PROSPECTUS
WRL SERIES FUND, INC.
C.A.S.E. QUALITY GROWTH PORTFOLIO
C.A.S.E. GROWTH & INCOME PORTFOLIO
C.A.S.E. GROWTH PORTFOLIO
201 Highland Avenue
Largo, Florida 33770
[WRL LOGO] Telephone: (800) 851-9777 [C.A.S.E 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 C.A.S.E. Quality Growth Portfolio,
C.A.S.E. Growth & Income Portfolio and C.A.S.E. Growth Portfolio of the Fund
(collectively, the "Portfolios").
The primary investment objective of the C.A.S.E. Quality Growth Portfolio
is to seek preservation and growth of capital by investing in common stocks
of large, well-managed, well-priced companies with defined markets and
financial strategies which provide the basis for sound future confidence. The
investment objective of the C.A.S.E. Growth & Income Portfolio is to seek
high current income and moderate growth through investments in common stocks
of well-priced, well-managed, large, stable and growing companies. This
Portfolio seeks to invest in companies that make a policy of paying
above-market dividends while their internal growth rates exceed the rate of
inflation. The investment objective of the C.A.S.E. Growth Portfolio is
capital growth through investments in common stocks of small to medium-sized
companies. This Portfolio will generally invest in smaller, less
well-established companies, with limited product lines and financial
resources. This Portfolio, however, seeks to invest in such companies with
above-market growth characteristics in several investment classifications
including sales, earnings, returns and institutional support. There can be,
of course, no assurance that the Portfolios will achieve their objectives.
Shares of the Fund are sold only to the 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 Investment Management, Inc. ("WRL Management") and C.A.S.E.
Management, Inc. serve as the investment adviser ("Investment Adviser") and
the sub-adviser ("Sub-Adviser") respectively, to the Portfolios. See "The
Investment Adviser" and "The Sub-Adviser."
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 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 ("SAI") 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 January 1, 1997
<PAGE>
WRL SERIES FUND, INC.
C.A.S.E. QUALITY PORTFOLIO
C.A.S.E. GROWTH & INCOME PORTFOLIO
C.A.S.E. GROWTH PORTFOLIO
201 Highland Avenue
Largo, Florida 33770
Telephone: (800) 851-9777
(813) 585-6565
FINANCIAL HIGHLIGHTS .......................................... 1
THE C.A.S.E. QUALITY GROWTH PORTFOLIO, C.A.S.E. GROWTH & INCOME
PORTFOLIO AND C.A.S.E. GROWTH PORTFOLIO AND THE FUND ....... 4
MANAGEMENT OF THE FUND ........................................ 11
DIVIDENDS AND DISTRIBUTIONS ................................... 14
TAXES ......................................................... 14
PURCHASE AND REDEMPTION OF SHARES ............................. 15
VALUATION OF SHARES ........................................... 15
THE FUND AND ITS SHARES ....................................... 15
PERFORMANCE INFORMATION ....................................... 16
GENERAL INFORMATION ........................................... 17
i
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FINANCIAL HIGHLIGHTS
C.A.S.E. QUALITY GROWTH PORTFOLIO
The information contained in the tables below for a share of capital stock
outstanding of the C.A.S.E. Growth Portfolios for the period May 1, 1995
(commencement of operations) through December 31, 1995, is taken from the
Portfolios' audited financial statements (and for the period January 1, 1996
through June 30, 1996 from the Portfolios' unaudited Semi-Annual Report) as
incorporated by reference in the Statement of Additional Information. The
Annual Report and Semi-Annual Report contain additional information for these
Portfolios. A copy of the Statement of Additional Information, Annual Report
and Semi-Annual Report may be obtained without charge upon request. A
voluntary fee waiver and expense reimbursement applied during the period
shown below. That voluntary fee waiver and expense reimbursement has been
modified with respect to the C.A.S.E. Quality Growth Portfolio and the
C.A.S.E. Growth & Income Portfolio. (See "Management of the Fund--The
Investment Adviser," page 11.)
PERIOD FROM PERIOD FROM
1/1/96 TO 5/1/95 TO
6/30/96 12/31/95
----------- -----------
Net Asset Value, Beginning of Period 10.84 $ 10.00
Income From Investment Operations
Net Investment Income .05 .14
Net Gains or Losses on Securities (both realized and
unrealized) .49 1.50
------- -------
Total Income (Loss) From Investment Operations .54 1.64
------- -------
Less Distributions
Dividends (from net investment income) .00 (.14)
------- -------
Distributions (from net realized gains) .00 (.66)
------- -------
Total Distributions .00 (.80)
------- -------
Net Asset Value, End of Period $ 11.38 $ 10.84
======= =======
Total Return* 4.94% 13.61%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $ 1,547 $ 1,150
Ratio of Expenses to Average Net Assets** 1.33% 1.00%
Ratio of Net Investment Income to Average Net Assets .99% 1.28%
Ratio of Commission Paid to Number of Shares 6.05% N/A
Portfolio Turnover Rate 106.15% 119.63%
- ---------------------
* The total return shown for 1995 is for the eight month period ended December
31, 1995, 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 Annuity Contract; including these charges would reduce total
return figures for all periods shown.
** Ratio is annualized and net of advisory fee waiver for the period ended
December 31, 1995, for which period the annualized ratio of expenses to
average net assets would have been 5.91% absent the advisory fee waiver by
Western Reserve Life.
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C.A.S.E. GROWTH & INCOME PORTFOLIO
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
1/1/96 TO 5/1/95 TO
6/30/96 12/31/95
----------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period $11.28 $10.00
Income From Investment Operations
Net Investment Income .10 .21
Net Gains or Losses on Securities (both realized and
unrealized) .81 1.38
---------- ----------
Total Income (Loss) From Investment Operations .91 1.59
---------- ----------
Less Distributions
Dividends (from net investment income) .00 (.21)
---------- ----------
Distributions (from net realized gains) .00 (.10)
---------- ----------
Total Distributions .00 (.31)
---------- ----------
Net Asset Value, End of Period $12.19 $11.28
========== ==========
Total Return* 8.07% 14.80%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $1,768 $1,083
Ratio of Expenses to Average Net Assets** 1.33% 1.00%
Ratio of Net Investment Income to Average Net Assets 1.66% 1.94%
Ratio of Commissions Paid to Number of Shares 6.05% N/A
Portfolio Turnover Rate 93.24% 72.73%
<FN>
- ---------------------
* The total return shown for 1995 is for the eight month period ended December
31, 1995, 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 Annuity Contract; including these charges would reduce total
return figures for all periods shown.
** Ratio is annualized and net of advisory fee waiver for the period ended
December 31, 1995, for which period the annualized ratio of expenses to
average net assets would have been 6.17% absent the advisory fee waiver by
Western Reserve Life.
[/FN]
</TABLE>
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C.A.S.E. GROWTH PORTFOLIO
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
1/1/96 TO 5/1/95 TO
6/30/96 12/31/95
----------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period $11.66 $ 10.00
Income From Investment Operations
Net Investment Income .05 .12
Net Gains or Losses on Securities (both realized and
unrealized) .74 2.49
----------- -----------
Total Income (Loss) From Investment Operations .79 2.61
----------- -----------
Less Distributions
Dividends (from net investment income) .00 (.12)
----------- -----------
Distributions (from net realized gains) .00 (.83)
----------- -----------
Total Distributions .00 (.95)
----------- -----------
Net Asset Value, End of Period $12.45 $ 11.66
=========== ===========
Total Return* 6.77% 20.65%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $7,347 $ 2,578
Ratio of Expenses to Average Net Assets** 1.00% 1.00%
Ratio of Net Investment Income to Average Net Assets .79% 1.02%
Ratio of Commission Paid to Number of Shares 6.03% N/A
Portfolio Turnover Rate 90.07% 121.62%
<FN>
- -----------------------
* The total return shown for 1995 is for the eight month period ended December
31, 1995, 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 Annuity Contract; including these charges would reduce total
return figures for all periods shown.
** Ratio is annualized and net of advisory fee waiver for the period ended
December 31, 1995, for which period the annualized ratio of expenses to
average net assets would have been 4.15% absent the advisory fee waiver by
Western Reserve Life.
[/FN]
</TABLE>
3
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WRL SERIES FUND, INC.
THE C.A.S.E. QUALITY GROWTH PORTFOLIO, C.A.S.E. GROWTH & INCOME PORTFOLIO
AND C.A.S.E. GROWTH 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 C.A.S.E. Quality Growth Portfolio, C.A.S.E. Growth & Income
Portfolio and C.A.S.E. Growth Portfolio are series of the Fund. The Fund
consists of several series, or separate investment portfolios, which offer
shares for investment by the Separate Account. This Prospectus describes only
the C.A.S.E. Quality Growth, C.A.S.E. Growth & Income and C.A.S.E. Growth
Portfolios.
A particular portfolio of the Fund may not be available under the 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 Contract you have chosen will indicate the portfolios that are
generally available under the applicable Contract and should be read in
conjunction with this Prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
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 Contract Owner approval. A change in the
investment objectives or policies of a Portfolio may result in that Portfolio
having an investment objective or policies different from that which a
Contract Owner deemed appropriate at the time of investment.
Each Portfolio invests mainly in common stock and other equity securities
in search of growth, or a combination of growth and income (total return).
Their performance depends heavily on stock market conditions in the U.S. and
abroad, and can also be affected by changes in interest rates or other
economic conditions. Accordingly, the Portfolios are not by themselves a
balanced investment plan.
C.A.S.E. QUALITY GROWTH PORTFOLIO
The primary investment objective of the C.A.S.E. Quality Growth Portfolio
is preservation and growth of capital.
The C.A.S.E. Quality Growth Portfolio seeks long-term appreciation
principally through investment in common stocks of large, well-managed,
well-priced companies with defined markets and financial strategies which
provide the basis for sound future confidence. Stocks of such companies
usually are listed on the New York or American Exchanges. The investments the
Sub-Adviser seeks will, in the opinion of the Sub-Adviser, be under-valued
based upon a broad range of comparative, fundamental values for similar
long-term investments. The large cap stocks which this Portfolio seeks will
generally be less volatile than smaller or mid-capitalization stocks. For
these purposes, the Sub-Adviser considers "large cap" stocks to be stocks
issued by companies with market capitalization at least equal to $1 billion.
The Sub-Adviser considers "mid-capitalization" stocks to be stocks issued by
companies with market capitalization of between $350 million and $3 billion.
(Companies with market capitalization from $1 billion to $3 billion may be
classified by the Sub-Adviser as either medium cap or as large cap, depending
upon the Sub-Adviser's evaluation of the liquidity of trading in the
company's stock.) Companies with larger capitalization frequently have broad
markets and product lines. The dividend component of the Portfolio's
investments should be similar or slightly less than the average for the
market in the identical period. There can be no assurance that the
Portfolio's objectives will be achieved because there are no certainties of
the prevailing market or economic conditions with which the Portfolio will be
confronted.
Although the Portfolio's assets will be invested primarily in common
stocks at most times, the Portfolio may increase its cash position when the
Sub-Adviser is unable to locate investment opportunities with desirable
risk/reward characteristics. The Portfolio may invest in government
securities, high grade commercial paper, corporate bonds and debentures,
warrants, preferred stocks or certificates of deposit of commercial banks or
other debt securities when the Sub-Adviser perceives an opportunity for
capital growth from such securities, or so that the Portfolio may receive a
return on
4
<PAGE>
its uninvested cash. See the Statement of Additional Information for further
descriptions of such securities. In the latter case, 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 market advances or
declines to the extent it would if the Portfolio were fully invested in
common stocks. The Portfolio may invest up to 15% of its assets in securities
of issuers in a single industry. The Portfolio does not currently intend to
invest more than 5% of its assets in non-investment grade debt securities.
See the Statement of Additional Information for further information
concerning such securities and bond ratings.
The C.A.S.E. Quality Growth Portfolio may invest up to 25% of its net
assets at the time of purchase in the securities of foreign issuers and
obligors, as described below and in the Statement of Additional Information.
(See "Certain Portfolio Practices and Techniques--Foreign Investments and
Special Risks," page 8.) The Portfolio also may invest in repurchase
agreements and reverse repurchase agreements. (See "Certain Portfolio
Practices and Techniques--Repurchase and Reverse Repurchase Agreements," page
7.)
C.A.S.E. GROWTH & INCOME PORTFOLIO
The investment objective of the C.A.S.E. Growth & Income Portfolio is to
seek high current income and moderate growth through investments in
well-priced, well-managed, large, stable and growing companies.
Current income of the Portfolio will vary. It is anticipated that the
current income realized by this Portfolio will, however, generally be
relatively higher than the current income realized by C.A.S.E. Quality Growth
Portfolio or C.A.S.E. Growth Portfolio. The Portfolio invests primarily in
common stocks of companies believed by the Sub-Adviser to have potential for
above-average growth in several fundamental and conditional and market
comparative categories, including sales, earnings (year over year and month
over month), market relative to return-on-equity, market relative cash flow,
institutional and/or insider ownership changes, and price earnings ratios.
The Portfolio seeks to invest in companies that make a policy of paying above
market dividends, and also have positive internal growth rates and
demonstrated capital appreciation over time that exceed the rate of inflation
during the period measured. The Portfolio will generally invest 90% of its
assets in dividend paying stocks.
Total return consists of current income, including dividends, capital
appreciation, and interest and discount accrual. The Portfolio's ability to
achieve its total return objective of both high current income and moderate
growth is a function of the Sub-Adviser's stock selections as well as market
and economic conditions.
Although the Portfolio's assets will be invested primarily in common
stocks at most times, the Portfolio may increase its cash position when the
Sub-Adviser is unable to locate investment opportunities with desirable
risk/reward characteristics. The Portfolio may invest in government
securities, high grade commercial paper, corporate bonds and debentures,
warrants, preferred stocks or certificates of deposit of commercial banks or
other debt securities when the Sub-Adviser perceives an opportunity for
capital growth from such securities, or so that the Portfolio may receive a
return on its uninvested cash. See the Statement of Additional Information
for further descriptions of such securities. In the latter case, 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 market
advances or declines to the extent it would if the Portfolio were fully
invested in common stocks. The Portfolio may invest up to 15% of its assets
in securities of issuers in a single industry. The Portfolio does not
currently hold or intend to invest more than 5% of its assets in
non-investment grade debt securities. See the Statement of Additional
Information for further information concerning such securities and bond
ratings.
The C.A.S.E. Growth & Income Portfolio may invest up to 25% of its net
assets at the time of purchase in the securities of foreign issuers and
obligors, as described below and in the Statement of Additional Information.
(See "Certain Portfolio Practices and Techniques--Foreign Investments and
Special Risks," page 8.) The Portfolio also may invest in repurchase
agreements and reverse repurchase agreements. (See "Certain Portfolio
Practices and Techniques--Repurchase and Reverse Repurchase Agreements," page
7.)
5
<PAGE>
C.A.S.E. GROWTH PORTFOLIO
The C.A.S.E. Growth Portfolio's objective is capital growth through
investments in small to medium-sized companies. For these purposes, the
Sub-Adviser considers "small cap" stocks to be stocks issued by companies
with market capitalization of between $50 million and $500 million. As noted
above, the Sub-Adviser considers "mid-capitalization" stocks to be stocks
issued by companies with market capitalization of between $350 million and $3
billion. (Companies with market capitalization from $350 million to $500
million may be classified by the Sub-Adviser as either small cap or medium
cap, depending upon the Sub-Adviser's evaluation of the liquidity of trading
in the company's stock.) This Portfolio will generally invest in smaller,
less well-established companies, with limited product lines and financial
resources. The Portfolio seeks, however, to invest in such companies with
above-market growth characteristics in several investment classifications
including sales, earnings, returns and institutional support. Income derived
is incidental to the Portfolio's investment objective.
The Portfolio seeks to invest substantially all of its assets in common
stocks when the portfolio manager believes that the relevant market
environment favors profitable investing in those securities. Common stock
investments are selected from industries and companies that the portfolio
manager believes are experiencing favorable demand for their products and
services, and which operate in a favorable competitive environment and
regulatory climate. The Portfolio invests in common stocks traded on
recognized securities exchanges and in the over-the-counter market. The
Portfolio generally intends to invest in medium to small sized companies
which exhibit sustainable above-market characteristics in sales, earnings,
rates of return, insider and institutional buying. The Sub-Adviser intends to
be aggressive in its efforts to increase shareholders' capital by investing
primarily in companies which are likely to benefit from the comparatively
strong conditional and fundamental circumstances uncovered by the
Sub-Adviser's analysis. The Portfolio will invest in securities of companies
that appear to be under-valued from several vantage points and which, in the
opinion of the Sub-Adviser, demonstrate the characteristics necessary for
significant future growth. As a result of these investment policies, the
market prices of many of the securities purchased by the Portfolio may
fluctuate widely; any income received by the Portfolio from these securities
will be incidental. Investors should be aware that whenever the securities
markets become volatile, secondary growth securities such as those in which
the Portfolio will invest have historically become even more so. The
Sub-Adviser nonetheless believes that small to middle capitalization
securities in emerging markets often have sales and earnings growth rates
which exceed more developed companies. Such growth rates may in turn be
reflected in more rapid share price appreciation.
Although it is the policy of the Portfolio to purchase and hold securities
for long-term capital growth, changes in the Portfolio will generally be made
whenever the Sub-Adviser believes they are advisable, typically either as a
result of securities having reached a price objective or by reason of
developments not foreseen at the time of the investment decision. Since
investment changes ordinarily will be made without reference to the length of
time a security has been held, a significant number of short-term
transactions may result. The rate of portfolio turnover will not be a
limiting factor when changes are deemed to be appropriate. However, certain
tax rules may restrict the Portfolio's ability to sell securities in some
circumstances when the security has been held for an insufficient length of
time. Increased portfolio turnover necessarily results in correspondingly
higher brokerage costs for the Portfolio which are ultimately borne by the
shareholders and Contract Owners.
Although the assets of the Portfolio are ordinarily invested in common
stocks at most times, the Portfolio may increase its cash position when the
Sub-Adviser is unable to locate investment opportunities with desirable
risk/reward characteristics. The Portfolio may invest in government
securities, corporate bonds and debentures, high-grade commercial paper,
preferred stocks, certificates of deposits or other securities of U.S.
issuers when the Sub-Adviser perceives an opportunity for capital growth from
such securities, or so that the Portfolio may receive a competitive return on
its uninvested cash. The Portfolio's investments in debt securities will be
made in securities of U.S. and foreign companies, the U.S. Government,
foreign governments, and U.S. and foreign governmental agencies and
instrumentalities and other governmental entities. The Portfolio may invest
6
<PAGE>
up to 15% of its assets in securities of issuers in a single industry. The
Portfolio does not presently intend to invest more than 5% of its assets in
debt securities rated less than investment grade. When the Portfolio invests
in such 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 market advances or declines to the extent
that it would if it were fully invested.
The C.A.S.E. Growth Portfolio may invest up to 25% of its net assets at
the time of purchase in the securities of foreign issuers and obligors, as
described below and in the Statement of Additional Information. (See "Certain
Portfolio Practices and Techniques--Foreign Investments and Special Risks,"
page 8.) The Portfolio also may invest in repurchase agreements and reverse
repurchase agreements. (See "Certain Portfolio Practices and
Techniques--Repurchase and Reverse Repurchase Agreements," below.)
CERTAIN PORTFOLIO POLICIES AND TECHNIQUES; RISK FACTORS
FUTURES CONTRACTS, RELATED OPTIONS AND OTHER HEDGING STRATEGIES. Subject
to certain limitations, each Portfolio may engage in hedging strategies
involving futures contracts and related options, forward currency contracts,
and interest rate swaps, caps and floors. A put option gives the holder the
right, upon payment of a premium, to deliver a specified amount of a security
to the writer of the option on or before a fixed date at a predetermined
price. A call option gives the holder the right, upon payment of a premium,
to call upon the writer to deliver a specified amount of a security on or
before a fixed date at a predetermined price. A Portfolio may engage in
hedging strategies to attempt to reduce the overall level of investment risk
that normally would be expected to be associated with the Portfolio's
securities, and to attempt to protect the Portfolio against market movements
that might adversely affect the value of the Portfolio's securities or the
price of securities that the Portfolio is considering purchasing. There can
be no assurance, however, that the use of these instruments by a Portfolio
will assist it in achieving its investment objective. Generally, the use of
hedging strategies involves investment risks and transaction costs to which
the Portfolio would not be subject absent the use of these strategies. If the
Sub-Adviser engages in a hedging transaction intended to protect a Portfolio
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 Portfolio, the Portfolio could be left in a
less favorable position than if such hedging strategy had not been used. The
use of hedging strategies involves special risks, which include: 1) the risk
that interest rates, securities prices and currency markets will not move in
the directions anticipated; 2) imperfect correlation between the price of the
hedging instruments and movements in the prices of the securities or
currencies underlying the hedging transaction; 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 these instruments, hedging strategies and risk considerations
relating to them is set forth in the Statement of Additional Information.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. A Portfolio may invest in
repurchase and reverse repurchase agreements. A repurchase agreement involves
the purchase of a security by a 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 a 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, a 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 a 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
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<PAGE>
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 Treasury bills and
notes. Reverse repurchase agreements may expose a Portfolio to greater
fluctuations in the value of its assets.
ILLIQUID SECURITIES. A 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 a 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. A Portfolio may purchase new issues of U.S.
Government securities on a "when-issued" basis. However, a Portfolio does not
intend to invest more than 20% of its total assets in when-issued securities.
Because actual payment for and delivery of when-issued securities generally
take place 15 to 45 days after the purchase date, a Portfolio that purchases
when-issued securities 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.
SPECIAL SITUATIONS. The Portfolios may invest in "special situations" from
time to time. A special situation arises when, in the opinion of the
portfolio manager, the securities of a particular issuer will be recognized
and appreciate in value due to a specific development with respect to that
issuer. Developments creating a special situation might include, among
others, a new product or process, a management change, a technological
breakthrough, or other extraordinary corporate event, or differences in
market supply of and demand for the security. Investment in special
situations may carry an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention. The impact of this strategy on a Portfolio will depend on a
Portfolio's size and the extent of the holdings of the special situation
issuer relative to its total assets.
LENDING AND BORROWING. Each Portfolio may lend its portfolio securities to
qualified institutional buyers 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 a Portfolio's total assets.
Securities lending may involve some credit risk to a 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. To secure borrowings, a Portfolio may not mortgage or pledge
its securities in amounts that exceed 15% of its net assets, at the time the
loan or borrowing is made. If portfolio securities are loaned, collateral
values will be continuously maintained at no less than 100% by
marking-to-market daily. If a material event is to be voted upon affecting a
Portfolio's investment in securities which are on loan, the Portfolio will
take such action as may be appropriate in order to vote its shares.
The Portfolios may also borrow money from banks. Any such loans or
borrowings are expected to be short-term in nature and used for temporary or
emergency purposes, such as to provide cash for redemptions, and will not
exceed 25% of a Portfolio's total assets at the time the loan or borrowing is
made. In accordance with the requirements of current California insurance
regulations, each Portfolio will restrict borrowings to no more than 10% of
total assets, except 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 insurance regulations are changed at some future
time to permit borrowings in excess of 10% of total assets but less than 25%
of total assets, each Portfolio may conduct borrowings in accordance with
such revised limits.
FOREIGN INVESTMENTS AND SPECIAL RISKS. The Portfolios may each invest up
to 25% of net assets at the time of purchase in the securities of foreign
issuers and obligors.
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Investments may be made in both domestic and foreign companies. In
selecting investments in foreign securities for the Portfolios, the
Sub-Adviser considers a variety of factors which may include the political
and economic conditions in a country, the prospect for changes in the value
of its currency and the liquidity of the investment in that country's
securities markets. If appropriate and available, the Sub-Adviser may
purchase foreign securities through dollar-denominated American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") and other types of receipts or shares evidencing ownership
of the underlying foreign securities. While ADRs are dollar-denominated
receipts that are issued by domestic banks and traded in the United States,
EDRs are typically issued by European banks, and GDRs may be issued by either
domestic or foreign banks. In addition, the Portfolios may invest indirectly
in foreign securities through foreign investment funds or trusts (including
passive foreign investment companies).
Investing in foreign securities involves opportunities and risks that
differ from those involved with investing solely in U.S. markets. The
Sub-Adviser believes that there is substantial opportunity from a
professionally managed portfolio of securities selected from the U.S. and
foreign markets. This investment framework seeks to take advantage of the
investment opportunities created by the global economy. Accordingly, an
investor may benefit from worldwide access to investment opportunities,
without being constrained by the location of a company's headquarters or the
trading market for its shares.
At the same time, these opportunities involve considerations and risks
that may not be encountered in U.S. investments. 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 a Portfolio's share prices and returns. 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. A 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. Security trading
practices abroad may offer less protection to investors such as the
Portfolios than the practices of domestic securities trading. Custody charges
are generally higher for foreign securities than for domestic securities.
The considerations noted above may be intensified in the case of
investments in developing countries or countries with limited or developing
capital markets. In particular, developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities. Securities of issuers
located in developing countries may have limited marketability and may be
subject to more abrupt or erratic price fluctuations.
At times, securities held by a Portfolio may be listed on foreign
exchanges or traded in foreign markets which are open on days (such as
Saturday) when a Portfolio does not compute its price or accept orders for
the purchase, redemption or exchange of its shares. As a result, the net
asset value of a Portfolio may be significantly affected by trading on days
when shareholders cannot make transactions.
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 Portfolios; political
or social instability or war; or diplomatic developments which could affect
U.S. investments in those countries. These latter considerations generally
are more of a concern in developing countries. Developing countries may also
have economies that are based on only a few industries. Although investments
in companies domiciled in developing countries may be subject to potentially
greater risk than investments in developed countries, the Portfolios will not
invest in any securities of issuers located in developing countries if the
Sub-Adviser determines these securities to be speculative.
To the extent a Portfolio invests in international foreign securities
markets, changes in the Portfolio's share price may have a reduced
correlation with movements in the U.S. markets. A
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Portfolio's share price reflects the movements of both the prices of
securities in which the Portfolio is invested and the currencies in which the
investments are denominated. Because the foreign securities in which a
Portfolio may invest include those that are denominated in foreign
currencies, or that otherwise have values that depend on the performance of
foreign currencies relative to the U.S. dollar, the relative strength of the
U.S. dollar may be, to that extent, an important factor in the performance of
a Portfolio. In an effort to manage exchange rate risks, a Portfolio may
enter into foreign currency exchange contracts (agreements to exchange one
currency for another at a future date). A Portfolio may exchange foreign
currencies for U.S. dollars and for other foreign currencies in the normal
course of business, and may purchase and sell currencies through currency
exchange contracts in order to fix a price for securities they have agreed to
buy or sell. The Sub-Adviser may also seek to hedge some or all of a
Portfolio's investments denominated in foreign currency against a decline in
the value of that currency relative to U.S. dollars, by entering into
contracts to exchange that currency for U.S. dollars (not exceeding the value
of the Portfolio's assets denominated in that currency), or by participating
in options or futures contracts with respect to such currency. This type of
hedge may minimize the effect of currency appreciation as well as
depreciation, but does not protect against a decline in the security's value
relative to other securities denominated in that currency.
A Portfolio may also enter into foreign currency exchange contracts to
shift exposure to currency exchange rate changes from one foreign currency to
another. This technique is known as cross-hedging. For example, if the
Sub-Adviser believed that a particular currency may decline relative to the
U.S. dollar, a Portfolio could enter into a contract to sell that currency
(up to the value of the Portfolio's assets denominated in that currency) in
exchange for another currency that the Sub-Adviser expects to remain stable
or to appreciate relative to the U.S. dollar. As a non-fundamental operating
policy, a Portfolio will not enter into currency exchange contracts if, as a
result, more than 10% of its assets would be committed to the consummation of
cross-hedge contracts, and will instruct its custodian bank to set aside
high-grade, liquid assets to cover the Portfolio's purchase obligations under
this type of contract.
Generally, the use of hedging strategies involves investment risks and
transaction costs to which a Portfolio would not be subject absent the use of
these strategies. If the Sub-Adviser engages in a hedging transaction
intended to protect a Portfolio against potential adverse movements in the
securities, foreign currency or interest rate markets, and such markets do
not move in a direction adverse to the Portfolio, the Portfolio could be left
in a less favorable position than if such hedging strategy had not been used.
The use of hedging strategies involves special risks, which include: 1) the
risk that interest rates, securities prices and currency markets will not
move in the directions anticipated; 2) imperfect correlation between the
price of the hedging instruments and movements in the prices of the
securities or currencies underlying the hedging transaction; 3) the fact that
the 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 hedging instrument at any time; and 5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. See the SAI for further information concerning these risks. The
Sub-Adviser will bear the costs of any separately identifiable expenses
incurred in connection with consultation of experts.
OTHER INVESTMENT POLICIES AND RESTRICTIONS
The Portfolios are subject to other investment policies and restrictions
which are described in the Statement of Additional Information, some of which
are fundamental policies of the Portfolios and as such may not be changed
without the approval of the shareholders of the Portfolios.
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
Portfolios may engage frequently in short-term trading. High turnover and
short-term trading involve correspondingly greater commission expenses and
transaction costs for the Portfolios. The Sub-Adviser is unable to predict
precisely the future turnover rate of the Portfolios. However, the annual
portfolio turnover rate for the
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C.A.S.E. Quality Growth Portfolio is expected to range between 75% and 100%;
the annual portfolio turnover rate for the C.A.S.E. Growth & Income Portfolio
is expected to range between 75% and 100%; and the annual portfolio turnover
rate for the C.A.S.E. Growth Portfolio is expected to range between 150% and
200% annually. Turnover rates may vary based on market volatility and
economic conditions. The rate of portfolio turnover will not be a limiting
factor when changes in a Portfolio's holdings are deemed appropriate by the
Sub-Adviser. See "Portfolio Transactions and Brokerage" in the SAI.
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
Management as Investment Adviser and C.A.S.E. 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 Management 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 Management, located at 201 Highland Avenue, Largo, Florida 33770-2597,
serves as the Fund's Investment Adviser. The Investment Adviser is a
direct, wholly-owned subsidiary of WRL, which is wholly-owned by First AUSA
Life Insurance Company, 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 January 1, 1997. Prior to this date, WRL served as investment
adviser to each Portfolio.
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 0.80% of the average
daily net assets of each of the Portfolios.
The Investment Adviser is responsible for furnishing 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; 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 each investment portfolio of
the Portfolios, the investment recommendations of the Investment Adviser, and
the investment considerations which have given rise to those recommendations;
to supervise the purchase and sale of securities of the Portfolios as
directed by the appropriate officers of the Fund; and to maintain all books
and records required to be maintained by the Investment Adviser pursuant to
the 1940 Act and the rules and regulations promulgated thereunder with
respect to transactions on behalf of the Fund.
The Investment Adviser has voluntarily undertaken, until at least April
30, 1997, to pay expenses on behalf of the C.A.S.E. Growth 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%. For the fiscal year ended December 31, 1995, the actual expenses as a
percentage of average daily net assets for the C.A.S.E. Growth Portfolio were
4.15%.
For the period ended December 31, 1995, the previous Investment Adviser
(WRL) paid expenses on behalf of the C.A.S.E. Quality Growth Portfolio in the
amount of $23,966, the C.A.S.E. Growth &
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Income Portfolio in the amount of $23,049 and the C.A.S.E. Growth Portfolio
in the amount of $23,832. Effective May 1, 1996, the Investment Adviser has
voluntarily undertaken, until at least April 30, 1997, to pay expenses on
behalf of the C.A.S.E. Quality Growth Portfolio and C.A.S.E. Growth and
Income Portfolio to the extent that the normal operating expenses (including
investment advisory fees but excluding interest, taxes, brokerage fees,
commissions and extraordinary charges) exceed, as a percentage of each
Portfolio's average daily net assets, 1.50%. In the absence of the fee waiver
and expense reimbursement during 1995, the expenses of the C.A.S.E. Quality
Growth Portfolio and C.A.S.E. Growth Income Portfolio would have equaled
5.91% and 6.17%, respectively, of the Portfolios' net assets on an annualized
basis. The Investment Adviser is not obligated to continue any voluntary
expense limitation beyond April 30, 1997.
DISTRIBUTION PLAN AND DISTRIBUTION AGREEMENT
Effective January 1, 1997, the Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant
to the Plan, has entered into a Distribution Agreement with InterSecurities,
Inc. ("ISI"), whose principal office is located at 201 Highland Avenue,
Largo, Florida 33770. ISI is an affiliate of the Investment Adviser, and
serves as principal underwriter for the Fund.
The expenses the Fund may pay pursuant to the Distribution Plan shall
include, but are not necessarily limited to, the following: cost of printing
and mailing Fund prospectuses and statements of additional information, and
any supplements thereto to prospective investors; costs relating to
development and preparation of Fund advertisements, sales literature and
brokers' and other promotional materials describing and/or relating to the
Fund; expenses in connection with presentation of seminars and sales meetings
describing the Fund; development of consumer-oriented sales materials
describing the Fund; and expenses attributable to "distribution-related
services" provided to the Fund (e.g., salaries and benefits, office expenses,
equipment expenses (i.e., computers, software, office equipment, etc.),
training expenses, travel costs, printing costs, supply expenses, programming
time and data center expenses, each as they relate to the promotion of the
sale of Fund shares).
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing such
Portfolio's shares, up to a maximum rate of 0.15% on an annualized basis of
the average daily net assets. This fee is measured and accrued daily and paid
monthly.
ISI will submit to the Fund's Board for approval annual distribution
expenses with respect to each Portfolio. ISI allocates to each Portfolio
distribution expenses specifically attributable to the distribution of shares
of such Portfolio. Distribution expenses not specifically attributable to the
distribution of shares of a particular Portfolio are allocated among the
Portfolios, based upon the ratio of net asset value of each Portfolio to the
net asset value of all Portfolios, or such other factors as ISI deems fair
and are approved by the Fund's Board.
ISI has determined it will not seek payment by the Fund of distribution
expenses with respect to any Portfolio during the fiscal year ending Decmeber
31, 1997. Prior to ISI seeking reimbursement, Policy owners will be notified in
advance.
ADMINISTRATIVE AND TRANSFER AGENCY SERVICES
Effective January 1, 1997, the Fund has entered into an Administrative
Services and Transfer Agency Agreement with WRL Investment Services, Inc.
("WRL Services"), an affiliate of WRL Management and WRL, to furnish the Fund
with administrative services to assist the Fund in carrying out certain of
its functions and operations. Under this Agreement, WRL Services shall
furnish to each Portfolio, subject to the overall supervision of the Board,
supervisory, administrative, and transfer agency services, including
recordkeeping and reporting. WRL Services is reimbursed by the Fund monthly
on a cost incurred basis. Prior to January 1, 1997, WRL performed these
services in connection with its serving as the Fund's investment adviser.
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THE SUB-ADVISER
C.A.S.E. Management, Inc., located at 2255 Glades Road, Suite 221-A, Boca
Raton, Florida 33431, serves as the Sub-Adviser to the Portfolios. C.A.S.E.
Management, Inc. is a registered investment advisory firm and a wholly-owned
subsidiary of C.A.S.E. Inc. C.A.S.E. Inc. is indirectly controlled by William
Edward Lange, president and chief executive officer of the Sub-Adviser. The
Sub-Adviser provides investment management services to financial
institutions, high net worth individuals, and other professional money
managers. The Sub-Adviser has not previously managed a registered investment
company.
Informally, the Sub-Adviser's Board members confer on a continuous basis,
gathering economic sector, industry and stock specific information from the
Sub-Adviser's research and management resources. Each of the Sub-Adviser's
Board members are individually responsible for the analytical coverage of one
or two of the market's eight economic sectors. The Sub-Adviser's "sector
specialists" are encouraged to maintain contact with counterpart sector
specialists from leading outside research organizations. The information
gathered for consideration by the Board's sector specialists also includes
objective forms of research from various governmental agencies, stock
exchanges and financial capitols. Formally, the Sub-Adviser's Board meets
monthly to formulate overall strategic investment positions. The Board then
formally reviews its current investment focus towards every stock, industry,
and economic sector owned in its overall stock population. When stocks are
sold or removed from the Sub-Adviser's overall population, it is generally
because their investment characteristics have deteriorated to a point deemed
to be unfavorable by the sector specialist or the full membership of the
Board. Stocks which appear to have above-market characteristics may also be
added to the Sub-Adviser's overall population, and to a Portfolio (if
otherwise consistent with the Portfolio's investment objective and
restrictions) by the sector specialist or the collective vote of the
Sub-Adviser's Board members, anytime during the month, or during the
Sub-Adviser's formal month-end Board meeting.
The Sub-Adviser provides investment advisory assistance and portfolio
management advice to the Investment Adviser for each 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
Portfolios 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
Portfolios. 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 Portfolios.
The Sub-Adviser's investment philosophies reflect fundamental research,
both qualitative and quantitative. It utilizes industry analysts, direct
field investigations, and market relative comparative measures in evaluating
prospective and current investments of the Portfolios. These comparative
measures include, but are not limited to, insider ownership and changes
thereto, institutional ownership and changes thereto, earnings projections
and predictability, return on equity, price/earnings ratios during various
measuring periods, and price to book value. Investment selections are also
influenced by the cyclical aspects of the economy, monetary flows, policies
of the Federal Reserve, and the Sub-Adviser's proprietary comparative
analysis methods. The Sub-Adviser conducts a detailed review of each
Portfolio's investments on a monthly basis, based on comparative and other
research categories. The scope of its research is obtained from governmental
agencies, analyst driven research departments and stock exchanges.
In undertaking its research and conducting its analysis of current and
potential investments for the Portfolios, the Sub-Adviser utilizes complex
proprietary computer-based programs developed by the Sub-Adviser's parent,
C.A.S.E., Inc. These programs are available to the Sub-Adviser by license
from its parent. The Sub-Adviser believes that time and cost efficiencies
associated with these programs permit it to maintain current information on
over 4,000 stocks listed on the major North American exchanges in fifty-seven
industries and eight economic sectors and to evaluate this information on a
market comparative basis using over 30 different strategic and econometric
models.
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For its services, the Sub-Adviser receives monthly compensation from the
Investment Adviser at the annual rate of 0.40% of the average daily net
assets of the Portfolios.
The Sub-Adviser is also responsible for selecting the broker-dealers who
execute the portfolio transactions for the Portfolios. The Sub-Adviser is
authorized to consider sales of the 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 ("Ethics Policy") that has been
adopted by the Board of Directors of the Fund. Access Persons are required to
follow the guidelines established by this Ethics Policy in connection with
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 Codes of Ethics and Insider Trading Policies
appropriate to their operations. Each Sub-Adviser is required to 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 DISTRIBUTIONS
The Portfolios intend to distribute substantially all of the net
investment income, if any. Dividends from investment income, if any, of the
Portfolios 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 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, 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 each Portfolio's
intention to distribute all such income and gains.
Shares of each Portfolio are offered only to the Separate Account (which
is an insurance company separate account that funds the 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 contracts. For a discussion of the taxation of life
insurance companies and the Separate Account, as well as the tax treatment of
the Contracts and the Contract Owners thereof, see "Federal Tax Matters"
included in the respective prospectuses for the 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
each 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 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 the Portfolio's total assets may be
represented by any one
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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 a Portfolio to satisfy the section 817(h) requirements
would result in taxation of the Separate Account, WRL, the Contracts, and tax
consequences to the Contract Owners thereof, other than as described in the
prospectus for the Contracts.
The foregoing is only a summary of some of the important Federal income
tax considerations generally affecting a Portfolio and its shareholders; see
the SAI for a more detailed discussion. Prospective investors are urged to
consult their tax advisors.
PURCHASE AND REDEMPTION OF SHARES
Shares of a 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 Contracts. Such charges are described in the respective
prospectuses for the Contracts.
VALUATION OF SHARES
A 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 a Portfolio share is computed by dividing the value of
the net assets of each Portfolio by the total number of shares outstanding in
each Portfolio.
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 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. (See the Statement of Additional
Information for details.)
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 shares of the Portfolios for purchase by the Separate
Account to fund benefits under the Contracts. The Fund also offers shares of
other Fund portfolios, not available under the Contracts, for purchase by
other insurance company separate accounts (the "Other Separate Accounts") of
Western Reserve Life Assurance Company of Ohio ("WRL"), PFL Life Insurance
Company ("PFL"), and AUSA Life Assurance Company, Inc. ("AUSA"), (WRL, PFL
and AUSA together, the "Life Companies"), to fund the benefits under certain
variable life insurance policies and variable annuity contracts (the policies
and contracts together, the "Policies"). The Life Companies are affiliates.
Because shares of all portfolios of the Fund are sold to these various
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 such 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
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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 shares of the Portfolios by the Separate Account or of shares of other
Fund portfolios by one or more of the Other 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 will be
entitled to vote on matters concerning only that portfolio. Each issued and
outstanding share of a Portfolio is entitled to one vote and to participate
equally in dividends and distributions declared by that Portfolio and, upon
liquidation or dissolution, to participate equally in the net assets of such
Portfolio remaining after satisfaction of outstanding liabilities. The shares
of each 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 Account and the Other Separate Accounts of the Life
Companies may hold shares of portfolios of the Fund and are entitled to
exercise the rights directly as described above. If and to the extent
required by law, WRL will vote the Portfolios' shares, and the Life Companies
will vote the shares of the Fund's other portfolios in the Other Separate
Accounts, including shares which are not attributable to Contract Owners and
holders of the Policies, respectively, at meetings of the Fund in accordance
with instructions received from Contract Owners and holders of the Policies,
respectively, having voting interests in the corresponding sub-accounts of
the Separate Account and the Other 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 Contract Owners and holders of the Policies
are described in more detail in the prospectuses or disclosure document for
the Contract and the Policies, respectively.
PERFORMANCE INFORMATION
The Fund may, from time to time, include quotations of a Portfolio's total
return or yield in connection with the total return for the corresponding
sub-account of the Separate Account in advertisements, sales literature or
reports to Contract Owners or to prospective investors. Total return and
yield quotations for a Portfolio 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 Account or charges and deductions
against the Contracts. Where relevant, the prospectus for the Contracts
contains additional performance information.
The total return of a 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 a
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 a Portfolio are expressed as average
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annual compound rates of return for each of the periods quoted, reflect the
deduction of a proportionate share of a 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 Fund may, from time to time, disclose in advertisements, sales
literature and reports to Contract Owners or to prospective investors, total
returns for a 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 Fund may also, from time to time, compare performance information for
a Portfolio in advertisements, sales literature and reports to Contract
Owners 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 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.
(See the SAI for more information about the Portfolios' performance.)
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The fiscal year of the Portfolios ends on December 31 of each year. The
Fund will send to the Portfolios' Contract Owners, at least semi-annually,
reports showing the Portfolios' compositions and other information. An annual
report, containing financial statements audited by the Fund's independent
accountants, will be sent to Contract Owners 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 Portfolios'
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.
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WRL SERIES FUND, INC.
C.A.S.E. QUALITY GROWTH PORTFOLIO
C.A.S.E. GROWTH & INCOME PORTFOLIO
C.A.S.E. GROWTH PORTFOLIO
OFFICE OF THE FUND:
WRL Series Fund, Inc.
201 Highland Avenue
Largo, Florida 33770
(800) 851-9777
(813) 585-6565
INVESTMENT ADVISER:
WRL Investment Management, Inc.
201 Highland Avenue
Largo, FL 33770
SUB-ADVISER:
C.A.S.E. Management, Inc.
2255 Glades Road
Suite 221-A
Boca Raton, FL 33431
CUSTODIAN:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
INDEPENDENT ACCOUNTANTS:
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
TRANSFER AGENT:
WRL Investment Services, Inc.
201 Highland Avenue
Largo, FL 33770
DISTRIBUTOR:
InterSecurities, Inc.
201 Highland Avenue
Largo, FL 33770
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.
WRL00069-01/97
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