider these and
other factors before investing in foreign securities.
REPURCHASE AGREEMENTS. The Portfolio may invest up to 25% of its total
assets in repurchase agreements collateralized by U.S. Government securities,
certificates of deposit, and certain bankers' acceptances and other
securities outlined below under "Short-Term Investments." In a repurchase
agreement, the Portfolio purchases a security and simultaneously commits to
resell that security at a future date (usually not more than seven days from
the date of purchase) to the seller (a qualified bank or securities dealer)
at an agreed upon price plus an agreed upon market rate of interest (itself
unrelated to the coupon rate or date of maturity of the purchased security).
The seller under a repurchase agreement will be required to maintain the
value of the securities subject to the agreement at not less than (1) the
repurchase price if such securities mature in one year or less, or (2) 101%
of the repurchase price if such securities mature in more than one year. The
Sub-Adviser will mark-to-market daily the value of the securities purchased,
and the Sub-Adviser will, if necessary, require the seller to maintain
additional securities to ensure that the value is in compliance with the
previous sentence. The Sub-Adviser will consider the creditworthiness of a
seller in determining whether the Portfolio should enter into a repurchase
agreement.
In effect, by entering into a repurchase agreement, the Portfolio is
lending its funds to the seller at the agreed upon interest rate, and
receiving a security as collateral for the loan. Such agreements can be
entered into for periods of one day (overnight repo) or for a fixed term
(term repo). Repurchase agreements are a common way to earn interest income
on short-term funds.
The use of repurchase agreements involves certain risks. For example, if
the seller of the agreement defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has
declined, the Portfolio may incur a loss upon disposition of the securities.
If the seller of the agreement becomes insolvent and subject to liquidation
or reorganization under the Bankruptcy Code or other laws, a bankruptcy court
may determine that the underlying securities are collateral not within the
control of the Portfolio and therefore subject to sale by the trustee in
bankruptcy. Finally, it is possible that the Portfolio may not be able to
substantiate its interest in the underlying securities. While the Sub-Adviser
acknowledges these risks, it is expected that they can be controlled through
stringent security selection criteria and careful monitoring procedures.
While it does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value
of the underlying securities, as well as delays and costs to the Portfolio in
connection with
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bankruptcy proceedings), the Portfolio will only enter into repurchase
agreements with parties whose creditworthiness has been reviewed and found
satisfactory by the Sub-Adviser in accordance with standards established by
the Fund's Board of Directors.
WHEN-ISSUED, DELAYED SETTLEMENT AND FORWARD DELIVERY SECURITIES. The
Portfolio may purchase and sell securities on a "when-issued," "delayed
settlement," or "forward delivery" basis. Such transactions will be limited
to no more than 10% of the equity portion of the Portfolio's assets.
"When-issued" or "forward delivery" refers to securities whose terms and
indenture are available, and for which a market exists, but which are not
available for immediate delivery. When-issued or forward delivery
transactions may be expected to occur a month or more before delivery is due.
Delayed settlement is a term used to describe settlement of a securities
transaction in the secondary market which will occur sometime in the future.
No payment or delivery is made by the Portfolio until it receives payment or
delivery from the other party to any of the above transactions. The Portfolio
will maintain a separate account of cash, U.S. Government securities or other
high grade debt obligations at least equal to the value of purchase
commitments until payment is made. Such segregated securities will either
mature or, if necessary, be sold on or before the settlement date. Typically,
no income accrues on securities purchased on a delayed delivery basis prior
to the time delivery of the securities is made although the Portfolio may
earn income in securities it has deposited in a segregated account.
The Portfolio may engage in when-issued transactions to obtain what is
considered to be an advantageous price and yield at the time of the
transaction. When the Portfolio engages in when-issued or forward delivery
transactions, it will do so for the purpose of acquiring securities
consistent with its investment objective and policies and not for the
purposes of investment leverage.
SHORT-TERM INVESTMENTS. From time to time, in order to earn a return on
uninvested assets, meet anticipated redemptions, or for temporary defensive
purposes, the Portfolio may invest temporarily in cash, cash items, and
short-term instruments, including notes and commercial paper, certificates of
deposit (including those issued by domestic and foreign branches of
FDIC-insured banks), obligations issued or guaranteed as to principal and
interest by the U.S. government or any of its agencies or instrumentalities,
and repurchase agreements. (See Appendix B in the Statement of Additional
Information for a detailed description of these instruments.) For defensive
purposes, during times of unusual market conditions, the Portfolio may invest
up to 100% of its assets in such short-term investments.
Investments in commercial paper are limited to obligations rated A-1 or
A-2 by Standard & Poor's ("S&P") or Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's"). The designation A-1 by S&P indicates that the
degree of safety regarding timely payment is either overwhelming or very
strong. The S&P designation A-2 indicates issues with this designation have a
strong capacity for timely payment, but the relative degree of safety is not
overwhelming as for issues designated "A-1". Issuers of commercial paper
rated P-1 by Moody's must have a superior capacity for repayment of
short-term promissory obligations. Issuers rated Prime-2 (P-2) are high
quality. (See Appendix A in the Statement of Additional Information for
further information concerning commercial paper ratings.)
ILLIQUID SECURITIES. The Portfolio may invest up to 15% of its net assets
in securities that are considered illiquid because of the absence of a
readily available market or due to legal or contractual restrictions on
resale. However, certain restricted securities that are not registered for
sale to the general public but that can be resold to institutional investors
("Rule 144A Securities") may not be considered illiquid, provided that a
dealer or institutional trading market exists. The institutional trading
market is relatively new and liquidity of the Portfolio's investments could
be impaired if such trading does not further develop or declines. The
Sub-Adviser will determine the liquidity of Rule 144A Securities under
guidelines approved by the Board of Directors of the Fund.
NON-INVESTMENT GRADE CONVERTIBLE BONDS AND PREFERRED STOCK. The Portfolio
may invest up to 10% of its assets in convertible bonds, including
convertible bonds rated in the lowest investment grade debt category and
below, commonly referred to as "junk bonds," as determined by Moody's (below
Baa) or S&P (below BBB), or in unrated securities deemed by the Sub-Adviser
to be of comparable quality. Although bonds in the lowest investment grade
debt category (those rated BBB by S&P or Baa by Moody's) are regarded as
having adequate capability to pay principal and interest, they have
speculative characteristics. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher rated bonds. (See
Appendix A in the Statement of Additional Information for a description of
bond ratings.) The Portfolio will not invest in rated securities that, at the
time of investment, are rated below "B" by Moody's or "B" by S&P ("b" in the
case of Moody's preferred stock ratings) or, if unrated, are judged by the
Sub-Adviser not to possess investment qualities at least equivalent to a "B"
or "b" rating. Securities rated "B" or "b" are predominantly speculative with
respect to their issuers' capacity to make payments of both principal and
interest or of preferred stock dividend and sinking fund obligations in
accordance with the securities' obligations. While such securities will
likely possess some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposure to adverse
conditions. In the event that ratings decline after the Portfolio's
investment in such securities, the Sub-Adviser may make a determination to
dispose, or retain, such downgraded securities, based on all such factors as
it deems relevant. (See p. , "The Value Equity Portfolio and the Fund - Risk
Factors" for a description of risks involved.)
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LENDING OF PORTFOLIO SECURITIES
The Portfolio may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to
deliver securities or completing arbitrage operations. The Portfolio will not
loan portfolio securities if more than one-third of its total assets at fair
market value would be committed to loans. By lending its investment
securities, the Portfolio attempts to increase its income through the receipt
of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for
the account of the Portfolio. The Portfolio may lend its investment
securities to qualified brokers, dealers, domestic and foreign banks or other
financial institutions, so long as the terms, the structure and the aggregate
amount of such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the Securities and Exchange Commission (the
"SEC") thereunder, which currently require that (a) the borrower pledge and
maintain with the Portfolio collateral consisting of cash, an irrevocable
letter of credit issued by a domestic U.S. bank or securities issued or
guaranteed by the United States Government having a value at all times not
less than 100% of the value of the securities loaned, (b) the borrower add to
such collateral whenever the price of the securities loaned rises (I.E., the
borrower "marks-to-the-market" on a daily basis, (c) the loan be made subject
to termination by the Portfolio at any time, and (d) the Portfolio receives
reasonable interest on the loan (which may include the Portfolio investing
any cash collateral in interest bearing short-term investments). All relevant
facts and circumstances, including the creditworthiness of the broker, dealer
or institution, will be considered in making decisions with respect to the
lending of securities, subject to review by the Fund's Board of Directors.
At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities
so long as such fees are set forth in a written contract and approved by the
investment company's Board of Directors. The Portfolio will continue to
retain any voting rights with respect to the loaned securities. If a material
event occurs affecting an investment on a loan, the loan must be called and
the securities voted.
OTHER INVESTMENT POLICIES AND RESTRICTIONS
The Portfolio is subject to certain other investment policies and
restrictions which are described in the Statement of Additional Information,
some of which are fundamental policies of the Portfolio and as such may not
be changed without the approval of a majority of the Portfolio's shareholders
and the Policyholders.
PORTFOLIO TURNOVER
Generally, the Portfolio has a one to three year investment horizon and
will not trade in securities for short-term profits. When circumstances
warrant, however, securities may be sold without regard to length of time
held. It should be understood that the rate of portfolio turnover will depend
upon market and other conditions, and it will not be a limiting factor when
the Sub-Adviser believes that Portfolio changes are appropriate. It is
expected that the annual portfolio turnover rate for the Portfolio will
average 50%. The Portfolio will not normally engage in short-term trading but
reserves the right to do so.
RISK FACTORS
The investment policies of the Portfolio entail certain risks and
considerations. There can be no assurance that the Portfolio will achieve its
investment objective. Prospective investors should consider the following
factors that could affect the Portfolio's rate of return: (1) The Portfolio
may invest in repurchase agreements which entail a risk of loss should the
seller default on its transaction. (see "Repurchase Agreement.") (2) The
Portfolio may lend its investment securities which entails a risk of loss
should the borrower fail financially. (See "Lending of Securities.") (3) The
Portfolio may purchase securities on a when-issued basis. Securities
purchased on a when-issued basis earn no interest until issued and may
decline or appreciate in market value prior to their actual delivery to the
Portfolio. (See "When-Issued, Delayed Settlement and Forward Delivery
Securities.") (4) The performance of the Portfolio may depend on the
investing ability of the Sub-Adviser which, while it has approximately
thirteen years of experience as an investment adviser, has limited experience
as a Sub-Adviser to a registered mutual fund.
The Portfolio's investments in non-investment grade debt securities, bonds
and preferred stock generally are subject to both credit risk and market
risk. Credit risk relates to the ability of the issuer to meet interest or
principal payments, or both, as they come due. Market risk relates to the
fact that the market values of the debt securities in which the Portfolio
invests generally will be affected by changes in the level of interest rates.
Both kinds of risks are increased by investing in debt securities rated below
the top three grades by S&P or Moody's or, if unrated, securities determined
by the Sub-Adviser to be of equivalent quality.
MANAGEMENT OF THE FUND
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. There are currently five Directors, three
of whom are not "interested persons" of the Fund within the meaning of that
term under the 1940 Act. The Board meets regularly four times each year and
at other times as necessary. By virtue of the functions performed by WRL as
Investment Adviser and NWQ Investment Management Company, Inc. as
Sub-Adviser, the Fund requires no employees other than its executive
officers, none of whom devotes full time to the affairs of the Fund. These
officers are employees of WRL and receive no compensation from the Fund. The
Statement of Additional Information contains the names of and general
background information regarding each Director and executive officer of the
Fund.
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THE INVESTMENT ADVISER
WRL, a life insurance company located at 201 Highland Avenue, Largo,
Florida 34640, serves as the Portfolio's Investment Adviser. The Investment
Adviser is a wholly-owned subsidiary of First AUSA Life Insurance Company
("First AUSA"), a stock life insurance company which is wholly-owned by AEGON
USA, Inc. ("AEGON"). AEGON is a financial services holding company whose
primary emphasis is on life and health insurance and annuity and investment
products. AEGON is a wholly-owned indirect subsidiary of AEGON nv, a
Netherlands corporation, which is a publicly-traded international insurance
group.
Subject to the supervision and direction of the Fund's Board of Directors,
the Investment Adviser is responsible for managing the Portfolio in
accordance with the Portfolio's stated investment objective and policies. As
compensation for its services to the Portfolio, the Investment Adviser
receives monthly compensation at the annual rate of 0.80% of the average
daily net assets of the Portfolio.
The Investment Adviser is responsible for providing investment advisory
services and furnishes or makes available to the Portfolio the services of
executive and management personnel to supervise the performance of all
administrative, recordkeeping, regulatory reporting and compliance services,
including the supervision of the Portfolio's custodian. The Investment
Adviser also assists the Portfolio in maintaining communications and
relations with the shareholders of the Portfolio, including assisting in the
preparation of reports to shareholders. The Investment Adviser may incur and
will pay certain additional expenses, including legal and accounting fees, in
connection with the formation and maintenance of the Portfolio, including the
preparation and filing, when appropriate, of all documents, including
registration statements, post-effective amendments and any qualification
under state securities laws required in connection with the Portfolio's
offering of shares. The Investment Adviser will also pay all reasonable
compensation, fees and related expenses of the officers and Directors of the
Fund, except for such Directors who are not interested persons (as that term
is defined in the 1940 Act) of the Investment Adviser, and the rental of
offices. The Portfolio pays all other expenses incurred in its operations,
including general administrative expenses. Accounting services are also
provided for the Portfolio by the Investment Adviser. Pursuant to an expense
limitation voluntarily adopted by WRL, WRL has undertaken, until at least
April 30, 1997, to pay expenses on behalf of the Portfolio to the extent
normal operating expenses (including investment management fees but excluding
interest, taxes, brokerage fees, commissions and extraordinary charges)
exceed 1.00% of the Portfolio's average daily net assets.
THE SUB-ADVISER
NWQ Investment Management Company, Inc., located at 655 South Hope Street,
11th Floor, Los Angeles, California 90017, serves as the Sub-Adviser to the
Portfolio. The Sub-Adviser was founded in 1982 and is a wholly-owned
subsidiary of United Asset Management Corporation. The Sub-Adviser provides
investment management services to institutions and high net worth
individuals. As of December 31, 1995, the Sub-Adviser had over $5.6 billion
in assets under management.
An investment policy committee is responsible for the day-to-day
management of the Portfolio's investments. David A. Polak, CFA, Edward
("Ted") C. Friedel, CFA, James H. Galbreath, CFA, and Phyllis G. Thomas, CFA,
constitute the committee.
Ted Friedel, CFA will serve as Senior Portfolio Manager for the Portfolio.
Mr. Friedel has been a managing director and investment strategist/portfolio
manager of the Sub-Adviser since 1983. From 1971 to 1983, Mr. Friedel was a
portfolio manager for Beneficial Standard Investment Management. Mr. Friedel
is a graduate of the University of California at Berkeley (BS) and Stanford
University (MBA).
The Sub-Adviser provides investment advisory assistance and portfolio
management advice to the Investment Adviser for the Portfolio. Subject to
review and supervision by the Investment Adviser and the Board of Directors
of the Fund, the Sub-Adviser is responsible for the actual management of the
Portfolio and for making decisions to buy, sell or hold any particular
security, and it places orders to buy or sell securities on behalf of the
Portfolio. The Sub-Adviser bears all of its expenses in connection with the
performance of its services, such as compensating and furnishing office space
for its officers and employees connected with investment and economic
research, trading and investment management of the Portfolio.
For its services, the Sub-Adviser receives monthly compensation from the
Investment Adviser in the amount of 50% of the investment management fees
received by the Investment Adviser with respect to the Portfolio, less 50% of
the amount of any excess expenses paid by the Investment Adviser on behalf of
the Portfolio pursuant to the expense limitation described above. (See "The
Investment Adviser," p. 6.)
The Sub-Adviser is also responsible for selecting the broker-dealers who
execute the portfolio transactions for the Portfolio. The Sub-Adviser is
authorized to consider sales of the Policies or Annuity Contracts described
in the accompanying prospectus by a broker-dealer as a factor in the
selection of broker-dealers to execute portfolio transactions. In placing
portfolio business with all dealers, the Sub-Adviser seeks best execution of
each transaction and all brokerage placement must be consistent with the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc. The Sub-Adviser is authorized to pay higher commissions to brokerage
firms that provide it with investment and research information than to firms
which do not provide such services, if the Sub-Adviser determines that such
commissions are reasonable in relation to the overall services provided and
the Sub-Adviser receives best execution. The information received may be used
by the Sub-Adviser in managing the assets of other advisory and sub-advisory
accounts, as well as in the management of the assets of the Portfolio.
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PERSONAL SECURITIES TRANSACTIONS
The Fund permits "Access Persons" as defined by Rule 17j-1 under the 1940
Act to engage in personal securities transactions, subject to the terms of
the Code of Ethics and Insider Trader Policy ("Ethics Policy") that has been
adopted by the Board of Directors of the Fund. Access Persons must use the
guidelines established by this Ethics Policy for all personal securities
transactions and are subject to certain prohibitions on personal trading. The
Fund's Sub-Advisers, pursuant to Rule 17j-1 and other applicable laws, and
pursuant to the terms of the Ethics Policy, must adopt and enforce their own
Code of Ethics and Insider Trading Policies appropriate to their operations.
Each Sub-Adviser must report to the Board of Directors on a quarterly basis
with respect to the administration and enforcement of such Ethics Policy,
including any violations thereof which may potentially affect the Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Portfolio intends to distribute substantially all of its net
investment income, if any. Dividends, if any, from investment income normally
are declared and paid semi-annually in additional shares of the Portfolio at
net asset value. Distributions of net realized capital gains from security
transactions and net gains from foreign currency transactions, if any,
normally are declared and paid in additional shares of the Portfolio at the
end of the fiscal year.
TAXES
The Portfolio intends to qualify and continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code"). As such, the Portfolio is not subject to Federal income
tax on that part of its investment company taxable income (consisting
generally of net investment income, net gains from certain foreign currency
transactions, and net short-term capital gain, if any) and any net capital
gain (the excess of net long-term capital gain over net short-term capital
loss) that it distributes to its shareholders. It is the Portfolio's
intention to distribute substantially all such income and gains.
Portfolio shares are offered only to WRL and the Separate Accounts (which
are insurance company separate accounts that fund the Policies and the
Annuity Contracts). Under the Code, no tax is imposed on an insurance company
with respect to income of a qualifying separate account properly allocable to
the value of eligible variable annuity or variable life insurance contracts.
For a discussion of the taxation of life insurance companies and the Separate
Accounts, as well as the tax treatment of the Policies and Annuity Contracts
and the holders thereof, see "Federal Tax Matters" included in the respective
prospectuses for the Policies and the Annuity Contracts.
The Portfolio intends to comply with the diversification requirements
imposed by section 817(h) of the Code and the regulations thereunder. These
requirements are in addition to the diversification requirements imposed on
the Portfolio by Subchapter M and the 1940 Act. These requirements place
certain limitations on the assets of each separate account that may be
invested in securities of a single issuer, and, because section 817(h) and
the regulations thereunder treat the Portfolio's assets as assets of the
related separate account, these limitations also apply to the Portfolio's
assets that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor"
described below, as of the end of each calendar quarter, or within 30 days
thereafter, no more than 55% of the Portfolio's total assets may be
represented by any one investment, no more than 70% by any two investments,
no more than 80% by any three investments, and no more than 90% by any four
investments.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of section
817(h), all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are treated as a
single investment. In addition, each U.S. Government agency or
instrumentality is treated as a separate issuer, while the securities of a
particular foreign government and its agencies, instrumentalities, and
political subdivisions all will be considered securities issued by the same
issuer. Failure of the Portfolio to satisfy the section 817(h) requirements
would result in taxation of the Separate Accounts, the insurance companies,
the Policies, and the Annuity Contracts, and tax consequences to the holders
thereof, other than as described in the respective prospectuses for the
Policies and the Annuity Contracts.
The foregoing is only a summary of some of the important Federal income
tax considerations generally affecting the Portfolio and its shareholders;
see the Statement of Additional Information for a more detailed discussion.
Prospective investors are urged to consult their tax advisors.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolio are sold and redeemed at their net asset value
next determined after receipt of a purchase order or notice of redemption in
proper form. Shares are sold and redeemed without the imposition of any sales
commission or redemption charge. However, certain sales and other charges may
apply to the Policies and the Annuity Contracts. Such charges are described
in the respective prospectuses or disclosure documents for the Policies and
the Annuity Contracts.
VALUATION OF SHARES
The Portfolio's net asset value per share is ordinarily determined, once
daily, as of the close of the regular session of business on the New York
Stock Exchange ("Exchange") (usually 4:00 p.m., Eastern time), on each day
the Exchange is open.
Net asset value of the Portfolio's shares is computed by dividing the
value of the net assets of the Portfolio by the total number of Portfolio
shares outstanding.
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Except for money market instruments maturing in 60 days or less,
securities held by the Portfolio are valued at market value. Securities for
which market values are not readily available are valued at fair value as
determined in good faith by the Advisers under the supervision of the Fund's
Board of Directors. Money market instruments maturing in 60 days or less are
valued on the amortized cost basis.
THE FUND AND ITS SHARES
The Fund was incorporated under the laws of the State of Maryland on
August 21, 1985, and is registered with the Securities and Exchange
Commission as a diversified, open-end, management investment company.
The Fund offers its shares only for purchase by the Separate Accounts of
the Life Companies to fund benefits under variable life insurance or variable
annuity contracts issued by the Life Companies. Because Fund shares are sold
to Separate Accounts established to receive and invest premiums received
under variable life insurance policies and purchase payments received under
variable annuity contracts, it is conceivable that, in the future, it may
become disadvantageous for variable life insurance Separate Accounts and
variable annuity Separate Accounts to invest in the Fund simultaneously.
Neither the Life Companies nor the Fund currently foresees any such
disadvantages or conflicts, either to holders of the variable life insurance
policyowners or to variable annuity contractowners. After being notified by
one or more of the Life Companies of a potential or existing conflict, the
Fund's Board of Directors will determine if a material conflict exists and
what action, if any, should be taken in response thereto. Such action could
include the sale of Fund shares by one or more of the Separate Accounts,
which could have adverse consequences. Material conflicts could result from,
for example, (1) changes in state insurance laws, (2) changes in Federal
income tax laws, or (3) differences in voting instructions between those
given by variable life insurance policyowners and those given by variable
annuity contractowners. If the Board of Directors were to conclude that
separate funds should be established for variable life and variable annuity
Separate Accounts, the affected Life Companies will bear the attendant
expenses, but variable life insurance policyowners and variable annuity
contractowners would no longer have the economies of scale typically
resulting from a larger combined fund.
The Fund offers a separate class of common stock for each portfolio. All
shares of the Portfolio and of each of the other portfolios have equal voting
rights, except that only shares of a particular portfolio are entitled to
vote on matters concerning only that portfolio. Each issued and outstanding
share of the Portfolio is entitled to one vote and to participate equally in
dividends and distributions declared by the Portfolio and, upon liquidation
or dissolution, to participate equally in the net assets of the Portfolio
remaining after satisfaction of outstanding liabilities. The shares of the
Portfolio, when issued, will be fully paid and nonassessable, have no
preference, preemptive, conversion, exchange or similar rights, and will be
freely transferable. Shares do not have cumulative voting rights and the
holders of more than 50% of the shares of the Fund voting for the election of
directors can elect all of the directors of the Fund if they choose to do so
and in such event holders of the remaining shares would not be able to elect
any directors.
Only the Separate Accounts of the Life Companies may hold shares of the
Fund and are entitled to exercise the rights directly as described above. If
and to the extent required by law, Life Companies will vote the Fund's shares
in the Separate Accounts, including Fund shares which are not attributable to
Policyholders, at meetings of the Fund in accordance with instructions
received from Policyholders having voting interests in the corresponding
sub-accounts of the Separate Accounts. Except as required by the 1940 Act,
the Fund does not hold regular or special shareholder meetings. If the 1940
Act or any regulation thereunder should be amended or if present
interpretation thereof should change, and as a result it is determined that
the Life Companies are permitted to vote Fund shares in their own right, they
may elect to do so. The rights of Policyholders are described in more detail
in the prospectuses or disclosure documents for the Policies and the Annuity
Contracts, respectively.
PERFORMANCE INFORMATION
The Portfolio may, from time to time, include quotations of its total
return or yield in connection with the total return for any Separate Account
in advertisements, sales literature or reports to Policyholders or to
prospective investors. Total return and yield quotations reflect only the
performance of a hypothetical investment in the Portfolio during the
particular time period shown as calculated based on the historical
performance of the Portfolio during that period. SUCH QUOTATIONS DO NOT IN
ANY WAY INDICATE OR PROJECT FUTURE PERFORMANCE. Quotations of total return
and yield do not reflect charges or deductions against the Separate Accounts
or charges and deductions against the Policies or the Annuity Contracts.
Where relevant, the prospectuses for the Policies and the Annuity Contracts
contain additional performance information.
The total return of the Portfolio refers to the average annual percentage
change in value of an investment in the Portfolio held for various periods of
time, including, but not limited to, one year, five years, ten years and
since the Portfolio began operations, as of a stated ending date. When the
Portfolio has been in operation for these periods, the total return for such
periods will be provided if performance information is quoted. Total return
quotations are expressed as average annual compound rates of return for each
of the periods quoted, reflect the deduction of a proportionate share of the
Portfolio's investment advisory fees and Portfolio expenses, and assume that
all dividends and capital gains distributions during the period are
reinvested in the Portfolio when made.
The Portfolio may, from time to time, disclose in advertisements, sales
literature and reports to Policyholders or to prospective investors, total
return for the Portfolio for periods in addition to those required to be
presented or disclose other
7
<PAGE>
nonstandardized data such as cumulative total returns, actual year-by-year
returns, or any combination thereof.
The Portfolio may also, from time to time, compare the performance of the
Portfolio in advertisements, sales literature and reports to Policyholders or
to prospective investors to: (1) the Standard & Poor's Index of 500 Common
Stocks, the Dow Jones Industrial Average or other widely recognized indices;
(2) other mutual funds whose performance is reported by Lipper Analytical
Services, Inc. ("Lipper"), Variable Annuity Research & Data Service ("VARDS")
and Morningstar, Inc. ("Morningstar") or reported by other services,
companies, individuals or other industry or financial publications of general
interest, such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, KIPLINGER'S PERSONAL FINANCE and FORTUNE, which rank and/or rate
mutual funds by overall performance or other criteria; and (3) the Consumer
Price Index. Lipper, VARDS and Morningstar are widely quoted independent
research firms which rank mutual funds by overall performance, investment
objectives, and assets. Unmanaged indices may assume the reinvestment of
dividends but usually do not reflect any "deduction" for the expense of
operating or managing a fund. In connection with a ranking, a Portfolio will
also provide additional information with respect to the ranking, including
the particular category to which it relates, the number of funds in the
category, the period and criteria on which the ranking is based, and the
effect of fee waivers and/or expense reimbursements.
The Portfolio yield quotation refers to the income generated by a
hypothetical investment in the Portfolio over a specified thirty-day period
expressed as a percentage rate of return for that period. The yield is
calculated by dividing the net investment income per share for the period by
the price per share on the last day of that period.
(See the Statement of Additional Information for more information about
the Portfolio's performance.)
GENERAL INFORMATION
REPORTS TO POLICYHOLDERS
The fiscal year of the Portfolio ends on December 31 of each year. The
Fund will send to the Portfolio's Policyholders, at least semi-annually,
reports showing the Portfolio's composition and other information. An annual
report, containing financial statements audited by the Fund's independent
accountants, will be sent to Policyholders each year.
CUSTODIAN AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts
02111, acts as Custodian and Dividend Disbursing Agent of the Portfolio's
assets.
ADDITIONAL INFORMATION
The telephone number or the address of the Fund appearing on the first
page of this Prospectus should be used for requests for additional
information.
8
<PAGE>
WRL SERIES FUND, INC.
VALUE EQUITY PORTFOLIO
OFFICE OF THE FUND:
WRL Series Fund, Inc.
201 Highland Avenue
Largo, FL 34640
(800) 851-9777
(813) 585-6565
INVESTMENT ADVISER:
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, FL 34640
SUB-ADVISER:
NWQ Investment Management Company, Inc.
655 South Hope Street
11th Floor
Los Angeles, CA 90017
CUSTODIAN:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
INDEPENDENT ACCOUNTANTS:
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR
AN OFFER TO ANY PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES
OR ANY COUNTRY WHERE SUCH OFFER WOULD BE UNLAWFUL.
WRL00092-05/96
9
<PAGE>
WRL SERIES FUND, INC.
VALUE EQUITY PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is NOT a prospectus but
supplements and should be read in conjunction with the Prospectus for the
Value Equity Portfolio of the WRL Series Fund, Inc. (the "Fund"). A copy of
the Prospectus may be obtained from the Fund by writing the Fund at 201
Highland Avenue, Largo, Florida 34640 or by calling the Fund at (800)
851-9777.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Investment Adviser
NWQ INVESTMENT MANAGEMENT COMPANY, INC.
Sub-Adviser
The date of the Prospectus to which this Statement of Additional
Information relates and the date of this Statement of Additional Information
is May 1, 1996.
WRL00093-05/96
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE IN THIS STATEMENT CROSS-REFERENCE
OF TO
ADDITIONAL INFORMATION PAGE IN PROSPECTUS
--------------------------- -----------------------
<S> <C> <C>
Investment Objective and Policies 1 1
Investment Restrictions 1 4
Lending of Portfolio Securities 2 3
U.S. Government Securities 3 3
Non-Investment Grade Convertible
Bonds and Preferred Stock 3 3
When-Issued, Delayed Settlement and Forward
Delivery Securities 3 3
Repurchase Agreements 3 2
Illiquid Securities 4 3
Warrants and Rights 4 2
Convertible Securities 4 1
Foreign Securities 5 2
Management of the Fund 5 4
Directors and Officers 5 4
The Investment Adviser 7 4
The Sub-Adviser 8 5
Portfolio Transactions and Brokerage 9 5
Portfolio Turnover 9 4
Placement of Portfolio Brokerage 9 5
Purchase and Redemption of Shares 10 6
Determination of Offering Price 10 6
Net Asset Valuation 10 6
Calculation of Performance Related Information 11 7
Total Return 11 7
Yield Quotations 11 8
Taxes 11 6
Capital Stock of the Fund 13 7
Registration Statement 13 N/A
Financial Statements 13 8
Appendix A (Description of Selected Corporate
Bond and Commercial Paper Ratings) A-1 3
Appendix B (Description of Short-Term Securities) B-1 3
</TABLE>
i
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Value Equity Portfolio (the "Portfolio")
of the Fund is described in the Portfolio's Prospectus. Shares of the
Portfolio are sold only to the insurance company separate accounts of Western
Reserve Life Assurance Co. of Ohio ("WRL") and separate accounts of certain
of its affiliated life insurance companies (collectively, the "Separate
Accounts") to fund the benefits under certain variable life insurance
policies (the "Policies") and variable annuity contracts (the "Annuity
Contracts").
As indicated in the Prospectus, the Portfolio's investment objective and,
unless otherwise noted, its investment policies and techniques may be changed
by the Board of Directors of the Fund without approval of shareholders or
holders of the Policies or of the Annuity Contracts (collectively,
"Policyholders"). A change in the investment objective or policies of the
Portfolio may result in the Portfolio having an investment objective or
policies different from that which a Policyholder deemed appropriate at the
time of investment.
INVESTMENT RESTRICTIONS
As indicated in the Prospectus, the Portfolio is subject to certain
fundamental policies and restrictions which may not be changed without the
approval of the holders of a majority of the outstanding voting shares of the
Portfolio. "Majority" for this purpose and under the Investment Company Act
of 1940, as amended (the "1940 Act"), means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares of the Portfolio are represented or (ii) more than 50% of the
outstanding shares of the Portfolio. A complete statement of all such
fundamental policies is set forth below.
The Portfolio may not, as a matter of fundamental policy:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (other than Government securities as defined in
the 1940 Act) if immediately after and as a result of such purchase (a) the
value of the holdings of the Portfolio in the securities of such issuer
exceeds 5% of the value of the Portfolio's total assets, or (b) the Portfolio
owns more than 10% of the outstanding voting securities of such issuer.
2. Invest more than 25% of the Portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services, for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of
this restriction. In addition, there shall be no limitation on the purchase
of obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.
3. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives and policies or by entering into repurchase
agreements or (ii) by lending the Portfolio securities to banks, brokers,
dealers and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the Securities and Exchange Commission (the "SEC")
thereunder.
4. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.
5. Purchase or sell real estate or real estate limited partnerships (but
this shall not prevent the Portfolio from investing in securities or other
instruments backed by real estate, including mortgage-backed securities, or
securities of companies engaged in the real estate business).
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of its portfolio securities.
Furthermore, the Portfolio has adopted the following non-fundamental
investment restrictions which may be changed by the Board of Directors of the
Fund without shareholder or Policyholder approval:
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<PAGE>
(A) The Portfolio may not purchase on margin or sell short.
(B) The Portfolio may not invest more than an aggregate of 15% of the net
assets of the Portfolio, determined at the time of investment, in illiquid
securities, subject to legal or contractual restrictions on resale or
securities for which there are no readily available markets.
(C) The Portfolio may not invest in companies for the purpose of
exercising control or management.
(D) The Portfolio may not write or acquire options or interests, or invest
directly, in oil, gas, mineral leases or other mineral exploration or
development programs or leases; however the Portfolio may own debt or equity
securities of companies engaged in these businesses.
(E) The Portfolio may not pledge, mortgage or hypothecate any of its
assets to an extent greater than 10% of its total assets at fair market
value.
(F) The Portfolio may borrow money only from banks for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 10% of the value of the Portfolio's total assets (including the
amount borrowed) less liabilities (other than borrowings). Any borrowings
that exceed 10% of the value of the Portfolio's total assets by reason of a
decline in net assets will be reduced within three business days to the
extent necessary to comply with the 10% limitation. The Portfolio may not
purchase additional securities when borrowings exceed 5% of total assets.
(G) The Portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization.
(H) The Portfolio may not issue senior securities, except as permitted by
the 1940 Act.
The Portfolio has no present intention of borrowing.
Except with respect to borrowing money, if a percentage limitation set
forth above is complied with at the time of the investment, a subsequent
change in the percentage resulting from any change in value or of the
Portfolio's net assets will not result in a violation of such restriction.
State insurance laws and regulations may impose additional limitations on
borrowing, lending, and the use of options, futures, and other derivative
instruments. In addition, such laws and regulations may require the
Portfolio's investments in foreign securities to meet additional
diversification and other requirements.
LENDING OF PORTFOLIO SECURITIES
Subject to Investment Restriction 3. above, the Portfolio may lend its
investment securities to qualified institutional investors who need to borrow
securities in order to complete certain transactions, such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its investment securities, the Portfolio attempts to
increase its income through the receipt of interest on the loan. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Portfolio. The Portfolio may
lend its investment securities to qualified brokers, dealers, domestic and
foreign banks or other financial institutions and receive as collateral cash
or U.S. Treasury securities which at all times while the loan is outstanding
will be maintained in amounts equal to at least 100% of the current market
value of the loaned securities. Any cash collateral will be invested in
short-term securities, which will likely increase the current income of the
Portfolio. Such loans may not have terms longer than 30 days and will be
terminable at any time. The Portfolio may also pay reasonable fees to persons
unaffiliated with the Portfolio for services in arranging such loans. No loan
will be made if, as a result, the aggregate of Portfolio loans would exceed
33 1/3% of the fair market value of the Portfolio's total assets.
All relevant facts and circumstances, including the creditworthiness of
the broker, dealer or institution, will be considered in making decisions
with respect to the lending of securities, subject to review by the Fund's
Board of Directors. The Portfolio will continue to retain any voting rights
with
2
<PAGE>
respect to the loaned securities. If a material event occurs affecting an
investment on a loan, the loan must be called and the securities voted.
U.S. GOVERNMENT SECURITIES
Examples of the types of U.S. Government securities that the Portfolio may
hold include, in addition to those described in the Prospectus and direct
obligations of the U.S. Treasury, the obligations of the Federal Housing
Administration, Farmers Home Administration, Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Bank, Federal Intermediate Credit Banks,
Federal Land Banks and Maritime Administration. U.S. Government securities
may be supported by the full faith and credit of the U.S. Government (such as
securities of the Small Business Administration); by the right of the issuer
to borrow from the Treasury (such as securities of the Federal Home Loan
Bank); by the discretionary authority of the U.S. Government to purchase the
agency's obligations (such as securities of the Federal National Mortgage
Association); or only by the credit of the issuing agency.
NON-INVESTMENT GRADE CONVERTIBLE BONDS AND PREFERRED STOCK
The Portfolio may invest up to 10% of its assets in convertible bonds that
are rated below the four highest grades ("lower grade debt securities",
commonly referred to as "junk bonds") as determined by Moody's Investors
Service, Inc. ("Moody's") (below Baa) or Standard & Poor's ("S&P") (below
BBB). Bonds and preferred stock rated "B" or "b" by Moody's are not
considered investment grade securities. See Appendix A for a description of
debt securities ratings. Before investing in any lower-grade debt
securities, the Sub-Adviser will determine that such investments meet the
Portfolio's investment objective and that the lower-grade debt securities'
ratings are supported by an internal credit review, which the Sub-Adviser
will conduct in each such instance. Lower-grade debt securities usually have
moderate to poor protection of principal and interest payments, have certain
speculative characteristics, and involve greater risk of default or price
declines due to changes in the issuer's creditworthiness than
investment-grade debt securities. Because the market for lower-grade debt
securities may be thinner and less active than for investment-grade debt
securities, there may be a market price volatility for these securities and
limited liquidity in the resale market. Market prices for lower-grade debt
securities may decline significantly in periods of general economic
difficulty or rising interest rates. Through portfolio diversification and
credit analysis, investment risk can be reduced, although there can be no
assurance that losses will not occur.
WHEN-ISSUED, DELAYED SETTLEMENT AND FORWARD DELIVERY SECURITIES
These transactions are made to secure what is considered to be an
advantageous price and yield for the Portfolio. Settlement dates may be a
month or more after entering into these transactions, and the market values
of the securities purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Portfolio sufficient to make payment
for the securities to be purchased are segregated on the Portfolio's records
at the trade date. These securities are marked-to-market daily and maintained
until the transaction is settled. The Portfolio may engage in these
transactions to an extent that would cause the segregation of an amount up to
10% of the equity portion of the Portfolio's assets.
REPURCHASE AGREEMENTS
In a repurchase agreement, the Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon incremental amount which is unrelated to the coupon
rate or maturity of the purchased security. A repurchase agreement involves
the obligation of the seller to pay the agreed upon price, which obligation
is in effect secured by the value (at least equal to the amount of the agreed
upon resale price and marked-to-market daily) of the underlying security. The
Portfolio may engage in a repurchase agreement with respect to any security
in which it is authorized to invest. While it does not presently appear
possible to eliminate all risks from these transactions (particularly
3
<PAGE>
the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Portfolio in connection with
bankruptcy proceedings), it is the policy of the Portfolio to limit
repurchase agreements to those parties whose creditworthiness has been
reviewed and found satisfactory by the Sub-Adviser.
The Portfolio does not intend to invest more than 25% of its total assets
in repurchase agreements. The Portfolio does not currently intend to invest
in reverse repurchase agreements.
ILLIQUID SECURITIES
The Portfolio may invest up to 15% of its net assets in illiquid
securities (I.E., securities that are not readily marketable). The Fund's
Board of Directors has authorized the Sub-Adviser to make liquidity
determinations with respect to Rule 144A securities in accordance with the
guidelines established by the Board of Directors. Under the guidelines, the
Sub-Adviser will consider the following factors in determining whether a Rule
144A security is liquid: 1) the frequency of trades and quoted prices for the
security; 2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; 3) the willingness of dealers
to undertake to make a market in the security; and 4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer. The sale of
illiquid securities often requires more time and results in higher brokerage
charges or dealer discounts and other selling expenses than does the sale of
securities eligible for trading on national securities exchanges or in the
over-the-counter markets. The Portfolio may be restricted in its ability to
sell such securities at a time when the Sub-Adviser deems it advisable to do
so. In addition, in order to meet redemption requests, the Portfolio may have
to sell other assets, rather than such illiquid securities, at a time which
is not advantageous.
WARRANTS AND RIGHTS
The Portfolio may invest up to 10% of its assets in warrants and rights. A
warrant is a type of security that entitles the holder to buy a proportionate
amount of common stock at a specified price, usually higher than the market
price at the time of issuance, for a period of years or to perpetuity. In
contrast, rights, which also represent the right to buy common shares,
normally have a subscription price lower than the current market value of the
common stock and a life of two to four weeks. Warrants in which the Portfolio
may invest are freely tranferable and are traded on the major securities
exchanges.
Warrants and rights may be considered more speculative than certain other
types of investments in that they do not entitle a holder to dividends or
voting rights with respect to the securities which may be purchased nor do
they represent any rights in the assets of the issuing company. Also, the
value of a warrant or right does not necessarily change with the value of the
underlying securities and a warrant or right ceases to have value if it is
not exercised prior to the expiration date.
CONVERTIBLE SECURITIES
The Portfolio may invest up to 10% of its assets in convertible
securities. Convertible securities may include corporate notes or preferred
stock, but ordinarily are a long-term debt obligation of the issuer
convertible at a stated exchange rate into common stock of the issuer. As
with all debt securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent
as the underlying common stock. Convertible securities generally rank senior
to common stocks in an issuer's capital structure and are consequently of
higher quality and entail less risk of declines in market value than the
issuer's common stock. However, the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security. In evaluating investment in
a
4
<PAGE>
convertible security, primary emphasis will be given to the attractiveness of
the underlying common stock. The convertible debt securities in which the
Portfolio may invest are subject to the same rating criteria as the
Portfolio's investment in non-convertible debt securities.
FOREIGN SECURITIES
Subject to the limitations set forth above, the Portfolio may purchase
certain foreign securities and American Depositary Receipts (ADRs), although
the Portfolio does not and has no present intention to hold more than 20% of
its total assets in such securities. ADRs are dollar-denominated receipts
issued generally by domestic banks and represent the deposit with the bank of
a security of a foreign issuer. ADRs are publicly traded on exchanges or
over-the-counter in the United States. Investments in foreign securities,
particularly those of non-governmental issuers, involve considerations which
are not ordinarily associated with investing in domestic issuers. These
considerations include changes in currency rates, currency exchange control
regulations, the possibility of expropriation, the unavailability of
financial information or the difficulty of interpreting financial information
prepared under foreign accounting standards, less liquidity and more
volatility in foreign securities markets, the impact of political, social or
diplomatic developments, and the difficulty of assessing economic trends in
foreign countries. It is possible that market quotations for foreign
securities will not be readily available. In such event, these securities
shall be valued at fair market value as determined in good faith by the Sub-
Adviser under the supervision of the Board of Directors. If it should become
necessary, the Portfolio could encounter greater difficulties in invoking
legal processes abroad than would be the case in the United States.
Transaction costs with respect to foreign securities may be higher. The
Investment Adviser and the Sub-Adviser will consider these and other factors
before investing in foreign securities.
Certain foreign governments levy withholding taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recoverable portion of foreign withholding taxes will
reduce the income received from the companies comprising the Portfolio's
investments. However, these foreign withholding taxes are not expected to
have a significant impact.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below:
PETER R. BROWN, DIRECTOR (DOB 5/10/28), 1475 South Belcher Road, Largo,
Florida 34641. Chairman of the Board, Peter Brown Construction Company,
(construction contractors and engineers), Largo, Florida (1963 - present);
Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3; Rear Admiral
(Ret.) U.S. Navy Reserve, Civil Engineer Corps.
CHARLES C. HARRIS, DIRECTOR (DOB 7/15/30), 35 Winston Drive, Clearwater,
Florida 34616. Retired (1988 - present); Senior Vice-President, Treasurer
(1966 - 1988), Western Reserve Life Assurance Co. of Ohio; Vice President,
Treasurer (1968 - 1988), Director (1968 - 1987), Pioneer Western Corporation;
Vice President of the Fund (1986 - December, 1990).
RUSSELL A. KIMBALL, JR., DIRECTOR (DOB 8/17/44), 1160 Gulf Boulevard,
Clearwater Beach, Florida 34630. General Manager, Sheraton Sand Key Resort
(resort hotel), Clearwater, Florida (1975 - present).
JOHN R. KENNEY (1, 2), CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT (DOB
2/8/38). Chairman of the Board of Directors (1987 - present), Chief
Executive Officer (1982 - present), President (1978 - 1987 and December,
1992 - present), Director (1978 - present), Western Reserve Life Assurance
Co. of Ohio; Chairman of the Board of Directors and Chief Executive Officer
(1988 - February, 1991), President (1988 - 1989), Director (1976 - February,
1991), Executive Vice President (1972 - 1988), Pioneer Western Corporation
(financial services), Largo, Florida; President and
- ------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
(2) Interested person as defined in the 1940 Act and affiliated person of the
Investment Adviser.
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<PAGE>
Director (1985 - September, 1990) and Director (December, 1990 - present);
Idex Management, Inc. (investment adviser), Largo, Florida; Trustee (1987 -
present), Chairman (December, 1989 - September, 1990 and November, 1990 -
present) and President and Chief Executive Officer (November, 1986 -
September, 1990), IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment
companies), all of Largo, Florida.
G. JOHN HURLEY (1, 2), DIRECTOR AND EXECUTIVE VICE PRESIDENT (DOB 9/12/48).
Executive Vice President (June, 1993 - present), Chief Operating Officer
(March, 1994 - present), Western Reserve Life Assurance Co. of Ohio;
President and Chief Executive Officer (September, 1990 - present), Trustee
(June, 1990 - present) and Executive Vice President (June, 1988 - September,
1990) of IDEX Fund, IDEX II Series Fund and IDEX Fund 3; President, Chief
Executive Officer and Director of InterSecurities, Inc. (May, 1988 -
present); Assistant Vice President of AEGON USA Managed Portfolios, Inc.
(September, 1991 - August, 1992); Vice President of Pioneer Western
Corporation (May, 1988 - February, 1991).
RICHARD B. FRANZ, II (1, 2), TREASURER (DOB 7/12/50). Senior Vice President
(1987 - present), Chief Financial Officer (1987 - December, 1995) and
Treasurer (1988 - present), Western Reserve Life Assurance Co. of Ohio;
Senior Vice President and Treasurer (1988 - February, 1991), Pioneer Western
Corporation (financial services), Largo, Florida; Treasurer (1988 -
September, 1990 and November, 1990 - present), IDEX Fund, IDEX II Series
Fund and IDEX Fund 3 (investment companies), all of Largo, Florida.
REBECCA A. FERRELL (1, 2), SECRETARY, VICE PRESIDENT AND COUNSEL (DOB
12/10/60). Attorney (August, 1993 - June, 1995), Assistant Vice President
and Counsel (June, 1993 - present), Western Reserve Life Assurance Co. of
Ohio; Secretary and Assistant Vice President (March, 1994 - September, 1995)
Secretary, Vice President and Counsel (September, 1995 - present) of IDEX
Fund, IDEX II Series Fund and IDEX Fund 3; Attorney, (September, 1992
- August, 1993), Hearne, Graziano, Nader & Buhr, P.A.; Legal Writing
Instructor, (August, 1991 - June, 1992), Florida State University College of
Law; Teaching Assistant, English, University of South Florida (August, 1990
- July, 1991).
ALAN M. YAEGER (1, 2), EXECUTIVE VICE PRESIDENT (DOB 10/21/46). Executive
Vice President (June, 1993 - present), Chief Financial Officer (December,
1995 - present), Senior Vice President (1981 - June, 1993) and Actuary (1972
- present), Western Reserve Life Assurance Co. of Ohio.
- -----------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
(2) Interested person as defined in the 1940 Act and affiliated person of
the Investment Adviser.
The Fund pays no salaries or compensation to any of its officers, all of
whom are employees of WRL.The Fund pays an annual fee of $6,000 to each
Director who is not affiliated with the Investment Adviser or the Sub-Adviser
("disinterested Director"). Each such Director also receives $500, plus
expenses, per each regular or special Board meeting attended. Because the
Portfolio had not commenced operations as of December 31, 1995, the Portfolio
did not pay any Directors' fees for the fiscal year ended December 31, 1995.
The following table provides compensation amounts paid to disinterested
Directors of the Fund for the fiscal year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION PAID TO
DIRECTORS FROM WRL SERIES
AGGREGATE COMPENSATION FROM FUND, INC., IDEX FUND, IDEX II
NAME OF PERSON, POSITION WRL SERIES FUND, INC. SERIES FUND AND IDEX FUND 3
- -------------------------------------- -------------------------------- -----------------------------------
<S> <C> <C>
Peter R. Brown, Director $ $
Charles C. Harris, Director $ $
Russell A. Kimball, Jr., Director $ $
</TABLE>
6
<PAGE>
Commencing on January 1, 1996, a non-qualified deferred compensation plan
(the "Plan") became available to directors who are not interested persons of
the Fund. Under the Plan, compensation may be deferred that would otherwise
be payable by the Fund, IDEX Fund, IDEX II Series Fund, and/or IDEX Fund 3 to
a disinterested Director or Trustee on a current basis for services rendered
as director. Once any necessary regulatory approvals are obtained, deferred
compensation amounts will accumulate based on the value of Class A shares of
a portfolio of IDEX II Series Fund (without imposition of sales charge), as
elected by the directors. It is not anticipated that the Plan will have any
impact on the Fund.
As of , the Directors and officers of the Fund beneficially
owned in the aggregate less than 1% of the Fund's shares through ownership of
Policies and Annuity Contracts indirectly invested in the Fund. The Board of
Directors has established an Audit Committee consisting currently of Messrs.
Brown, Harris and Kimball.
THE INVESTMENT ADVISER
The information that follows supplements the information provided about
the Investment Adviser under the caption "Management of the Fund - The
Investment Adviser" in the Prospectus.
Western Reserve Life Assurance Co. of Ohio (the "Investment Adviser")
serves as the investment adviser to the Portfolio pursuant to an Investment
Advisory Agreement dated April 30, 1996 with the Fund. The Investment Adviser
is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), a stock life insurance company which is wholly-owned by AEGON USA,
Inc. ("AEGON"). AEGON is a financial services holding company whose primary
emphasis is on life and health insurance and annuity and investment products.
AEGON is a wholly-owned indirect subsidiary of AEGON nv, a Netherlands
corporation, which is a publicly traded international insurance group.
The Investment Advisory Agreement was approved by the Fund's Board of
Directors, including a majority of the Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund, on December 4, 1995. The
Investment Advisory Agreement provides that subsequent to its approval by the
Portfolio's sole shareholder, it will continue in effect for an initial term
ending April 22, 1998, and will continue in effect from year to year
thereafter, if approved annually (a) by the Board of Directors of the Fund or
by a majority of the outstanding shares of the Portfolio, and (b) by a
majority of the Directors who are not parties to such contract or "interested
persons" of any such party. The Investment Advisory Agreement may be
terminated without penalty on 60 days' written notice at the option of either
party or by the vote of the shareholders of the Portfolio and terminates
automatically in the event of its assignment (within the meaning of the 1940
Act).
While the Investment Adviser is at all times subject to the direction of
the Board of Directors of the Fund, the Investment Advisory Agreement
provides that the Investment Adviser, subject to review by the Board of
Directors, is responsible for the actual management of the Fund and has
responsibility for making decisions to buy, sell or hold any particular
security. The Investment Adviser also is obligated to provide all the office
space, facilities, equipment and personnel necessary to perform its duties
under the Agreement. For further information about the management of the
Portfolio, see "The Sub-Adviser," below.
ADVISORY FEE. The method of computing the investment advisory fee is
described in the Prospectus. No fees have been paid to the Investment Adviser
by the Portfolio for the year ended December 31, 1995 because the Portfolio
had not commenced operations as of that date.
PAYMENT OF EXPENSES. Under the terms of the Investment Advisory Agreement,
the Investment Adviser is responsible for providing investment advisory
services and pays all compensation of and furnishes office space for officers
and employees of the Investment Adviser connected with investment management
of the Portfolio, as well as the fees of all directors of the Fund who are
affiliated persons of WRL or any of its subsidiaries. Accounting services are
provided for the Portfolio by the Investment Adviser. The Portfolio pays all
other expenses incurred in its operation and all of the Portfolio's general
administrative expenses.
7
<PAGE>
Expenses that are borne directly by the Portfolio include redemption
expenses, expenses of portfolio transactions, shareholder servicing costs,
expenses of registering the shares under Federal and state securities laws,
pricing costs (including the daily calculation of net asset value), interest,
certain taxes, charges of the custodian and transfer agent, fees and expenses
of Fund directors who are not "interested persons" of the Fund, legal
expenses, state franchise taxes, cost of auditing services, costs of printing
proxies and stock certificates, SEC fees, advisory fees, certain insurance
premiums, costs of corporate meetings, costs of maintenance of corporate
existence, investor services (including allocable telephone and personnel
expenses), extraordinary expenses, and other expenses properly payable by the
Portfolio. Depending upon the nature of the lawsuit, litigation costs may be
borne by the Portfolio.
Expenses that relate exclusively to a particular portfolio of the Fund,
such as brokerage commissions, custodian fees, and registration fees for
shares, are paid by that portfolio. Other expenses are allocated to the
portfolios in an equitable manner determined by the Fund's Board of
Directors.
The Investment Adviser has voluntarily undertaken, until at least April
30, 1997, to pay expenses on behalf of the Portfolio to the extent normal
operating expenses (including investment advisory fees but excluding
interest, taxes, brokerage fees, commissions and extraordinary charges)
exceed, as a percentage of the Portfolio's average daily net assets, 1.00%.
THE SUB-ADVISER
This discussion supplements the information provided about the Sub-Adviser
under the caption "Management of the Fund - The Sub-Adviser" in the
Prospectus.
NWQ Investment Management Company, Inc. (the "Sub-Adviser") serves as the
Sub-Adviser for the Portfolio pursuant to a Sub-Advisory Agreement dated
April 30, 1996. The Sub-Advisory Agreement was approved by the Board of
Directors of the Fund, including a majority of the Directors who were not
"interested persons" of the Fund (as defined in the 1940 Act) on December 4,
1995. The Sub-Advisory Agreement provides that subsequent to its approval by
the Portfolio's sole shareholder, it will continue in effect for an initial
term ending April 22, 1998, and will continue in effect from year to year
thereafter, if approved annually (a) by the Board of Directors of the Fund or
by a majority of the outstanding shares of the Portfolio, and (b) by a
majority of the Directors who are not parties to such Agreement or
"interested persons" of any such party. The Sub-Advisory Agreement may be
terminated without penalty on 60 days' written notice at the option of either
party or by the vote of the shareholders of the Portfolio and terminates
automatically in the event of its assignment (within the meaning of the 1940
Act) or termination of the Investment Advisory Agreement.
Pursuant to the Sub-Advisory Agreement, the Sub-Adviser provides
investment advisory assistance and portfolio management advice to the
Investment Adviser with respect to the Portfolio. Subject to review by the
Investment Adviser and the Board of Directors of the Fund, the Sub-Adviser is
responsible for the actual management of the Portfolio and for making
decisions to buy, sell or hold any particular security. The Sub-Adviser
provides the portfolio managers for the Portfolio. The Sub-Adviser bears all
of its expenses in connection with the performance of its services under the
Sub-Advisory Agreement, such as compensating and furnishing office space for
its officers and employees connected with investment and economic research,
trading and investment management of the Portfolio. The method of computing
the Sub-Adviser's fee is set forth in the Prospectus. Because the Portfolio
did not commence operations until May 1, 1996, no sub-advisory fees were paid
by the Investment Adviser to the Sub-Adviser with respect to the Portfolio
for the year ended December 31, 1995.
The Sub-Adviser, located at 655 South Hope Street, 11th Floor, Los
Angeles, California 90017, is a wholly-owned subsidiary of United Asset
Management Corporation and provides investment management services to
institutions and high net worth individuals. The Sub-Adviser had
approximately $5.6 billion in assets under management as of December 31,
1995.
8
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
PORTFOLIO TURNOVER
The information that follows supplements the information provided about
portfolio turnover under the caption "The Value Equity Portfolio and The Fund
- - Portfolio Turnover" in the Prospectus. In computing the portfolio turnover
rate for the Portfolio, securities whose maturities or expiration dates at
the time of acquisition are one year or less are excluded. Subject to this
exclusion, the turnover rate for the Portfolio is calculated by dividing (a)
the lesser of purchases or sales of portfolio securities for the fiscal year
by (b) the monthly average of portfolio securities owned by the Portfolio
during the fiscal year. The future annual turnover rate cannot be precisely
predicted, although an annual turnover rate in excess of 50% is not presently
anticipated.
There are no fixed limitations regarding the portfolio turnover of the
Portfolio. Portfolio turnover rates are expected to fluctuate under
constantly changing economic conditions and market circumstances. Higher
turnover rates tend to result in higher brokerage fees. Securities initially
satisfying the basic objective and policies of the Portfolio may be disposed
of when they are no longer deemed suitable.
PLACEMENT OF PORTFOLIO BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Sub-Adviser is primarily responsible for placement of the Portfolio's
securities transactions. In placing orders, it is the policy of the Portfolio
to obtain the most favorable net results, taking into account various
factors, including price, dealer spread or commissions, if any, size of the
transaction and difficulty of execution. While the Sub-Adviser generally will
seek reasonably competitive spreads or commissions, the Portfolio will not
necessarily be paying the lowest spread or commission available. The
Portfolio does not have any obligation to deal with any broker, dealer or
group of brokers or dealers in the execution of transactions in portfolio
securities.
Decisions as to the assignment of portfolio brokerage business for the
Portfolio and negotiation of its commission rates are made by the
Sub-Adviser, whose policy is to obtain "best execution" (prompt and reliable
execution at the most favorable security price) of all portfolio
transactions. In placing portfolio transactions, the Sub-Adviser may give
consideration to brokers who provide supplemental investment research, in
addition to such research obtained for a flat fee, to the Sub-Adviser, and
pay spreads or commissions to such brokers or dealers furnishing such
services which are in excess of spreads or commissions which another broker
or dealer may charge for the same transaction.
In selecting brokers and in negotiating commissions, the Sub-Adviser
considers such factors as: the broker's reliability; the quality of its
execution services on a continuing basis; the financial condition of the
firm; and research products and services provided, which include: (i)
furnishing advice, either directly or through publications or writings, as to
the value of securities, the advisability of purchasing or selling specific
securities and the availability of securities or purchasers or sellers of
securities and (ii) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends and portfolio strategy
and products and other services (such as third party publications, reports
and analyses, and computer and electronic access, equipment, software,
information and accessories) that assist the Sub-Adviser in carrying out its
responsibilities. Supplemental research obtained through brokers or dealers
will be in addition to and not in lieu of the services required to be
performed by the Sub-Adviser. The expenses of the Sub-Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. The Sub-Adviser may use such research products and services in
servicing other accounts in addition to the Portfolio. If the Sub-Adviser
determines that any research product or service has a mixed use, such that it
also serves functions that do not assist in the investment decision-making
process, the Sub-Adviser will allocate the costs of such service or product
accordingly. The portion of the product or service that a Sub-Adviser
determines will assist it in the investment decision-making process may be
paid for in brokerage commission dollars. Such allocation may create a
conflict of interest for the Sub-Adviser. Conversely, such supplemental
information obtained by the placement of business for the Sub-Adviser will be
considered by and may be useful to the Sub-Adviser in carrying out its
obligations to the Portfolio.
9
<PAGE>
When the Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where, in the
opinion of the Sub-Adviser, better prices and executions are likely to be
achieved through the use of a broker.
Securities held by the Portfolio may also be held by other separate
accounts, mutual funds or other accounts for which the Investment Adviser or
Sub-Adviser serves as an adviser, or held by the Investment Adviser or
Sub-Adviser for their own accounts. Because of different investment
objectives or other factors, a particular security may be bought by the
Investment Adviser or Sub-Adviser for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities
for the Portfolio or other entities for which they act as investment adviser
or for their advisory clients arise for consideration at or about the same
time, transactions in such securities will be made, insofar as feasible, for
the respective entities and clients in a manner deemed equitable to all. To
the extent that transactions on behalf of more than one client of the
Investment Adviser or Sub-Adviser during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
On occasions when the Investment Adviser or the Sub-Adviser deems the
purchase or sale of a security to be in the best interests of the Portfolio
as well as other accounts or companies, it may to the extent permitted by
applicable laws and regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for such other accounts or companies in order to obtain favorable
execution and lower brokerage commissions. In that event, allocation of the
securities purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it considers to be
most equitable and consistent with its fiduciary obligations to the Portfolio
and to such other accounts or companies. In some cases this procedure may
adversely affect the size of the position obtainable for the Portfolio.
The Board of Directors of the Fund periodically reviews the brokerage
placement practices of the Sub-Adviser on behalf of the Portfolio, and
reviews the prices and commissions, if any, paid by the Portfolio to
determine if they were reasonable.
The Board of Directors of the Fund has authorized the Sub-Adviser to
consider sales of the Policies and Annuity Contracts by a broker-dealer as a
factor in the selection of broker-dealers to execute Portfolio transactions.
As stated above, any such placement of portfolio business will be subject to
the ability of the broker-dealer to provide best execution and to the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
PURCHASE AND REDEMPTION OF SHARES
DETERMINATION OF OFFERING PRICE
The purchase of shares of the Portfolio is currently limited to the WRL
Series Life Account and the WRL Series Annuity Account, separate accounts of
WRL. The Portfolio may, in the future, offer its shares to other Separate
Accounts. Shares of the Portfolio are sold and redeemed at their respective
net asset values as described in the Prospectus.
NET ASSET VALUATION
As stated in the Prospectus, the net asset value of Portfolio shares is
ordinarily determined, once daily, as of the close of the regular session of
business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m.,
Eastern time), on each day the Exchange is open. (Currently the Exchange is
closed on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.) The per
share net asset value of the Portfolio is determined by dividing the total
value of the securities and other assets, less liabilities, by the total
number of shares outstanding. In determining net asset value, securities
listed on the national securities exchanges and the NASDAQ National Market
are valued at the closing prices on the principal trading market for such
security, or if such a price is lacking for the trading period immediately
preceding the time of determination, such securities are valued at their
current bid price. Foreign
10
<PAGE>
securities and currencies are converted to U.S. dollars using the exchange
rate in effect at the close of the Exchange. Other securities which are
traded on the over-the-counter market are valued at bid price. Other
securities for which quotations are not readily available are valued at fair
values as determined in good faith by the Investment Adviser and the
Sub-Adviser under the supervision of the Fund's Board of Directors. Money
market instruments maturing in 60 days' or less are valued on the amortized
cost basis.
CALCULATION OF PERFORMANCE RELATED INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
TOTAL RETURN
Total return quotations are computed by finding the average annual
compounded rates of return over the relevant periods that would equate the
initial amount invested to the ending redeemable value, according to the
following equation:
P (1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value (at the end of the applicable period
of a hypothetical $1,000 payment made at the beginning of
the applicable period)
The total return quotation calculations reflect the deduction of a
proportional share of the Portfolio's investment advisory fee and Portfolio
expenses and assume that all dividends and capital gains during the period
are reinvested in the Portfolio when made. The calculations also assume a
complete redemption as of the end of the particular period.
Total return quotation calculations do not reflect charges or deductions
against the Separate Accounts or charges and deductions against the Policies
or the Annuity Contracts. Accordingly, these rates of return do not
illustrate how actual investment performance will affect benefits under the
Policies or the Annuity Contracts. Where relevant, the prospectuses for the
Policies and the Annuity Contracts contain performance information about
these products. Moreover, these rates of return are not an estimate,
projection or guarantee of future performance.
YIELD QUOTATIONS
The yield quotations for the Portfolio are based on a specific thirty-day
period and are computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
date of the period, according to the following formula:
a-b
---
YIELD = 2 [ (cd + 1)(6)- 1]
Where: a = dividends and interest earned during the period by the Portfolio
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Because the Portfolio did not commence operations until May 1, 1996, no
quotations of standardized or non-standardized performance information are
available.
TAXES
Shares of the Portfolio are offered only to WRL and the Separate Accounts
that fund the Policies and Annuity Contracts. See the respective prospectuses
for the Policies and Annuity Contracts for a discussion of the special
taxation of insurance companies with respect to the Separate Accounts and of
the Policies, the Annuity Contracts and the holders thereof.
11
<PAGE>
The Portfolio intends to qualify and to continue to qualify for treatment
as a regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended (the "Code"). In order to qualify for that treatment, the
Portfolio must distribute to its Policyholders for each taxable year at least
90% of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions) ("Distribution Requirement") and must meet
several additional requirements. These requirements include the following:
(1) the Portfolio must derive at least 90% of its gross income each taxable
year from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or foreign currencies,
or other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Portfolio must derive less than
30% of its gross income each taxable year from the sale or other disposition
of securities, or any of the following, that were held for less than three
months - options, futures or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures or forward contracts
thereon) that are not directly related to the Portfolio's principal business
of investing in securities (or options and futures with respect thereto)
("Short-Short Limitation"); (3) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. government securities, securities
of other RICs, and other securities that, with respect to any one issuer, do
not exceed 5% of the value of the Portfolio's total assets and that do not
represent more than 10% of the outstanding voting securities of the issuer;
and (4) at the close of each quarter of the Portfolio's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of
any one issuer.
As noted in the Prospectus, the Portfolio must, and intends to, comply
with the diversification requirements imposed by section 817(h) of the Code
and the regulations thereunder. These requirements, which are in addition to
the diversification requirements mentioned above, place certain limitations
on the proportion of the Portfolio's assets that may be represented by any
single investment (which includes all securities of the same issuer). For
purposes of section 817(h), all securities of the same issuer, all interests
in the same real property project, and all interests in the same commodity
are treated as a single investment. In addition, each U.S. Government agency
or instrumentality is treated as a separate issuer, while the securities of a
particular foreign government and its agencies, instrumentalities and
political subdivisions all will be considered securities issued by the same
issuer. For information concerning the consequences of failure to meet the
requirements of section 817(h), see the respective prospectuses for the
Policies or the Annuity Contracts.
The Portfolio will not be subject to the 4% Federal excise tax imposed on
RICs that do not distribute substantially all their income and gains each
calendar year because that tax does not apply to a RIC whose only
shareholders are segregated asset accounts of life insurance companies held
in connection with variable annuity contracts and/or variable life insurance
policies.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the income received in connection therewith by the
Portfolio. Income from the disposition of foreign currencies (except certain
gains therefrom that may be excluded by future regulations), and income from
transactions in options, futures, and forward contracts derived by the
Portfolio with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures contracts (other
than those on foreign currencies) will be subject to the Short-Short
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward
contracts on foreign currencies, that are not directly related to the
Portfolio's principal business of investing in securities (or options and
futures with respect to securities) also will be subject to the Short-Short
Limitation if they are held for less than three months.
12
<PAGE>
If the Portfolio satisfies certain requirements, any increase in value on
a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining whether
the Portfolio satisfies the Short-Short Limitation. Thus, only the net gain
(if any) from the designated hedge will be included in gross income for
purposes of that Limitation. The Portfolio will consider whether it should
seek to qualify for this treatment for its hedging transactions. To the
extent the Portfolio does not qualify for this treatment, it may be forced to
defer the closing out of certain options and futures contracts beyond the
time when it otherwise would be advantageous to do so, in order for the
Portfolio to qualify as a RIC.
The foregoing is only a general summary of some of the important Federal
income tax considerations generally affecting the Portfolio and its
shareholders. No attempt is made to present a complete explanation of the
Federal tax treatment of the Portfolio's activities, and this discussion and
the discussion in the prospectuses and/or statements of additional
information for the Policies and Annuity Contracts are not intended as a
substitute for careful tax planning. Accordingly, potential investors are
urged to consult their own tax advisors for more detailed information and for
information regarding any state, local, or foreign taxes applicable to the
Policies, Annuity Contracts and the holders thereof.
CAPITAL STOCK OF THE FUND
As described in the Prospectus, the Fund offers a separate class of common
stock for each Portfolio. The Fund is currently comprised of the following
portfolios: Money Market Portfolio, Bond Portfolio, Growth Portfolio, Global
Portfolio, Short-to-Intermediate Government Portfolio, Equity-Income
Portfolio, Emerging Growth Portfolio, Balanced Portfolio, Utility Portfolio,
Aggressive Growth Portfolio, Tactical Asset Allocation Portfolio, C.A.S.E.
Quality Growth Portfolio, C.A.S.E. Growth & Income Portfolio, C.A.S.E. Growth
Portfolio, Janus Balanced Portfolio, T. Rowe Price-WRL Equity Income
Portfolio, Leisure Portfolio, International Equity Portfolio,
Meridian/INVESCO Global Sector Portfolio, Meridian/INVESCO Foreign Sector
Portfolio, Meridian/INVESCO US Sector Portfolio, and Value Equity Portfolio.
REGISTRATION STATEMENT
There has been filed with the Securities and Exchange Commission,
Washington, D.C. a Registration Statement under the Securities Act of 1933,
as amended, with respect to the securities to which this Statement of
Additional Information relates. If further information is desired with
respect to the Portfolio or such securities, reference is made to the
Registration Statement and the exhibits filed as part thereof.
FINANCIAL STATEMENTS
No financial statements for the Portfolio are available for the year ended
December 31, 1995, because the Portfolio had not commenced operations as of
that date.
13
<PAGE>
APPENDIX A
DESCRIPTION OF SELECTED CORPORATE BOND AND
COMMERCIAL PAPER RATINGS
CORPORATE BONDS - MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position on such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements and
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safe-guarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Unrated - Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.
A-1
<PAGE>
CORPORATE BONDS - STANDARD & POOR'S ("S&P")
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they exhibit an adequate degree of
protection, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BB, B, CCC and CC - Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation. While such bonds
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-) - The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Unrated - Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER - MOODY'S
"Prime-1" - Commercial paper issuers rated Prime-1 are judged to be of the
best quality. Their short-term debt obligations carry the smallest degree of
investment risk. Margins of support for current indebtedness are large or
stable with cash flow and asset protection well assured. Current liquidity
provides ample coverage of near-term liabilities and unused alternative
financing arrangements are generally available. While protective elements may
change over the intermediate or longer term, such changes are most unlikely
to impair the fundamentally strong position of short-term obligations.
"Prime-2" - Issuers in the commercial paper market rated Prime-2 are high
quality. Protection for short-term holders is assured with liquidity and
value of current assets as well as cash generation in sound relationship to
current indebtedness. They are rated lower than the best commercial paper
issuers because margins of protection may not be as large or because
fluctuations of protective elements over the near or immediate term may be of
greater amplitude. Temporary increases in relative short and overall debt
load may occur. Alternative means of financing remain assured.
COMMERCIAL PAPER -S&P
"A" - Issues assigned this highest rate are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designation 1, 2 and 3 to indicate the relative degree of
safety.
"A-1" - This designation indicates that the degree of safety regarding
timely payment is very strong.
"A-2" - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not overwhelming as for
issues designated "A-1".
"A-3" - Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designation.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF SHORT-TERM SECURITIES
The following is intended only as a supplement to the information
contained in the Prospectus and should be read only in conjunction with the
Prospectus. Terms defined in the Prospectus and not defined herein have the
same meanings as those in the Prospectus.
1. CERTIFICATE OF DEPOSIT. A certificate of deposit generally is a
short-term, interest bearing negotiable certificate issued by a commercial
bank or savings and loan association against funds deposited in the issuing
institution.
2. EURODOLLAR CERTIFICATE OF DEPOSIT. A Eurodollar certificate of deposit
is a short-term obligation of a foreign subsidiary of a U.S. bank payable in
U.S. dollars.
3. FLOATING RATE NOTE. A floating rate note is debt issued by a
corporation or commercial bank that is typically several years in term but
whose interest rate is reset every one to six months.
4. TIME DEPOSIT. A time deposit is a non-negotiable deposit maintained in
a banking institution for a specified period of time at a stated interest
rate. Time deposits maturing in more than seven days will not be purchased by
the Portfolio, and time deposits maturing from two business days through
seven calendar days will not exceed 15% of the total assets of the Portfolio.
5. BANKERS' ACCEPTANCE. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with international
commercial transactions (to finance the import, export, transfer or storage
of goods). The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the
maturity date. Most acceptances have maturities of six months or less and are
traded in secondary markets prior to maturity.
6. VARIABLE AMOUNT MASTER DEMAND NOTE. A variable amount master demand
note is a note which fixes a minimum and maximum amount of credit and
provides for lending and repayment within those limits at the discretion of
the lender. Before investing in any variable amount master demand notes, the
Portfolio will consider the liquidity of the issuer through periodic credit
analysis based upon publicly available information.
7. COMMERCIAL PAPER. Commercial paper is a short-term promissory note
issued by a corporation primarily to finance short-term credit needs.
8. REPURCHASE AGREEMENT. A repurchase agreement is an instrument under
which the Portfolio acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a mutually agreed upon time and price.
The total amount received on repurchase is calculated to exceed the price
paid by the Portfolio, reflecting an agreed upon market rate of interest for
the period from the time of the Portfolio's purchase of the security to the
settlement date (I.E., the time of repurchase), and would not necessarily
relate to the interest rate on the underlying securities. The Portfolio will
only enter into repurchase agreements with underlying securities consisting
of U.S. Government or government agency securities, certificates of deposit,
commercial paper or bankers' acceptances, and will be entered only with
primary dealers. While the Portfolio may invest in repurchase agreements for
periods up to 30 days, it is expected that typically such periods will be for
a week or less. The staff of the Securities and Exchange Commission has taken
the position that repurchase agreements of greater than seven days together
with other illiquid investments should be limited to an amount not in excess
of 15% of the Portfolio's net assets.
Although repurchase transactions usually do not impose market risks on the
purchaser, the Portfolio would be subject to the risk of loss if the seller
fails to repurchase the securities for any reason and the value of the
securities is less than the agreed upon repurchase price. In addition, if the
seller defaults, the Portfolio may incur disposition costs in connection with
liquidating the securities. Moreover, if the seller is insolvent and
bankruptcy proceedings are commenced, under current law, the Portfolio could
be ordered by a court not to liquidate the securities for an indeterminate
period of time and the amount realized by the Portfolio upon liquidation of
the securities may be limited.
B-1
<PAGE>
PROSPECTUS
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
MERIDIAN/INVESCO US SECTOR PORTFOLIO
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
[MERIDIAN LOGO]
201 Highland Avenue
Largo, Florida 34640
Telephone: (800) 851-9777
[WRL LOGO] [INVESCO LOGO]
(813) 585-6565
WRL Series Fund, Inc. (the "Fund") is a diversified, open-end management
investment company consisting of separate series or investment portfolios.
This Prospectus pertains only to the Meridian/INVESCO Global Sector,
Meridian/INVESCO US Sector and Meridian/INVESCO Foreign Sector Portfolios of
the Fund (collectively, the "Portfolios" and, individually, a "Portfolio").
The investment objective of the Meridian/INVESCO Global Sector Portfolio
(the "Global Sector Portfolio") is growth of capital. The Global Sector
Portfolio seeks to achieve its objective by following an asset allocation
strategy that shifts among a wide range of asset categories and within them,
market sectors.
The investment objective of the Meridian/INVESCO US Sector Portfolio (the
"US Sector Portfolio") is growth of capital. The US Sector Portfolio seeks to
achieve its objective by investing, under normal circumstances, at least 65%
of its total assets in the equity securities of United States issuers.
The investment objective of the Meridian/INVESCO Foreign Sector Portfolio
(the "Foreign Sector Portfolio") is growth of capital. The Foreign Sector
Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 65% of its total assets in the equity securities of
foreign issuers.
Shares of the Fund are sold only to insurance company separate accounts
(the "Separate Accounts") of Western Reserve Life Assurance Co. of Ohio
("WRL"), PFL Life Insurance Company ("PFL"), and AUSA Life Insurance Company,
Inc. ("AUSA") (WRL, PFL, and AUSA together, the "Life Companies") to fund the
benefits under certain individual variable life insurance policies (the
"Policies") and individual and group variable annuity contracts (the "Annuity
Contracts"). The Life Companies are affiliates. The Separate Accounts, which
may or may not be registered with the Securities and Exchange Commission,
invest in shares of one or more of the Portfolios in accordance with the
allocation instructions received from holders of the Policies and the Annuity
Contracts (collectively, the "Policyholders"). Such allocation rights are
further described in the prospectuses or disclosure documents for the
Policies and the Annuity Contracts.
WRL, Meridian Investment Management Corporation ("Meridian") and INVESCO
Global Asset Management Limited ("INVESCO") serve as the investment adviser
(the "Investment Adviser") and the co-sub-advisers (the "Co-Sub-Advisers"),
respectively, to the Portfolios. See "The Investment Adviser" and "The
Co-Sub-Advisers."
This Prospectus sets forth concisely the information about the Portfolios
that prospective investors ought to know before investing. Investors should
read this Prospectus and retain it for future reference.
Additional information about the Fund, the Portfolios and the other
portfolios of the Fund has been filed with the Securities and Exchange
Commission and is available upon request without charge by calling or writing
the Fund. The Statement of Additional Information pertaining to the
Portfolios bears the same date as this Prospectus and is incorporated by
reference into this Prospectus in its entirety.
-----------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, A BANK OR OTHER FINANCIAL INSTITUTION, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Prospectus Dated May 1, 1996
1 Registered service mark of INVESCO PLC.
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
MERIDIAN/INVESCO US SECTOR PORTFOLIO
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
201 Highland Avenue
Largo, FL 34640
Telephone: (813) 585-6565
(800) 851-9777
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Meridian/INVESCO Global Sector, Meridian/INVESCO US Sector Portfolio and
Meridian/INVESCO Foreign Sector Portfolio and the Fund .................... 1
Management of the Fund ...................................................... 6
Dividends and Other Distributions ........................................... 8
Taxes ....................................................................... 8
Purchase and Redemption of Shares ........................................... 8
Valuation of Shares ......................................................... 8
The Fund and Its Shares ..................................................... 8
Performance Information ..................................................... 9
General Information ......................................................... 10
</TABLE>
i
<PAGE>
THE MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO, MERIDIAN/INVESCO US SECTOR
PORTFOLIO AND MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO AND THE FUND
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Portfolios are series of the Fund. The Fund consists of several
series, or separate investment portfolios, which offer shares for investment
by the Separate Accounts. This Prospectus describes only the Portfolios.
A particular portfolio of the Fund may not be available under the Policy
or Annuity Contract you have chosen or may not be available in your state due
to certain state insurance law considerations. The prospectus or disclosure
document for the particular Policy or Annuity Contract you have chosen will
indicate the portfolios which are generally available under the applicable
Policy or Annuity Contract and should be read in conjunction with this
Prospectus.
There can be, of course, no assurance that the Portfolios will achieve
their investment objectives. The Portfolios' investment objectives and,
unless otherwise noted, their investment policies and techniques, may be
changed by the Board of Directors of the Fund without shareholder or
Policyholder approval. A change in the investment objectives or policies of
the Portfolios may result in the Portfolios having investment objectives or
policies different from those which a Policyholder deemed appropriate at the
time of investment.
INVESTMENT OBJECTIVES AND POLICIES
GLOBAL SECTOR PORTFOLIO
The investment objective of the Global Sector Portfolio is growth of
capital.
The Portfolio seeks to achieve this objective by following an asset
allocation strategy that shifts among a wide range of asset categories and
within them, market sectors. The Portfolio will invest in the following asset
categories: equity securities of domestic and foreign issuers, including
common stocks, preferred stocks, convertible securities and warrants; debt
securities of domestic and foreign issuers, including mortgage-related and
other asset-backed securities and securities rated below investment grade;
exchange-traded or over-the-counter real estate investment trusts (REITS);
equity securities of companies involved in the exploration, mining,
processing, or dealing or investing in gold ("gold stocks"); gold bullion;
and domestic money market instruments. Market sectors within the asset
categories include the industry, country or bond markets available for
investment. See "Certain Portfolio Policies and Techniques," page 2 and "Risk
Factors," page 5 for a discussion of the additional risks associated with
investments in foreign securities, lower-rated debt securities, REITs, gold
stocks and gold bullion.
Under normal circumstances, the Portfolio will invest at least 65% of its
total assets in securities of issuers domiciled in at least three countries,
one of which may be the United States, although the Co-Sub-Advisers expect
the Portfolio's investments to be allocated among a larger number of
countries. The percentage of the Portfolio's assets invested in securities of
U.S. issuers normally will be higher than that invested in securities of
issuers domiciled in any other single country. However, it is possible that
at times the Portfolio may have 65% or more (but not more than 80%) of its
total assets invested in foreign securities.
The Portfolio is not required to maintain a portion of its assets in each
of the permitted asset categories. The Portfolio, however, under normal
circumstances, will maintain a minimum of 20% of its total assets in equity
securities and 10% in debt securities. The Portfolio may, however, invest up
to 100% of its total assets in equity securities and up to 70% in debt
securities. For temporary defensive purposes, during times of unusual market
conditions, the Portfolio may invest 100% of its assets in short-term
securities. (See Appendix B in the Statement of Additional Information for a
detailed description of these instruments.) The Portfolio will not invest
more than 20% of its total assets in gold stocks. The Portfolio will not
invest more than 25% of its total assets in the securities of any single
country, other than the United States, or in securities of issuers in any one
industry. Meridian determines the allocation of the Portfolio's assets among
the asset categories described above based on proprietary quantitative
research.
After asset allocations and relative portfolio weightings of such
allocations have been designated by Meridian, INVESCO will select the
specific securities within each asset allocation category and market sector
therein in which the Portfolio will invest. See "Certain Portfolio Policies
and Techniques," page 2.
US SECTOR PORTFOLIO
The investment objective of the US Sector Portfolio is growth of capital.
Under normal circumstances, the Portfolio will invest at least 65% of its
total assets in the equity securities of United States issuers. Equity
investments are first selected based on industry attractiveness. In
attempting to determine industry attractiveness, Meridian uses its
proprietary valuation model to analyze approximately 1,200 domestic stocks
based on the following factors: historical and estimated future earnings;
long-term earnings growth projections; risk; current and future interest rate
conditions; and current price. Meridian then groups stocks into approximately
71 industry classifications in order to determine those industries Meridian
deems to be attractive relative to other industries. The Portfolio, under
normal market conditions, will invest in securities of 10 to 20 industries
that are deemed to be attractive based on Meridian's quantitative research.
The Portfolio will not invest more than 25% of its total assets in any one
industry.
After industry selections and relative portfolio weightings of such
industries have been designated by Meridian, INVESCO will select the specific
securities within each industry in which the Portfolio will invest. See
"Certain Portfolio Policies and Techniques." The Portfolio may invest up to
25% of its total assets, measured at the time of purchase,
1
<PAGE>
in foreign securities. Industry definitions will be coordinated between the
Co-Sub-Advisers. INVESCO will select securities primarily in companies
principally engaged in business in the industries designated for investment
by Meridian. A particular company will be deemed by INVESCO to be principally
engaged in business in the industry designated for investment by Meridian if,
in the determination of INVESCO, more than 50% of its gross income or net
sales is derived from activities in such industry or more than 50% of its
assets are dedicated to the production of revenues from such industry. In
circumstances where, based on available financial information, a question
exists whether a company meets one of these standards, the Portfolio may
invest in the securities of such a company only if INVESCO determines, after
review of information describing the company and its business activities,
that the company's primary business is within the industry.
FOREIGN SECTOR PORTFOLIO
The investment objective of the Foreign Sector Portfolio is growth of
capital.
Under normal circumstances, the Portfolio will invest at least 65% (but
may invest up to 100%) of its total assets in the equity securities of
foreign issuers. Investments are first selected based on country
attractiveness. In attempting to determine country attractiveness, Meridian
uses its proprietary valuation model to analyze approximately 800 foreign and
U.S. stocks based on the following factors: historical and estimated future
earnings; long-term earnings growth projections; risk; current and future
interest rate condition; and current price. Meridian groups stocks into
approximately 24 country classifications, in order to determine which
countries are deemed to be attractive relative to other countries. The
Portfolio, under normal conditions, will invest in securities of issuers in 6
to 14 countries that Meridian deems to be attractive based on Meridian's
quantitative research.
After country selections and relative portfolio weightings for issuers of
each country in which the Portfolio will invest have been designated by
Meridian, INVESCO will select the specific securities within each country.
See "Certain Portfolio Policies and Techniques." The Portfolio will not
invest more than 25% of its total assets in securities of issuers of any one
country (with the exception of Japan; total assets invested in securities of
Japanese issuers may be up to 65%). INVESCO will invest the Portfolio's
assets primarily in securities of companies principally engaged in business
within the countries designated for investment by Meridian. A foreign issuer
is a company that, in the opinion of INVESCO, has one or more of the
following characteristics: (i) its principal securities trading market is in
a foreign country; (ii) the company derives 50% or more of its annual revenue
from either goods produced, sales made or services performed in foreign
countries; or (iii) the company is organized under the laws of, or has its
principal office in, a foreign country. INVESCO will base its determination
of whether a company will be deemed to be a foreign issuer on publicly
available information or inquiries made to the company.
CERTAIN PORTFOLIO POLICIES AND TECHNIQUES
Each Portfolio's investment in stocks, bonds and cash securities may vary
from time to time, depending upon Meridian's assessment of business, economic
and market conditions. In periods of abnormal economic and market conditions,
as determined by Meridian, the Portfolios may depart from their basic
investment objectives and assume a temporary defensive position, with up to
100% of their assets invested in U.S. government and agency securities,
investment grade corporate bonds or cash securities such as domestic
certificates of deposit and bankers' acceptances, repurchase agreements and
commercial paper. (See Appendix B in the Statement of Additional Information
for a description of these securities.) The Portfolios reserve the right to
hold equity, debt and cash securities in whatever proportion is deemed
desirable at any time for defensive purposes. While a Portfolio is in a
defensive position, the opportunity to achieve capital growth will be
limited; however, the ability to maintain a defensive position enables the
Portfolios to seek to avoid capital losses during market downturns. Under
normal market conditions, the Portfolios do not expect to have a substantial
portion of their assets invested in cash securities.
EQUITY SECURITIES (ALL PORTFOLIOS). Each Portfolio may invest in equity
securities (common stocks and, to a lesser degree, preferred stocks and
securities convertible into common stocks, such as rights, warrants and
convertible debt securities). In selecting the equity securities in which the
Portfolios invest, INVESCO attempts to identify companies that have
demonstrated or, in INVESCO's opinion, are likely to demonstrate in the
future, strong earnings growth relative to other companies in the same
industry or country. The dividend payment records of companies are also
considered. Equity securities may be issued by either established, well-
capitalized companies or newly-formed, small-cap companies, and may trade on
regional or national stock exchanges or in the over-the-counter market. The
risks of investing in small capitalization companies are discussed on page 5
under "Risk Factors - Small Capitalization Companies."
DEBT SECURITIES (ALL PORTFOLIOS). Consistent with their investment
objectives, the Portfolios also may invest in debt securities (corporate
bonds, commercial paper, debt securities issued by the U.S. government, its
agencies and instrumentalities, or foreign governments, asset-backed
securities and zero coupon bonds). Each Portfolio may invest no more than 15%
of its total assets in debt securities that are rated below BBB by Standard &
Poor's or Baa by Moody's Investors Service, Inc. ("Moody's") or, if unrated,
are judged by INVESCO to be of equivalent quality to debt securities having
such ratings (commonly referred to as "junk bonds"). In no event will a
Portfolio ever invest in a debt security rated below CCC by Standard & Poor's
or Caa by Moody's. The risks of investing in lower rated debt securities are
discussed on page 5 under "Risk Factors - Equity and Debt Securities."
2
<PAGE>
The Portfolios may hold certain cash and cash equivalent securities as
cash reserves ("cash securities"), as described above.
CONVERTIBLE SECURITIES (ALL PORTFOLIOS). Each Portfolio may invest in
convertible securities. Convertible securities may include corporate notes or
preferred stock, but ordinarily are a long-term debt obligation of the issuer
convertible at a stated exchange rate into common stock of the issuer. As
with all debt securities, the market value of convertible debt securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. Convertible securities generally rank senior to
common stocks in an issuer's capital structure and are consequently of higher
quality and entail less risk of declines in market value than the issuer's
common stock. However, the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security sells above
its value as a fixed income security. For additional information regarding
convertible securities, see the Statement of Additional Information.
FOREIGN SECURITIES (ALL PORTFOLIOS). Consistent with their investment
objectives, the Portfolios may invest in foreign securities. Foreign
securities may also be purchased by means of American Depositary Receipts
("ADRs"). ADRs that may be purchased by a Portfolio are receipts, typically
issued by a U.S. bank or trust company, evidencing ownership of the
underlying foreign equity securities. ADRs are denominated in U.S. dollars
and trade in the U.S. securities markets. ADRs may be issued in sponsored or
unsponsored programs. In sponsored programs, the issuer makes arrangements to
have its securities traded in the form of ADRs; in unsponsored programs, the
issuer may not be directly involved in the creation of the program.
Investments in foreign securities involve certain risks that are not
associated with investments in domestic issuers. These risks are discussed on
page 5 under "Risk Factors."
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS (ALL PORTFOLIOS). In
order to hedge their portfolios, the Portfolios may purchase and write
options on securities (including index options and options on foreign
securities), and may invest in futures contracts for the purchase or sale of
foreign currencies, debt securities and instruments based on financial
indices (collectively, "futures contracts"), options on futures contracts,
forward contracts and interest rate swaps and swap-related products.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, E.G., an exchange of
floating rate payments for fixed rate payments. These practices and
securities and their risks are discussed on page 5 under "Risk Factors" and
in the Statement of Additional Information.
FORWARD FOREIGN CURRENCY CONTRACTS (ALL PORTFOLIOS). Each Portfolio may
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") as a hedge against fluctuations in foreign exchange
rates pending the settlement of transactions in foreign securities or during
the time the Portfolio holds foreign securities. A forward contract which is
also included in the types of instruments commonly known as derivatives, is
an agreement between contracting parties to exchange an amount of currency at
some future time at an agreed upon rate. A Portfolio will not enter into a
forward contract for a term of more than one year or for purposes of
speculation. Investors should be aware that hedging against a decline in the
value of a currency in the foregoing manner does not eliminate fluctuations
in the prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions preclude the
opportunity for gain if the value of the hedging currency should rise.
Forward contracts may, from time to time, be considered illiquid, in which
case they would be subject to a Portfolio's limitation on investing in
illiquid securities, discussed above. For additional information regarding
forward contracts, see the Statement of Additional Information.
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES (ALL PORTFOLIOS). Each
Portfolio may make commitments to purchase or sell equity or debt securities
on a when-issued or delayed delivery basis (I.E., securities may be purchased
or sold by the Portfolio with settlement taking place in the future, often a
month or more later). The payment obligation and, in the case of debt
securities, the interest rate that will be received on the securities,
generally are fixed at the time the Portfolio enters into the commitment.
During the period between purchase and settlement, no payment is made by the
Portfolio and no interest accrues to the Portfolio. At the time of
settlement, the market value of the security may be more or less than the
purchase price, and the Portfolio bears the risk of such market value
fluctuations. Each Portfolio maintains in a segregated account cash, U.S.
government securities, or other high-grade debt obligations readily
convertible into cash having an aggregate value at least equal to the amount
of such purchase commitments.
REPURCHASE AGREEMENTS (ALL PORTFOLIOS). Investments in short-term
securities may include repurchase agreements. Each Portfolio may enter into
repurchase agreements with respect to debt instruments eligible for
investment by the Portfolio. These agreements are entered into with member
banks of the Federal Reserve System, registered broker-dealers, and
registered government securities dealers, which are deemed creditworthy. A
repurchase agreement is a means of investing monies for a short period. In a
repurchase agreement, which may be considered a loan under the 1940 Act, the
Portfolio acquires a debt instrument (generally a security issued by the U.S.
government or an agency thereof, a bankers' acceptance, or a certificate of
deposit) subject to resale to the seller at an agreed upon price and date
(normally, the next business day). In the event that the original seller
defaults on its obligation to repurchase the security, the Portfolio could
incur costs or delays in seeking to sell such a security. To minimize risk,
the securities underlying each repurchase agreement will be maintained with
the Portfolio's custodian in an amount at least equal to the repurchase price
under the agreement (including accrued interest), and such agreements
3
<PAGE>
will be effected only with parties that meet certain creditworthiness
standards established by the Fund's Board of Directors. A Portfolio will not
enter into a repurchase agreement maturing in more than seven days if as a
result more than 15% of its net assets would be invested in such repurchase
agreements and other illiquid securities. The Portfolios have not adopted any
limit on the amount of their net assets that may be invested in repurchase
agreements maturing in seven days or less.
ILLIQUID AND RULE 144A SECURITIES (ALL PORTFOLIOS). Each Portfolio is
authorized to invest in securities that are considered illiquid because of
the absence of a readily available market or due to legal or contractual
restrictions on resale. However, a Portfolio will not purchase any such
security if the purchase would cause the Portfolio to invest more than 15% of
its net assets in illiquid securities. Repurchase agreements maturing in more
than seven days will be considered as illiquid for purposes of this
restriction. Investments in illiquid securities involve certain risks to the
extent that a Portfolio may be unable to dispose of such securities at the
time desired or at a reasonable price. In addition, in order to resell a
restricted security, a Portfolio might have to bear the expense and incur the
delays associated with effecting a registration required in order to qualify
for resale.
Certain restricted securities that are not registered for sale to the
general public, but that can be resold to dealers or institutional investors
("Rule 144A Securities"), may be purchased without regard to the foregoing
limitation if a liquid institutional trading market exists. The liquidity of
a Portfolio's investments in Rule 144A Securities could be impaired if
dealers or institutional investors become uninterested in purchasing these
securities. The Fund's Board of Directors has delegated to the
Co-Sub-Advisers the authority to determine the liquidity of Rule 144A
Securities pursuant to guidelines approved by the Board. For more information
concerning Rule 144A Securities, see the Statement of Additional Information.
GOLD STOCKS AND GOLD BULLION (ALL PORTFOLIOS). Due to monetary and
political policies on a national and international level, the price of gold
is subject to substantial fluctuations, which will have an effect on the
profitability of issuers of gold stocks and the market value of their
securities. Changes in the political or economic climate for the two largest
producers - South Africa and the Commonwealth of Independent States (the
former Soviet Union) - may have a direct impact on the price of gold
worldwide. The Portfolios' investments in gold bullion will earn no income
return. Appreciation in the market price of gold is the sole manner in which
a Portfolio would be able to realize gains on such investments. Furthermore,
the Portfolios may encounter storage and transaction costs in connection with
their ownership of gold bullion that may be higher than those associated with
the purchase, holding and disposition of more traditional types of
investments. In order to help reduce these risks, no Portfolio will invest
more than 10% of its total assets in gold bullion.
REAL ESTATE SECURITIES (ALL PORTFOLIOS). Although the Portfolios will not
invest in real estate directly, they may invest in exchange-traded or
over-the-counter equity securities of real estate investment trusts ("REITs")
and other real estate industry companies. Therefore, each Portfolio may be
subject to certain risks associated with the direct ownership of real estate.
These risks include, among others: possible declines in the value of real
estate; possible lack of availability of mortgage funds; extended vacancies
of properties; risks related to general and local economic conditions;
overbuilding; increases in competition, property taxes and operating
expenses; changes in zoning laws; costs resulting from the clean-up of, and
liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates. (See page 6 under "Risk Factors" for a
discussion of risks of investing in REITs.)
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs invest the majority of their assets in real estate mortgages
and derive income from the collection of interest payments. Hybrid REITs
invest their assets in both real property and mortgages. REITs are not taxed
on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
LENDING AND BORROWING
Each Portfolio is authorized to lend its securities to qualified brokers,
dealers, banks, or other financial institutions. Loans of securities will be
collateralized by cash, letters of credit, or securities issued or guaranteed
by the U.S. government or its agencies equal to at least 100% of the current
market value of the loaned securities, determined on a daily basis. Lending
securities involves certain risks, the most significant of which is the risk
that a borrower may fail to return a portfolio security. Each Portfolio
monitors the creditworthiness of borrowers in order to minimize such risks. A
Portfolio will not lend any security if, as a result of such loan, the
aggregate value of securities then on loan would exceed 33 1/3% of the
Portfolio's total assets (taken at market value).
Each Portfolio may only borrow money from banks for temporary or emergency
purposes (not for leverage or investment) in an amount not exceeding 33 1/3%
of the value of the Portfolio's total assets (including the amount borrowed)
less liabilities (other than borrowings). Reverse repurchase agreements are
deemed to be borrowings for purposes of this limitation. In accordance with
the requirements of current California insurance regulations, a Portfolio
will restrict borrowings to no more than 10% of total assets, except that the
Portfolio may temporarily borrow amounts equal to as much
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as 25% of total assets if such borrowing is necessary to meet redemptions. If
California's insurance regulations are changed at some future time to permit
borrowings in excess of 10% but less than 33 1/3% of total assets, a
Portfolio may conduct borrowings in accordance with such revised limits.
RISK FACTORS
EQUITY AND DEBT SECURITIES. There can be no assurance that the Portfolios
will achieve their investment objectives. The Portfolios' investments in
common stocks and other equity securities may, of course, decline in value.
The Portfolios' investments in debt securities generally are subject to
both credit risk and market risk. Credit risk relates to the ability of the
issuer to meet interest or principal payments, or both, as they come due.
Market risk relates to the fact that the market values of the debt securities
in which a Portfolio invests generally will be affected by changes in the
level of interest rates. An increase in interest rates will tend to reduce
the market values of debt securities, whereas a decline in interest rates
will tend to increase their values.
Although INVESCO limits the Portfolios' investments in debt securities to
securities it believes are not highly speculative, both kinds of risk are
increased by investing in debt securities rated below the top three grades by
Standard & Poor's or Moody's or, if unrated, securities determined by INVESCO
to be of equivalent quality. Although bonds in the lowest investment grade
debt category (those rated BBB by Standard & Poor's or Baa by Moody's) are
regarded as having adequate capability to pay principal and interest, they
have speculative characteristics. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher rated bonds.
Lower rated bonds by Moody's (categories Ba, B, Caa) are of poorer quality
and also have speculative characteristics. Bonds rated Caa may be in default
or there may be present elements of danger with respect to principal or
interest. Lower rated bonds by Standard & Poor's (categories BB, B, CCC)
include those which are regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with their terms; BB indicates the lowest degree of speculation
and CCC a high degree of speculation. While such bonds likely will have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. For a specific
description of each corporate bond rating category, see Appendix A to the
Statement of Additional Information.
When a Portfolio invests in debt securities, investment income may
increase and may constitute a larger portion of the return on the Portfolio's
investments, and the Portfolio may not participate in stock market advances
or declines to the extent that it would if it were fully invested in equity
securities.
FOREIGN SECURITIES. For U.S. investors, the returns on foreign securities
are influenced not only by the returns on the foreign investments themselves,
but also by currency risk (I.E., changes in the value of the currencies in
which the securities are denominated relative to the U.S. dollar). In a
period when the U.S. dollar generally rises against foreign currencies, the
returns on foreign securities for a U.S. investor are diminished. By
contrast, in a period when the U.S. dollar generally declines, the returns on
foreign securities generally are enhanced.
Other risks and considerations of investing in foreign securities include
the following: differences in accounting, auditing and financial reporting
standards which may result in less publicly available information than is
generally available with respect to U.S. issuers; generally higher commission
rates on foreign portfolio transactions and longer settlement periods; higher
custodial expenses; the smaller trading volumes and generally lower liquidity
of foreign stock markets, which may result in greater price volatility;
foreign withholding taxes payable on a Portfolio's foreign securities, which
may reduce dividend income payable to shareholders; the possibility of
expropriation or confiscatory taxation; adverse changes in investment or
exchange control regulations; less stringent or different regulations than
those applicable to U.S. issuers; political instability which could affect
U.S. investment in foreign countries; potential restrictions on the flow of
international capital; and the possibility of the Portfolio experiencing
difficulties in pursuing legal remedies and collecting judgments. A
Portfolio's investments in foreign securities may include investments in
developing countries. Many of these securities are speculative and their
prices may be more volatile than those of securities issued by companies
located in more developed countries.
ADRs are subject to certain of the same risks as direct investments in
foreign securities, including the risk that changes in the value of the
currency in which the security underlying an ADR is denominated relative to
the U.S. dollar may adversely affect the value of the ADR. The regulatory
requirements with respect to ADRs that are issued in sponsored and
unsponsored programs are generally similar but the issuers of unsponsored
ADRs are not obligated to disclose material information in the United States
and, therefore, such information may not be reflected in the market value of
the ADRs.
SMALL CAPITALIZATION COMPANIES. The Portfolios may invest in equity
securities issued by small-cap companies. For these purposes, the
Co-Sub-Advisers consider small-cap companies to be companies with market
capitalizations of up to $1 billion. The Portfolios' investments in small
capitalization stocks may include companies that have limited operating
histories, product lines, and financial and managerial resources. These
companies may be subject to intense competition from larger companies, and
their stocks may be subject to more abrupt or erratic market movements than
the stocks of larger, more established companies. Due to these and other
factors, small cap companies may suffer significant losses as well as realize
substantial growth.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. The use of futures,
options, forward contracts and swaps
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exposes the Portfolios to additional investment risks and transaction costs.
If the Co-Sub-Advisers seek to protect the Portfolios against potential
adverse movements in the securities, foreign currency or interest rate
markets using these instruments, and such markets do not move in a direction
adverse to the Portfolios, the Portfolios could be left in a less favorable
position than if such strategies had not been used. Risks inherent in the use
of futures, options, forward contracts and swaps include (1) the risk that
interest rates, securities prices and currency markets will not move in the
directions anticipated; (2) imperfect correlation between the prices of
futures, options and forward contracts and movements in the prices of the
securities or currencies hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities;
(4) the possible absence of a liquid secondary market for any particular
instrument at any time; and (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. Further
information on the use of futures, options, forward foreign currency
contracts and swaps and swap-related products, and the associated risks, is
contained in the Statement of Additional Information.
REAL ESTATE INVESTMENT TRUSTS. Investing in REITs involves certain unique
risks in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified, and are subject to the risks of
financing projects. REITs are subject to heavy cash flow dependency, default
by borrowers, self-liquidation and the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code. REITs
(especially mortgage REITs) are also subject to interest rate risk. (I.E., as
interest rates rise, the value of the REIT may decline).
OTHER INVESTMENT POLICIES AND RESTRICTIONS
Each Portfolio is subject to certain other investment policies and
restrictions which are described in the Statement of Additional Information,
some of which are fundamental policies of the Portfolio and as such may not
be changed without the approval of a majority of the Portfolio's shareholders
and the Policyholders.
PORTFOLIO TURNOVER
There are no fixed limitations regarding portfolio turnover. Although the
Portfolios do not trade for short-term profits, securities may be sold
without regard to the time they have been held in a Portfolio when, in the
opinion of the Co-Sub-Advisers, investment considerations warrant such
action. In addition, portfolio turnover rates may increase as a result of
large amounts of purchases or redemptions of Portfolio shares due to
economic, market or other factors that are not within the control of the
Co-Sub-Advisers. As a result, under certain market conditions, the portfolio
turnover rate for a Portfolio may exceed 100%, and may be higher than that of
other investment companies seeking growth of capital. Increased portfolio
turnover would cause a Portfolio to incur greater brokerage costs than would
otherwise be the case.
MANAGEMENT OF THE FUND
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. There are currently five Directors, three
of whom are not "interested persons" of the Fund as that term is defined in
the 1940 Act. The Board meets regularly four times each year and at other
times as necessary. By virtue of the functions performed by WRL as Investment
Adviser and Meridian and INVESCO as Co-Sub-Advisers, the Fund requires no
employees other than its executive officers, none of whom devotes full time
to the affairs of the Fund. These officers are employees of WRL and receive
no compensation from the Fund. The Statement of Additional Information
contains the names of and general background information regarding each
Director and executive officer of the Fund.
THE INVESTMENT ADVISER
WRL, a life insurance company located at 201 Highland Avenue, Largo,
Florida 34640, serves as the Portfolios' Investment Adviser. The Investment
Adviser is a wholly-owned subsidiary of First AUSA Life Insurance Company
("First AUSA"), a stock life insurance company which is wholly-owned by AEGON
USA, Inc. ("AEGON"). AEGON is a financial services holding company whose
primary emphasis is on life and health insurance and annuity and investment
products. AEGON is a wholly-owned indirect subsidiary of AEGON nv, a
Netherlands corporation, which is a publicly-traded international insurance
group.
Subject to the supervision and direction of the Fund's Board of Directors,
the Investment Adviser is responsible for managing the Portfolios in
accordance with the Portfolios' stated investment objectives and policies. As
compensation for its services to the Portfolios, the Investment Adviser
receives monthly compensation at the annual rate of 1.10% of the average
daily net assets of each of the Portfolios.
The Investment Adviser is responsible for providing investment advisory
services and furnishes or makes available to the Portfolios the services of
executive and management personnel to supervise the performance of all
administrative, recordkeeping, regulatory reporting and compliance services,
including the supervision of the Portfolios' custodian. The Investment
Adviser also assists the Portfolios in maintaining communications and
relations with the shareholders of the Portfolios, including assisting in the
preparation of reports to shareholders. The Investment Adviser may incur and
will pay certain additional expenses, including legal and accounting fees, in
connection with the formation and organization of the Portfolios, including
the preparation and filing, when appropriate, of all documents, including
registration statements, post-effective amendments, and any registration or
qualification under state securities laws required in connection with the
Portfolios' offering of shares. The Investment Adviser will also pay all
reasonable compensation and related expenses of the officers and Directors of
the Fund, except for such Directors who are not interested persons (as that
term is defined in
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the 1940 Act) of the Investment Adviser, and the rental of offices. The
Portfolios pay all other expenses incurred in their operations, including
general administrative expenses. Accounting services are provided for the
Portfolios by the Investment Adviser.
THE CO-SUB-ADVISERS
Meridian Investment Management Corporation ("Meridian"), located at 12835
East Arapahoe Road, Tower II, 7th Floor, Englewood Colorado 80112, serves as
a Co-Sub-Adviser to the Portfolios. Meridian is a wholly-owned subsidiary of
Meridian Management & Research Corporation ("MM&R"). Michael J. Hart and Dr.
Craig T. Callahan each own 50% of MM&R. Meridian provides investment
management and related services to other mutual fund portfolios and
individual, corporate, charitable and retirement accounts. Meridian manages
seven mutual fund wrap-fee programs which, as of September 30, 1995, had
aggregate assets of approximately $435 million.
Meridian's Investment Committee determines guidelines for asset, country
and industry weightings based on Meridian's proprietary quantitative methods.
The Committee is comprised of Dr. Craig T. Callahan, Michael J. Hart, Patrick
S. Boyle and Bryan M. Ritz.
Bryan M. Ritz, C.F.A., serves as Portfolio Manager of the Meridian Sector
Portfolios. Mr. Ritz is also a Portfolio Manager for Meridian's Premier
private accounts, and previously served as a research analyst for Meridian
beginning in 1992. Prior to entering the investment management industry, Mr.
Ritz was a research and teaching assistant in the Finance Department at the
University of Denver. His educational background is B.S.B.A., M.B.A.,
University of Denver. Mr. Ritz is a Chartered Financial Analyst.
Meridian provides investment advisory assistance and portfolio management
advice to the Investment Adviser for the Portfolios. Meridian also provides
quantitative investment research and portfolio management advice to the
Investment Adviser for the Portfolios. Subject to review and supervision by
the Investment Adviser and the Board of Directors of the Fund, Meridian is
responsible for making decisions and recommendations as to asset allocation
and industry and country selections for the Portfolios. Meridian bears all of
its expenses in connection with the performance of its services, such as
compensating and furnishing office space for its officers and employees
connected with the investment and economic research and investment management
of the Portfolios.
INVESCO Global Asset Management Limited, located at Rosebank, 12
Bermudiana Road, Hamilton, Bermuda HM11, serves as a Co-Sub-Adviser to the
Portfolios. INVESCO is an indirect wholly-owned subsidiary of INVESCO PLC, a
global firm that managed approximately $74 billion as of June 30, 1995.
INVESCO PLC is headquartered in London, with money managers located in
Europe, North America and the Far East.
INVESCO provides investment advisory assistance and portfolio management
advice to the Investment Adviser for the Portfolios. Subject to review and
supervision by the Investment Adviser and the Board of Directors of the Fund,
INVESCO is responsible for actual security selection for the Portfolios
(within the constraints of Meridian's asset, industry, and country
selections). INVESCO's services are provided by a team of portfolio managers.
Individual industry and country specialists are responsible for managing
security selection for their assigned shares of the asset, industry and
country allocations established by Meridian. In performing these services,
INVESCO is authorized to draw upon the resources of certain
INVESCO-affiliated companies and their employees, provided that INVESCO
supervises and remains fully responsible for all such services. Pursuant to
this authority, INVESCO has entered into agreements with INVESCO Asset
Management Limited, 11 Devonshire Square, London, EC2M 4YR England, for
assistance in managing the Portfolios' investments in foreign securities, and
with INVESCO Trust Company, 7800 East Union Avenue, Denver, Colorado 80237,
for assistance in managing the Portfolios' investments in U.S. securities.
For its services, Meridian receives monthly compensation from the
Investment Adviser, as a percentage of each Portfolio's average daily net
assets, at an annual rate of 0.30% of the first $100 million of assets and
0.35% of assets in excess of $100 million. For its services, INVESCO receives
monthly compensation from the Investment Adviser, as a percentage of each
Portfolio's average daily net assets, at an annual rate of 0.40% of the first
$100 million of assets and 0.35% of assets in excess of $100 million.
INVESCO is also responsible for selecting the broker-dealers who execute
the portfolio transactions for the Portfolios. INVESCO is authorized to
consider sales of the Policies or Annuity Contracts described in the
accompanying prospectus by a broker-dealer as a factor in the selection of
broker-dealers to execute portfolio transactions. In placing portfolio
business with all dealers, INVESCO seeks best execution of each transaction
and all brokerage placement must be consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
PERSONAL SECURITIES TRANSACTIONS
The Fund permits "Access Persons" as defined by Rule 17j-1 under the 1940
Act to engage in personal securities transactions, subject to the terms of
the Code of Ethics and Insider Trader Policy ("Ethics Policy") that has been
adopted by the Board of Directors of the Fund. Access Persons must use the
guidelines established by this Ethics Policy for all personal securities
transactions and are subject to certain prohibitions on personal trading. The
Fund's Sub-Advisers, pursuant to Rule 17j-1 and other applicable laws, and
pursuant to the terms of the Ethics Policy, must adopt and enforce their own
Code of Ethics and Insider Trading Policies appropriate to their operations.
Each Sub-Adviser must report to the Board of Directors on a quarterly basis
with respect to the administration and enforcement of such Ethics Policy,
including any violations thereof whch may potentially affect the Fund.
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DIVIDENDS AND OTHER DISTRIBUTIONS
The Portfolios intend to distribute substantially all of their net
investment income, if any. Dividends, if any, from investment income normally
are declared and paid semi-annually in additional shares of the Portfolios
at net asset value. Distributions of net realized capital gains from security
transactions and net gains from foreign currency transactions, if any,
normally are declared and paid in additional shares of the Portfolios at the
end of the fiscal year.
TAXES
Each Portfolio intends to qualify and continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code"). As such, a Portfolio is not subject to Federal income
tax on that part of its investment company taxable income (consisting
generally of net investment income, net gains from certain foreign currency
transactions, and net short-term capital gain, if any) and any net capital
gain (the excess of net long-term capital gain over net short-term capital
loss) that it distributes to its shareholders. It is the Portfolios'
intention to distribute all such income and gains.
Portfolio shares are offered only to the Separate Accounts (which are
insurance company separate accounts that fund the Policies and the Annuity
Contracts). Under the Code, no tax is imposed on an insurance company with
respect to income of a qualifying separate account properly allocable to the
value of eligible variable annuity or variable life insurance contracts. For
a discussion of the taxation of life insurance companies and the Separate
Accounts, as well as the tax treatment of the Policies and Annuity Contracts
and the holders thereof, see "Federal Tax Matters" included in the respective
prospectuses for the Policies and the Annuity Contracts.
Each Portfolio intends to comply with the diversification requirements
imposed by section 817(h) of the Code and the regulations thereunder. These
requirements are in addition to the diversification requirements imposed on
the Portfolios by Subchapter M and the 1940 Act. These requirements place
certain limitations on the assets of each separate account that may be
invested in securities of a single issuer, and, because section 817(h) and
the regulations thereunder treat each Portfolio's assets as assets of the
related separate account, these limitations also apply to each Portfolio's
assets that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor"
described below, as of the end of each calendar quarter, or within 30 days
thereafter, no more than 55% of each of the Portfolio's total assets may be
represented by any one investment, no more than 70% by any two investments,
no more than 80% by any three investments, and no more than 90% by any four
investments.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of section
817(h), all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are treated as a
single investment. In addition, each U.S. Government agency or
instrumentality is treated as a separate issuer, while the securities of a
particular foreign government and its agencies, instrumentalities, and
political subdivisions all will be considered securities issued by the same
issuer. Failure of the Portfolios to satisfy the section 817(h) requirements
would result in taxation of the Separate Accounts, the insurance companies,
the Policies, and the Annuity Contracts, and tax consequences to the holders
thereof, other than as described in the respective prospectuses for the
Policies and the Annuity Contracts.
The foregoing is only a summary of some of the important Federal income
tax considerations generally affecting the Portfolios and their shareholders;
see the Statement of Additional Information for a more detailed discussion.
Prospective investors are urged to consult their tax advisors.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolios are sold and redeemed at their net asset value
next determined after receipt of a purchase order or notice of redemption in
proper form. Shares are sold and redeemed without the imposition of any sales
commission or redemption charge. However, certain sales and other charges may
apply to the Policies and the Annuity Contracts. Such charges are described
in the respective prospectuses for the Policies and the Annuity Contracts.
VALUATION OF SHARES
Each Portfolio's net asset value per share is ordinarily determined, once
daily, as of the close of the regular session of business on the New York
Stock Exchange ("Exchange") (usually 4:00 p.m., Eastern time), on each day
the Exchange is open.
Net asset value of each Portfolio's shares is computed by dividing the
value of the net assets of the Portfolio by the total number of Portfolio
shares outstanding.
Except for money market instruments maturing in 60 days or less,
securities held by the Portfolios are valued at market value. Securities for
which market values are not readily available are valued at fair value as
determined in good faith by the Investment Adviser and Co-Sub-Advisers under
the supervision of the Fund's Board of Directors. Money market instruments
maturing in 60 days or less are valued on the amortized cost basis.
THE FUND AND ITS SHARES
The Fund was incorporated under the laws of the State of Maryland on
August 21, 1985, and is registered with the Securities and Exchange
Commission as a diversified, open-end, management investment company.
The Fund offers its shares for purchase by the Separate Accounts of the
Life Companies to fund benefits under variable life insurance or variable
annuity contracts issued by the
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Life Companies. Because Fund shares are sold to separate accounts established
to receive and invest premiums received under variable life insurance
policies and purchase payments received under variable annuity contracts, it
is conceivable that, in the future, it may become disadvantageous for
variable life insurance separate accounts and variable annuity separate
accounts to invest in the Fund simultaneously. Neither the Life Companies nor
the Fund currently foresees any such disadvantages or conflicts, either to
variable life insurance policyowners or to variable annuity contractowners.
After being notified by one or more of the Life Companies of a potential or
existing conflict, the Fund's Board of Directors will determine if a material
conflict exists and what action, if any, should be taken in response thereto.
Such action could include the sale of Fund shares by one or more of the
Separate Accounts, which could have adverse consequences. Material conflicts
could result from, for example, (1) changes in state insurance laws, (2)
changes in Federal income tax laws, or (3) differences in voting instructions
between those given by variable life insurance policyowners and those given
by variable annuity contractowners. If the Board of Directors were to
conclude that separate funds should be established for variable life and
variable annuity Separate Accounts, the affected Life Companies will bear the
attendant expenses, but variable life insurance policyowners and variable
annuity contractowners would no longer have the economies of scale typically
resulting from a larger combined fund.
The Fund offers a separate class of common stock for each Portfolio. All
shares of the Portfolios and of each of the other portfolios have equal
voting rights, except that only shares of a particular portfolio are entitled
to vote on matters concerning only that portfolio. Each issued and
outstanding share of the Portfolios is entitled to one vote and to
participate equally in dividends and distributions declared by the Portfolios
and, upon liquidation or dissolution, to participate equally in the net
assets of the Portfolios remaining after satisfaction of outstanding
liabilities. The shares of the Portfolios, when issued, will be fully paid
and nonassessable, have no preference, preemptive, conversion, exchange or
similar rights, and will be freely transferable. Shares do not have
cumulative voting rights and the holders of more than 50% of the shares of
the Fund voting for the election of directors can elect all of the directors
of the Fund if they choose to do so and, in such event, holders of the
remaining shares would not be able to elect any directors.
Only the Separate Accounts of the Life Companies may hold shares of the
Fund and are entitled to exercise the rights directly as described above. If
and to the extent required by law, the Life Companies will vote the Fund's
shares in the Separate Accounts, including Fund shares which are not
attributable to Policyholders, at meetings of the Fund in accordance with
instructions received from Policyholders having voting interests in the
corresponding sub-accounts of the Separate Accounts. Except as required by
the 1940 Act, the Fund does not hold regular or special shareholder meetings.
If the 1940 Act or any regulation thereunder should be amended or if present
interpretation thereof should change, and as a result it is determined that
the Life Companies are permitted to vote Fund shares in their own right, they
may elect to do so. The rights of Policyholders are described in more detail
in the prospectuses or disclosure document for the Policies and the Annuity
Contracts, respectively.
PERFORMANCE INFORMATION
Each Portfolio may, from time to time, include quotations of its total
return or yield in connection with the total return for the corresponding
Sub-accounts of the Separate Account in advertisements, sales literature or
reports to Policyholders or to prospective investors. Total return and yield
quotations reflect only the performance of a hypothetical investment in the
Portfolios during the particular time period shown as calculated based on the
historical performance of the Portfolios during that period. SUCH QUOTATIONS
DO NOT IN ANY WAY INDICATE OR PROJECT FUTURE PERFORMANCE. Quotations of total
return and yield regarding the Portfolios do not reflect charges and
deductions against the Separate Accounts or charges and deductions against
the Policies or the Annuity Contracts. Where relevant, the prospectuses for
the Policies and the Annuity Contracts contain additional performance
information.
The total return of the Portfolios refers to the average annual percentage
change in value of an investment in the Portfolios held for various periods
of time, including, but not limited to, one year, five years, ten years and
since the Portfolios began operations, as of a stated ending date. When the
Portfolios have been in operation for these periods, the total return for
such periods will be provided if performance information is quoted. Total
return quotations are expressed as average annual compound rates of return
for each of the periods quoted, reflect the deduction of a proportionate
share of each Portfolio's investment advisory fee and Portfolio expenses and
assume that all dividends and capital gains distributions during the period
are reinvested in the Portfolio when made.
The Portfolios may, from time to time, disclose in advertisements, sales
literature and reports to Policyholders or to prospective investors, total
return for the Portfolios for periods in addition to those required to be
presented, or disclose other nonstandardized data such as cumulative total
returns, actual year-by-year returns, or any combination thereof.
A Portfolio may also, from time to time, compare the performance of the
Portfolio in advertisements, sales literature and reports to Policyholders or
to prospective investors to: (1) the Standard & Poor's Index of 500 Common
Stocks, the Dow Jones Industrial Average or other widely recognized indices;
(2) other mutual funds whose performance is reported by Lipper Analytical
Services, Inc., ("Lipper"), Variable Annuity Research & Data Service
("VARDS") and Morningstar, Inc. ("Morningstar") or reported by other
services, companies, individuals or other industry or financial publications
of general interest, such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS
WEEK, BARRON'S, KIPLINGER'S PERSONAL FINANCE, and FORTUNE, which rank and/or
rate mutual
9
<PAGE>
funds by overall performance or other criteria; and (3) the Consumer Price
Index. Lipper, VARDS and Morningstar are widely quoted independent research
firms which rank mutual funds by overall performance, investment objectives,
and assets. Unmanaged indices may assume the reinvestment of dividends but
usually do not reflect any "deduction" for the expense of operating or
managing a fund. In connection with a ranking, a Portfolio will also provide
additional information with respect to the ranking, including the particular
category to which it relates, the number of funds in the category, the period
and criteria on which the ranking is based, and the effect of fee waivers
and/or expense reimbursements.
A Portfolio yield quotation refers to the income generated by a
hypothetical investment in the Portfolio over a specified thirty-day period
expressed as a percentage rate of return for that period. The yield is
calculated by dividing the net investment income per share for the period by
the price per share on the last day of that period.
(See the Statement of Additional Information for more information about
the Portfolios' performance.)
GENERAL INFORMATION
REPORTS TO POLICYHOLDERS
The fiscal year of the Portfolios ends on December 31 of each year. The
Fund will send to the Portfolios' Policyholders, at least semi-annually,
reports showing each Portfolio's composition and other information. An annual
report, containing financial statements audited by the Fund's independent
accountants, will be sent to Policyholders each year.
CUSTODIAN AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts
02111, acts as Custodian and Dividend Disbursing Agent of each Portfolio's
assets.
ADDITIONAL INFORMATION
The telephone number or the address of the Fund appearing on the first
page of this Prospectus should be used for requests for additional
information.
10
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
MERIDIAN/INVESCO US SECTOR PORTFOLIO
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
OFFICE OF THE FUND:
WRL Series Fund, Inc.
201 Highland Avenue
Largo, FL 34640
(800) 851-9777
(813) 585-6565
INVESTMENT ADVISER:
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, FL 34640
CO-SUB-ADVISERS:
Meridian Investment Management Corporation
12835 East Arapahoe Road
Tower II, 7th Floor
Englewood, CO 80112
INVESCO Global Asset Management Limited
Rosebank, 12 Bermudiana Road
Hamilton, Bermuda HM11
CUSTODIAN:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
INDEPENDENT ACCOUNTANTS:
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR
AN OFFER TO ANY PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES
OR ANY COUNTRY WHERE SUCH OFFER WOULD BE UNLAWFUL.
WRL00100-05/95
11
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
MERIDIAN/INVESCO US SECTOR PORTFOLIO
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Prospectus for the
Meridian/INVESCO Global Sector Portfolio, Meridian/ INVESCO US Sector
Portfolio and Meridian/INVESCO Foreign Sector Portfolio of the WRL Series
Fund, Inc. (the "Fund"). A copy of the Prospectus may be obtained from the
Fund by writing the Fund at 201 Highland Avenue, Largo, Florida 34640 or by
calling the Fund at (800) 851-9777.
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Investment Adviser
MERIDIAN INVESTMENT MANAGEMENT CORPORATION
INVESCO GLOBAL ASSET MANAGEMENT LIMITED
Co-Sub-Advisers
The date of the Prospectus to which this Statement of Additional
Information relates and the date of this Statement of Additional Information
is May 1, 1996.
WRL00101-05/96
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE IN THIS STATEMENT CROSS-REFERENCE
OF TO
ADDITIONAL INFORMATION PAGE IN PROSPECTUS
--------------------------- -----------------------
<S> <C> <C>
Investment Objectives and Policies 1 1
Investment Restrictions 1 7
Lending of Portfolio Securities 3 5
Convertible Securities 3 3
Mortgage-Backed Securities 4 1
Asset-Backed Securities 4 2
Zero Coupon Bonds 4 2
Restricted/144A Securities 4 4
Debt Securities N/A 2
Futures, Options on Futures and Options on
Securities 5 3
Forward Foreign Currency Contracts 9 3
Gold Stocks and Gold Bullion N/A 4
Foreign Securities N/A 3
Real Estate Securities N/A 4
Swaps and Swap-Related Products 9 3
Repurchase Agreements 10 3
Management of the Fund 11 6
Directors and Officers 11 6
The Investment Adviser 12 6
The Co-Sub-Advisers 13 7
Portfolio Transactions and Brokerage 14 7
Portfolio Turnover 14 6
Placement of Portfolio Brokerage 15 7
Purchase and Redemption of Shares 16 8
Determination of Offering Price 16 8
Net Asset Valuation 16 8
Calculation of Performance Related Information 17 9
Total Return 17 9
Yield Quotations 17 10
Taxes 17 8
Capital Stock of the Fund 19 9
Registration Statement 19 N/A
Financial Statements 19 10
Appendix A-Description of
Selected Corporate Bond
and Commercial Paper Ratings A-1 2
Appendix B-Description of
Short-Term Securities B-1 2
</TABLE>
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Meridian/INVESCO Global Sector Portfolio,
Meridian/INVESCO US Sector Portfolio and Meridian/INVESCO Foreign Sector
Portfolio (collectively, the "Portfolios" and, individually, a "Portfolio")
of the Fund are described in the Portfolios' Prospectus. Shares of the
Portfolios are sold only to the insurance company separate accounts of
Western Reserve Life Assurance Co. of Ohio ("WRL") and to separate accounts
of certain of its affiliated life insurance companies (collectively, the
"Separate Accounts") to fund the benefits under certain variable life
insurance policies (the "Policies") and variable annuity contracts (the
"Annuity Contracts").
As indicated in the Prospectus, the Portfolios' investment objectives and,
unless otherwise noted, their investment policies and techniques may be
changed by the Board of Directors of the Fund without approval of
shareholders or holders of the Policies or of the Annuity Contracts
(collectively, ("Policyholders"). A change in the investment objectives or
policies of a Portfolio may result in the Portfolio having an investment
objective or policies different from that which a Policyholder deemed
appropriate at the time of investment.
INVESTMENT RESTRICTIONS
As indicated in the Prospectus, each Portfolio is subject to certain
fundamental policies and restrictions which may not be changed without the
approval of the holders of a majority of the outstanding voting shares of the
Portfolio. "Majority" for this purpose and under the Investment Company Act
of 1940, as amended (the "1940 Act"), means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares of the Portfolio are represented or (ii) more than 50% of the
outstanding shares of the Portfolio. A complete statement of all such
fundamental policies is set forth below.
A Portfolio may not, as a matter of fundamental policy:
1. With respect to seventy-five percent (75%) of the Portfolio's total
assets, purchase the securities of any one issuer, except cash items and
"government securities" as defined under the 1940 Act, if the purchase would
cause the Portfolio to have more than 5% of the value of its total assets
invested in the securities of such issuer or to own more than 10% of the
outstanding voting securities of such issuer.
2. Borrow money from banks or issue senior securities (as defined in the
1940 Act), except that a Portfolio may borrow money from banks for temporary
or emergency purposes (not for leveraging or investment) and may enter into
reverse repurchase agreements in an aggregate amount not exceeding 33 1/3%
of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
33 1/3% of the value of a Portfolio's total assets by reason of a decline in
net assets will be reduced within three business days to the extent necessary
to comply with the 33 1/3% limitation. This restriction shall not prohibit
deposits of assets to margin or guarantee positions in futures, options,
swaps or forward contracts, or the segregation of assets in connection with
such contracts.
3. Invest directly in real estate or interests in real estate; however, a
Portfolio may own debt or equity securities issued by companies engaged in
those businesses.
4. Purchase or sell physical commodities other than gold or foreign
currencies unless acquired as a result of ownership of securities (but this
shall not prevent a Portfolio from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
5. Lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of commercial paper, debt securities or to
repurchase agreements).
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio.
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7. Invest more than 25% of the value of its total assets in any particular
industry (other than government securities).
With respect to restriction no. 2, above, in accordance with the
requirements of current California insurance regulations, a Portfolio will
restrict borrowings to no more than 10% of total assets, except that a
Portfolio may temporarily borrow amounts equal to as much as 25% of total
assets if such borrowing is necessary to meet redemptions. If California's
insurance regulations are changed at some future time to permit borrowings in
excess of 10% but less than 33 1/3% of total assets, a Portfolio may conduct
borrowings in accordance with such revised limits.
Furthermore, the Portfolios have adopted the following non-fundamental
investment restrictions which may be changed by the Board of Directors of the
Fund without shareholder or Policyholder approval:
(A) A Portfolio will not (i) enter into any futures contracts or options
on futures contracts if immediately thereafter the aggregate margin deposits
on all outstanding futures contracts positions held by the Portfolio and
premiums paid on outstanding options on futures contracts, after taking into
account unrealized profits and losses, would exceed 5% of the market value of
the total assets of the Portfolio, or (ii) enter into any futures contracts
if the aggregate net amount of the Portfolio's commitments under outstanding
futures contracts positions of the Portfolio would exceed the market value of
the total assets of the Portfolio.
(B) A Portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities
sold short without the payment of any additional consideration therefor, and
provided that transactions in options, swaps and forward futures contracts
are not deemed to constitute selling securities short.
(C) A Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments and other
deposits in connection with transactions in options, futures, swaps and
forward contracts shall not be deemed to constitute purchasing securities on
margin.
(D) A Portfolio may not (i) purchase securities of closed-end investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds, funds that are the only practical means, or one of the
few practical means, of investing in a particular emerging country, or to
securities received as dividends, through offers of exchange, or as a result
of a reorganization, consolidation, or merger.
(E) A Portfolio may not mortgage or pledge any securities owned or held by
the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net asset value, provided that this limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to margin or
guarantee positions in futures, options, swaps or forward contracts or placed
in a segregated account in connection with such contracts.
(F) A Portfolio may not purchase securities of any issuer with a record of
less than three years' continuous operation, including that of predecessors
(other than U.S. government agencies and instrumentalities or instruments
guaranteed by an entity with a record of more than three years' continuous
operation, including that of predecessors), if such purchase would cause the
Portfolio's investments in all such issuers to exceed 5% of the Portfolio's
total assets taken at market value at the time of such purchase.
(G) A Portfolio may not invest directly in oil, gas, or other mineral
development or exploration programs or leases; however, the Portfolio may own
debt or equity securities of companies engaged in those businesses.
(H) A Portfolio may not purchase any security or enter into a repurchase
agreement if, as a result, more than 15% of its net assets would be invested
in any combination of: (i) repurchase agreements not entitling the holder to
payment of principal and interest within seven days, and (ii) securities that
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<PAGE>
are illiquid by virtue of legal or contractual restrictions on resale or the
absence of a readily available market. The Board of Directors, or the
Portfolio's Co-Sub-Advisers acting pursuant to authority delegated by the
Board of Directors, may determine that a readily available market exists for
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933, or any successor to such rule. According to the determination, such
securities would not be subject to the foregoing limitation.
(I) A Portfolio may not invest in companies for the purpose of exercising
control or management, except to the extent that exercise by the Fund of its
rights under agreements related to Portfolio securities would be deemed to
constitute such control.
With respect to investment restriction (I) above, the Fund's Board of
Directors has delegated to the Co-Sub-Advisers the authority to determine
that a liquid market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, as amended (the "1993 Act"), or
any successor to such rule and that such securities are not subject to such
restriction. Under guidelines established by the Board of Directors, the
Co-Sub-Advisers will consider the following factors, among others, in making
this determination: (1) the frequency of trades and quotes for the security;
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
security and the nature of marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer).
Except as otherwise required by law, if a percentage limitation is
complied with at the time of the investment, a subsequent change in the
percentage resulting from any change in value or of a Portfolio's net assets
will not result in a violation of such restriction.
LENDING OF PORTFOLIO SECURITIES
Subject to investment restriction 5 above, each Portfolio, from time to
time, may lend its securities to qualified brokers, dealers, banks, or other
financial institutions. This practice permits a Portfolio to earn income,
which, in turn, can be invested in additional securities of the type
described below in pursuit of a Portfolio's investment objective. Loans of
securities by a Portfolio will be collateralized by cash, letters of credit,
or securities issued or guaranteed by the U.S. government or its agencies
equal to at least 100% of the current market value of the loaned securities,
determined on a daily basis. Lending securities involves certain risks, the
most significant of which is the risk that a borrower may fail to return a
portfolio security. A Portfolio monitors the creditworthiness of borrowers in
order to minimize such risks. A Portfolio will not lend any security if, as a
result of such loan, the aggregate value of securities then on loan would
exceed 33 1/3% of the Portfolio's total assets (taken at market value).
While voting rights may pass with the loaned securities, if a material event
(E.G., proposed merger, sale of assets, or liquidation) is to occur affecting
an investment on loan, the loan must be called and the securities voted.
Loans of securities made by a Portfolio will comply with all other applicable
regulatory requirements, including the rules of the New York Stock Exchange
and the requirements of the 1940 Act and the rules of the Securities and
Exchange Commission ("SEC") thereunder.
CONVERTIBLE SECURITIES (ALL PORTFOLIOS)
Each Portfolio may invest in convertible securities. Convertible
securities may include corporate notes or preferred stock, but ordinarily are
a long-term debt obligation of the issuer convertible at a stated exchange
rate into common stock of the issuer. As with all debt securities, the market
value of convertible securities tends to decline as interest rates increase
and, conversely, to increase as interest rates decline. Convertible
securities generally offer lower interest or dividend yields than non-
convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion
price, the price of the convertible security tends to reflect the value of
the underlying common stock. As the market price of the underlying common
stock declines, the convertible security tends to trade increasingly on a
yield basis, and thus may not depreciate to the same extent as the underlying
common stock. Convertible securities generally rank senior to common stocks
in an issuer's capital structure and are consequently of higher
3
<PAGE>
quality and entail less risk of declines in market value than the issuer's
common stock. However, the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security sells above
its value as a fixed income security. In evaluating investment in a
convertible security, primary emphasis will be given to the attractiveness of
the underlying common stock. The convertible debt securities in which the
Portfolios may invest are subject to the same rating criteria as the
Portfolios' investment in non-convertible debt securities.
MORTGAGE-BACKED SECURITIES (ALL PORTFOLIOS)
The Portfolios may invest in mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or
institutions such as banks, insurance companies, and savings and loans. Some
of these securities, such as Government National Mortgage Association
("GNMA") certificates, are backed by the full faith and credit of the U.S.
Treasury while others, such as Federal Home Loan Mortgage Corporation
("Freddie Mac") certificates, are not. The Portfolios currently do not intend
to invest more than 5% of their respective net assets in mortgage-backed
securities.
Mortgage-backed securities represent interests in a pool of mortgages.
Principal and interest payments made on the mortgages in the underlying
mortgage pool are passed through to the Portfolios. Unscheduled prepayments
of principal shorten the securities' weighted average life and may lower
their total return. The value of these securities also may change because of
changes in the market's perception of the creditworthiness of the federal
agency or private institution that issued them. In addition, the mortgage
securities market in general may be adversely affected by changes in
governmental regulation or tax policies.
ASSET-BACKED SECURITIES (ALL PORTFOLIOS)
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as
pass-through securities. Interest and principal payments ultimately depend on
payment of the underlying loans by individuals, although the securities may
be supported by letters of credit or other credit enhancements. The
underlying assets (e.g., loans) are subject to prepayments which shorten the
securities' weighted average life and may lower their returns. If the credit
support or enhancement is exhausted, losses or delays in payment may result
if the required payments of principal and interest are not made. The value of
these securities also may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the pool, the
originator of the pool, or the financial institution providing the credit
support or enhancement. The Portfolios currently do not intend to invest more
than 5% of their respective net assets in asset-backed securities.
ZERO COUPON BONDS (ALL PORTFOLIOS)
The Portfolios may invest in zero coupon bonds or "strips." Zero coupon
bonds do not make regular interest payments; rather, they are sold at a
discount from face value. Principal and accreted discount (representing
interest accrued but not paid) are paid at maturity. "Strips" are debt
securities that are stripped of their interest after the securities are
issued, but otherwise are comparable to zero coupon bonds. The market value
of "strips" and zero coupon bonds generally fluctuates in response to changes
in interest rates to a greater degree than interest-paying securities of
comparable term and quality. In order for a Portfolio to maintain its
qualification as a regulated investment company, it may be required to
distribute income recognized on zero coupon bonds or "strips" even though no
cash may be paid to the Portfolio until the maturity or call date of the
bond, and any such distribution could reduce the amount of cash available for
investment by the Portfolio. The Portfolios currently do not intend to invest
more than 5% of their respective net assets in zero coupon bonds or "strips."
RESTRICTED/144A SECURITIES (ALL PORTFOLIOS)
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend on an efficient institutional market in
which such
4
<PAGE>
unregistered securities can readily be resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual
or legal restrictions on resale to the general public or certain institutions
is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities
to qualified institutional buyers. Institutional markets for restricted
securities that might develop as a result of Rule 144A could provide both
readily ascertainable values for restricted securities and the ability to
liquidate an investment in order to satisfy share redemption orders. An
insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A-eligible security held by a Portfolio could, however,
adversely affect the marketability of such portfolio security and the
Portfolio might be unable to dispose of such security promptly or at
reasonable prices.
FUTURES, OPTIONS ON FUTURES AND OPTIONS ON SECURITIES (ALL PORTFOLIOS)
As discussed in the section entitled "The Meridian/INVESCO Global Sector
Portfolio, Meridian/ INVESCO US Sector Portfolio and Meridian/INVESCO Foreign
Sector Portfolio and the Fund" in the Prospectus, each Portfolio may enter
into futures contracts for hedging or other non-speculative purposes, and
purchase and sell ("write") options to buy or sell futures contracts and
other securities. These instruments are sometimes referred to as
"derivatives." The Portfolios will comply with and adhere to all limitations
in the manner and extent to which they effect transactions in futures and
options on such futures currently imposed by the rules and policy guidelines
of the Commodity Futures Trading Commission (the "CFTC") as conditions for
exemption of a mutual fund, or investment advisers thereto, from registration
as a commodity pool operator. Under those restrictions, the Portfolios will
not, as to any positions, whether long, short or a combination thereof, enter
into futures and options thereon for which the aggregate initial margins and
premiums exceed 5% of the fair market value of a Portfolio's total assets
after taking into account unrealized profits and losses on options it has
entered into.
In the case of an option that is "in-the-money" (as defined in the
Commodity Exchange Act (the "CEA")), the in-the-money amount may be excluded
in computing the 5% limitation described above. (In general, a call option on
a future is "in-the-money" if the value of the future exceeds the exercise
("strike") price of the call; a put option on a future is "in-the-money" if
the value of the future that is the subject of the put is exceeded by the
strike price of the put.) As to long positions which are used as part of the
Portfolios' strategies and are incidental to their activities in the
underlying cash market, the "underlying commodity value" of the Portfolios'
futures and options thereon must not exceed the sum of (i) cash set aside in
an identifiable manner, or short-term U.S. debt obligations or other dollar-
denominated high-quality, short-term money instruments so set aside, plus
sums deposited on margin; (ii) cash proceeds from existing investments due in
30 days; and (iii) accrued profits held by the futures commission merchant.
The "underlying commodity value" of a future is computed by multiplying the
size of the future by the daily settlement price of the future. For an option
on a future, that value is the underlying commodity value of the future
underlying the option.
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a futures contract
provides a specified settlement date on which, for the majority of interest
rate and foreign currency futures contracts, the fixed income securities or
currency underlying the contract are delivered by the seller and paid for by
the purchaser, or on which, for stock index futures contracts and certain
interest rate and foreign currency futures contracts, the difference between
the price at which the contract was entered into and the contract's closing
value is settled between the purchaser and seller in cash. Futures contracts
differ from options in that they are bilateral agreements, with both the
purchaser and the seller equally obligated to complete the transaction. In
addition, futures contracts call for settlement only on the expiration date,
and cannot be "exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price
is paid or received. Instead, an amount of cash or
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<PAGE>
cash equivalent, which varies but may be as low as 5% or less of the value of
the contract, must be deposited with the broker as "initial margin."
Subsequent payments to and from the broker, referred to as "variation
margin," are made on a daily basis as the value of the index or instrument
underlying the futures contract fluctuates, making positions in the futures
contract more or less valuable. This process is known as "marking-to-market."
Initial margin is in the nature of a performance bond or good faith
deposit on the contract. However, because losses on open contracts are
required to be reflected in cash in the form of variation margin payments, a
Portfolio may be required to make additional payments during the term of the
contracts to its broker. Such payments would be required, for example, when,
during the term of an interest rate futures contract purchased by a
Portfolio, there is a general increase in interest rates, thereby making the
Portfolio's portfolio securities less valuable. In all instances involving
the purchase of financial futures contracts by a Portfolio, an amount of
cash, together with such other securities as permitted by applicable
regulatory authorities to be utilized for such purpose at least equal to the
market value of the futures contracts, will be deposited in a segregated
account with the Portfolio's custodian to collateralize the position. At any
time prior to the expiration of a futures contract, the Portfolio may elect
to close its position by taking an opposite position that effectively
operates to terminate the Portfolio's position in the futures contract.
A futures contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the CFTC for the trading of such contract,
and only through a registered futures commission merchant which is a member
of such a contract market. A commission must be paid on each completed
purchase and sale transaction. The contract market clearing house guarantees
the performance of each party to a futures contract, by in effect taking the
opposite side of such contract. At any time prior to the expiration of a
futures contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered
into, subject to the availability of a secondary market, which will operate
to terminate the initial position. At that time, a final determination of
variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it.
When futures are purchased to hedge against a possible increase in the
price of a security before a Portfolio is able in an orderly fashion to
invest in the security, it is possible that the market may decline instead.
If the Portfolio, as a result, concluded not to make the planned investment
at that time because of concern as to possible further market decline or for
other reasons, the Portfolio would realize a loss on the futures contract
that is not offset by a reduction in the price of securities purchased.
In addition to the possibility of an imperfect correlation or no
correlation at all between movements in the futures and the portion of a
Portfolio hedged, the prices of futures may not correlate perfectly with
movements in interest rates or exchange rates due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through
offsetting transactions that could distort the normal relationship between
interest rates or exchange rates and the value of a future. Moreover, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market and may therefore cause increased
participation by speculators in the futures market. Such increased
participation also may cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in interest rates or exchange rates
and movements in the prices of futures contacts, the value of futures
contracts as a hedging device may be reduced.
In addition, if a Portfolio has insufficient available cash, it may at
times have to sell securities to meet variation margin requirements. Such
sales may have to be effected at a time when it may be disadvantageous to do
so.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified
6
<PAGE>
pass-through mortgage-backed securities, U.S. Treasury Bills, bank
certificates of deposit and commercial paper. In addition, interest rate
futures contracts include contracts on indices of municipal securities.
Foreign currency futures contracts currently are traded on the British pound,
Canadian dollar, Japanese yen, Swiss franc, West German mark and on
Eurodollar deposits.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may buy and write options on
futures contracts solely for bona fide hedging purposes or for other
non-speculative purposes within the meaning and intent of the applicable
provisions of the CEA. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when a Portfolio is not fully invested it may
buy a call option on a futures contract to hedge against a market advance.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case
of a call option, or a "short" position in the underlying futures contract,
in the case of a put option, at a fixed exercise price to a stated expiration
date. Upon exercise of the option by the holder, the contract market clearing
house establishes a corresponding short position for the writer of the
option, in the case of a call option, or a corresponding long position, in
the case of a put option. In the event that an option is exercised, the
parties will be subject to all the risks associated with the trading of
futures contracts, such as payment of variation margin deposits. In addition,
the writer of an option on a futures contract, unlike the holder, is subject
to initial and variation margin requirements on the option position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Portfolio will retain the full amount of the option premium, which provides a
partial hedge against any decline that may have occurred in the Portfolio's
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract.
If the futures price at expiration of the option is higher than the exercise
price, a Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities
which the Portfolio is considering buying. If a call or put option a
Portfolio has written is exercised, the Portfolio will incur a loss which
will be reduced by the amount of the premium it received. Depending on the
degree of correlation between changes in the value of its securities and
changes in the value of the futures positions, the Portfolio's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of its securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, a Portfolio may buy a put option on a futures contract to hedge
against the risk of falling prices.
The amount of risk a Portfolio assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs.
In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the options
bought.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series. (I.E., the
same exercise price and expiration date) as the option previously purchased
or sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of
an option, the exchange or contract market clearing house
7
<PAGE>
assigns exercise notices on a random basis to those of its members which have
written options of the same series and with the same expiration date. A
brokerage firm receiving such notices then assigns them on a random basis to
those of its customers which have written options of the same series and
expiration date. A writer therefore has no control over whether an option
will be exercised against it, nor over the time of such exercise.
OPTIONS ON SECURITIES. An option on a security provides the purchaser, or
"holder," with the right, but not the obligation, to purchase, in the case of
a "call" option, or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date. The holder pays a non-refundable purchase price for the
option, known as the "premium." The maximum amount of risk the purchaser of
the option assumes is equal to the premium plus related transaction costs,
although the entire amount may be lost. The risk of the seller, or "writer,"
however, is potentially unlimited, unless the option is "covered," which is
generally accomplished through the writer's ownership of the underlying
security, in the case of a call option, or the writer's segregation of an
amount of cash or securities equal to the exercise price, in the case of a
put option. If the writer's obligation is not so covered, it is subject to
the risk of the full change in value of the underlying security from the time
the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option.
Options on securities which have been purchased or written may be closed out
prior to exercise or expiration by entering into an offsetting transaction on
the exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange and the New York Stock Exchange, which
are regulated by the SEC. The Options Clearing Corporation ("OCC") guarantees
the performance of each party to an exchange-traded option, by in effect
taking the opposite side of each such option. A holder or writer may engage
in transactions in exchange-traded options on securities and options on
indices of securities only through a registered broker/dealer which is a
member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same
series. Although a Portfolio generally will purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option at any particular time. In such event it might not be
possible to effect closing transactions in a particular option with the
result that the Portfolio would have to exercise the option in order to
realize any profit. This would result in the Portfolio incurring brokerage
commissions upon the disposition of underlying securities acquired through
the exercise of a call option or upon the purchase of underlying securities
upon the exercise of a put option. If a Portfolio, as a covered call option
writer, is unable to effect a closing purchase transaction in a secondary
market, unless the Portfolio is required to deliver the securities pursuant
to the assignment of an exercise notice, it will not be able to sell the
underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions, or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or (vi) one or
more exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or particular
class or series of options) in which event the secondary market on that
exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange which had been
8
<PAGE>
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at a particular time, render certain of the facilities of
any of the clearing corporations inadequate and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders. However, the OCC, based on forecasts
provided by the U.S. exchanges, believes that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe their
facilities will also be adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter ("OTC")
through financial institutions dealing in such options as well as the
underlying instruments. OTC options are purchased from or sold (written) to
dealers or financial institutions which have entered into direct agreements
with the Fund on behalf of the Portfolios. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between a
Portfolio and the transacting dealer, without the intermediation of a third
party such as the OCC. If the transacting dealer fails to make or take
delivery of the securities underlying an option it has written, in accordance
with the terms of that option as written, the Portfolio would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. The Portfolios will engage in OTC option transactions only with
primary U.S. government securities dealers recognized by the Federal Reserve
Bank of New York.
FORWARD FOREIGN CURRENCY CONTRACTS (ALL PORTFOLIOS)
As discussed in the section of the Portfolio's Prospectus entitled "The
Meridian/INVESCO Global Sector Portfolio, Meridian/INVESCO US Sector
Portfolio and Meridian/INVESCO Foreign Sector Portfolio and the Fund," each
Portfolio may enter into forward contracts to purchase or sell foreign
currencies as a hedge against possible variations in foreign exchange rates.
A forward foreign currency contract is an agreement between the contracting
parties to exchange an amount of currency at some future time at an agreed
upon rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract. A forward contract generally
has no deposit requirement, and such transactions do not involve commissions.
By entering into a forward contract for the purchase or sale of the amount of
foreign currency invested in a foreign security transaction, a Portfolio can
hedge against possible variations in the value of the dollar versus the
subject currency either between the date the foreign security is purchased or
sold and the date on which payment is made or received or during the time the
Portfolio holds the foreign security. The Portfolios will not speculate in
forward currency contracts. Although the Portfolios have not adopted any
limitations on their ability to use forward contracts as a hedge against
fluctuations in foreign exchange rates, the Portfolios will not attempt to
hedge all of their foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by Meridian. The
Portfolios will not enter into a forward contract for a term of more than one
year. Forward contracts may, from time to time, be considered illiquid, in
which case they would be subject to the Portfolios' limitation on investing
in illiquid securities, discussed above.
SWAPS AND SWAP-RELATED PRODUCTS (ALL PORTFOLIOS)
Interest rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, E.G., an exchange
of floating rate payments for fixed rate payments. The exchange commitments
can involve payments to be made in the same currency or in different
currencies. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from
the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls
below a predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
floor.
The Portfolios may enter into interest rate swaps, caps and floors, which
are included in the types of instruments sometimes known as derivatives, on
either an asset-based or liability-based basis,
9
<PAGE>
depending upon whether they are hedging their assets or their liabilities,
and usually will enter into interest rate swaps on a net basis, I.E., the two
payment streams are netted out, with a Portfolio receiving or paying, as the
case may be, only the net amount of the two payments. The net amount of the
excess, if any, of a Portfolio's obligations over its entitlement with
respect to each interest rate swap will be calculated on a daily basis, and
an amount of cash or high-grade liquid assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by the Portfolios' custodian. If a Portfolio enters into an interest
rate swap on other than a net basis, the Portfolio would maintain a
segregated account in the full amount accrued on a daily basis of the
Portfolio's obligations with respect to the swap. The Portfolios will not
enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto
is rated in one of the three highest rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction. The Co-Sub-Advisers will monitor the creditworthiness
of all counterparties on an ongoing basis. If there is a default by the other
party to such a transaction, a Portfolio would have contractual remedies
pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent a
Portfolio sells (I.E., writes) caps and floors, it will maintain in a
segregated account cash or high-grade liquid assets having an aggregate net
asset value at least equal to the full amount, accrued on a daily basis, of
the Portfolio's obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by a Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by a Portfolio
or its counterparty to collateralize obligations under the swap. The
documentation currently used in those markets attempts to limit the risk of
loss with respect to interest rate swaps to the net amount of the payments
that a party is contractually obligated to make. If the other party to an
interest rate swap that is not collateralized defaults, the Portfolio would
anticipate losing the net amount of the payments that the Portfolio
contractually is entitled to receive over the payments that the Portfolio is
contractually obligated to make. The Portfolios may buy and sell (I.E.,
write) caps and floors without limitation, subject to the segregated account
requirement described above as well as the Portfolios' other investment
restrictions set forth above.
REPURCHASE AGREEMENTS (ALL PORTFOLIOS)
As discussed in the Portfolios' Prospectus, a Portfolio may enter into
repurchase agreements with respect to debt instruments eligible for
investment by the Portfolio with member banks of the Federal Reserve System,
registered broker-dealers, and registered government securities dealers. A
repurchase agreement may be considered a loan collateralized by securities.
The resale price reflects an agreed upon interest rate effective for the
period the instrument is held by a Portfolio and is unrelated to the interest
rate on the underlying instrument. In these transactions, the collateral
securities acquired by a Portfolio (including accrued interest earned
thereon) must have a total value in excess of the value of the repurchase
agreement, and are held as collateral by the Portfolios' custodian bank until
the repurchase agreement is completed.
10
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below:
PETER R. BROWN, DIRECTOR (DOB 5/10/28), 1475 South Belcher Road, Largo,
Florida 34641. Chairman of the Board, Peter Brown Construction Company,
(construction contractors and engineers), Largo, Florida (1963 - present);
Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3; Rear Admiral
(Ret.) U.S. Navy Reserve, Civil Engineer Corps.
CHARLES C. HARRIS, DIRECTOR (DOB 7/15/30), 35 Winston Drive, Clearwater,
Florida 34616. Retired (1988 - present); Senior Vice-President, Treasurer
(1966 - 1988), Western Reserve Life Assurance Co. of Ohio; Vice President,
Treasurer (1968 - 1988), Director (1968 - 1987), Pioneer Western Corporation;
Vice President of the Fund (1986 to December, 1990).
RUSSELL A. KIMBALL, JR., DIRECTOR (DOB 8/17/44), 1160 Gulf Boulevard,
Clearwater, Florida 34630. General Manager, Sheraton Sand Key Resort (resort
hotel), Clearwater, Florida (1973 - present).
JOHN R. KENNEY (1, 2) , CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT (DOB
2/8/38). Chairman of the Board of Directors (1987 - present), Chief
Executive Officer (1982 - present), President, (1978 - 1987 and December,
1992 - present) Director (1978 - present), Western Reserve Life Assurance
Co. of Ohio; Chairman of the Board of Directors and Chief Executive Officer
(1988 - February, 1991), President (1988 - 1989), Director (1976 - February,
1991), Executive Vice President (1972 - 1988), Pioneer Western Corporation
(financial services), Largo, Florida; President and Director (1985 -
September, 1990) and Director (December, 1990 - present); Idex Management,
Inc. (investment adviser), Largo, Florida; Trustee (1987 - present),
Chairman (December, 1989 - September, 1990 and November, 1990 - present) and
President and Chief Executive Officer (November, 1986 - to September, 1990),
IDEX Fund, IDEX II Series Fund and IDEX Fund 3 (investment companies), all
of Largo, Florida.
G. JOHN HURLEY (1, 2), EXECUTIVE VICE PRESIDENT AND DIRECTOR (DOB 9/12/48).
Executive Vice President (June, 1993 - present), Chief Operating Officer
(March, 1994 - present), Western Reserve Life Assurance Co. of Ohio;
President and Chief Executive Officer (September, 1990 - present), Trustee
(June, 1990 - present) and Executive Vice President (June, 1988 - September,
1990) of IDEX Fund, IDEX II Series Fund and IDEX Fund 3; President, Chief
Executive Officer and Director of InterSecurities, Inc. (May, 1988 -
present); Assistant Vice President of AEGON USA Managed Portfolios, Inc.
(September, 1991 - August, 1992); Vice President of Pioneer Western
Corporation (May, 1988 - February, 1991).
RICHARD B. FRANZ, II (1, 2), TREASURER (DOB 7/12/50). Senior Vice President
(1987 - present), Chief Financial Officer (1987 - December, 1995) and
Treasurer (1988 - present), Western Reserve Life Assurance Co. of Ohio;
Senior Vice President and Treasurer (1988 to February, 1991), Pioneer
Western Corporation (financial services), Largo, Florida; Treasurer (1988 -
September, 1990 and November, 1990 to present), IDEX Fund, IDEX II Series
Fund and IDEX Fund 3 (investment companies), all of Largo, Florida.
REBECCA A. FERRELL (1, 2), SECRETARY, VICE PRESIDENT AND COUNSEL (DOB
12/10/60). Attorney (August, 1993 - June, 1995), Assistant Vice President
and Counsel (June, 1995 - present), Western Reserve Life Assurance Co. of
Ohio; Secretary and Assistant Vice President (March, 1994 - September,
1995), Secretary, Vice President and Counsel (September, 1995 - present) of
IDEX Fund, IDEX II Series Fund and IDEX Fund 3; Attorney, (September, 1992
- August, 1993), Hearne, Graziano, Nader & Buhr, P.A.; Legal Writing
Instructor, (August, 1991 - June, 1992), Florida State University College of
Law; Teaching Assistant, English, (August, 1990 - July, 1991), University of
South Florida.
- --------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
(2) Interested person as defined in the 1940 Act and affiliated person of the
Investment Adviser.
11
<PAGE>
ALAN M. YAEGER (1, 2), EXECUTIVE VICE PRESIDENT (DOB 10/21/46). Executive
Vice President (June, 1993 -present), Chief Financial Officer (December,
1995 - present), Senior Vice President (1981 - June, 1993) and Actuary (1972
- present), Western Reserve Life Assurance Co. of Ohio.
- --------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Box 5068, Clearwater, Florida 34618-5068.
(2) Interested person as defined in the 1940 Act and affiliated person of
the Investment Adviser.
The Fund pays no salaries or compensation to any of its officers, all of
whom are employees of WRL. The Fund pays an annual fee of $6,000 to each
Director who is not affiliated with the Investment Adviser or the
Co-Sub-Advisers ("disinterested Director"). Each Director also receives $500,
plus expenses, per each regular and special Board meeting attended. Because
the Portfolios had not commenced operations as of December 31, 1995 the
Portfolios did not pay any Directors' fees for the fiscal year ended December
31, 1995. The following table provides compensation amounts paid to
disinterested Directors of the Fund for the fiscal year ended December 31,
1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PAID TO DIRECTORS FROM
WRL SERIES FUND, INC.,
IDEX FUND, IDEX II
AGGREGATE COMPENSATION SERIES FUND AND
NAME OF PERSON, POSITION FROM WRL SERIES FUND, INC. IDEX FUND 3
- --------------------------------------- ------------------------------- ---------------------------
<S> <C> <C>
Peter R. Brown, Director .............. $ $
Charles C.Harris, Director ............ $ $
Russell A. Kimball, Jr., Director .... $ $
</TABLE>
Commencing on January 1, 1996, a non-qualified deferred compensation plan
(the "Plan") became available to directors who are not interested persons of
the Fund. Under the Plan, compensation may be deferred that would otherwise
be payable by the Fund, IDEX Fund, IDEX II Series Fund, and/or IDEX Fund 3 to
a disinterested Director or Trustee on a current basis for services rendered
as director. Once any necessary regulatory approvals are obtained, deferred
compensation amounts will accumulate based on the value of Class A shares of
a portfolio of IDEX II Series Fund (without imposition of sales charge), as
elected by the directors. It is not anticipated that the Plan will have any
impact on the Fund.
As of , 1996, the Directors and officers of the Fund
beneficially owned in the aggregate less than 1% of the Fund's shares through
ownership of Policies and Annuity Contracts indirectly invested in the Fund.
The Board of Directors has established an Audit Committee consisting of
Messrs. Brown, Harris and Kimball.
THE INVESTMENT ADVISER
The information that follows supplements the information provided about
the Investment Adviser under the caption "Management of the Fund - The
Investment Adviser" in the Prospectus.
Western Reserve Life Assurance Co. of Ohio (the "Investment Adviser")
serves as the investment adviser to the Portfolios pursuant to an Investment
Advisory Agreement dated April 30, 1996, with the Fund. The Investment
Adviser is a wholly-owned subsidiary of First AUSA Life Insurance Company
("First AUSA"), a stock life insurance company which is wholly-owned by AEGON
USA, Inc. ("AEGON"). AEGON is a financial services holding company whose
primary emphasis is on life and health insurance and annuity and investment
products. AEGON is a wholly-owned indirect subsidiary of AEGON nv, a
Netherlands corporation, which is a publicly traded international insurance
group.
The Investment Advisory Agreement was approved by the Fund's Board of
Directors, including a majority of the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) on December 4, 1995. The
Investment Advisory Agreement provides that subsequent to its approval by
12
<PAGE>
the Portfolios' sole shareholder, it will continue in effect for an initial
term ending April 22, 1998, and from year to year thereafter, if approved
annually (a) by the Board of Directors of the Fund or by a majority of the
outstanding shares of a Portfolio, and (b) by a majority of the Directors who
are not parties to such contract or "interested persons" of any such party.
The Investment Advisory Agreement may be terminated without penalty on 60
days' written notice at the option of either party or by the vote of the
shareholders of a Portfolio and terminates automatically in the event of its
assignment (within the meaning of the 1940 Act)
While the Investment Adviser is at all times subject to the direction of
the Board of Directors of the Fund, the Investment Advisory Agreement
provides that the Investment Adviser, subject to review by the Board of
Directors, is responsible for the actual management of the Fund and has
responsibility for making decisions to buy, sell or hold any particular
security. The Investment Adviser also is obligated to provide all the office
space, facilities, equipment and personnel necessary to perform its duties
under the Investment Advisory Agreement. For further information about the
management of the Portfolios, SEE "The Co-Sub-Advisers", below.
ADVISORY FEE. The method of computing the investment advisory fee is fully
described in the Prospectus. No fees have been paid to the Investment Adviser
by the Portfolios for the year ended December 31, 1995 because the Portfolios
had not commenced operations as of that date.
PAYMENT OF EXPENSES. Under the terms of the Investment Advisory Agreement,
the Investment Adviser is responsible for providing investment advisory
services and furnishing office space for officers and employees of the
Investment Adviser connected with investment management of the Portfolios.
The Investment Adviser also pays all expenses incurred in connection with the
formation and organization of the Portfolios including all costs and expenses
of preparing and filing the post-effective amendment to the Fund's
registration statement effecting the registration of the Portfolios and their
shares under the 1940 Act and the Securities Act of 1933. Each Portfolio pays
all other expenses incurred in its operation and all of the Portfolio's
general administrative expenses.
Expenses that are borne directly by the Fund include redemption expenses,
expenses of portfolio transactions, expenses in connection with ongoing
registration or qualification requirements under Federal and state securities
laws, pricing costs (including the daily calculation of net asset value),
interest, certain taxes, charges of the custodian, fees and expenses of Fund
directors who are not "interested persons" of the Fund, legal expenses, state
franchise taxes, cost of auditing services, costs of printing proxies, SEC
fees, advisory fees, certain insurance premiums, costs of corporate meetings,
costs of maintenance of corporate existence, investor services (including
allocable telephone and personnel expenses), extraordinary expenses, and
other expenses properly payable by the Fund. Depending upon the nature of the
lawsuit, litigation costs may be borne by the Fund.
Expenses that relate exclusively to a particular portfolio of the Fund,
such as brokerage commissions, custodian fees, and registration fees for
shares, are paid by that portfolio. Other expenses are allocated to the
portfolios in an equitable manner determined by the Portfolios' Investment
Adviser
THE CO-SUB-ADVISERS
This discussion supplements the information provided about the
Co-Sub-Advisers under the caption "Management of the Fund - The
Co-Sub-Advisers" in the Prospectus.
Meridian Investment Management Corporation ("Meridian") and INVESCO Global
Asset Management Limited ("INVESCO") serve as Co-Sub-Advisers for the
Portfolios pursuant to a Sub-Advisory Agreement dated April 30, 1996,
between Meridian and WRL and a Sub-Advisory Agreement dated April 30, 1996,
between INVESCO and WRL on behalf of the Portfolios. The Sub-Advisory
Agreements were approved by the Board of Directors of the Fund, including a
majority of the Directors who were not "interested persons" of the Fund (as
defined in the 1940 Act) on December 4, 1995. The Sub-Advisory Agreements
provide that subsequent to their approval by the Portfolios' sole
shareholder, they will continue in effect for an initial term ending April
22, 1998, and from year to year thereafter if approved annually (a) by the
Board of Directors of the Fund or by a majority of the outstanding shares
13
<PAGE>
of each Portfolio and (b) by a majority of the Directors who are not parties
to such Agreements or "interested persons" (as defined in the 1940 Act) of
any such party. The Sub-Advisory Agreements may be terminated without penalty
on 60 days' written notice at the option of either party or by the vote of
the shareholders of each Portfolio and terminate automatically in the event
of their assignment (within the meaning of the 1940 Act) or termination of
the Investment Advisory Agreement.
Pursuant to the Sub-Advisory Agreements, the Co-Sub-Advisers provide
investment advisory assistance and portfolio management advice to the
Investment Adviser with respect to the Portfolios. Subject to review by the
Investment Adviser and the Board of Directors of the Fund, the Co-Sub-
Advisers are responsible for the actual management of the Portfolios and for
making decisions to buy, sell or hold any particular security. As discussed
in the Prospectus, Meridian has the responsibility for allocating the
Portfolios' assets among asset categories, countries and/or industries. After
these allocations have been designated by Meridian, INVESCO will select the
specific securities within each category, country or industry. The
Co-Sub-Advisers bear all of the expenses in connection with the performance
of their respective services under the Sub-Advisory Agreements such as
compensating and furnishing office space for their officers and employees
connected with investment and economic research, trading and investment
management of the Portfolios. The method of computing the Co-Sub-Advisers'
fee is set forth in the Prospectus. Because the Portfolios did not commence
operations until May 1, 1996, no co-sub-advisory fees were paid by the
Investment Adviser to the Co-Sub-Advisers with respect to the Portfolios for
the year ended December 31, 1995.
Meridian, located at 12835 East Arapahoe Road, Tower II, 7th Floor,
Englewood, Colorado 80112, serves as a Co-Sub-Adviser to the Portfolios.
Meridian is a wholly-owned subsidiary of Meridian Management & Research
Corporation (MM&R). Meridian provides investment management and related
services to other mutual fund portfolios and individual, corporate,
charitable and retired accounts.
INVESCO Global Asset Management Limited, located at Rosebank, 12
Bermudiana Road, Hamilton, Bermuda HM11, serves as a Co-Sub-Adviser to the
Portfolios. In performing services under its Sub-Advisory Agreement with WRL,
INVESCO is authorized to use INVESCO-affiliated companies and their
employees, provided that INVESCO supervises and remains fully responsible for
all such services. Pursuant to this authority, INVESCO has entered into
agreements with INVESCO Asset Management Limited, 11 Devonshire Square,
London, EC2M 4YR England, for assistance in managing the Portfolios'
investments in foreign securities, and with INVESCO Trust Company, 7800 East
Union Avenue, Denver, Colorado 80237, for assistance in managing the
Portfolios' investments in U.S. securities. These agreements were approved by
the Board of Directors of the Fund, including a majority of the Directors who
were not "interested persons" of the Fund (as defined in the 1940 Act) on
March 18, 1996. INVESCO and its affiliates are indirect wholly-owned
subsidiaries of INVESCO PLC, a global firm that managed approximately $74
billion as of June 30, 1995. INVESCO PLC is headquartered in London, with
money managers located in Europe, North America and the Far East.
PORTFOLIO TRANSACTIONS AND BROKERAGE
PORTFOLIO TURNOVER
The information that follows supplements the information provided about
portfolio turnover under the caption "The Meridian/INVESCO Global Sector
Portfolio, Meridian/INVESCO US Sector Portfolio and Meridian/INVESCO Foreign
Sector Portfolio and the Fund - Portfolio Turnover" in the Prospectus. In
computing the portfolio turnover rate for each Portfolio, securities whose
maturities or expiration dates at the time of acquisition are one year or
less are excluded. Subject to this exclusion, the turnover rate for a
Portfolio is calculated by dividing (a) the lesser of purchases or sales of
portfolio securities for the fiscal year by (b) the monthly average of
portfolio securities owned by the Portfolio during the fiscal year.
There are no fixed limitations regarding the portfolio turnover of the
Portfolios. Portfolio turnover rates are expected to fluctuate under
constantly changing economic conditions and market circumstances. Higher
turnover rates tend to result in higher brokerage fees. Securities initially
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satisfying the basic objective and policies of each Portfolio may be disposed
of when they are no longer deemed suitable.
PLACEMENT OF PORTFOLIO BROKERAGE
Subject to policies established by the Board of Directors of the Fund,
INVESCO is primarily responsible for placement of the Portfolios' securities
transactions. In placing orders, it is the policy of the Portfolios to obtain
the most favorable net results, taking into account various factors,
including price, dealer spread or commissions, if any, size of the
transaction and difficulty of execution. While INVESCO generally will seek
reasonably competitive spreads or commissions, the Portfolios will not
necessarily be paying the lowest spread or commission available. The
Portfolios do not have any obligation to deal with any broker, dealer or
group of brokers or dealers in the execution of transactions in portfolio
securities.
Decisions as to the assignment of portfolio brokerage business for the
Portfolios and negotiation of their commissison rates are made by INVESCO,
whose policy is to obtain "best execution" (prompt and reliable execution at
the most favorable security price) of all portfolio transactions. In placing
portfolio transactions, INVESCO may give consideration to brokers who provide
supplemental investment research, in addition to such research obtained for a
flat fee, to INVESCO, and pay spreads or commissions to such brokers or
dealers furnishing such services which are in excess of spreads or
commissions which another broker or dealer may charge for the same
transaction.
In selecting brokers and in negotiating commissions, INVESCO considers
such factors as: the broker's reliability; the quality of its execution
services on a continuing basis; the financial condition of the firm; and
research products and services provided, which include: (i) furnishing
advice, either directly or through publications or writings, as to the value
of securities, the advisability of purchasing or selling specific securities
and the availability of securities or purchasers or sellers of securities and
(ii) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends and portfolio strategy and products
and other services (such as third party publications, reports and analyses,
and computer and electronic access, equipment, software, information and
accessories) that assist INVESCO in carrying out its responsibilities.
Supplemental research obtained through brokers or dealers will be in addition
to and not in lieu of the services required to be performed by INVESCO. The
expenses of INVESCO will not necessarily be reduced as a result of the
receipt of such supplemental information. INVESCO may use such research
products and services in servicing other accounts in addition to the
Portfolios. If INVESCO determines that any research product or service has a
mixed use, such that it also serves functions that do not assist in the
investment decision-making process, INVESCO will allocate the costs of such
service or product accordingly. The portion of the product or service that
INVESCO determines will assist it in the investment decision-making process
may be paid for in brokerage commission dollars. Such allocation may create a
conflict of interest for INVESCO. Conversely, such supplemental information
obtained by the placement of business for INVESCO will be considered by and
may be useful to INVESCO in carrying out its obligations to the Portfolios.
When a Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where, in the
opinion of INVESCO, better prices and executions are likely to be achieved
through the use of a broker.
Securities held by one or more of the Portfolios may also be held by other
separate accounts, mutual funds or other accounts for which the Investment
Adviser or Co-Sub-Advisers serve as advisers, or held by the Investment
Adviser or Co-Sub-Advisers for their own accounts. Because of different
investment objectives or other factors, a particular security may be bought
by the Investment Adviser or Co-Sub-Advisers for one or more clients when one
or more clients are selling the same security. If purchases or sales of
securities for one or more of the Portfolios or other entities for which
INVESCO acts as investment adviser or for its advisory clients arise for
consideration at or about the same time, transactions in such securities will
be made, insofar as feasible, for the respective entities
15
<PAGE>
and clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client of the Investment Adviser or
Co-Sub-Advisers during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an
adverse effect on price.
On occasions when the Investment Adviser or the Co-Sub-Advisers deem the
purchase or sale of a security to be in the best interests of a Portfolio as
well as other accounts or companies, INVESCO may to the extent permitted by
applicable laws and regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for the Portfolios with those to be sold
or purchased for such other accounts or companies in order to obtain
favorable execution and lower brokerage commissions. In that event,
allocation of the securities purchased or sold, as well as the expenses
incurred in the transaction, will be made by INVESCO in the manner it
considers to be most equitable and consistent with its fiduciary obligations
to a Portfolio and to such other accounts or companies. In some cases this
procedure may adversely affect the size of the position obtainable for a
Portfolio.
The Board of Directors of the Fund periodically reviews the brokerage
placement practices of INVESCO on behalf of the Portfolios, and reviews the
prices and commissions, if any, paid by the Portfolios to determine if they
were reasonable.
The Board of Directors of the Fund has authorized INVESCO to consider
sales of the Policies and Annuity Contracts by a broker-dealer as a factor in
the selection of broker-dealers to execute Portfolio transactions. As stated
above, any such placement of Portfolio business will be subject to the
ability of the broker-dealer to provide best execution and to the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
PURCHASE AND REDEMPTION OF SHARES
DETERMINATION OF OFFERING PRICE
Shares of a Portfolio are sold only to the insurance company separate
accounts of WRL and to separate accounts of certain of its affiliated life
insurance companies to fund the benefits under the Policies and the Annuity
Contracts. Shares of a Portfolio are sold and redeemed at their respective
net asset values as described in the Prospectus.
NET ASSET VALUATION
As stated in the Prospectus, the net asset value of a Portfolio's shares
is ordinarily determined, once daily, as of the close of the regular session
of business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m.,
Eastern time) on each day the Exchange is open. (Currently the Exchange is
closed on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day). The per
share net asset value of a Portfolio is determined by dividing the total
value of the securities and other assets, less liabilities, by the total
number of shares outstanding. In determining asset value, securities listed
on the national securities exchanges and traded on the NASDAQ National Market
are valued at the closing prices on such markets, or if such a price is
lacking for the trading period immediately preceding the time of
determination, such securities are valued at their current bid price. Foreign
securities and currencies are converted to U.S. dollars using the exchange
rate in effect at the close of the Exchange. Other securities which are
traded on the over-the-counter market are valued at bid price. Other
securities for which quotations are not readily available are valued at fair
values as determined in good faith by the Investment Adviser and the
Co-Sub-Advisers under the supervision of the Fund's Board of Directors. Money
market instruments maturing in 60 days or less are valued on the amortized
cost basis. Values of gold bullion held by the Global Sector Portfolio are
based upon daily quotes provided by banks or brokers dealing in such
commodities.
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CALCULATION OF PERFORMANCE RELATED INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
TOTAL RETURN
Total return quotations for each of the Portfolios are computed by finding
the average annual compounded rates of return over the relevant periods that
would equate the initial amount invested to the ending redeemable value,
according to the following equation:
P (1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value (at the end of the applicable period
of a hypothetical $1,000 payment made at the beginning of the
applicable period).
The total return quotation calculations reflect the deduction of a
proportionate share of a Portfolio's investment advisory fee and Portfolio
expenses and assume that all dividends and capital gains during the period
are reinvested in the Portfolio when made. The calculations also assume a
complete redemption as of the end of the particular period.
Total return quotation calculations do not reflect charges or deductions
against the Series Life Account or the Series Annuity Account or charges and
deductions against the Policies or the Annuity Contracts. Accordingly, these
rates of return do not illustrate how actual investment performance will
affect benefits under the Policies of the Annuity Contracts. Where relevant,
the prospectuses for the Policies and the Annuity Contracts contain
performance information about these products. Moreover, these rates of return
are not an estimate, projection or guarantee of future performance.
Additional information regarding the investment performance of the
Portfolios appear in the Prospectus.
YIELD QUOTATIONS
The yield quotations for a Portfolio are based on a specific thirty-day
period and are computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
date of the period, according to the following formula:
YIELD = 2 [ ( a-b+ 1)(6)- 1]
---
cd
Where: a = dividends and interest earned during the period by the
Portfolio
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Because the Portfolios did not commence operations until May 1, 1996, no
quotations of standardized or non-standardized performance information are
available.
TAXES
Shares of the Portfolios are offered only to the Separate Accounts that
fund the Policies and Annuity Contracts. See the respective prospectuses for
the Policies and Annuity Contracts for a discussion of the special taxation
of insurance companies with respect to the Separate Accounts and of the
Policies, the Annuity Contracts and the holders thereof.
Each Portfolio intends to qualify and to continue to qualify as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended (the "Code"). In order to qualify for that treatment, a Portfolio
must distribute to its Policyholders for each taxable year at least 90% of
its
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investment company taxable income (consisting generally of net investment
income, net short-term capital gain, and net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the
Portfolio must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of securities or foreign currencies, or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Portfolio must derive less than
30% of its gross income each taxable year from the sale or other disposition
of securities, or any of the following, that were held for less than three
months -- options, futures or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures or forward contracts
thereon) that are not directly related to the Portfolio's principal business
of investing in securities (or options and futures with respect thereto)
("Short-Short Limitation"); (3) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. Government securities, securities
of other RICs, and other securities that, with respect to any one issuer, do
not exceed 5% of the value of the Portfolio's total assets and that do not
represent more than 10% of the outstanding voting securities of the issuer;
and (4) at the close of each quarter of the Portfolio's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of
any one issuer.
As noted in the Prospectus, each Portfolio must, and intends to, comply
with the diversification requirements imposed by section 817(h) of the Code
and the regulations thereunder. These requirements, which are in addition to
the diversification requirements mentioned above, place certain limitations
on the proportion of the Portfolio's assets that may be represented by any
single investment (which includes all securities of the same issuer). For
purposes of section 817(h), all securities of the same issuer, all interests
in the same real property project, and all interests in the same commodity
are treated as a single investment. In addition, each U.S. Government agency
or instrumentality is treated as a separate issuer, while the securities of a
particular foreign government and its agencies, instrumentalities and
political subdivisions all will be considered securities by the same issuer.
For information concerning the consequences of failure to meet the
requirements of section 817(h), see the respective prospectuses for the
Policies or the Annuity Contracts.
A Portfolio will not be subject to the 4% Federal excise tax imposed on
RICs that do not distribute substantially all their income and gains each
calendar year because that tax does not apply to a RIC whose only
shareholders are segregated asset accounts of life insurance companies held
in connection with variable annuity contracts and/or variable life insurance
policies.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the income received in connection therewith by a
Portfolio. Income from the disposition of foreign currencies (except certain
gains therefrom that may be excluded by future regulations), and income from
transactions in options, futures, and forward contracts derived by a
Portfolio with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures contracts (other
than those on foreign currencies) will be subject to the Short-Short
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward
contracts on foreign currencies, that are not directly related to a
Portfolio's principal business of investing in securities (or options and
futures with respect to securities) also will be subject to the Short-Short
Limitation if they are held for less than three months.
If a Portfolio satisfies certain requirements, any increase in value on a
position that is part of a "designated hedge" will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during
the period of the hedge for purposes of determining whether the Portfolio
satisfies the Short-Short Limitation. Thus, only the net gain (if any) from
the designated hedge will be
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<PAGE>
included in gross income for purposes of that Limitation. A Portfolio will
consider whether it should seek to qualify for this treatment for its hedging
transactions. To the extent a Portfolio does not qualify for this treatment,
it may be forced to defer the closing out of certain options and futures
contracts beyond the time when it otherwise would be advantageous to do so,
in order for the Portfolio to qualify as a RIC.
The foregoing is only a general summary of some of the important Federal
income tax considerations generally affecting the Portfolios and their
shareholders. No attempt is made to present a complete explanation of the
Federal tax treatment of the Portfolios' activities, and this discussion and
the discussion in the prospectuses and/or statements of additional
information for the Policies and Annuity Contracts are not intended as a
substitute for careful tax planning. Accordingly, potential investors are
urged to consult their own tax advisors for more detailed information and for
information regarding any state, local, or foreign taxes applicable to the
Policies, Annuity Contracts and the holders thereof.
CAPITAL STOCK OF THE FUND
As described in the Prospectus, the Fund offers a separate class of common
stock for each portfolio. The Fund is currently comprised of the following
portfolios: Money Market Portfolio; Bond Portfolio; Growth Portfolio; Global
Portfolio; Short-to-Intermediate Government Portfolio; Emerging Growth
Portfolio; Equity-Income Portfolio; Balanced Portfolio; Utility Portfolio;
Aggressive Growth Portfolio; Tactical Asset Allocation Portfolio; C.A.S.E.
Quality Growth Portfolio; C.A.S.E. Growth & Income Portfolio; C.A.S.E. Growth
Portfolio; Janus Balanced Portfolio; International Equity Portfolio; T. Rowe
Price-WRL Equity Income Portfolio; Leisure Portfolio; Value Equity Portfolio;
Meridian/ INVESCO Global Sector Portfolio; Meridian/INVESCO US Sector
Portfolio; and Meridian/INVESCO Foreign Sector Portfolio.
REGISTRATION STATEMENT
There has been filed with the Securities and Exchange Commission,
Washington, D.C. a Registration Statement under the Securities Act of 1933,
as amended, with respect to the securities to which this Statement of
Additional Information relates. If further information is desired with
respect to the Portfolios, or such securities, reference is made to the
Registration Statement and the exhibits filed as part thereof.
FINANCIAL STATEMENTS
No financial statements for the Portfolios are available for the year
ended December 31, 1995, because the Portfolios had not commenced operations
as of that date.
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APPENDIX A
DESCRIPTION OF SELECTED CORPORATE BOND RATINGS
CORPORATE BONDS - MOODY'S INVESTORS SERVICE, INC.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements and
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safe-guarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Unrated - Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.
A-1
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CORPORATE BONDS - STANDARD & POOR'S
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit an adequate degree of
protection, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the higher rated categories.
BB, B, CCC and CC - Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CCC the
highest. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, they are
not likely to have the capacity to pay interest and repay principal.
Plus (+) or Minus (-) - The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Unrated - Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
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<PAGE>
APPENDIX B
DESCRIPTION OF SHORT-TERM SECURITIES
The following is intended only as a supplement to the information
contained in the Prospectus and should be read only in conjunction with the
Prospectus. Terms defined in the Prospectus and not defined herein have the
same meanings as those in the Prospectus.
1. CERTIFICATE OF DEPOSIT. A certificate of deposit generally is a
short-term, interest bearing negotiable certificate issued by a commercial
bank or savings and loan association against funds deposited in the issuing
institution.
2. EURODOLLAR CERTIFICATE OF DEPOSIT. A Eurodollar certificate of deposit
is a short-term obligation of a foreign subsidiary of a U.S. bank payable in
U.S. dollars.
3. FLOATING RATE NOTE. A floating rate note is debt issued by a
corporation or commercial bank that is typically several years in term but
whose interest rate is reset every one to six months.
4. TIME DEPOSIT. A time deposit is a non-negotiable deposit maintained in
a banking institution for a specified period of time at a stated interest
rate. Time deposits maturing in more than seven days will not be purchased by
the Portfolio, and time deposits maturing from two business days through
seven calendar days will not exceed 15% of the total assets of the Portfolio.
5. BANKERS' ACCEPTANCE. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with international
commercial transactions (to finance the import, export, transfer or storage
of goods). The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the
maturity date. Most acceptances have maturities of six months or less and are
traded in secondary markets prior to maturity.
6. VARIABLE AMOUNT MASTER DEMAND NOTE. A variable amount master demand
note is a note which fixes a minimum and maximum amount of credit and
provides for lending and repayment within those limits at the discretion of
the lender. Before investing in any variable amount master demand notes, the
Portfolio will consider the liquidity of the issuer through periodic credit
analysis based upon publicly available information.
7. COMMERCIAL PAPER. Commercial paper is a short-term promissory note
issued by a corporation primarily to finance short-term credit needs.
8. REPURCHASE AGREEMENT. A repurchase agreement is an instrument under
which a Portfolio acquires ownership of a debt security and the seller agrees
to repurchase the obligation at a mutually agreed upon time and price. The
total amount received on repurchase is calculated to exceed the price paid by
a Portfolio, reflecting an agreed upon market rate of interest for the period
from the time of a Portfolio's purchase of the security to the settlement
date (i.e., the time of repurchase), and would not necessarily relate to the
interest rate on the underlying securities. A Portfolio will only enter into
repurchase agreements with underlying securities consisting of U.S.
Government or government agency securities, certificates of deposit,
commercial paper or bankers' acceptances, and will be entered only with
primary dealers. While a Portfolio may invest in repurchase agreements for
periods up to 30 days, it is expected that typically such periods will be for
a week or less. The staff of the Securities and Exchange Commission has taken
the position that repurchase agreements of greater than seven days together
with other illiquid investments should be limited to an amount not in excess
of 15% of a Portfolio's net assets.
Although repurchase transactions usually do not impose market risks on the
purchaser, a Portfolio would be subject to the risk of loss if the seller
fails to repurchase the securities for any reason and the value of the
securities is less than the agreed upon repurchase price. In addition, if the
seller defaults, a Portfolio may incur disposition costs in connection with
liquidating the securities. Moreover, if the seller is insolvent and
bankruptcy proceedings are commenced, under current law, a Portfolio could be
ordered by a court not to liquidate the securities for an indeterminate
period of time and the amount realized by a Portfolio upon liquidation of the
securities may be limited.
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PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
1. The Financial Statements of the Money Market, Value
Equity, Meridian/INVESCO Global Sector, Meridian/INVESCO
US Sector and Meridian/INVESCO Foreign Sector Portfolios
will be included in a future Amendment.
2. Financial Highlights of the Money Market, Value Equity,
Meridian/INVESCO Global Sector, Meridian/INVESCO US Sector and
Meridian/INVESCO Foreign Sector Portfolios will be included in
a future amendment.
(b) Exhibits
1. (A) Articles of Incorporation of WRL Series Fund, Inc. (1)
(B) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (9)
(C) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (11)
(D) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (12)
(E) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (13)
(F) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (13)
(G) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc.
2. Bylaws of WRL Series Fund, Inc. (3)
3. Not applicable.
4. Not applicable.
5. (i) Form of Investment Advisory Agreement on behalf
of the Money Market Portfolio of the Fund.
(ii) Form of Investment Advisory Agreement on behalf
of the Value Equity Portfolio of the Fund.
(iii) Form of Investment Advisory Agreement on behalf of
the Meridian/INVESCO Global Sector, Meridian/INVESCO
US Sector and Meridian/INVESCO Foreign Sector
Portfolios of the Fund.
(iv) Form of Sub-Advisory Agreement on behalf of the
Money Market Portfolio of the Fund.
(v) Form of Sub-Advisory Agreement on behalf of the
Value Equity Portfolio of the Fund.
(vi) Forms of Co-Sub-Advisory Agreements on behalf of the
Meridian/INVESCO Global Sector, Meridian/INVESCO US
Sector and Meridian/INVESCO Foreign Sector Portfolios
of the Fund.
6. Not applicable.
7. Not applicable.
8. Custodian Agreement. (13)
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<PAGE>
9. Not applicable.
10. Opinion and consent of Thomas E. Pierpan, Esq. as
to legality of the securities being registered. (12)
11. Consent of Price Waterhouse LLP.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Not applicable.
16. Schedules for Computations of Performance Quotations.(9)
17. Powers of Attorney. (12)
- ---------------
(1) Previously filed with Form N-1A dated September 27, 1985 and
incorporated herein by reference.
(2) Previously filed with Pre-Effective Amendment No. 1 to Form N-1A
dated July 8, 1986 and incorporated herein by reference.
(3) Previously filed with Post-Effective Amendment No. 3 to Form N-1A
dated May 1, 1988 and incorporated herein by reference
(4) Previously filed with Post-Effective Amendment No. 6 to Form N-1A
dated March 1, 1991 an incorporated herein by reference.
(5) Previously filed with Post-Effective Amendment No. 7 to Form N-1A
dated May 1, 1991 and incorporated herein by reference.
(6) Previously filed with Post-Effective Amendment No. 8 to Form N-1A d
ated May 1, 1992 and incorporated herein by reference.
(7) Previously filed with Post-Effective Amendment No. 9 to Form N-1A
dated September 1, 1992 and incorporated herein by reference.
(8) Previously filed with Post-Effective Amendment No. 10 to Form N-1A
dated December 23, 1992 and incorporated herein by reference.
(9) Previously filed with Post-Effective Amendment No. 11 to Form N-1A
dated February 26, 1993 and incorporated herein by reference.
(10) Previously filed with Post-Effective Amendment No. 14 to Form N-1A
dated December 10, 1993 and incorporated herein by reference.
(11) Previously filed with Post-Effective Amendment No. 15 to Form N-1A
dated April 22, 1994 and incorporated herein by reference.
(12) Previously filed with Post-Effective Amendment No. 19 to Form N-1A
dated April 21, 1995 and incorporated herein by reference.
(13) Previously filed with Post-Effective Amendment No. 20 to Form N-1A
dated July 18, 1995 and incorporated herein by reference.
C-2
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Shares of the Registrant are sold to and owned by the WRL Series Life
Account and WRL Series Annuity Account established by Western Reserve Life
Assurance Co. of Ohio ("Western Reserve") to fund benefits under certain
variable premium life insurance policies and variable annuity contracts issued
by it.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(2)
(1) NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF FEBRUARY 1, 1996
-------------- ------------------------
Money Market Portfolio
Common Stock ($.01 par value) 2
Value Equity Portfolio
Common Stock ($.01 par value) 0
Meridian/INVESCO Global Sector Portfolio
Common Stock ($.01 par value) 0
Meridian/INVESCO US Sector Portfolio
Common Stock ($.01 par value) 0
Meridian/INVESCO Foreign Sector Portfolio
Common Stock ($.01 par value) 0
Item 27. INDEMNIFICATION.
Article VI of the By-Laws of WRL Series Fund, Inc. provides in its entirety
as follows:
Each director, officer, or employee (and his heirs, executors and
administrators) shall be indemnified by the Corporation against all liability
and expense incurred by reason of the fact that he is or was a director, officer
or employee of the corporation, to the full extent and in any manner permitted
by Maryland law, as in effect at any time, provided that nothing herein shall be
construed to protect any director, officer or employee against any liability to
the corporation or to its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct"). No indemnification of a director, officer or employee
shall be made pursuant to the preceding sentence unless there has been (a) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the person to be indemnified ("indemnitee") was not liable by
reason of disabling conduct or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the indemnitee
was not liable by reason of disabling conduct by (i) the vote of a majority of a
quorum of directors who are neither "interested persons" of the corporation, as
defined in Section 2(a)(19) of the Investment Company Act of 1940, nor parties
to the proceeding ("non-interested, non-party directors"), or (ii) an
independent legal counsel in a written opinion. Reasonable expenses incurred by
each such director, officer or employee may be paid by the Corporation in
advance of the final disposition of any proceeding to which such person is a
party, to the full extent and under the circumstances permitted by Maryland law,
provided that such person undertakes to repay the advance unless it is
ultimately determined that he is entitled to indemnification and either (i) he
provides security for his undertaking, (ii) the corporation is insured against
losses by reason of any lawful advances or (iii) a majority of a quorum of the
non-interested, non-party directors, or an independent legal counsel in a
written opinion, determines, based on a review of readily available facts, and
there is reason to believe that such person ultimately will be found entitled to
indemnification. The Corporation may purchase and maintain insurance on behalf
of any person who is
C-3
<PAGE>
or was a director, officer or employee of the Corporation against any liability
asserted against and incurred by such person in any such capacity or arising out
of such person's position, whether or not the Corporation would have the power
to indemnify against such liability under the provisions of this Article VI.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
A. WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Western Reserve Life Assurance Co. of Ohio ("Western Reserve")
is principally engaged in offering life insurance policies
and annuity contracts. Western Reserve is admitted to do
business in 49 states and the District of Columbia.
The only business, professions, vocations or employments of a
substantial nature of Messrs. Franz, Hurley, Kenney and Yaeger,
and Ms. Ferrell, officers and directors of Western Reserve, are
described in the section of each Statement of Additional
Information entitled "Management of the Fund." Additionally, the
following describes the principal occupations of other persons who
serve as officers and directors of Western Reserve: Allan J.
Hamilton is a Vice President and Controller of Western Reserve;
William Geiger is Senior Vice President & Secretary; Jack E.
Zimmerman, Director of Western Reserve; Patrick S. Baird, Director
of Western Reserve; and Lyman H. Treadway, Director of Western
Reserve.
B. MONEY MARKET PORTFOLIO: SUB-ADVISER - J.P. MORGAN INVESTMENT
MANAGEMENT INC.
J.P. Morgan Investment Management Inc., the Sub-Adviser to the
Money Market Portfolio, is a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated. J.P. Morgan Investment
Management Inc. provides investment management and related
services for corporate, public and union employee benefit
funds, foundations, endowments, insurance companies and
government agencies.
The directors and officers of J.P. Morgan Investment Management
Inc. are listed below. Unless otherwise indicated, each director
and officer has a principal business address of 522 Fifth Avenue,
New York, NY 10036: Keith M. Schappert, President, Director,
Managing Director (Managing Director is an officer's title and
those who hold it are not necessarily directors of the
corporation), member of Investment Policy Committee; William L.
Cobb Jr., Managing Director, Director, Vice Chairman, member of
the Investment Policy Committee and heads the Worldwide
International Global Equity and Balanced Accounts Group; Michael
R. Granito, Managing Director, Director, member of the Investment
Policy Committee and
C-4
<PAGE>
heads its Capital Markets Research Group; Thomas M. Luddy,
Managing Director, Director and member of the Investment Policy
Committee and chairman of its Equity Strategy Group and head of
its Equity Balanced Accounts Group; Michael E. Patterson, Director
and Chief Administrative Officer of J.P. Morgan & Co. Incorporated
and Morgan Guaranty Trust Co. of New York whose address is 60 Wall
Street, New York, NY 10260-0060; Cary N. Potter, Chairman of the
Board and Managing Director of J.P. Morgan & Co. Inc.; Jean Louis
Pierre Brunel, Director and Managing Director of J.P. Morgan & Co.
Inc., Director, Managing Director & Chief Investment Officer of
the Private Banking Division of Morgan Guaranty whose address is
60 Wall Street, New York, NY 10260-0060; Robert A. Anselmi,
Managing Director, Director, General Counsel, Secretary and
Assistant Secretary and Vice President of Morgan Guaranty Trust
Company of New York; Milan S. Soltis, Director, Managing Director
and Chief Administrative & Financial Officer; Kenneth W. Anderson,
Director, Managing Director and head of the London office; David
L. Bringham, Director, Managing Director and member of the
Investment Policy Committee; George E. Austin, Managing Director,
member of Investment Policy Committee, Fixed Income Strategy Group
and head of the Diversified Funds Group; and John R. Thomas,
Director, member of the Investment Policy Committee and President
of J.P. Morgan Trust Bank Ltd.
C. VALUE EQUITY PORTFOLIO: SUB-ADVISER - NWQ INVESTMENT MANAGEMENT
COMPANY INC.
NWQ Investment Management Company, Inc. ("NWQ") serves as
Sub-Adviser for the Value Equity Portfolio. NWQ is a Massachusetts
corporation and is a wholly-owned subsidiary of United Asset
Management Holdings, Inc., which is itself a wholly-owned
subsidiary of United Assets Management Corporation. NWQ provides
investment advice to individuals, pension funds, profit sharing
funds, charitable institutions, educational institutions, trust
accounts, corporations, insurance companies, municipalities and
governmental agencies.
The directors and officers of NWQ are listed below. Unless
otherwise indicated, each director and officer has held the
positions listed for at least the past two years and has a
principal business address of 655 South Hope Street, 11th Floor,
Los Angeles, CA 90017: David A. Polak, President, Director & Chief
Investment Officer; James H. Galbreath, Director and Managing
Director; Martin Pollack, Vice President; Norton H. Reamer,
Director and President, Director & Chief Executive Officer of
United Asset Management Corporation whose address is One
International Place, Boston, MA 02110; Edward C. Friedel, Jr.,
Director & Managing Director; Mary-Gene Slaven, Clerk, Chief
Financial Officer, Chief Operations Officer & Managing Director;
James P. Owen, Managing Director; Ronald R. Halverson, Vice
President Marketing; Justin T. Clifford, Vice President; Jeffrey
M. Cohen, Vice President; Michael C. Mendez, Managing Director
whose business address is the NWQ Arizona office at 7150 E.
Camelback Road, Suite 235, Scottsdale, AZ 85251; Paul R.
Guastamacchio, Vice President; Thomas J. Laird, Vice President;
Phyllis G. Thomas, Managing Director; and Ronald R. Sternal, Vice
President, whose business address is the NWQ Minnesota office at
15 South Fifth Street, Suite 1101, Minneapolis, MN 55402.
D. MERIDIAN/INVESCO GLOBAL SECTOR, MERIDIAN/INVESCO US SECTOR
AND MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIOS: CO-SUB-ADVISERS
- MERIDIAN INVESTMENT MANAGEMENT CORPORATION & INVESCO GLOBAL
ASSET MANAGEMENT LIMITED
Meridian Investment Management Corporation and INVESCO Global
Asset Management Limited serve as the Co-Sub-Advisers for the
Meridian/INVESCO Global Sector, Meridian/INVESCO US Sector and
Meridian/INVESCO Foreign Sector Portfolios. Meridian Investment
Management Corporation ("Meridian") is a wholly-owned subsidiary
of Meridian Management & Research Corporation and provides
investment management and related
C-5
<PAGE>
services to other mutual fund portfolios and individual,
corporate, charitable and retirement accounts. INVESCO Global
Asset Management Limited is a wholly-owned subsidiary of INVESCO
PLC.
The directors and officers of Meridian are listed below. Unless
otherwise indicated, each director and officer has held the
position listed for at least the past two years and has a
principal business address of 12835 East Arapahoe Road, Tower II,
7th Floor, Englewood, CO 80112: Michael J. Hart, President &
Director, President of Meridian Management & Research Corporation
and President of Meridian Clearing Corporation; and Dr. Craig T.
Callahan, Secretary, Treasurer & Director, Chief Investment
Advisor of Meridian Management & Research Corporation and Vice
President of Meridian Clearing Corporation.
The directors and officers of INVESCO Global Asset Management
Limited are listed below. Unless otherwise indicated, each
director and officer has a principal business address of Rosebank,
12 Bermudiana Road, Hamilton, Bermuda HM11: John D. Campbell,
Director and senior partner at the law firm Appleby, Spurling &
Kempe, Hamilton, Bermuda; Stephen A. Dana, Deputy Chairman &
Director and also serves as Vice President of INVESCO Capital
Management, Inc. in Atlanta, GA; David A. Hartley, Secretary &
Treasurer and also serves as Secretary & Treasurer of INVESCO
Group Services, Inc., Atlanta, GA; Everard T. Richards, Director
and also serves as Chief Executive Officer of Bermuda Asset
Management Ltd.; John D. Rogers, Director and also serves as
President of INVESCO Asset Management (Japan) Limited in Tokyo,
Japan; Wendell M. Starke, Chairman & Director and also serves as
Chairman & Director of INVESCO Capital Management, Inc. in
Atlanta, GA, Chairman of INVESCO, Inc. in Atlanta, GA and Director
of INVESCO plc in London, England; and Louis A. Aguilar, General
Counsel and also serves as General Counsel of INVESCO, Inc. in
Atlanta, GA, General Counsel of INVESCO Capital Management, Inc.
in Atlanta, GA and is a partner at the law firm of Kilpatrick &
Cody in Atlanta, GA.
Item 29. PRINCIPAL UNDERWRITERS.
Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company
Act of 1940, as amended, and rules promulgated thereunder are in
the possession of Western Reserve Life Assurance Co. of Ohio at
its offices at 201 Highland Avenue, Largo, Florida 34640, or at
the offices of the Fund's custodian, Investors Bank & Trust
Company, 89 South Street, Boston, MA 02111.
Item 31. MANAGEMENT SERVICES.
Not applicable.
C-6
<PAGE>
Item 32. UNDERTAKINGS.
The Registrant undertakes to file a post-effective amendment
including the financial statements of the Value Equity Portfolio
and the Meridian/INVESCO Global Sector, the Meridian/INVESCO US
Sector and the Meridian/INVESCO Foreign Sector Portfolios of WRL
Series Fund, Inc., which need not be certified, within four to six
months after the effective date of this Post-Effective Amendment
to the Registration Statement.
The Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Registrant's latest
Annual Report to shareholders, Policyowners or Contract Owners
upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant, WRL Series Fund,
Inc., has duly caused this Post-Effective Amendment No. 22 to its Registration
Statement to be signed on its behalf by the undersigned, thereunder duly
authorized, in the City of Largo, State of Florida, on this 1st day of February,
1996.
WRL SERIES FUND, INC.
(Registrant)
By: /S/ JOHN R. KENNEY
---------------------------
John R. Kenney
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 22 to its Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE AND TITLE DATE
- ------------------- ----
/S/ JOHN R. KENNEY February 1, 1996
- ------------------------------------
Chairman of the Board, President,
Director and Chief Executive Officer
John R. Kenney
/S/ G. JOHN HURLEY February 1, 1996
- -------------------------------------
Executive Vice President and Director
G. John Hurley
/S/ PETER R. BROWN February 1, 1996
- ---------------------------
Director - Peter R. Brown *
/S/ CHARLES C. HARRIS February 1, 1996
- ------------------------------
Director - Charles C. Harris *
/S/ RUSSELL A. KIMBALL, JR. February 1, 1996
- -------------------------------------
Director - Russell A. Kimball, Jr. *
<PAGE>
/S/ RICHARD B. FRANZ, II February 1, 1996
- --------------------------------
Treasurer - Richard B. Franz, II
/S/ ALLAN J. HAMILTON February 1, 1996
- --------------------------------
Vice President and Controller -
Allan J. Hamilton
/S/ALAN M. YAEGER February 1, 1996
- ----------------------------
Executive Vice President and
Chief Financial Officer -
Alan M. Yaeger
/S/ THOMAS E. PIERPAN
- -----------------------------
* Signed by Thomas E. Pierpan
as Attorney-in-fact
EXHIBIT 3.(i)
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
WRL SERIES FUND, INC.
WRL SERIES FUND, INC., a Maryland corporation ("Corporation"), on
behalf of its Board of Directors ("Directors"), hereby certifies to the Maryland
Department of Assessments and Taxation as follows:
FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
SECOND: Pursuant to Article V, Paragraph 1 of the Corporation's
Articles of Incorporation, the Corporation is authorized to issue One Billion
(1,000,000,000) shares of Common Stock having a par value of one cent ($0.01)
per share and the aggregate par value of $10,000,000 ("Shares") which are
classified in the Corporation's Articles of Incorporation as follows: Three
Hundred Million (300,000,000) of the Shares are designated as Money Market
Portfolio Common Stock; Twenty-Five Million (25,000,000) of the Shares are
designated as Bond Portfolio Common Stock; and Six Hundred Seventy-five Million
(675,000,000) of the Shares are designated as Growth Portfolio Common Stock.
THIRD: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on November 25, 1992, the Shares were reclassified as
follows: Three Hundred Million (300,000,000) of the Shares are designated as
Money Market Portfolio Common Stock; Twenty-Five Million (25,000,000) of the
Shares are designated as Bond Portfolio Common Stock; and Two Hundred
Seventy-five Million (275,000,000) of the Shares are designated as Growth
Portfolio Common Stock; One Hundred Million (100,000,000) of the Shares are
designated as Global Portfolio Common Stock; One Hundred Million (100,000,000)
of the Shares are designated as Short-to-Intermediate Government Portfolio
Common Stock; One Hundred Million (100,000,000) of the Shares are designated as
Emerging Growth Portfolio Common Stock; and One Hundred Million (100,000,000) of
the Shares are designated as Equity-Income Portfolio Common Stock.
FOURTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on March 1, 1994, Shares were reclassified as
follows: One Hundred Fifty Million (150,000,000) of the authorized but unissued
Shares of the Growth Portfolio Common Stock were reclassified and designated as
follows: Seventy-five Million (75,000,000) were designated as Balanced Portfolio
Common Stock; and Seventy-five Million (75,000,000) were designated as Utility
Portfolio Common Stock. Seventy-five Million (75,000,000) of the authorized but
unissued Shares of the Money Market Portfolio Common Stock were reclassified and
designated as Aggressive Growth Portfolio Common Stock.
<PAGE>
FIFTH: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on September 2, 1994, Shares were reclassified as
follows: Seventy-five Million (75,000,000) of the authorized but unissued Shares
of the Money Market Portfolio Common Stock were reclassified and designated as
follows: Seventy-five Million (75,000,000) were designated as Tactical Asset
Allocation Portfolio Common Stock.
SIXTH: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on April 6, 1995, the Corporation increased the aggregate
number of shares of capital (common) stock which the Fund has authority to issue
from One Billion (1,000,000,000) Shares of the par value of one cent ($0.01) per
share and the aggregate par value of $10,000,000, to Two Billion (2,000,000,000)
Shares of the par value of one cent ($0.01) per share and the aggregate par
value of $20,000,000. Of the One Billion (1,000,000,000) shares newly authorized
by the Corporation, the Shares were classified as follows: Seventy-five Million
(75,000,000) of the Shares were designated as C.A.S.E. Quality Growth Portfolio
Common Stock; Seventy-five Million (75,000,000) of the Shares were designated as
C.A.S.E. Growth & Income Portfolio Common Stock; and Seventy-five Million
(75,000,000) of the Shares were designated as C.A.S.E. Growth Portfolio Common
Stock.
SEVENTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on July 14, 1995, shares of the authorized
capital (common) stock were classified as follows: Seventy-five Million
(75,000,000) of the Shares were designated as T. Rowe Price-WRL Equity Income
Portfolio Common Stock; Seventy-five Million (75,000,000) of the Shares were
designated as Leisure Portfolio Common Stock; Seventy-five Million (75,000,000)
of the Shares were designated as International Equity Portfolio Common Stock;
and Seventy-five Million (75,000,000) of the Shares were designated as Janus
Balanced Portfolio Common Stock.
EIGHTH: The Board of Directors of the Corporation, at a meeting duly
convened and held on December 4, 1995, adopted resolutions classifying Shares of
the authorized but unissued capital (common) stock as follows: Seventy-five
Million (75,000,000) of the Shares are designated as Value Equity Portfolio
Common Stock; Seventy-five Million (75,000,000) of the Shares are designated as
Meridian/INVESCO Global Sector Portfolio Common Stock; Seventy-five Million
(75,000,000) of the Shares are designated as Meridian/INVESCO US Sector
Portfolio Common Stock; and Seventy-five Million (75,000,000) of the Shares are
designated as Meridian/INVESCO Foreign Sector Portfolio Common Stock.
NINTH: The Shares of Common Stock as so authorized and classified by
the Directors of the Corporation shall have the powers, preferences, and rights,
and qualifications, restrictions and limitations,
2
<PAGE>
specified in Article V, Paragraph 4 of the Articles of Incorporation of the
Corporation and shall be subject to all its provisions relating to the stock
of the Corporation.
TENTH: The aforesaid Shares of Common Stock have been duly authorized
and classified by the Directors pursuant to authority and power contained in the
Articles of Incorporation of the Corporation and in accordance with Section
2-105(c) of the Maryland General Corporation Law.
IN WITNESS WHEREOF, the undersigned Chairman of the Board of Directors
of WRL Series Fund, Inc., hereby executes these Articles Supplementary on behalf
of the Corporation, acknowledges that these Articles Supplementary are the act
of the Corporation, and certifies that, to the best of his knowledge,
information and belief, all matters and facts set forth herein are true in all
material respects, under the penalties of perjury.
Date: January 3, 1996
WRL SERIES FUND, INC.
/S/ JOHN R. KENNEY
--------------------------
John R. Kenney
Chairman of the Board of Directors
and President
ATTEST:
/S/ PRISCILLA I. HECHLER
- -----------------------------
Priscilla I. Hechler
Assistant Vice President
and Assistant Secretary
3
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the references to us under the heading
"Independent Accountants" in the Money Market Portfolio; Value Equity
Portfolio; Meridian/INVESCO Global Sector Portfolio, Meridian/INVESCO
US Sector Portfolio and Meridian/INVESCO Foreign Sector Portfolio
prospectuses constituting part of this Post-Effective Amendment No. 22
to the Registration Statement on Form N-1A of WRL Series Fund, Inc.
/S/ PRICE WATERHOUSE LLP
--------------------------
PRICE WATERHOUSE LLP
Kansas City, Missouri
February 5, 1996
EXHIBIT 99.1
WRL SERIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT FOR
THE MONEY MARKET PORTFOLIO OF THE WRL SERIES FUND, INC.
This Agreement, entered into as of April 30, 1996, is between WRL Series
Fund, Inc., a Maryland corporation (referred to herein as the "Fund"), and
Western Reserve Life Assurance Co. of Ohio, an Ohio corporation (referred to
herein as "WRL"), to provide certain investment advisory services with respect
to a certain series of shares of common stock of the Fund, allocated to the
Money Market Portfolio (the "Portfolio").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended, (the "1940 Act") and consists of
more than one series of shares, including the Portfolio. In managing its
Portfolio, as well as in the conduct of certain of its affairs, the Fund wishes
to have the benefit of the investment advisory services of WRL and its
assistance in performing certain management, administrative and promotional
functions. WRL desires to furnish such services for the Portfolio and to perform
the functions assigned to it under this Agreement for the considerations
provided. Accordingly, the parties have agreed as follows:
1. INVESTMENT ADVISORY SERVICES. In its capacity as investment
adviser to the Portfolio, WRL shall have the following responsibilities:
(a) to furnish continuous advice and recommendations to the Fund
as to the acquisition, holding or disposition of any or all of the securities or
other assets which the Portfolio may own or contemplate acquiring from time to
time;
(b) to cause its officers to attend meetings and furnish oral or
written reports, as the Fund may reasonably require, in order to keep the Board
of Directors and appropriate officers of the Fund fully informed as to the
conditions of the investment portfolio of the Portfolio, the investment
recommendations of WRL, and the investment considerations which have given rise
to those recommendations; and
(c) to supervise the purchase and sale of securities
of the Portfolio as directed by the appropriate officers of the Fund.
It is understood and agreed that WRL may, and intends to, enter into a
Sub-Advisory Agreement with a duly registered investment adviser (the
"Sub-Adviser"), under which the Sub-Adviser will furnish investment information
and advice to assist WRL in carrying out its responsibilities under this Section
1. The compensation to be paid to the Sub-Adviser for such services and the
other terms and conditions under which the services shall be rendered by the
Sub-Adviser shall be set forth in the Sub-Advisory Agreement; provided, however,
that such Agreement shall be approved by the Board of Directors and by the
holders of the outstanding voting securities of the Portfolio in accordance with
the requirements of Section 15 of the 1940 Act), and shall otherwise be subject
to, and contain such provisions as shall be required by, the 1940 Act.
2. MANAGEMENT AND ADMINISTRATIVE SERVICES. WRL shall furnish or make
available to the Portfolio the services of executive and management personnel to
supervise the performance of all administrative, recordkeeping, shareholder
relations, regulatory reporting and compliance, and all other functions of the
Portfolio (other than the investment advisory services provided for in Section
1), including supervising and coordinating the services of the Portfolio's
custodian and transfer agent. WRL shall also assist the Portfolio in maintaining
communications and relations with shareholders of the Portfolio, answer
shareholder inquiries or supervise such activity by the Portfolio's transfer
agent, and assist in the preparation of reports to shareholders of the
Portfolio.
Page 1 of 5
<PAGE>
3. WRL EXPENSES. In addition to the expenses which WRL may incur in the
performance of its services pursuant to Sections 1 and 2 above, WRL shall incur
and pay the following expenses relating to the Portfolio's organization and
operations:
(a) All costs and expenses, including legal and accounting fees,
incurred in connection with the formation and organization of the Portfolio,
including the preparation (and filing, when necessary) of the Portfolio
contracts, plans and documents; conducting meetings of organizers, directors and
shareholders, and all other matters relating to the formation and organization
of the Portfolio and the preparation for offering its shares. The organization
of the Portfolio for all of the foregoing purposes will be considered completed
upon effectiveness of the post-effective amendment to the Fund's registration
statement to register the Portfolio under the Securities Act of 1933;
(b) All costs and expenses, including legal and accounting fees,
filing fees and printing costs, in connection with the preparation and filing of
the post-effective amendment to the Fund's registration statement to register
the Portfolio under the Securities Act of 1933 and the 1940 Act (including all
amendments thereto prior to the effectiveness of the registration statement
under the Securities Act of 1933);
(c) All costs and expenses, including legal fees and filing fees,
in connection with registering or qualifying the Portfolio's shares for sale
under the securities laws, if applicable, of such states as the Fund shall
designate prior to the effectiveness of approval of such registration or
qualifications in each such state;
(d) Reasonable compensation, fees and related expenses of the
officers and Directors of the Fund, except for such Directors who are not
interested persons (as that term is defined in Section 2(a)(19) of the 1940 Act)
of WRL; and
(e) Rental of offices for the Portfolio.
4. OBLIGATIONS OF THE FUND. The Fund shall have the following
obligations under this Agreement:
(a) to keep WRL continuously and fully informed as to the
composition of the Portfolio's investment securities and the nature of all of
its assets and liabilities from time to time;
(b) to furnish WRL with a certified copy of any financial
statement or report prepared for the Portfolio by certified or independent
public accountants, and with copies of any financial statements or reports made
to its shareholders or to any governmental body or securities exchange;
(c) to furnish WRL with any further materials or information
which WRL may reasonably request to enable it to perform its functions under
this Agreement; and
(d) to compensate WRL for its services in accordance with
the provisions of Section 5 hereof.
5. COMPENSATION. For its services under this Agreement, WRL is entitled
to receive from the Portfolio a monthly fee, payable on the last day of each
month during which or part of which this Agreement is in effect, of 1/12 of
0.40% of the average daily net assets of the Portfolio for such month. For the
month during which this Agreement becomes effective and the month during which
it terminates, however, there shall be an appropriate pro-ration of the fee
payable for such month based on the number of calendar days of such month during
which this Agreement is effective.
6. EXPENSES PAID BY THE PORTFOLIO. Subject to the provisions of Section
7, below, and except as provided in this paragraph, nothing in this Agreement
shall be construed to impose upon WRL the obligation to incur, pay, or reimburse
the Portfolio for any expenses not specifically assumed by WRL under Sections 1,
2 and 3 above. The Portfolio shall pay all of its other expenses including, but
not limited to, investment adviser fees; any compensation, fees, or
reimbursements which the Fund pays to its Directors who are not interested
Page 2 of 5
<PAGE>
persons (as that phrase is defined in Section 2(a)(19) of the 1940 Act) of WRL;
compensation of the Portfolio's custodian, registrar and dividend disbursing
agent; current legal, accounting and printing expenses; administrative,
clerical, recordkeeping and bookkeeping expenses; pricing costs including the
daily calculation of net asset value; auditing; certain insurance premiums;
investor services including allocable telephone and personnel expenses;
brokerage commissions and all other expenses in connection with execution of
portfolio transactions interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes) and the preparation and filing of all
returns and reports in connection therewith; costs of certificates and the
expenses of delivering such certificates to the purchasers thereof; expenses of
local representation in Maryland; expenses of shareholders' meetings and of
preparing, printing and distributing proxy statement; expenses of preparation
and distribution of notices and reports to shareholders; expenses of preparing
and filing reports with federal and state regulatory authorities; all costs and
expenses, including fees and disbursements of counsel and auditors, filing and
renewal fees and printing costs in connection with the preparation and filing of
any required amendments, supplements or renewals of registration statement,
qualifications or prospectuses under the Securities Act of 1933 and the
securities laws of any states or territories subsequent to the effectiveness of
the initial registration statement under the Securities Act of 1933; all costs
involved in preparing and printing prospectuses of the Portfolio; extraordinary
expenses; and all other expenses properly payable by the Fund or the Portfolio.
Nothing in this Section 6 shall prohibit the Fund from entering into other
agreements or adopting plans which provide for the allocation of expenses of the
Fund or the Portfolio to other entities, or the assumption of other expenses by
the Fund or the Portfolio.
7. LIMITATION ON EXPENSES OF THE PORTFOLIO. If the laws, regulations or
policies of any state in which shares of the Portfolio are qualified for sale
limit the operation and management expenses (collectively referred to as "Normal
Operating Expenses" and as described below), WRL will pay on behalf of the
Portfolio the amount by which such expenses exceed the lowest of such state
limitations (the "Expense Limitation"). Normal Operating Expenses include, but
are not limited to, the fees of the Portfolio's investment adviser, the
compensation of its custodian, registrar, auditors and legal counsel, printing
expenses, expenses incurred in complying with all laws applicable to the sale of
shares of the Portfolio and any compensation, fees, or reimbursement which the
Portfolio pays to Directors of the Fund who are not interested persons (as that
phrase is defined in Section 2(a)(19) of the 1940 Act) of WRL, but excluding all
interest and all federal, state and local taxes (such as stamp, excise, income,
franchise and similar taxes). If Normal Operating Expenses exceed in any year
the Expense Limitation of the Fund, WRL shall pay for those excess expenses on
behalf of the Portfolio in the year in which they are incurred. Expenses of the
Portfolio shall be calculated and accrued monthly. If at the end of any month
the accrued expenses of the Portfolio exceed a pro rata portion of the
above-described Expense Limitation, based upon the average daily net asset value
of the Portfolio from the beginning of the fiscal year through the end of the
month for which calculation is made, the amount of such excess shall be paid by
WRL on behalf of the Portfolio and such excess amounts shall continue to be paid
until the end of a month when such accrued expenses are less than the pro rata
portion of such Expense Limitation. Any necessary final adjusting payments,
whether from WRL to the Portfolio or from the Portfolio to WRL, shall be made as
soon as reasonably practicable after the end of the fiscal year.
8. TREATMENT OF INVESTMENT ADVICE. With respect to the Portfolio, the
Fund shall treat the investment advice and recommendations of WRL as being
advisory only, and shall retain full control over its own investment policies.
However, the Directors of the Fund may delegate to the appropriate officers of
the Fund, or to a committee of Directors, the power to authorize purchases,
sales or other actions affecting the Portfolio in the interim between meetings
of the Directors, provided such action is consistent with the established
investment policy of the Directors and is reported to the Directors at their
next meeting.
9. BROKERAGE COMMISSIONS. For purposes of this Agreement,
brokerage commissions paid by the Portfolio upon the purchase or sale of its
portfolio securities shall be considered a cost of securities of the Portfolio
and shall be paid by the Portfolio. WRL is authorized and directed to place the
Portfolio's securities transactions, or to delegate to the Sub-Adviser the
authority and direction to place the Portfolio's securities
Page 3 of 5
<PAGE>
transactions, only with brokers and dealers who render satisfactory service in
the execution of orders at the most favorable prices and at reasonable
commission rates; provided, however, that WRL or the Sub-Adviser, may pay a
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if WRL or the Sub-Adviser determines in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer
viewed in terms of either that particular transaction or the overall
responsibilities of WRL or the Sub-Adviser. WRL and the Sub-Adviser are also
authorized to consider sales of the individual and group life insurance policies
issued by WRL by a broker-dealer as a factor in selecting broker-dealers to
execute the Portfolio's securities transactions, provided that in placing
portfolio business with such broker-dealers, WRL and the Sub-Adviser shall seek
the best execution of each transaction and all such brokerage placement shall be
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. Notwithstanding the foregoing, the Fund shall retain
the right to direct the placement of all securities transactions of the
Portfolio, and the Directors may establish policies or guidelines to be followed
by WRL and the Sub-Adviser in placing securities transactions for the Portfolio
pursuant to the foregoing provisions. WRL shall report on the placement of
portfolio transactions each quarter to the Directors of the Fund.
10. TERMINATION. This Agreement may be terminated at any time, without
penalty, by the Directors of the Fund or by the shareholders of the Portfolio
acting by vote of at least a majority of its outstanding voting securities (as
that phrase is defined in Section 2(a)(42) of the 1940 Act) provided in either
case that 60 days' written notice of termination be given to WRL at its
principal place of business. This Agreement may be terminated by WRL at any time
by giving 60 days' written notice of termination to the Fund, addressed to its
principal place of business.
11. ASSIGNMENT. This Agreement shall terminate automatically
in the event of any assignment (as the term is defined in Section 2(a)(4) of the
1940 Act) of this Agreement.
12. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, for an initial term ending April 22,
1998, and shall continue in effect from year to year thereafter provided such
continuance is specifically approved at least annually by the vote of a majority
of the Directors of the Fund who are not parties hereto or interested persons
(as that term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
the terms of such renewal, and by either the Directors of the Fund or the
affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
13. AMENDMENTS. This Agreement may be amended only with the approval of
the affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act) and
the approval by the vote of a majority of Directors of the Fund who are not
parties hereto or interested persons (as that phrase is defined in Section
2(a)(19) of the 1940 Act of 1940) of any such party, cast in person at a meeting
called for the purpose of voting on the approval of such amendment, unless
otherwise permitted in accordance with the 1940 Act.
Page 4 of 5
<PAGE>
14. PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties hereto and supersedes in its entirety any and all
previous agreements between the parties relative to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WRL SERIES FUND, INC.
ATTEST:
By:______________________________
________________________ Chairman of the Board
Assistant Secretary and President
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
ATTEST:
By:______________________________
_________________________ Executive Vice President
Assistant Secretary
Page 5 of 5
EXHIBIT 99.2
WRL SERIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT FOR THE
VALUE EQUITY PORTFOLIO OF THE WRL SERIES FUND, INC.
This Agreement, entered into as of April 30, 1996, is between WRL Series
Fund, Inc., a Maryland corporation (referred to herein as the "Fund"), and
Western Reserve Life Assurance Co. of Ohio, an Ohio corporation (referred to
herein as "WRL"), to provide certain investment advisory services with respect
to a certain series of shares of common stock of the Fund, allocated to the
Value Equity Portfolio (the "Portfolio").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended, (the "1940 Act") and consists of
more than one series of shares, including the Portfolio. In managing its
Portfolio, as well as in the conduct of certain of its affairs, the Fund wishes
to have the benefit of the investment advisory services of WRL and its
assistance in performing certain management, administrative and promotional
functions. WRL desires to furnish such services for the Portfolio and to perform
the functions assigned to it under this Agreement for the considerations
provided. Accordingly, the parties have agreed as follows:
1. INVESTMENT ADVISORY SERVICES. In its capacity as investment
adviser to the Portfolio, WRL shall have the following responsibilities:
(a) to furnish continuous advice and recommendations to the Fund
as to the acquisition, holding or disposition of any or all of the securities or
other assets which the Portfolio may own or contemplate acquiring from time to
time;
(b) to cause its officers to attend meetings and furnish oral or
written reports, as the Fund may reasonably require, in order to keep the Board
of Directors and appropriate officers of the Fund fully informed as to the
conditions of the investment portfolio of the Portfolio, the investment
recommendations of WRL, and the investment considerations which have given rise
to those recommendations; and
(c) to supervise the purchase and sale of securities
of the Portfolio as directed by the appropriate officers of the Fund.
It is understood and agreed that WRL may, and intends to, enter into a
Sub-Advisory Agreement with a duly registered investment adviser (the
"Sub-Adviser"), under which the Sub-Adviser will furnish investment information
and advice to assist WRL in carrying out its responsibilities under this Section
1. The compensation to be paid to the Sub-Adviser for such services and the
other terms and conditions under which the services shall be rendered by the
Sub-Adviser shall be set forth in the Sub-Advisory Agreement; provided, however,
that such Agreement shall be approved by the Board of Directors and by the
holders of the outstanding voting securities of the Portfolio in accordance with
the requirements of Section 15 of the 1940 Act), and shall otherwise be subject
to, and contain such provisions as shall be required by, the 1940 Act.
2. MANAGEMENT AND ADMINISTRATIVE SERVICES. WRL shall furnish or make
available to the Portfolio the services of executive and management personnel to
supervise the performance of all administrative, recordkeeping, shareholder
relations, regulatory reporting and compliance, and all other functions of the
Portfolio (other than the investment advisory services provided for in Section
1), including supervising and coordinating the services of the Portfolio's
custodian and transfer agent. WRL shall also assist the Portfolio in maintaining
communications and relations with shareholders of the Portfolio, answer
shareholder inquiries or supervise such activity by the Portfolio's transfer
agent, and assist in the preparation of reports to shareholders of the
Portfolio.
Page 1 of 5
<PAGE>
3. WRL EXPENSES. In addition to the expenses which WRL may incur in the
performance of its services pursuant to Sections 1 and 2 above, WRL shall incur
and pay the following expenses relating to the Portfolio's organization and
operations:
(a) All costs and expenses, including legal and accounting fees,
incurred in connection with the formation and organization of the Portfolio,
including the preparation (and filing, when necessary) of the Portfolio
contracts, plans and documents; conducting meetings of organizers, directors and
shareholders, and all other matters relating to the formation and organization
of the Portfolio and the preparation for offering its shares. The organization
of the Portfolio for all of the foregoing purposes will be considered completed
upon effectiveness of the post-effective amendment to the Fund's registration
statement to register the Portfolio under the Securities Act of 1933;
(b) All costs and expenses, including legal and accounting fees,
filing fees and printing costs, in connection with the preparation and filing of
the post-effective amendment to the Fund's registration statement to register
the Portfolio under the Securities Act of 1933 and the 1940 Act (including all
amendments thereto prior to the effectiveness of the registration statement
under the Securities Act of 1933);
(c) All costs and expenses, including legal fees and filing fees,
in connection with registering or qualifying the Portfolio's shares for sale
under the securities laws, if applicable, of such states as the Fund shall
designate prior to the effectiveness of approval of such registration or
qualifications in each such state;
(d) Reasonable compensation, fees and related expenses of the
officers and Directors of the Fund, except for such Directors who are not
interested persons (as that term is defined in Section 2(a)(19) of the 1940 Act)
of WRL; and
(e) Rental of offices for the Portfolio.
4. OBLIGATIONS OF THE FUND. The Fund shall have the following
obligations under this Agreement:
(a) to keep WRL continuously and fully informed as to the
composition of the Portfolio's investment securities and the nature of all of
its assets and liabilities from time to time;
(b) to furnish WRL with a certified copy of any financial
statement or report prepared for the Portfolio by certified or independent
public accountants, and with copies of any financial statements or reports made
to its shareholders or to any governmental body or securities exchange;
(c) to furnish WRL with any further materials or information
which WRL may reasonably request to enable it to perform its functions under
this Agreement; and
(d) to compensate WRL for its services in accordance with
the provisions of Section 5 hereof.
5. COMPENSATION. For its services under this Agreement, WRL is entitled
to receive from the Portfolio a monthly fee, payable on the last day of each
month during which or part of which this Agreement is in effect, of 1/12 of
0.80% of the average daily net assets of the Portfolio for such month. For the
month during which this Agreement becomes effective and the month during which
it terminates, however, there shall be an appropriate pro-ration of the fee
payable for such month based on the number of calendar days of such month during
which this Agreement is effective.
6. EXPENSES PAID BY THE PORTFOLIO. Subject to the provisions of Section
7, below, and except as provided in this paragraph, nothing in this Agreement
shall be construed to impose upon WRL the obligation to incur, pay, or reimburse
the Portfolio for any expenses not specifically assumed by WRL under Sections 1,
2 and 3 above. The Portfolio shall pay all of its other expenses including, but
not limited to, investment adviser fees; any compensation, fees, or
reimbursements which the Fund pays to its Directors who are not interested
Page 2 of 5
<PAGE>
persons (as that phrase is defined in Section 2(a)(19) of the 1940 Act) of WRL;
compensation of the Portfolio's custodian, registrar and dividend disbursing
agent; current legal, accounting and printing expenses; administrative,
clerical, recordkeeping and bookkeeping expenses; pricing costs including the
daily calculation of net asset value; auditing; certain insurance premiums;
investor services including allocable telephone and personnel expenses;
brokerage commissions and all other expenses in connection with execution of
portfolio transactions interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes) and the preparation and filing of all
returns and reports in connection therewith; costs of certificates and the
expenses of delivering such certificates to the purchasers thereof; expenses of
local representation in Maryland; expenses of shareholders' meetings and of
preparing, printing and distributing proxy statement; expenses of preparation
and distribution of notices and reports to shareholders; expenses of preparing
and filing reports with federal and state regulatory authorities; all costs and
expenses, including fees and disbursements of counsel and auditors, filing and
renewal fees and printing costs in connection with the preparation and filing of
any required amendments, supplements or renewals of registration statement,
qualifications or prospectuses under the Securities Act of 1933 and the
securities laws of any states or territories subsequent to the effectiveness of
the initial registration statement under the Securities Act of 1933; all costs
involved in preparing and printing prospectuses of the Portfolio; extraordinary
expenses; and all other expenses properly payable by the Fund or the Portfolio.
Nothing in this Section 6 shall prohibit the Fund from entering into other
agreements or adopting plans which provide for the allocation of expenses of the
Fund or the Portfolio to other entities, or the assumption of other expenses by
the Fund or the Portfolio.
7. LIMITATION ON EXPENSES OF THE PORTFOLIO. If the laws, regulations or
policies of any state in which shares of the Portfolio are qualified for sale
limit the operation and management expenses (collectively referred to as "Normal
Operating Expenses" and as described below), WRL will pay on behalf of the
Portfolio the amount by which such expenses exceed the lowest of such state
limitations (the "Expense Limitation"). Normal Operating Expenses include, but
are not limited to, the fees of the Portfolio's investment adviser, the
compensation of its custodian, registrar, auditors and legal counsel, printing
expenses, expenses incurred in complying with all laws applicable to the sale of
shares of the Portfolio and any compensation, fees, or reimbursement which the
Portfolio pays to Directors of the Fund who are not interested persons (as that
phrase is defined in Section 2(a)(19) of the 1940 Act) of WRL, but excluding all
interest and all federal, state and local taxes (such as stamp, excise, income,
franchise and similar taxes). If Normal Operating Expenses exceed in any year
the Expense Limitation of the Fund, WRL shall pay for those excess expenses on
behalf of the Portfolio in the year in which they are incurred. Expenses of the
Portfolio shall be calculated and accrued monthly. If at the end of any month
the accrued expenses of the Portfolio exceed a pro rata portion of the
above-described Expense Limitation, based upon the average daily net asset value
of the Portfolio from the beginning of the fiscal year through the end of the
month for which calculation is made, the amount of such excess shall be paid by
WRL on behalf of the Portfolio and such excess amounts shall continue to be paid
until the end of a month when such accrued expenses are less than the pro rata
portion of such Expense Limitation. Any necessary final adjusting payments,
whether from WRL to the Portfolio or from the Portfolio to WRL, shall be made as
soon as reasonably practicable after the end of the fiscal year.
8. TREATMENT OF INVESTMENT ADVICE. With respect to the Portfolio, the
Fund shall treat the investment advice and recommendations of WRL as being
advisory only, and shall retain full control over its own investment policies.
However, the Directors of the Fund may delegate to the appropriate officers of
the Fund, or to a committee of Directors, the power to authorize purchases,
sales or other actions affecting the Portfolio in the interim between meetings
of the Directors, provided such action is consistent with the established
investment policy of the Directors and is reported to the Directors at their
next meeting.
9. BROKERAGE COMMISSIONS. For purposes of this Agreement, brokerage
commissions paid by the Portfolio upon the purchase or sale of its portfolio
securities shall be considered a cost of securities of the Portfolio and shall
be paid by the Portfolio. WRL is authorized and directed to place the
Portfolio's securities transactions, or to delegate to the Sub-Adviser the
authority and direction to place the Portfolio's securities transactions, only
with brokers and dealers who render satisfactory service in the execution of
orders at the most favorable prices and at reasonable commission rates;
provided, however, that WRL or the Sub-Adviser,
Page 3 of 5
<PAGE>
may pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if WRL or the Sub-Adviser determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer
viewed in terms of either that particular transaction or the overall
responsibilities of WRL or the Sub-Adviser. WRL and the Sub-Adviser are also
authorized to consider sales of the individual and group life insurance policies
issued by WRL by a broker-dealer as a factor in selecting broker-dealers to
execute the Portfolio's securities transactions, provided that in placing
portfolio business with such broker-dealers, WRL and the Sub-Adviser shall seek
the best execution of each transaction and all such brokerage placement shall be
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. Notwithstanding the foregoing, the Fund shall retain
the right to direct the placement of all securities transactions of the
Portfolio, and the Directors may establish policies or guidelines to be followed
by WRL and the Sub-Adviser in placing securities transactions for the Portfolio
pursuant to the foregoing provisions. WRL shall report on the placement of
portfolio transactions each quarter to the Directors of the Fund.
10. TERMINATION. This Agreement may be terminated at any time, without
penalty, by the Directors of the Fund or by the shareholders of the Portfolio
acting by vote of at least a majority of its outstanding voting securities (as
that phrase is defined in Section 2(a)(42) of the 1940 Act) provided in either
case that 60 days' written notice of termination be given to WRL at its
principal place of business. This Agreement may be terminated by WRL at any time
by giving 60 days' written notice of termination to the Fund, addressed to its
principal place of business.
11. ASSIGNMENT. This Agreement shall terminate automatically
in the event of any assignment (as the term is defined in Section 2(a)(4) of the
1940 Act) of this Agreement.
12. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, for an initial term ending April 22,
1998, and shall continue in effect from year to year thereafter provided such
continuance is specifically approved at least annually by the vote of a majority
of the Directors of the Fund who are not parties hereto or interested persons
(as that term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
the terms of such renewal, and by either the Directors of the Fund or the
affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
13. AMENDMENTS. This Agreement may be amended only with the approval of
the affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act) and
the approval by the vote of a majority of Directors of the Fund who are not
parties hereto or interested persons (as that phrase is defined in Section
2(a)(19) of the 1940 Act of 1940) of any such party, cast in person at a meeting
called for the purpose of voting on the approval of such amendment, unless
otherwise permitted in accordance with the 1940 Act.
Page 4 of 5
<PAGE>
14. PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties hereto and supersedes in its entirety any and all
previous agreements between the parties relative to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WRL SERIES FUND, INC.
ATTEST:
By:_______________________________
_____________________ Chairman of the Board and President
Assistant Secretary
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
ATTEST:
By:_______________________________
_____________________ Executive Vice President
Assistant Secretary
Page 5 of 5
EXHIBIT 99.3
WRL SERIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT
FOR THE MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO,
MERIDIAN/INVESCO US SECTOR PORTFOLIO AND
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
OF THE WRL SERIES FUND, INC.
This Agreement, entered into as of April 30, 1996, is between WRL Series
Fund, Inc., a Maryland corporation (referred to herein as the "Fund"), and
Western Reserve Life Assurance Co. of Ohio, an Ohio corporation (referred to
herein as "WRL"), to provide certain investment advisory services with respect
to certain series of shares of common stock of the Fund, allocated to the
Meridian/INVESCO Global Sector Portfolio, Meridian/INVESCO US Sector Portfolio
and Meridian/INVESCO Foreign Sector Portfolio (the "Portfolios").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended, (the "1940 Act") and consists of
more than one series of shares, including the Portfolios. In managing its
Portfolios, as well as in the conduct of certain of its affairs, the Fund wishes
to have the benefit of the investment advisory services of WRL and its
assistance in performing certain management, administrative and promotional
functions. WRL desires to furnish such services for the Portfolios and to
perform the functions assigned to it under this Agreement for the considerations
provided. Accordingly, the parties have agreed as follows:
1. INVESTMENT ADVISORY SERVICES. In its capacity as investment
adviser to the Portfolios, WRL shall have the following responsibilities:
(a) to furnish continuous advice and recommendations to the Fund
as to the acquisition, holding or disposition of any or all of the securities or
other assets which the Portfolios may own or contemplate acquiring from time to
time;
(b) to cause its officers to attend meetings and furnish oral or
written reports, as the Fund may reasonably require, in order to keep the Board
of Directors and appropriate officers of the Fund fully informed as to the
conditions of the investment portfolio of the Portfolios, the investment
recommendations of WRL, and the investment considerations which have given rise
to those recommendations; and
(c) to supervise the purchase and sale of securities
of the Portfolios as directed by the appropriate officers of the Fund.
It is understood and agreed that WRL may, and intends to, enter into a
Sub-Advisory Agreements with duly registered investment advisers (the
"Co-Sub-Advisers"), under which the Co-Sub-Advisers will furnish investment
information and advice to assist WRL in carrying out its responsibilities under
this Section 1. The compensation to be paid to the Co-Sub-Advisers for such
services and the other terms and conditions under which the services shall be
rendered by the Co-Sub-Advisers shall be set forth in the Sub-Advisory
Agreements; provided, however, that such Agreements shall be approved by the
Board of Directors and by the holders of the outstanding voting securities of
the Portfolios in accordance with the requirements of Section 15 of the 1940
Act), and shall otherwise be subject to, and contain such provisions as shall be
required by, the 1940 Act.
2. MANAGEMENT AND ADMINISTRATIVE SERVICES. WRL shall furnish or make
available to the Portfolios the services of executive and management personnel
to supervise the performance of all administrative, recordkeeping, shareholder
relations, regulatory reporting and compliance, and all other functions of the
Portfolios (other than the investment advisory services provided for in Section
1), including supervising and
Page 1 of 5
<PAGE>
coordinating the services of the Portfolios' custodian and transfer agent. WRL
shall also assist the Portfolios in maintaining communications and relations
with shareholders of the Portfolios, answer shareholder inquiries or supervise
such activity by the Portfolios' transfer agent, and assist in the preparation
of reports to shareholders of the Portfolios.
3. WRL EXPENSES. In addition to the expenses which WRL may incur in the
performance of its services pursuant to Sections 1 and 2 above, WRL shall incur
and pay the following expenses relating to each Portfolio's organization and
operations:
(a) All costs and expenses, including legal and accounting fees,
incurred in connection with the formation and organization of each Portfolio,
including the preparation (and filing, when necessary) of the Portfolio's
contracts, plans and documents; conducting meetings of organizers, directors and
shareholders, and all other matters relating to the formation and organization
of the Portfolios and the preparation for offering its shares. The organization
of the Portfolios for all of the foregoing purposes will be considered completed
upon effectiveness of the post-effective amendment to the Fund's registration
statement to register the Portfolios under the Securities Act of 1933.
(b) All costs and expenses, including legal and accounting fees,
filing fees and printing costs, in connection with the preparation and filing of
the post-effective amendment to the Fund's registration statement to register
the Portfolios under the Securities Act of 1933 and the 1940 Act (including all
amendments thereto prior to the effectiveness of the registration statement
under the Securities Act of 1933);
(c) All costs and expenses, including legal fees and filing fees,
in connection with registering or qualifying each Portfolio's shares for sale
under the securities laws, if applicable, of such states as the Fund shall
designate prior to the effectiveness of approval of such registration or
qualifications in each such state;
(d) Reasonable compensation, fees and related expenses of the
officers and Directors of the Fund, except for such Directors who are not
interested persons (as that term is defined in Section 2(a)(19) of the 1940 Act)
of WRL; and
(e) Rental of offices for the Portfolios.
4. OBLIGATIONS OF THE FUND. The Fund shall have the following
obligations under this Agreement:
(a) to keep WRL continuously and fully informed as to the
composition of each Portfolio's investment securities and the nature of all of
its assets and liabilities from time to time;
(b) to furnish WRL with a certified copy of any financial
statement or report prepared for each Portfolio by certified or independent
public accountants, and with copies of any financial statements or reports made
to its shareholders or to any governmental body or securities exchange;
(c) to furnish WRL with any further materials or information
which WRL may reasonably request to enable it to perform its functions under
this Agreement; and
(d) to compensate WRL for its services in accordance with
the provisions of Section 5 hereof.
5. COMPENSATION. For its services under this Agreement, WRL is entitled
to receive from each Portfolio a monthly fee, payable on the last day of each
month during which or part of which this Agreement is in effect, of 1/12 of
1.10% of the average daily net assets of each of the Portfolios for such month.
For the month during which this Agreement becomes effective and the month during
which it terminates, however, there shall be an appropriate pro-ration of the
fee payable for such month based on the number of calendar days of such month
during which this Agreement is effective.
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<PAGE>
6. EXPENSES PAID BY THE PORTFOLIOS. Subject to the provisions of Section
7, below, and except as provided in this paragraph, nothing in this Agreement
shall be construed to impose upon WRL the obligation to incur, pay, or reimburse
each Portfolio for any expenses not specifically assumed by WRL under Sections
1, 2 and 3 above. Each Portfolio shall pay all of its other expenses including,
but not limited to, investment adviser fees; any compensation, fees, or
reimbursements which the Fund pays to its Directors who are not interested
persons (as that phrase is defined in Section 2(a)(19) of the 1940 Act) of WRL;
compensation of the Portfolios' custodian, registrar and dividend disbursing
agent; current legal, accounting and printing expenses; administrative,
clerical, recordkeeping and bookkeeping expenses; pricing costs including the
daily calculation of net asset value; auditing; certain insurance premiums;
investor services including allocable telephone and personnel expenses;
brokerage commissions and all other expenses in connection with execution of
portfolio transactions interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes) and the preparation and filing of all
returns and reports in connection therewith; costs of certificates and the
expenses of delivering such certificates to the purchasers thereof; expenses of
local representation in Maryland; expenses of shareholders' meetings and of
preparing, printing and distributing proxy statement; expenses of preparation
and distribution of notices and reports to shareholders; expenses of preparing
and filing reports with federal and state regulatory authorities; all costs and
expenses, including fees and disbursements of counsel and auditors, filing and
renewal fees and printing costs in connection with the preparation and filing of
any required amendments, supplements or renewals of registration statement,
qualifications or prospectuses under the Securities Act of 1933 and the
securities laws of any states or territories subsequent to the effectiveness of
the initial registration statement under the Securities Act of 1933; all costs
involved in preparing and printing prospectuses of the Portfolios; extraordinary
expenses; and all other expenses properly payable by the Fund or the Portfolios.
Nothing in this Section 6 shall prohibit the Fund from entering into other
agreements or adopting plans which provide for the allocation of expenses of the
Fund or the Portfolios to other entities, or the assumption of other expenses by
the Fund or the Portfolios.
7. LIMITATION ON EXPENSES OF THE PORTFOLIOS. If the laws, regulations or
policies of any state in which shares of the Portfolios are qualified for sale
limit the operation and management expenses (collectively referred to as "Normal
Operating Expenses" and as described below), WRL will pay on behalf of each
Portfolio the amount by which such expenses exceed the lowest of such state
limitations (the "Expense Limitation"). Normal Operating Expenses include, but
are not limited to, the fees of the Portfolios' investment adviser, the
compensation of its custodian, registrar, auditors and legal counsel, printing
expenses, expenses incurred in complying with all laws applicable to the sale of
shares of the Portfolios and any compensation, fees, or reimbursement which the
Portfolios pay to Directors of the Fund who are not interested persons (as that
phrase is defined in Section 2(a)(19) of the 1940 Act) of WRL, but excluding all
interest and all federal, state and local taxes (such as stamp, excise, income,
franchise and similar taxes). If Normal Operating Expenses exceed in any year
the Expense Limitation of the Fund, WRL shall pay for those excess expenses on
behalf of the Portfolios in the year in which they are incurred. Expenses of the
Portfolios shall be calculated and accrued monthly. If at the end of any month
the accrued expenses of the Portfolios exceed a pro rata portion of the
above-described Expense Limitation, based upon the average daily net asset value
of the Portfolios from the beginning of the fiscal year through the end of the
month for which calculation is made, the amount of such excess shall be paid by
WRL on behalf of the Portfolios and such excess amounts shall continue to be
paid until the end of a month when such accrued expenses are less than the pro
rata portion of such Expense Limitation. Any necessary final adjusting payments,
whether from WRL to the Portfolios or from the Portfolios to WRL, shall be made
as soon as reasonably practicable after the end of the fiscal year.
8. TREATMENT OF INVESTMENT ADVICE. With respect to the Portfolios, the
Fund shall treat the investment advice and recommendations of WRL as being
advisory only, and shall retain full control over its own investment policies.
However, the Directors of the Fund may delegate to the appropriate officers of
the Fund, or to a committee of Directors, the power to authorize purchases,
sales or other actions affecting the Portfolios in the interim between meetings
of the Directors, provided such action is consistent with the established
investment policy of the Directors and is reported to the Directors at their
next meeting.
9. BROKERAGE COMMISSIONS. For purposes of this Agreement, brokerage
commissions paid by the Portfolios upon the purchase or sale of its portfolio
securities shall be considered a cost of securities of the
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Portfolios and shall be paid by the Portfolios. WRL is authorized and directed
to place the Portfolios' securities transactions, or to delegate to the
Sub-Adviser the authority and direction to place the Portfolios' securities
transactions, only with brokers and dealers who render satisfactory service in
the execution of orders at the most favorable prices and at reasonable
commission rates; provided, however, that WRL or the Sub-Adviser, may pay a
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if WRL or the Sub-Adviser determines in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer
viewed in terms of either that particular transaction or the overall
responsibilities of WRL or the Sub-Adviser. WRL and the Sub-Adviser are also
authorized to consider sales of the individual and group life insurance policies
issued by WRL by a broker-dealer as a factor in selecting broker-dealers to
execute the Portfolios' securities transactions, provided that in placing
portfolio business with such broker-dealers, WRL and the Sub-Adviser shall seek
the best execution of each transaction and all such brokerage placement shall be
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. Notwithstanding the foregoing, the Fund shall retain
the right to direct the placement of all securities transactions of the
Portfolios, and the Directors may establish policies or guidelines to be
followed by WRL and the Sub-Adviser in placing securities transactions for the
Portfolios pursuant to the foregoing provisions. WRL shall report on the
placement of portfolio transactions each quarter to the Directors of the Fund.
10. TERMINATION. This Agreement may be terminated at any time, without
penalty, by the Directors of the Fund or by the shareholders of the Portfolios
acting by vote of at least a majority of its outstanding voting securities (as
that phrase is defined in Section 2(a)(42) of the 1940 Act) provided in either
case that 60 days' written notice of termination be given to WRL at its
principal place of business. This Agreement may be terminated by WRL at any time
by giving 60 days' written notice of termination to the Fund, addressed to its
principal place of business.
11. ASSIGNMENT. This Agreement shall terminate automatically
in the event of any assignment (as the term is defined in Section 2(a)(4) of
the 1940 Act) of this Agreement.
12. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, for an initial term ending April 22,
1998, and shall continue in effect from year to year thereafter provided such
continuance is specifically approved at least annually by the vote of a majority
of the Directors of the Fund who are not parties hereto or interested persons
(as that term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
the terms of such renewal, and by either the Directors of the Fund or the
affirmative vote of a majority of the outstanding voting securities of the
Portfolios (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
13. AMENDMENTS. This Agreement may be amended only with the approval of
the affirmative vote of a majority of the outstanding voting securities of the
Portfolios (as that phrase is defined in Section 2(a)(42) of the 1940 Act) and
the approval by the vote of a majority of Directors of the Fund who are not
parties hereto or interested persons (as that phrase is defined in Section
2(a)(19) of the 1940 Act of 1940) of any such party, cast in person at a meeting
called for the purpose of voting on the approval of such amendment, unless
otherwise permitted in accordance with the 1940 Act.
Page 4 of 5
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14. PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties hereto and supersedes in its entirety any
and all previous agreements between the parties relative to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WRL SERIES FUND, INC.
ATTEST:
By:_______________________________
_____________________ Chairman of the Board
Assistant Vice President
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
ATTEST:
By:_______________________________
_____________________ Executive Vice President
Assistant Vice President
EXHIBIT 99.4
INVESTMENT SUB-ADVISORY AGREEMENT
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Dear Sirs:
Western Reserve Life Assurance Co. of Ohio (the "Adviser")
hereby agrees with J.P. Morgan Investment Management Inc., a Delaware
corporation (the "Sub-Advisor") as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT. The Adviser entered
into an Investment Advisory Agreement (referred to herein as the
"Advisory Agreement"), dated February 26, 1991, with WRL Series Fund,
Inc., a Maryland corporation (the "Fund"), under which the Adviser
agreed, among other things, to act as investment adviser to the Fund.
The Adviser desires to employ the capital of the Money Market Portfolio
("Portfolio") by investing and reinvesting in investments of the kind
and in accordance with the limitations specified in the Fund's Articles
of Incorporation, as amended to date (the "Charter Document"), and in
the prospectus (the "Prospectus") and the statement of additional
information (the "Statement") for the Portfolio filed with the
Securities and Exchange Commission as part of the Fund's Registration
Statement on Form N-1A, as amended or supplemented from time to time,
and in such manner and to such extent as from time to time may be
approved by the Fund's Board of Directors. Copies of the Prospectus,
the Statement and the Charter Document, each as currently in effect,
have been delivered to the Sub-Adviser. The Adviser agrees, on an
ongoing basis, to provide to the Sub-Adviser as promptly as practicable
copies of all amendments and supplements to the Prospectus and the
Statement and amendments to the Charter Document. The Advisory
Agreement provides that the Adviser may engage a Sub-Adviser to perform
the services contemplated hereunder. The Adviser desires to engage and
hereby appoints the Sub-Adviser to act as investment sub-adviser to the
Portfolio. The Sub-Adviser accepts the appointment and agrees to
furnish the services described herein for the compensation set forth
below.
2. SERVICES AS INVESTMENT SUB-ADVISER, GUIDELINES AND ADVICE.
Subject to the supervision of the Adviser and the Board of Directors of
the Fund, the Sub-
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Adviser will (a) manage the Portfolio's assets in accordance with the
Portfolio's investment objective(s) and policies stated in the
Prospectus, the Statement and the Charter Document, but subject to the
Guidelines (as such term is defined below); (b) make investment
decisions for the Portfolio; (c) place purchase and sale orders for
portfolio transactions for the Portfolio; and (d) employ professional
portfolio managers and securities analysts to provide research services
to the Portfolio; (e) furnish statistical and analytical information
and reports as may reasonably be required by the Adviser from time to
time, and, in providing these services, conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of
the Portfolio's assets; (f) cause its officers to attend meetings of
the Fund's Board of Directors and furnish oral or written reports, as
the Adviser may reasonably require, in order to keep the Adviser and
its officers and the Directors of the Fund and appropriate officers of
the Fund fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of the
Sub-Adviser, and the investment considerations which have given rise to
those recommendations.
The Adviser agrees on an on-going basis to provide or cause to
be provided to the Sub-Adviser guidelines, to be revised as provided
below (the "Guidelines"), setting forth limitations, by dollar amount
or percentage of net assets, on the types of securities in which the
Portfolio is permitted to invest or investment activities in which the
Portfolio is permitted to engage. Among other matters, the Guidelines
shall set forth clearly the limitations imposed upon the Portfolio as a
result of relevant diversification requirements under state and federal
law pertaining to insurance products, including, without limitation,
the provisions of Section 817(h) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Guidelines shall remain in effect until
12:00 p.m. on the third business day following actual receipt by the
Sub-Adviser of a written notice, denominated clearly as such, setting
forth revised Guidelines. The Adviser agrees to cause to be delivered
to a person designated in writing for such purpose by the Sub-Adviser
each day, by _________ p.m., New York time, a written report dated the
date of its delivery (the "Report") with respect to the Porftolio's
compliance for its current fiscal year with the short-three test set
forth in Section 851(b) (3) of the Code (the "short-three test"). The
Report shall include in chart form the Portfolio's gross income (within
the meaning of Section 851 of the Code) from the beginning of the
current fiscal year to the date of the Report and its cumulative income
and gains described in Section 851(b) (3) of the Code for such period.
If the Report is not timely delivered, the Sub-Adviser shall be
permitted to rely on the most recent Report delivered to it. The
Adviser agrees that the Sub-Adviser may rely on the Guidelines and the
Report without independent verification of their accuracy.
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3. BROKERAGE. In selecting brokers or dealers to execute
transactions on behalf of the Fund, the Sub-Adviser will seek the best
overall terms available. In assessing the best overall terms available
for any transaction, the Sub-Adviser will consider factors it deems
relevant, including, without limitation, the breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of
the commission, if any, for the specific transaction and on a
continuing basis. In selecting brokers or dealers to execute a
particular transaction, and in evaluating the best overall terms
available, the Sub-Adviser is authorized to consider the brokerage and
research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Portfolio
and/or other accounts over which the Sub-Adviser or its affiliates
exercise investment discretion.
4. STANDARD OF CARE. The Sub-Adviser shall exercise its best
judgment in rendering the services described in paragraphs 2 and 3
above. The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Portfolio in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement (each such act or
omission shall be referred to as "Disqualifying Conduct"). The
Sub-Adviser shall not be deemed to have engaged in Disqualifying
Conduct if it complies with the Guidelines and acts in reliance on the
Report, and the Sub-Adviser's failure to act in accordance therewith
shall not constitute evidence that it engaged in Disqualifying Conduct.
5. COMPENSATION. In consideration of the services rendered
pursuant to this Agreement, the Adviser will pay the Sub-Adviser on the
first business day of each month a fee for the previous month at the
annual rate of .15% of the Portfolio's average daily net assets. The
fee for the period from the [date the initial public sale of the Fund's
shares commences] to the end of the month during which such sale shall
have been commenced shall be prorated according to the proportion that
such period bears to the full monthly period. Upon any termination of
this Agreement before the end of a month, the fee for such part of that
month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to the Sub-Adviser, the value of the Portfolio's net assets
shall be computed at the times and in the manner specified in the
Prospectus and/or the Statement.
6. EXPENSES. The Sub-Adviser will bear all of its expenses in
connection with the performance of its services under this Agreement.
All other expenses to
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be incurred in the operation of the Portfolio will be borne by the Fund
or the Adviser, as appropriate, except to the extent specifically
assumed by the Sub-Adviser. The expenses to be borne by the Fund or the
Adviser, as appropriate, include, without limitation, the following:
organizational costs, taxes, interest, brokerage fees and commissions,
Director's fees, Securities and Exchange Commission fees and state Blue
Sky qualification fees, if any, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal
expenses, costs of independent pricing services, costs of maintaining
existence, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing stockholders,
costs of stockholders' reports and meetings, and any extraordinary
expenses.
7. SERVICES TO OTHER COMPANIES OR ACCOUNTS. The Adviser
understands that the Sub-Adviser now acts, will continue to act and may
act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to other investment companies, and
the Adviser has no objection to the Sub-Adviser so acting, provided
that whenever the Portfolio and one or more other accounts or
investment companies advised by the Sub-Adviser have available funds
for investment, investments suitable and appropriate for each will be
allocated in accordance with a methodology believed to be equitable to
each entity. The Sub-Adviser agrees to allocate similarly opportunities
to sell securities. The Adviser recognizes that, in some cases, this
procedure may limit the size of the position that may be acquired or
sold for the Portfolio. In addition, the Adviser understands that the
persons employed by the Sub-Adviser to assist in the performance of the
Sub-Adviser's duties hereunder will not devote their full time to such
service and nothing contained herein shall be deemed to limit or
restrict the right of the Sub-Adviser of any affiliate of the
Sub-Adviser to engage in and devote time and attention to other
business or to render services of whatever kind or nature.
8. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the Investment Company Act of 1940, as amended (the
"Act"), the Sub-Adviser hereby agrees that all records which it
maintains for the Portfolio are the property of the Fund and further
agrees to surrender promptly to the Fund copies of any of such records
upon the Fund's or the Adviser's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the
Act the records relating to its activities hereunder required to be
maintained by Rule 31a-1 under the Act and to preserve the records
relating to its activities hereunder required by Rule 204-2 under the
Investment Advisers Act of 1940, as amended, for the period specified
in said Rule.
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9. TERM OF AGREEMENT. This Agreement shall become effective as
of April 30, 1996 and shall continue until April 22, 1998 and
thereafter shall continue annually, provided such continuance is
specifically approved at least annually by (i) the Fund's Board or (ii)
a vote of "majority" (as defined in the Act) of the Portfolio's
outstanding voting securities, provided that in either event the
continuance also is approved by a majority of the Fund's Board who are
not "interested persons" (as defined in the Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose
of voting on such approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Adviser, by the Fund's
Board, by vote of holders of a majority of the Portfolio's shares or by
the Sub-Adviser, and will terminate five business days after the
Sub-Adviser receives written notice of the termination of the advisory
agreement between the Fund and the Adviser. This Agreement also will
terminate automatically in the event of its assignment (as defined in
the Act).
10. INDEMNIFICATION. The Adviser agrees to indemnify and hold
harmless the Sub-Adviser and each person who controls or is associated
with the Sub-Adviser within the meaning of such terms under the federal
securities laws and any officer, trustee, director, employee or agent
of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and
other expenses reasonably incurred in connection therewith) under any
statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities:
(1) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the variable annuity
contracts and variable life insurance policies (both contracts and
policies, collectively referred to as "Contracts") for which the
Portfolio serves as an underlying investment option, (ii) any untrue
statement or alleged untrue statement of any material fact contained in
the Prospectuses or Statements for the Contracts, (iii) any sales
literature for the Contracts, (or any amendment or supplement to any of
the foregoing), or (iv) the statement or omission to state or the
alleged statement or alleged omission to state in the Prospectuses or
Statements for the Contracts a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided, that this
provision shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in
conformity with information furnished to the Adviser by the Sub-Adviser
for use in the Contracts, or the Prospectuses or the Statements for the
Contracts, or sales literature (or any amendment or supplement), or
otherwise for use in connection with the sales of the Contracts or
Portfolio shares; or
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(2) arise out of or as a result of statements or representations by or
on behalf of the Sub-Adviser (other than statements or representations
contained in the Contracts, the Prospectuses or Statements, or sales
literature for the Contracts not supplied by the Sub-Adviser or persons
under its control) or wrongful conduct of the Adviser or persons under
its control with respect to the sales or distribution of the Contracts
or Portfolio shares; or
(3) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus or
Statement for the Portfolio (or any amendment thereof or supplement
thereto), (ii) any sales literature for the Portfolio or (iii) the
omission or alleged omission to state in the Prospectus or Statement
for the Portfolio a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided, that this provision
shall not apply if such statement or omission or such alleged statement
or alleged omission was made in reliance upon and in conformity with
information furnished to the Adviser by the Sub-Adviser for use with
the Prospectus, Statement or sales literature for the Portfolio and the
Contracts; or
(4) arise out of any third-party claims or proceedings relating to the
performance by or obligations of the Sub-Adviser in the performance of
its duties hereunder, except to the extent any such claims arise out of
any material breach by the Sub-Adviser of this Agreement.
This indemnification will be in addition to any liability which the
Adviser may otherwise have, but does not supersede the standard of care
owed by the Sub-Adviser to the Adviser as described in Section 4 above.
11. DISCLOSURE. The Adviser represents and warrants that
neither the Fund nor the Adviser shall, without the prior written
consent of the Sub-Adviser, make representations regarding or reference
to the Sub-Adviser or any affiliates in any disclosure document,
advertisement, sales literature or other promotional materials.
12. MISCELLANEOUS. All notices provided for by this Agreement
shall be in writing and shall be deemed given when received, against
appropriate receipt, by Diane Minardi at 522 Fifth Avenue, New York NY
10036 in the case of the Sub-Adviser, General Counsel at P. O. Box 5068
Clearwater, Fl 34618 in the case of the Adviser, or such other person
as a party shall designate by notice to the other parties. No provision
of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument of writing signed by the party
against which enforcement of the change, waiver, discharge or
termination is sought. This Agreement constitutes the entire agreement
among the parties hereto and
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supersedes any prior agreement among the parties relating to the
subject matter hereof. The paragraph headings of this Agreement are for
convenience of reference and do not constitute a part hereof. This
Agreement shall be governed in accordance with the internal laws of the
State of New York, without giving effect to principles of conflict of
laws.
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed
copy hereof.
Very truly yours,
By: ______________________________
Name:_____________________________
Title:____________________________
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
Accepted:
By:_______________________________________
Name:_____________________________________
Title:____________________________________
J.P. MORGAN INVESTMENT MANAGEMENT INC.
7
EXHIBIT 99.5
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUB-ADVISORY AGREEMENT FOR THE
VALUE EQUITY PORTFOLIO OF THE WRL SERIES FUND, INC.
This Agreement is entered into as of April 30, 1996, between Western
Reserve Life Assurance Co. of Ohio, an Ohio corporation (referred to herein as
"WRL"), and NWQ Investment Management Company, Inc., a Massachusetts corporation
(referred to herein as "NWQ"), to provide certain investment advisory services
with respect to a certain series of shares of common stock of the WRL Series
Fund, Inc., allocated to the Value Equity Portfolio (the "Portfolio").
WHEREAS, WRL has entered into an Investment Advisory Agreement (referred
to herein as the "Advisory Agreement"), dated April 30, 1996, with WRL Series
Fund, Inc. (the "Fund"), a Maryland corporation, under which WRL has agreed,
among other things, to act as investment adviser to the Portfolio; and
WHEREAS, the Advisory Agreement provides that WRL may engage NWQ to
furnish investment information and advice to assist WRL in carrying out its
responsibilities under the Advisory Agreement as investment adviser to the
Portfolio; and
WHEREAS, it is the purpose of this Agreement to express the mutual
agreements of the parties hereto with respect to the services to be provided by
NWQ to WRL with respect to the Portfolio and the terms and conditions under
which such services will be rendered.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. SERVICES OF NWQ. NWQ shall act as investment counsel to
WRL with respect to the Portfolio. In this capacity, NWQ shall have the
following responsibilities:
(a) to furnish continuous investment information, advice and
recommendations to WRL as to the acquisition, holding or disposition of any or
all of the securities or other assets which the Portfolio may own or contemplate
acquiring from time to time;
(b) to cause its officers to attend meetings of WRL or the Fund
and furnish oral or written reports, as WRL may reasonably require, in order to
keep WRL and its officers and the Directors of the Fund and appropriate officers
of the Fund fully informed as to the condition of the investment securities of
the Portfolio, the investment recommendations of NWQ, and the investment
considerations which have given rise to those recommendations;
(c) to furnish such statistical and analytical information
and reports as may reasonably be required by WRL from time to time; and
(d) to supervise the purchase and sale of securities as
directed by the appropriate officers of the Fund or of WRL.
2. OBLIGATIONS OF WRL. WRL shall have the following obligations
under this Agreement:
(a) to keep NWQ continuously and fully informed as to the
composition of the Portfolio's investment securities and the nature of the
Portfolio's assets and liabilities from time to time;
Page 1 of 3
<PAGE>
(b) to furnish NWQ with a certified copy of any financial
statement or report prepared for the Fund with respect to the Portfolio by
certified or independent public accountants, and with copies of any financial
statements or reports made by the Fund to shareholders or to any governmental
body or securities exchange;
(c) to furnish NWQ with any further materials or information
which NWQ may reasonably request to enable it to perform its functions under
this Agreement; and
(d) to compensate NWQ for its services under this Agreement by
the payment of fees equal to (i) 50% of the fees received by WRL for services
rendered under the Investment Advisory Agreement by WRL to the Portfolio during
the term of this Agreement, less (ii) 50% of the amount paid by WRL on behalf of
the Portfolio pursuant to any expense limitation or the amount of any other
reimbursement made by WRL to the Portfolio. In the event that this Agreement
shall be effective for only part of a period to which any such fee received by
WRL is attributable, then an appropriate pro-ration of the fee that would have
been payable hereunder if this Agreement had remained in effect until the end of
such period shall be made, based on the number of calendar days in such period
and the number of calendar days during the period in which this Agreement was in
effect. The fees payable to NWQ hereunder shall be payable upon receipt by WRL
from the Portfolio of advisory fees payable to WRL.
3. TREATMENT OF INVESTMENT ADVICE. WRL shall treat the investment
information, advice and recommendations of NWQ as being advisory only, and shall
determine the extent to which such advice and recommendations relating to the
Portfolio shall be passed on to the Fund or incorporated in investment advice by
WRL relating to the Portfolio. WRL may direct NWQ to furnish its investment
information, advice and recommendations directly to officers or Directors of the
Fund. Investment information, advice and recommendations provided by NWQ shall
be used by WRL or the Fund solely with respect to the management of the
Portfolio.
4. COMPLIANCE WITH LAWS. NWQ represents that it is, and will continue to
be throughout the term of this Agreement, an investment adviser registered under
all applicable federal and state laws. In all matters relating to the
performance of this Agreement, NWQ will act in conformity with the Fund's
Articles of Incorporation, Bylaws, and current registration statement applicable
to the Portfolio and with the instructions and direction of WRL and the Fund's
Directors, and will conform to and comply with the Investment Company Act of
1940, as amended (the "1940 Act") and all other applicable federal or state laws
and regulations.
5. TERMINATION. This Agreement shall terminate automatically upon the
termination of the Advisory Agreement. This Agreement may be terminated at any
time, without penalty, by WRL or by the Fund by giving 60 days' written notice
of such termination to NWQ at its principal place of business, provided that
such termination is approved by the Board of Directors of the Fund or by vote of
a majority of the outstanding voting securities (as that phrase is defined in
Section 2(a)(42) of the 1940 Act) of the Portfolio. This Agreement may be
terminated at any time by NWQ by giving 60 days' written notice of such
termination to the Fund and WRL at their respective principal places of
business.
6. ASSIGNMENT. This Agreement shall terminate automatically
in the event of any assignment (as that term is defined in Section 2(a)(4) of
the 1940 Act) of this Agreement.
7. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, for an initial term ending April 22,
1998 and shall continue in effect from year to year thereafter provided
continuance is specifically approved at least annually by the vote of a majority
of the Directors of the Fund who are not parties hereto or interested persons
(as the term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
the terms of such renewal, and by either the Directors of the Fund or the
affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
Page 2 of 3
<PAGE>
8. AMENDMENTS. This Agreement may be amended only with the approval by
the affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act) and
the approval by the vote of a majority of the Directors of the Fund who are not
parties hereto or interested persons (as that term is defined in Section
2(a)(19) of the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on the approval of such amendment, unless otherwise
permitted in accordance with the 1940 Act.
9. PRIOR AGREEMENTS. This Agreement supersedes all prior
agreements between the parties relating to the subject matter hereof, and
all such prior agreements are deemed terminated upon the effectiveness of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NWQ INVESTMENT MANAGEMENT COMPANY, INC.
ATTEST:
BY:___________________________________
Title:
_______________________
Secretary
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
ATTEST:
BY:___________________________________
Title: Chairman of the Board, President
_______________________ and Chief Executive Officer
Assistant Secretary
Page 3 of 3
EXHIBIT 99.6
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUB-ADVISORY AGREEMENT FOR THE
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO, MERIDIAN/INVESCO US SECTOR
PORTFOLIO AND MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO OF THE WRL SERIES
FUND, INC.
This Agreement is entered into as of April 30, 1996, between Western
Reserve Life Assurance Co. of Ohio, an Ohio corporation (referred to herein as
"WRL"), and Meridian Investment Management Corporation, a Colorado company
(referred to herein as "MERIDIAN"), to provide certain investment advisory
services with respect to certain series of shares of common stock of the WRL
Series Fund, Inc., allocated to the Meridian/INVESCO Global Sector Portfolio,
Meridian/INVESCO US Sector Portfolio and Meridian/INVESCO Foreign Sector
Portfolio of the WRL Series Fund, Inc. (collectively, the "Portfolios").
WHEREAS, WRL has entered into an Investment Advisory Agreement (referred
to herein as the "Advisory Agreement"), dated April 30, 1996 with WRL Series
Fund, Inc. (the "Fund"), a Maryland corporation, under which WRL has agreed,
among other things, to act as investment adviser to the Portfolios; and
WHEREAS, the Advisory Agreement provides that WRL may engage a
sub-adviser (and WRL has engaged Meridian as a co-sub-adviser for these
Portfolios) to furnish investment information and advice to assist WRL in
carrying out its responsibilities under the Advisory Agreement as investment
adviser to the Portfolios; and
WHEREAS, it is the purpose of this Agreement to express the mutual
agreements of the parties hereto with respect to the services to be provided by
Meridian to WRL with respect to the Portfolios and the terms and conditions
under which such services will be rendered.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. SERVICES OF MERIDIAN. Meridian shall act as investment
counsel to WRL with respect to the Portfolios. In this capacity, MERIDIAN shall
have the following responsibilities:
(a) to furnish continuous investment information, portfolio
management advice and recommendations to WRL as to the asset allocation,
industry and country selections for any or all of the securities or other assets
which the Portfolios may own or contemplate acquiring from time to time;
(b) to cause its officers to attend meetings of WRL or the Fund
and furnish oral or written reports, as WRL may reasonably require, in order to
keep WRL and its officers and the Directors of the Fund and appropriate officers
of the Fund fully informed as to the condition of the investment securities of
the Portfolios, the investment recommendations of Meridian, and the investment
considerations which have given rise to those recommendations;
(c) to furnish such quantitative investment research, statistical
and analytical information and reports as may reasonably be required by WRL from
time to time; and
(d) to make decisions with regard to asset allocation, industry
and country selections for each Portfolio as directed by the appropriate
officers of the Fund or of WRL.
2. OBLIGATIONS OF WRL. WRL shall have the following obligations
under this Agreement:
(a) to keep Meridian continuously and fully informed as to the
composition of each Portfolio's investment securities and the nature of each
Portfolio's assets and liabilities from time to time;
Page 1 of 4
<PAGE>
(b) to furnish Meridian with a certified copy of any financial
statement or report prepared for the Fund with respect to each Portfolio by
certified or independent public accountants, and with copies of any financial
statements or reports made by the Fund to shareholders or to any governmental
body or securities exchange;
(c) to furnish Meridian with any further materials or information
which Meridian may reasonably request to enable it to perform its functions
under this Agreement; and
(d) to compensate Meridian for its services under this Agreement
by the payment of monthly fees equal, as a percentage of each Portfolio's
average daily net assets, to an annual rate of 0.30% of the first $100 million
of assets, and 0.35% of assets in excess of $100 million. In the event that this
Agreement shall be effective for only part of a period to which any such fee
received by WRL is attributable, then an appropriate pro-ration of the fee that
would have been payable hereunder if this Agreement had remained in effect until
the end of such period shall be made, based on the number of calendar days in
such period and the number of calendar days during the period in which this
Agreement was in effect. The fees payable to Meridian hereunder shall be payable
upon receipt by WRL from each Portfolio of advisory fees payable to WRL.
3. TREATMENT OF INVESTMENT ADVICE. WRL shall treat the investment
information, advice and recommendations of Meridian as being advisory only, and
shall determine the extent to which such advice and recommendations relating to
each Portfolio shall be passed on to the Fund or incorporated in investment
advice by WRL relating to each Portfolio. WRL may direct Meridian to furnish its
investment information, advice and recommendations directly to officers or
Directors of the Fund.
4. COMPLIANCE WITH LAWS. Meridian represents that it is, and will
continue to be throughout the term of this Agreement, an investment adviser
registered under all applicable federal and state laws. In all matters relating
to the performance of this Agreement, Meridian will act in conformity with the
Fund's Articles of Incorporation, Bylaws, and current registration statement
applicable to the Portfolios, in each case in the form provided to Meridian, and
with the instructions and direction of WRL and the Fund's Directors, and will
conform to and comply with the Investment Company Act of 1940, as amended (the
"1940 Act") and all other applicable federal or state laws and regulations.
5. TERMINATION. This Agreement shall terminate automatically upon the
termination of the Advisory Agreement. This Agreement may be terminated at any
time, without penalty, by WRL or by the Fund by giving 60 days' written notice
of such termination to Meridian at its principal place of business, provided
that such termination is approved by the Board of Directors of the Fund or by
vote of a majority of the outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act) of each Portfolio. This Agreement
may be terminated at any time by Meridian by giving 60 days' written notice of
such termination to the Fund and WRL at their respective principal places of
business.
6. ASSIGNMENT. This Agreement shall terminate automatically
in the event of any assignment (as that term is defined in Section 2(a)(4) of
the 1940 Act) of this Agreement.
7. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, for an initial term ending April 22,
1998 and shall continue in effect from year to year thereafter provided
continuance is specifically approved at least annually by the vote of a majority
of the Directors of the Fund who are not parties hereto or interested persons
(as the term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
the terms of such renewal, and by either the Directors of the Fund or the
affirmative vote of a majority of the outstanding voting securities of each
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
8. AMENDMENTS. This Agreement may be amended only with the approval by
the affirmative vote of a majority of the outstanding voting securities of each
Portfolio (as that phrase is defined in
Page 2 of 4
<PAGE>
Section 2(a)(42) of the 1940 Act) and the approval by the vote of a majority of
the Directors of the Fund who are not parties hereto or interested persons (as
that term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
such amendment, unless otherwise permitted in accordance with the 1940 Act.
9. PRIOR AGREEMENTS. This Agreement supersedes all prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements are deemed terminated upon the effectiveness of this
Agreement.
10. ACTIVITIES OF THE SUB-ADVISER. The services of Meridian to WRL and
the Fund under this Agreement shall not be deemed to be exclusive, and Meridian
and its affiliates shall be free to render similar services to others so long as
Meridian fulfills its rights and obligations under this Agreement.
11. LIABILITY OF THE SUB-ADVISER. Meridian shall have no liability
under this Agreement to WRL, the Fund, the Portfolios or to the Fund's
shareholders or creditors for any error of judgment, mistake of law, or for any
loss arising out of any investment, nor for any other act or omission in the
performance of its duties under this Agreement not involving willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder. WRL shall have no liability under this
Agreement to the Sub-Adviser for any error of judgment, mistake of law, or for
any loss arising out of any investment, nor for any other act of omission in the
performance of its duties under this Agreement or the Advisory Agreement not
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties hereunder.
12. DISCLOSURE DOCUMENTS. Meridian will cooperate with WRL and the Fund
in the preparation of disclosure relating to the Portfolios for the Fund's
Registration Statement, including the prospectuses and statements of additional
information contained therein, or any amendment or supplement thereto, any
preliminary prospectus, any other communications with investors or any other
submissions to governmental bodies or self-regulatory agencies filed or
distributed on or subsequent to the date of this Agreement.
13. NOTICES. Any notice under this Agreement shall be in writing and
shall be deemed given (a) upon personal delivery, or (b) on the first business
day after receipted delivery to a courier service that guarantees next business
day delivery, under circumstances in which such guaranty is applicable, or (c)
on the earlier of delivery or three business days after mailing by United States
certified mail, postage and fees prepaid, to the appropriate party at the
address set forth below, or to such other address as the party so notifies the
other in writing.
Page 3 of 4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MERIDIAN INVESTMENT MANAGEMENT
CORPORATION
ATTEST:
BY:___________________________________
Michael J. Hart
______________________ Title: President
Dr. Craig T. Callahan 12835 East Arapahoe Road
Secretary Tower II, 7th Floor
Englewood, CO 80112
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
ATTEST:
BY:___________________________________
John R. Kenney
Title: Chairman of the Board, President
______________________ and Chief Executive Officer
Priscilla I. Hechler Address: 201 Highland Avenue
Assistant Secretary Largo, FL 34640
Page 4 of 4
<PAGE>
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
SUB-ADVISORY AGREEMENT FOR THE
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO, MERIDIAN/INVESCO US SECTOR
PORTFOLIO AND MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO OF THE WRL SERIES
FUND, INC.
This Agreement is entered into as of April 30, 1996, between Western
Reserve Life Assurance Co. of Ohio, an Ohio corporation (referred to herein as
"WRL"), and INVESCO Global Asset Management Limited, a Bermuda corporation
(referred to herein as "INVESCO Global"), to provide certain investment advisory
services with respect to certain series of shares of common stock of the WRL
Series Fund, Inc., allocated to the Meridian/INVESCO Global Sector Portfolio,
Meridian/INVESCO US Sector Portfolio and Meridian/INVESCO Foreign Sector
Portfolio of the WRL Series Fund, Inc. (collectively, the "Portfolios").
WHEREAS, WRL has entered into an Investment Advisory Agreement (referred
to herein as the "Advisory Agreement"), dated April 30, 1996 with WRL Series
Fund, Inc. (the "Fund"), a Maryland corporation, under which WRL has agreed,
among other things, to act as investment adviser to the Portfolios; and
WHEREAS, the Advisory Agreement provides that WRL may engage a
sub-adviser (and WRL has engaged INVESCO Global as a co-sub-adviser for these
Portfolios) to furnish investment information and advice to assist WRL in
carrying out its responsibilities under the Advisory Agreement as investment
adviser to the Portfolios; and
WHEREAS, it is the purpose of this Agreement to express the mutual
agreements of the parties hereto with respect to the services to be provided by
INVESCO Global to WRL with respect to the Portfolios and the terms and
conditions under which such services will be rendered.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. SERVICES OF INVESCO GLOBAL. INVESCO Global shall act as
co-investment counsel to WRL with respect to the Portfolios. In this capacity,
INVESCO Global shall have the following responsibilities:
(a) to furnish continuous investment information, advice and
recommendations to WRL as to the selection, acquisition, holding or disposition
of any or all of the securities or other assets which the Portfolios may own or
contemplate acquiring from time to time; provided, however, that notwithstanding
any other provision of this Agreement to the contrary, INVESCO Global shall have
no responsibility with respect to the allocation of the Portfolios' assets among
industrial sectors or countries, it being understood that Meridian Investment
Management Corporation will provide such allocation services to WRL;
(b) to cause its officers to attend meetings of WRL or the Fund
and furnish oral or written reports, as WRL may reasonably require, in order to
keep WRL and its officers and the Directors of the Fund and appropriate officers
of the Fund fully informed as to the condition of the investment securities of
the Portfolios, the investment recommendations of INVESCO Global, and the
investment considerations which have given rise to those recommendations;
(c) to furnish such statistical and analytical information
and reports as may reasonably be required by WRL from time to time; and
(d) to supervise the selection, purchase and sale of securities
as directed by the appropriate officers of the Fund or of WRL.
Page 1 of 4
<PAGE>
2. OBLIGATIONS OF WRL. WRL shall have the following obligations
under this Agreement:
(a) to keep INVESCO Global continuously and fully informed as to
the composition of each Portfolio's investment securities and the nature of each
Portfolio's assets and liabilities from time to time;
(b) to furnish INVESCO Global with a certified copy of any
financial statement or report prepared for the Fund with respect to each
Portfolio by certified or independent public accountants, and with copies of any
financial statements or reports made by the Fund to shareholders or to any
governmental body or securities exchange;
(c) to furnish INVESCO Global with any further materials or
information which INVESCO Global may reasonably request to enable it to perform
its functions under this Agreement; and
(d) to compensate INVESCO Global for its services under this
Agreement by the payment of monthly fees equal, as a percentage of each
Portfolio's average daily net assets, to an annual rate of 0.40% of the first
$100 million of assets, and 0.35% of assets in excess of $100 million. In the
event that this Agreement shall be effective for only part of a period to which
any investment advisory fee received by WRL is attributable, then an appropriate
pro-ration of the fee that would have been payable hereunder if this Agreement
had remained in effect until the end of such period shall be made, based on the
number of calendar days in such period and the number of calendar days during
the period in which this Agreement was in effect. The fees payable to INVESCO
Global hereunder shall be payable upon receipt by WRL from each Portfolio of
advisory fees payable to WRL.
3. TREATMENT OF INVESTMENT ADVICE. WRL shall treat the investment
information, advice and recommendations of INVESCO Global as being advisory
only, and shall determine the extent to which such advice and recommendations
relating to each Portfolio shall be passed on to the Fund or incorporated in
investment advice by WRL relating to each Portfolio. WRL may direct INVESCO
Global to furnish its investment information, advice and recommendations
directly to officers or Directors of the Fund.
4. PORTFOLIO BROKERAGE. In accordance with Section 9 of the Advisory
Agreement, WRL delegates to the Sub-Adviser the authority and direction to place
each Portfolio's securities transactions only with brokers and dealers who
render satisfactory service in the execution of orders at the most favorable
prices and at reasonable commission rates; provided, however, that the
Sub-Adviser may pay a broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Sub-Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser. The Sub-Adviser is also authorized
to consider sales of the individual and group life insurance policies issued by
WRL by a broker-dealer as a factor in selecting broker-dealers to execute each
Portfolio's securities transactions, provided that in placing portfolio business
with such broker-dealers, the Sub-Adviser shall seek the best execution of each
transaction and all such brokerage placement shall be consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
Notwithstanding the foregoing, the Fund shall retain the right to direct the
placement of all securities transactions of each Portfolio, and the Fund's
Directors may establish policies or guidelines to be followed by the Sub-Adviser
in placing securities transactions for each Portfolio pursuant to the foregoing
provisions.
5. COMPLIANCE WITH LAWS. INVESCO Global represents that it is, and will
continue to be throughout the term of this Agreement, an investment adviser
registered under all applicable federal and state laws. In all matters relating
to the performance of this Agreement, INVESCO Global will act in conformity with
the Fund's Articles of Incorporation, Bylaws, and current registration statement
applicable to the Portfolios, in each case in the form provided to INVESCO
Global, and with the instructions and
Page 2 of 4
<PAGE>
direction of WRL and the Fund's Directors, and will conform to and comply with
the Investment Company Act of 1940, as amended (the "1940 Act") and all other
applicable federal or state laws and regulations.
6. TERMINATION. This Agreement shall terminate automatically upon the
termination of the Advisory Agreement. This Agreement may be terminated at any
time, without penalty, by WRL or by the Fund by giving 60 days' written notice
of such termination to INVESCO Global at its principal place of business,
provided that such termination is approved by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act) of each Portfolio. This Agreement
may be terminated at any time by INVESCO Global by giving 60 days' written
notice of such termination to the Fund and WRL at their respective principal
places of business.
7. ASSIGNMENT. This Agreement shall terminate automatically
in the event of any assignment (as that term is defined in Section 2(a)(4) of
the 1940 Act) of this Agreement.
8. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, for an initial term ending April 22,
1998 and shall continue in effect from year to year thereafter provided
continuance is specifically approved at least annually by the vote of a majority
of the Directors of the Fund who are not parties hereto or interested persons
(as the term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
the terms of such renewal, and by either the Directors of the Fund or the
affirmative vote of a majority of the outstanding voting securities of each
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
9. AMENDMENTS. This Agreement may be amended only with the approval by
the affirmative vote of a majority of the outstanding voting securities of each
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act) and
the approval by the vote of a majority of the Directors of the Fund who are not
parties hereto or interested persons (as that term is defined in Section
2(a)(19) of the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on the approval of such amendment, unless otherwise
permitted in accordance with the 1940 Act.
10. PRIOR AGREEMENTS. This Agreement supersedes all prior
agreements between the parties relating to the subject matter hereof, and
all such prior agreements are deemed terminated upon the effectiveness
of this Agreement.
11. ACTIVITIES OF THE SUB-ADVISER. The services of INVESCO Global to
WRL and the Fund under this Agreement shall not be deemed to be exclusive, and
INVESCO Global and its affiliates shall be free to render similar services to
others so long as INVESCO Global fulfills its rights and obligations under this
Agreement. Securities held by each Portfolio may also be held by separate
accounts or other mutual funds for which INVESCO Global or its affiliates act as
an adviser. Because of different investment objectives or other factors, a
particular security may be bought by INVESCO Global or its affiliates for one or
more clients when one or more clients are selling the same security. If
purchases or sales of securities for each Portfolio or entities for which
INVESCO Global or its affiliates act as investment adviser arise for
consideration at or about the same time, INVESCO Global or its affiliates may
engage in transactions in such securities, insofar as feasible, for the
respective entities and clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of INVESCO Global or
its affiliates during the same period may increase the demand for securities
being purchased or the supply of securities being sold, it is recognized that
there may be an adverse effect on price. It is agreed that, on occasions which
INVESCO Global deems the purchase or sale of a security to be in the best
interests of each Portfolio as well as other accounts or companies, it may, to
the extent permitted by applicable laws and regulations, but will not be
obligated to, aggregate the securities to be so sold or purchased for other
accounts or companies in order to obtain favorable execution and low brokerage
commissions. In that event, allocation of the securities purchased or sold, as
well as the expenses incurred in the transaction, will be made by INVESCO Global
in the manner it considers to be
Page 3 of 4
<PAGE>
most equitable and consistent with its fiduciary obligations to each Portfolio
and to such other accounts or companies.
12. LIABILITY OF THE SUB-ADVISER. INVESCO Global shall have no
liability under this Agreement to WRL, the Fund, the Portfolios or to the Fund's
shareholders or creditors for any error of judgment, mistake of law, or for any
loss arising out of any investment, nor for any other act or omission in the
performance of its duties under this Agreement not involving willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder. WRL shall have no liability under this
Agreement to the Sub-Adviser for any error of judgment, mistake of law, or for
any loss arising out of any investment, nor for any other act of omission in the
performance of its duties under this Agreement or the Advisory Agreement not
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties hereunder.
13. DISCLOSURE DOCUMENTS. INVESCO Global will cooperate with WRL and
the Fund in the preparation of disclosure relating to the Portfolios for the
Fund's Registration Statement, including the prospectuses and statements of
additional information contained therein, or any amendment or supplement
thereto, any preliminary prospectus, any other communications with investors or
any other submissions to governmental bodies or self-regulatory agencies filed
or distributed on or subsequent to the date of this Agreement.
14. NOTICES. Any notice under this Agreement shall be in writing and
shall be deemed given (a) upon personal delivery, or (b) on the first business
day after receipted delivery to a courier service that guarantees next business
day delivery, under circumstances in which such guaranty is applicable, or (c)
on the earlier of delivery or three business days after mailing by United States
certified mail, postage and fees prepaid, to the appropriate party at the
address set forth below, or to such other address as the party so notifies the
other in writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INVESCO GLOBAL ASSET MANAGEMENT LIMITED
ATTEST:
BY:___________________________________
_____________________ Wendell M. Starke
Secretary Title: Chairman and Director
Address:
WESTERN RESERVE LIFE ASSURANCE
CO. OF OHIO
ATTEST:
BY:___________________________________
John R. Kenney
Title: Chairman of the Board, President
______________________ and Chief Executive Officer
Priscilla I. Hechler
Assistant Secretary Address: 201 Highland Avenue
Largo, FL 34640
Page 4 of 4
