As filed with the Securities and Exchange Commission on June 30, 1997
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. 29 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 30 [X]
(Check appropriate box or boxes.)
WRL SERIES FUND, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
201 HIGHLAND AVENUE, LARGO, FLORIDA 33770-2597
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (813) 585-6565
THOMAS E. PIERPAN 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):
[X] 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) of Rule 485
on DATE, pursuant to paragraph (a) of Rule 485
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 filed a Rule 24f-2 Notice on February 21, 1997, for the fiscal year ended
December 31, 1996.
<PAGE>
WRL SERIES FUND, INC.
International Equity Portfolio
U.S. Equity Portolio
Cross Reference Sheet
FORM N-1A LOCATION IN
ITEM NUMBER PROSPECTUS
- ----------- -----------
PART A.
- -------
Item 1. Cover Page .................................Cover Page
Item 2. Synopsis ...................................Not Applicable
Item 3. Financial Highlights........................Supplement to Prospectus
Item 4. General Description of Registrant ..........Other Information - The
Fund and its Shares
Item 5. Management of the Fund .....................Management of the Fund
Item 6. Capital Stock and other Securities..........Other Information - The
Fund and its Shares
Item 7. Purchase of Securities Being Offered .......Other Information -
Purchase and Redemption of
Shares; Valuation of
Shares
Item 8. Redemption or Repurchase ...................Other Information -
Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings ..................Not Applicable
PART B. LOCATION IN STATEMENT
- ------ OF ADDITIONAL INFORMATION
-------------------------
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 Objectives and Policies .........Investment Objectives and
Policies
(i)
<PAGE>
WRL SERIES FUND, INC.
International Equity Portfolio
U.S. Equity Portfolio
Cross Reference Sheet (Continued)
LOCATION IN
STATEMENT OF
FORM N-1A ADDITIONAL
ITEM NUMBER INFORMATION
- ----------- ------------
Item 14. Management of the Registrant ...............Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities..................Purchase and Redemption
of Shares
Item 16. Investment Advisory and Other
Services..................................Management of the Fund
Item 17. Brokerage Allocation and
Other Practices ........................Portfolio Transactions
and Brokerage
Item 18. Capital Stock and Other Securities .........Not Applicable
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered .................Purchase and Redemption
of Shares
Item 20. Tax Status .................................Taxes
Item 21. Underwriter ................................Management of the Fund -
The Investment Adviser -
Distribution Agreement
Item 22. Calculations of Performance Data ...........Calculation of Performance
Related Information
Item 23. Financial Statements .......................Financial Statements
(ii)
<PAGE>
PROSPECTUS
WRL SERIES FUND, INC.
201 Highland Avenue
Largo, Florida 33770-2597
Telephone: (800) 851-9777
(813) 585-6565
WRL Series Fund, Inc. (the "Fund") is a diversified, open-end management
investment company consisting of twenty-one separate series or investment
portfolios. The Fund is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). This Prospectus pertains to sixteen of the Portfolios
of the Fund: Aggressive Growth Portfolio, Emerging Growth Portfolio,
International Equity Portfolio, Global Portfolio, Growth Portfolio, C.A.S.E.
Growth Portfolio, U.S. Equity Portfolio, Value Equity Portfolio, Global Sector
Portfolio, Tactical Asset Allocation Portfolio, Strategic Total Return
(formerly named Equity-Income) Portfolio, Growth & Income (formerly named
Utility) Portfolio, Balanced Portfolio, Bond Portfolio, Short-to-Intermediate
Government Portfolio and Money Market Portfolio (the "Portfolios"). For a brief
description of these Portfolios, see "Portfolios At A Glance" on page 10.
Shares of the Fund's Portfolios are currently sold only to 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 flexible premium 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 (the "SEC"), 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. 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.
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 and the Portfolios has been filed with
the SEC and is available upon request without charge by calling or writing the
Fund. The Statement of Additional Information (the "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.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUS OR DISCLOSURE
DOCUMENT FOR THE APPLICABLE VARIABLE ANNUITY CONTRACT OR FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY. ALL PROSPECTUSES SHOULD BE READ AND RETAINED
FOR FUTURE REFERENCE.
AN INVESTMENT IN THE MONEY MARKET 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.
Prospectus Dated May 1, 1997, as revised June 30, 1997
<PAGE>
WRL SERIES FUND, INC.
201 Highland Avenue
Largo, Florida 33770-2597
Telephone (813) 585-6565
(800) 851-9777
FINANCIAL HIGHLIGHTS .................................... 1
PORTFOLIOS AT A GLANCE ................................. 10
PERFORMANCE INFORMATION ................................. 12
THE PORTFOLIOS IN DETAIL ................................. 15
MANAGEMENT OF THE FUND ................................. 41
OTHER INFORMATION ....................................... 51
DISTRIBUTIONS AND TAXES ................................. 53
APPENDIX A - Brief Explanation of Rating Categories ...... A-1
i
<PAGE>
FINANCIAL HIGHLIGHTS
The information in the tables below, except as noted below, is taken from each
Portfolio's audited financial statements, which have been incorporated by
reference into the SAI. The tables provide information for one share of capital
stock outstanding during the respective Portfolio's fiscal periods ended on
December 31 of each year using average shares outstanding throughout each year.
The information for the International Equity Portfolio and the US Equity
Portfolio is taken from the Portfolios' unaudited financial statements for the
period January 2, 1997 (commencement of operations) through April 30, 1997. 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; including these
charges would reduce total return figures for all periods shown. The Fund Annual
Report contains additional performance information for each Portfolio. A copy of
the Annual Report and SAI may be obtained without charge upon request.
GROWTH PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period ........................... $ 31.66 $ 23.81 $ 26.25 $ 25.83
Income from operations:
Net investment income (loss) .34 .26 .22 .28
Net realized and unrealized
gain (loss) on investments . 5.35 10.97 (2.41) .79
---------- ---------- ---------- --------
Total Income (loss) from
operations .................. 5.69 11.23 (2.19) 1.07
---------- ---------- ---------- --------
Distributions:
Dividends from net investment
income ........................... (.35) (.24) (.22) (.28)
Dividends in excess of net
investment income ............... (.01) .00 .00 .00
Distributions from net realized
gains on investments ............ (1.99) (3.14) .00 (.37)
Distributions in excess
of net realized gains on
investments ..................... .00 .00 (.03) .00
---------- ---------- ---------- --------
Total distributions ............ (2.35) (3.38) (.25) (.65)
---------- ---------- ---------- --------
Net asset value, end of period ... $ 35.00 $ 31.66 $ 23.81 $ 26.25
========== ========== ========== ========
Total return (a) .................. 17.96% 47.12% (8.31%) 3.97%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ............... $1,527,409 $1,195,174 814,383 $934,810
Ratio of expenses to average
net assets (b) ............... .88% .86% .84% .87%
Ratio of net investment
income (loss) to average
net assets (b) ............... .98% .90% .88% 1.07%
Ratio of commissions paid to
number of shares ............... 4.93% N/A N/A N/A
Portfolio turnover rate (a) ... 45.21% 130.48% 107.33% 77.91%
<CAPTION>
1992 1991 1990 1989 1988 1987
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ........................... $ 26.26 $ 17.48 $ 17.85 $ 12.97 $ 11.14 $ 10.14
Income from operations:
Net investment income (loss) .36 .27 .30 .19 .31 .21
Net realized and unrealized
gain (loss) on investments . .52 10.75 (.33) 6.29 1.83 1.00
-------- -------- ---------- -------- -------- --------
Total Income (loss) from
operations .................. .88 11.02 (.03) 6.48 2.14 1.21
-------- -------- ---------- -------- -------- --------
Distributions:
Dividends from net investment
income ........................... (.36) (.27) (.30) (.19) (.31) (.21)
Dividends in excess of net
investment income ............... .00 .00 .00 .00 .00 .00
Distributions from net realized
gains on investments ............ (.95) (1.97) (.04) (1.41) .00 .00
Distributions in excess
of net realized gains on
investments ..................... .00 .00 .00 .00 .00 .00
-------- -------- ---------- -------- -------- --------
Total distributions ............ (1.31) (2.24) (.34) (1.60) (.31) (.21)
-------- -------- ---------- -------- -------- --------
Net asset value, end of period ... $ 25.83 $ 26.26 $ 17.48 $ 17.85 $ 12.97 $ 11.14
======== ======== ========== ======== ======== ========
Total return (a) .................. 2.35% 59.79% (.22%) 47.04% 18.62% 10.90%
Ratios and supplemental data:
Net assets at end of period
(in thousands) ............... $711,422 $393,511 $129,057 $ 74,680 $ 28,497 $ 15,815
Ratio of expenses to average
net assets (b) ............... .86% .90% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment
income (loss) to average
net assets (b) ............... 1.44% 1.21% 2.06% 1.18% 2.50% 1.84%
Ratio of commissions paid to
number of shares ............... N/A N/A N/A N/A N/A N/A
Portfolio turnover rate (a) ... 77.70% 7.27% 157.01% 123.80% 76.27% 222.13%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
1
<PAGE>
BOND PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.35 $ 9.80 $ 11.24 $ 11.18
Income from operations:
Net investment income (loss) ...... 0.64 .69 .63 .72
Net realized and unrealized gain
(loss) on on investments ......... (0.64) 1.55 (1.44) .95
-------- ------- ---------- --------
Total income (loss) from
operations ..................... .00 2.24 (.81) 1.67
-------- ------- ---------- --------
Distributions:
Dividends from net investment
income ........................... (.64) (.69) (.63) (.72)
Dividends in excess of net
investment income .................. .00 .00 .00 .00
Distributions from net realized
gains on investments ............... .00 .00 .00 (.89)
Distributions in excess of net
realized gains on investments ...... .00 .00 .00 .00
-------- ------- ---------- --------
Total distributions ............ (.64) (.69) (.63) (1.61)
-------- ------- ---------- --------
Net asset value, end of period ...... $ 10.71 $ 11.35 $ 9.80 $ 11.24
======== ======= ========== ========
Total return (a) .................. 0.14% 22.99% (6.94%) 13.38%
Ratios and supplemental Data:
Net assets end of period
(in thousands) .................. $ 95,759 $96,972 $ 71,064 $ 90,715
Ratio of expenses to average
net assets (b) .................. .64% .61% .59% .64%
Ratio of net investment income
(loss) to average net assets (b). 5.96% 6.45% 5.94% 5.94%
Ratio of commissions paid to
number of shares .................. N/A N/A N/A N/A
Portfolio turnover rate (a) ...... 187.72% 120.54% 131.73% 149.02%
<CAPTION>
1992 1991 1990 1989 1988 1987
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.18 $ 9.91 $ 10.07 $ 9.29 $ 9.22 $ 10.28
Income from operations:
Net investment income (loss) ...... .75 .86 .79 .75 .90 .25
Net realized and unrealized gain
(loss) on on investments ......... .32 1.30 (.16) .78 .07 (.89)
-------- ------- -------- ------- ------- ----------
Total income (loss) from
operations ..................... 1.07 2.16 .63 1.53 .97 (.64)
-------- ------- -------- ------- ------- ----------
Distributions:
Dividends from net investment
income ........................... (.75) (.86) (.79) (.75) (.90) (.38)
Dividends in excess of net
investment income .................. .00 .00 .00 .00 .00 .00
Distributions from net realized
gains on investments ............... (.32) (.03) .00 .00 .00 (.04)
Distributions in excess of net
realized gains on investments ...... .00 .00 .00 .00 .00 .00
-------- ------- -------- ------- ------- ----------
Total distributions ............ (1.07) (.89) (.79) (.75) (.90) (.42)
-------- ------- -------- ------- ------- ----------
Net asset value, end of period ...... $ 11.18 $ 11.18 $ 9.91 $ 10.07 $ 9.29 $ 9.22
======== ======= ======== ======= ======= ==========
Total return (a) .................. 6.79% 18.85% 6.21% 14.65% 7.73% (5.66%)
Ratios and supplemental Data:
Net assets end of period
(in thousands) .................. $ 56,820 $22,291 $ 10,143 $ 7,025 $ 3,372 $ 1,400
Ratio of expenses to average
net assets (b) .................. .70% .70% .69% .70% .70% .86%
Ratio of net investment income
(loss) to average net assets (b). 6.49% 8.02% 8.82% 8.60% 8.96% 7.17%
Ratio of commissions paid to
number of shares .................. N/A N/A N/A N/A N/A N/A
Portfolio turnover rate (a) ...... 80.73% 33.47% 18.09% 23.26% 21.54% 134.76%
</TABLE>
GLOBAL PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992 (c)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 15.52 $ 13.12 $ 13.62 $ 10.16 $ 10.00
Income from operations:
Net investment income (loss) ........................ 0.08 .10 .10 .04 (.02)
Net realized and unrealized gain
(loss) on investments .............................. 4.20 2.91 .10 3.72 .18
-------- -------- -------- -------- ----------
Total income (loss) from operations ............... 4.28 3.01 .20 3.76 .16
-------- -------- -------- -------- ----------
Distributions:
Dividends from net investment income ............... (0.04) .00 (.10) (.04) .00
Dividends in excess of net investment
income ............................................. (.17) .00 (.01) .00 .00
Distributions from net realized gains
on investments ....................................... (1.47) (.61) (.56) (.26) .00
Distributions in excess of net realized
gains on investments .............................. .00 (.00) (.03) .00 .00
-------- -------- -------- -------- ----------
Total distributions .............................. (1.68) (.61) (.70) (.30) .00
-------- -------- -------- -------- ----------
Net asset value, end of period ........................ $ 18.12 $ 15.52 $ 13.12 $ 13.62 $ 10.16
======== ======== ======== ======== ==========
Total return (a) .................................... 27.74% 23.06% .25% 35.05% 1.62%
Ratios and supplemental data:
Net assets at end of period (in thousands) ......... $534,820 $289,506 $261,778 $ 99,094 $ 508
Ratio of expenses to average net assets (b) ......... .99% .99% 1.01% 1.09% 2.48%
Ratio of net investment income (loss)
to average net assets (b) ........................ .46% .75% .73% .30% (2.23%)
Ratio of commissions paid to number of shares ...... 1.54% N/A N/A N/A N/A
Portfolio turnover rate (a) ........................ 88.31% 130.60% 192.06% 79.93% .00%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
2
<PAGE>
MONEY MARKET PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from operations:
Net investment income (loss) ............ .05 .05 .04 .02
Net realized and unrealized gain (loss)
on investments ........................... .00 .00 .00 .00
-------- ------- ------- -------
Total income (loss) from operations ...... .05 .05 .04 .02
-------- ------- ------- -------
Distributions:
Dividends from net investment income ...... (.05) (.05) (.04) (.02)
Dividends from net realized gains on
investments .............................. .00 .00 .00 .00
Distributions from net realized gains on
investments .............................. .00 .00 .00 .00
-------- ------- ------- -------
Distributions in excess of net realized
gains on investments ..................... .00 .00 .00 .00
Total distributions .................. (.05) (.05) (.04) (.02)
-------- ------- ------- -------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= =======
Total return (a) ........................... 5.03% 5.40% 3.44% 2.45%
Ratios and supplemental data:
Net assets at end of period (in thousands) $122,114 $80,544 $93,081 $45,782
Ratio of expenses to average net assets
(b) .................................... .52% .56% .60% .66%
Ratio of net investment income (loss) to
average net assets (b) .................. 5.03% 5.30% 3.59% 2.41%
Ratio of commissions paid to number of
shares ................................. N/A N/A N/A N/A
Portfolio turnover rate (a) ............ N/A N/A N/A N/A
<CAPTION>
1992 1991 1990 1989 1988 1987
-------------- ----------- ----------- ----------- ----------- -----------
<S> <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 operations:
Net investment income (loss) ............ .03 .05 .07 .07 .05 .04
Net realized and unrealized gain (loss)
on investments ........................... .00 .00 .00 .00 .00 .00
------- ------- ------- ------- ------- -------
Total income (loss) from operations ...... .03 .05 .07 .07 .05 .04
------- ------- ------- ------- ------- -------
Distributions:
Dividends from net investment income ...... (.03) (.05) (.07) (.07) (.05) (.04)
Dividends from net realized gains on
investments .............................. .00 .00 .00 .00 .00 .00
Distributions from net realized gains on
investments .............................. .00 .00 .00 .00 .00 .00
------- ------- ------- ------- ------- -------
Distributions in excess of net realized
gains on investments ..................... .00 .00 .00 .00 .00 .00
Total distributions .................. .(03) (.05) (.07) (.07) (.05) (.04)
------- ------- ------- ------- ------- -------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return (a) ........................... 3.03% 5.25% 7.09% 8.09% 5.77% 4.56%
Ratios and supplemental data:
Net assets at end of period (in thousands) $45,600 $33,695 $24,931 $ 6,233 $ 5,114 $ 582
Ratio of expenses to average net assets
(b) .................................... .70% .70% .66% .70% .70% .89%
Ratio of net investment income (loss) to
average net assets (b) .................. 2.99% 5.07% 7.09% 7.82% 6.26% 4.83%
Ratio of commissions paid to number of
shares ................................. N/A N/A N/A N/A N/A N/A
Portfolio turnover rate (a) ............ N/A N/A N/A N/A N/A N/A
</TABLE>
SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net asset value, beginning of period ................................. $ 10.42 $ 9.72
Income from operations:
Net investment income (loss) ....................................... .56 .60
Net realized and unrealized gain (loss) on investments ............ (.21) .70
-------- -------
Total income (loss) from operations .............................. .35 1.30
-------- -------
Distributions:
Dividends from net investment income ................................. (.53) (.60)
Dividends from net realized gains on investments ..................... .00 .00
Distributions from net realized gains on investments .................. .00 .00
-------- -------
Distributions in excess of net realized gains on investments ......... .00 .00
Total distributions ................................................ (.53) (.60)
-------- -------
Net asset value, end of period ....................................... $ 10.24 $ 10.42
======== =======
Total return (a) ...................................................... 3.48% 13.54%
Ratios and supplemental data:
Net assets end of period (in thousands) .............................. $ 26,098 $23,588
Ratio of expenses to average net assets (b) ........................ .76% .78%
Ratio of net investment income (loss) to average net assets (b) ...... 5.43% 5.84%
Ratio of commissions paid to number of shares ........................ N/A N/A
Portfolio turnover rate (a) .......................................... 58.15% 51.82%
<CAPTION>
1994 1993 1992 (c)
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................. $ 10.30 $ 10.02 $ 10.00
Income from operations:
Net investment income (loss) ....................................... .50 .36 .02
Net realized and unrealized gain (loss) on investments ............ (.58) .29 .02
---------- -------- --------
Total income (loss) from operations .............................. (.08) .65 .04
---------- -------- --------
Distributions:
Dividends from net investment income ................................. (.50) (.35) (.02)
Dividends from net realized gains on investments ..................... .00 .00 .00
Distributions from net realized gains on investments .................. .00 (.02) .00
---------- -------- --------
Distributions in excess of net realized gains on investments ......... .00 .00 .00
Total distributions ................................................ (.50) (.37) (.02)
---------- -------- --------
Net asset value, end of period ....................................... $ 9.72 $ 10.30 $ 10.02
========== ======== ========
Total return (a) ...................................................... (.43%) 4.58% .45%
Ratios and supplemental data:
Net assets end of period (in thousands) .............................. $ 20,356 $ 24,864 $ 2,509
Ratio of expenses to average net assets (b) ........................ 0.81% 1.00% 1.00%
Ratio of net investment income (loss) to average net assets (b) ...... 4.95% 3.44% 3.24%
Ratio of commissions paid to number of shares ........................ N/A N/A N/A
Portfolio turnover rate (a) .......................................... 93.70% 28.64% .00%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
3
<PAGE>
BALANCED PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994 (e)
------------ ----------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................. $ 10.63 $ 9.24 $ 10.00
Income from operations:
Net investment income (loss) ....................................... .34 .44 .34
Net realized and unrealized gain (loss) on investments ............ .80 1.38 (.76)
-------- ------- ----------
Total income (loss) from operations .............................. 1.14 1.82 (.42)
-------- ------- ----------
Distributions:
Dividends from net investment income .............................. (.28) (.43) (.34)
Dividends in excess of net investment income ........................ .00 .00 .00
Distributions from net realized gains on investments ............... (.10) .00 .00
Distributions in excess of net realized gains on investments ......... .00 .00 .00
-------- ------- ----------
Total distributions ................................................ (.38) (.43) (.34)
-------- ------- ----------
Net asset value, end of period ....................................... $ 11.39 $ 10.63 $ 9.24
======== ======= ==========
Total return (a) ...................................................... 10.72% 19.80% (5.73%)
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $ 49,331 $31,114 $ 19,422
Ratio of expenses to average net assets (b) ........................... .97% .97% 1.00%
Ratio of net investment income (loss) to average net assets (b) ...... 3.14% 4.38% 4.27%
Ratio of commissions paid to number of shares ........................ .24% N/A N/A
Portfolio turnover rate (a) .......................................... 76.90% 98.55% 57.73%
</TABLE>
EMERGING GROWTH PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 (d)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................................. $ 16.25 $ 11.55 $ 12.47 $ 10.00
Income from operations:
Net investment income (loss) ....................................... (.04) .01 .01 (.04)
Net realized and unrealized gain (loss) on investments ............ 3.10 5.42 (.92) 2.51
---------- -------- ---------- ----------
Total income (loss) from operations .............................. 3.06 5.43 (.91) 2.47
---------- -------- ---------- ----------
Distributions:
Dividends from net investment income .............................. .00 .00 (.01) .00
Dividends in excess of net investment income ........................ .00 .00 .00 .00
Distributions from net realized gains on investments ............... (.85) (.73) .00 .00
Distributions in excess of net realized gains on investments ......... .00 .00 .00 .00
---------- -------- ---------- ----------
Total distributions ................................................ (.85) (.73) (.01) .00
---------- -------- ---------- ----------
Net asset value, end of period ....................................... $ 18.46 $ 16.25 $ 11.55 $ 12.47
========== ======== ========== ==========
Total return (a) ...................................................... 18.88% 46.79% (7.36%) 24.71%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................... $431,454 $288,519 $182,650 $102,472
Ratio of expenses to average net assets (b) ........................ .94% .91% .92% 1.00%
Ratio of net investment income (loss) to average net assets (b) ...... (.24%) .03% .06% (.30%)
Ratio of commissions paid to number of shares ........................ 5.65% N/A N/A N/A
Portfolio turnover rate (a) .......................................... 80.02% 124.13% 72.62% 12.79%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
4
<PAGE>
STRATEGIC TOTAL RETURN PORTFOLIO* (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 (d)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................................. $ 12.86 $ 10.90 $ 11.23 $ 10.00
Income from operations:
Net investment income (loss) ....................................... .37 .37 .31 .19
Net realized and unrealized gain (loss) on investments ............ 1.56 2.33 (.33) 1.33
-------- -------- ---------- --------
Total income (loss) from operations .............................. 1.93 2.70 (.02) 1.52
-------- -------- ---------- --------
Distributions:
Dividends from net investment income .............................. (.32) (.37) (.31) (.19)
Dividends in excess of net investment income ........................ .00 .00 .00 .00
Distributions from net realized gains on investments ............... (.50) (.37) .00 (.10)
Distributions in excess of net realized gains on investments ......... .00 .00 .00 .00
-------- -------- ---------- --------
Total distributions ................................................ (.82) (.74) (.31) (.29)
-------- -------- ---------- --------
Net asset value, end of period ....................................... $ 13.97 $ 12.86 $ 10.90 $ 11.23
======== ======== ========== ========
Total return (a) ...................................................... 15.00% 24.66% (.53%) 13.49%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $390,141 $256,806 $183,867 $ 90,560
Ratio of expenses to average net assets (b) ........................ .91% .87% .89% 1.00%
Ratio of net investment income (loss) to average net assets (b) ... 2.72% 3.07% 2.78% 1.70%
Ratio of commissions paid to number of shares ..................... 5.82% N/A N/A N/A
Portfolio turnover rate (a) .......................................... 49.32% 52.59% 53.50% 27.41%
</TABLE>
AGGRESSIVE GROWTH PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 (e)
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................. $ 13.25 $ 9.86 $ 10.00
Income from operations:
Net investment income (loss) ....................................... (.01) (.06) .02
Net realized and unrealized gain (loss) on investments ............ 1.38 3.96 (.14)
---------- ---------- ----------
Total income (loss) from operations .............................. 1.37 3.90 (.12)
---------- ---------- ----------
Distributions:
Dividends from net investment income .............................. .00 .00 (.02)
Dividends in excess of net investment income ........................ (.19) .00 .00
Distributions from net gains on investments ........................ (.25) (.51) .00
Distributions in excess of net realized gains on investments .........
Total distributions ................................................ (.44) (.51) (.02)
---------- ---------- ----------
Net asset value, end of period ....................................... $ 14.18 $ 13.25 $ 9.86
========== ========== ==========
Total return (a) ...................................................... 10.45% 38.02% (1.26%)
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $220,552 $158,534 $ 38,826
Ratio of expenses to average net assets (b) ........................ .98% 1.07% 1.00%
Ratio of net investment income (loss) to average net assets (b) ... (.10%) (.48%) 0.20%
Ratio of commissions paid to number of shares ..................... 7.08% N/A N/A
Portfolio turnover rate (a) .......................................... 101.28% 108.04% 89.73%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
(1) PRIOR TO MAY 1, 1997, THIS PORTFOLIO WAS NAMED THE EQUITY-INCOME PORTFOLIO.
5
<PAGE>
TACTICAL ASSET ALLOCATION PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 (f)
------------ -------------
<S> <C> <C>
Net asset value, beginning of period ................................. $ 11.49 $ 10.00
Income from operations:
Net investment income (loss) ....................................... .33 .41
Net realized and unrealized gain (loss) on investments ............... 1.33 1.93
-------- ---------
Total income (loss) from operations ................................. 1.66 2.34
-------- ---------
Distributions:
Dividends from net investment income ................................. (.30) (.41)
Dividends in excess of net investment income ........................ .00 .00
Distributions from net realized gains on investments ............... (.24) (.44)
Distributions in excess of net realized gains on investments ......... .00 .00
-------- ---------
Total distributions ................................................ (.54) (.85)
-------- ---------
Net asset value, end of period ....................................... $ 12.61 $ 11.49
======== =========
Total return (a) ...................................................... 14.42% 20.09%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $206,172 $ 120,531
Ratio of expenses to average net assets (b) ........................ .90% .93%
Ratio of net investment income (loss) to average net assets (b) ... 2.78% 3.76%
Ratio of commissions paid to number of shares ..................... .50% N/A
Portfolio turnover rate (a) .......................................... 98.97% 38.68%
</TABLE>
GROWTH & INCOME PORTFOLIO*(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 (e)
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................. $ 11.12 $ 9.30 $ 10.00
Income from operations:
Net investment income (loss) ....................................... .42 .46 .43
Net realized and unrealized gain (loss) on investments ............ .87 1.93 (.70)
-------- ------- ----------
Total income (loss) from operations .............................. 1.29 2.39 (.27)
-------- ------- ----------
Distributions:
Dividends from net investment income .............................. (.33) (.46) (.43)
Dividends in excess of net investment income ........................ .00 .00 .00
Distributions from net realized gains on investments ............... (.32) (.11) .00
Distributions in excess of net gains on investments .................. .00 .00 .00
-------- ------- ----------
Total distributions ................................................ (.65) (.57) (.43)
-------- ------- ----------
Net asset value, end of period ....................................... $ 11.76 $ 11.12 $ 9.30
======== ======= ==========
Total return (a) ...................................................... 11.64% 25.25% (4.58%)
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 38,115 $24,607 $ 10,482
Ratio of expenses to average net assets (b) ........................ 1.00% 1.00% 1.00%
Ratio of net investment income (loss) to average net assets (b) ... 3.73% 4.56% 5.36%
Ratio of commissions paid to number of shares ..................... 4.33% N/A N/A
Portfolio turnover rate (a) .......................................... 68.53% 78.34% 36.13%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
(1) PRIOR TO MAY 1, 1997, THIS PORTFOLIO WAS NAMED THE UTILITY PORTFOLIO.
6
<PAGE>
C.A.S.E. GROWTH PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net asset value, beginning of period ................................. $ 11.66 $ 10.00
Income from operations:
Net investment income (loss) ....................................... .12 .12
Net realized and unrealized gain (loss) on investments ............ 1.92 2.49
-------- --------
Total income (loss) from operations .............................. 2.04 2.61
-------- --------
Distributions:
Dividends from net investment income .............................. (.05) (.12)
Dividends in excess of net investment income ........................ .00
Distributions from net realized gains on investments ............... (.23) (.83)
Distributions in excess of net realized gains on investments ......... .00
--------
Total distributions ................................................ (.28) (.95)
-------- --------
Net asset value, end of period ....................................... $ 13.42 $ 11.66
======== ========
Total return (a) ...................................................... 17.50% 20.65%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 26,560 $ 2,578
Ratio of expenses to average net assets (b) ........................ 1.00% 1.00%
Ratio of net investment income (loss) to average net assets (b) ... .94% 1.02%
Ratio of commissions paid to number of shares ..................... 6.04% N/A
Portfolio turnover rate (a) .......................................... 160.27% 121.62%
</TABLE>
GLOBAL SECTOR PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 (h)
-------------
<S> <C>
Net asset value, beginning of period ................................. $ 10.00
Income from operations:
Net investment income (loss) ....................................... .06
Net realized and unrealized gain (loss) on investments ............ .55
--------
Total income (loss) from operations ................................. .61
--------
Distributions:
Dividends from net investment income ................................. (.02)
Dividends in excess of net investment income ........................ .00
Distributions from net realized gains on investments ............... (.04)
Distributions in excess of net realized gains on investments ......... .00
--------
Total distributions ................................................ (.06)
--------
Net asset value, end of period ....................................... $ 10.55
========
Total return (a) ...................................................... 6.08%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 6,986
Ratio of expenses to average net assets (b) ........................ 2.37%
Ratio of net investment income (loss) to average net assets (b) ... .62%
Ratio of commissions paid to number of shares ..................... 3.13%
Portfolio turnover rate (a) .......................................... 27.58%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
7
<PAGE>
VALUE EQUITY PORTFOLIO*
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 (h)
-------------
<S> <C>
Net asset value, beginning of period ................................. $ 10.00
Income from operations:
Net investment income (loss) ....................................... .10
Net realized and unrealized gain (loss) on investments ............ 1.23
--------
Total income (loss) from operations .............................. 1.33
--------
Distributions:
Dividends from net investment income ................................. (.04)
Dividends in excess of net investment income ........................ .00
Distributions from net realized gains on investments ............... (.02)
Distributions in excess of net realized gains on investments ......... .00
--------
Total distributions ................................................ (.06)
--------
Net asset value, end of period ....................................... $ 11.27
========
Total return (a) ...................................................... 13.19%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 49,394
Ratio of expenses to average net assets (b) ........................ 1.00%
Ratio of net investment income (loss) to average net assets (b) ... .89%
Ratio of commissions paid to number of shares ..................... 6.96%
Portfolio turnover rate (a) .......................................... 7.93%
</TABLE>
INTERNATIONAL EQUITY PORTFOLIO*
<TABLE>
<CAPTION>
Period from
1/2/97 to
4/30/97 (i)
-------------
(unaudited)
<S> <C>
Net asset value, beginning of period .............................. $ 10.00
Income from operations:
Net investment income (loss) ....................................... .04
Net realized and unrealized gain (loss) on investments ............ .25
--------
Total income (loss) from operations .............................. .29
--------
Distributions:
Dividends from net investment income .............................. .00
Dividends in excess of net investment income ....................... .00
Distributions from net realized gains on investments ............... .00
Distributions in excess of net realized gains on investments ...... .00
--------
Total distributions ............................................. (.00)
--------
Net asset value, end of period .................................... $ 10.29
========
Total return (a)...................................................... 2.93%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 5,870
Ratio of expenses to average net assets (b)......................... 1.50%
Ratio of net investment income (loss) to average net assets (b)..... 1.02%
Ratio of commissions paid to number of shares ..................... 2.25%
Portfolio turnover rate (a)......................................... 6.66%
</TABLE>
* SEE NOTES TO FINANCIAL HIGHLIGHTS ON P. 9.
8
<PAGE>
U.S. EQUITY PORTFOLIO*
<TABLE>
<CAPTION>
Period from
1/2/97 to
4/30/97 (i)
-------------
(unaudited)
<S> <C>
Net asset value, beginning of period .............................. $ 10.00
Income from operations:
Net investment income (loss) ....................................... .05
Net realized and unrealized gain (loss) on investments ............ .30
--------
Total income (loss) from operations .............................. .35
--------
Distributions:
Dividends from net investment income .............................. .00
Dividends in excess of net investment income ....................... .00
Distributions from net realized gains on investments ............... .00
Distributions in excess of net realized gains on investments ...... .00
--------
Total distributions ............................................. (.00)
--------
Net asset value, end of period .................................... $ 10.35
========
Total return (a) ................................................... 3.54%
Ratios and supplemental data:
Net assets at end of period (in thousands) ........................ $ 4,698
Ratio of expenses to average net assets (b) ........................ 1.30%
Ratio of net investment income (loss) to average net assets (b) .... 1.54%
Ratio of commissions paid to number of shares ..................... 3.00%
Portfolio turnover rate (a) ........................................ 37.92%
</TABLE>
*SEE NOTES TO FINANCIAL HIGHLIGHTS BELOW.
NOTES TO FINANCIAL HIGHLIGHTS
(a) For periods of less than one year the total return and portfolio turnover
rate are not annualized.
(b) For periods of less than one year the ratio of expenses to average net
assets and the ratio of net investment income (loss) to average net assets
are annualized. Without the advisory fee waiver by WRL (the Fund's
Investment Adviser prior to January 1, 1997) the ratio for each period
presented would be as follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
Portfolio 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Money Market ........................ * * * *
Bond ................................. * * * *
Growth .............................. * * * *
Short-to Intermediate Government ...... * * * 1.02%
Global .............................. * * * *
Strategic Total Return ............... * * * 1.12%
Emerging Growth ..................... * * * 1.16%
Aggressive Growth ..................... * * 1,18% **
Balanced .............................. * * 1.34% **
Growth & Income ..................... * 1.08% 1.90% **
Tactical Asset Allocation ............ * * * **
C.A.S.E. Growth ..................... 1.64% 4.15% ** **
Global Sector ........................ N/A ** ** **
Value Equity ........................ 1.03% ** ** **
<CAPTION>
Portfolio 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C>
Money Market ........................ * * * .84% 1.16% 1.63%
Bond ................................. * .82 * .82% 1.07% 2.12%
Growth .............................. * * * 1.13% 1.49% 1.90%
Short-to Intermediate Government ...... 1.41% ** ** ** ** **
Global .............................. * ** ** ** ** **
Strategic Total Return ............... ** ** ** ** ** **
Emerging Growth ..................... ** ** ** ** ** **
Aggressive Growth ..................... ** ** ** ** ** **
Balanced .............................. ** ** ** ** ** **
Growth & Income ..................... ** ** ** ** ** **
Tactical Asset Allocation ............ ** ** ** ** ** **
C.A.S.E. Growth ..................... ** ** ** ** ** **
Global Sector ........................ ** ** ** ** ** **
Value Equity ........................ ** ** ** ** ** **
<FN>
* No waiver--portfolio did not exceed expense limitations.
** Portfolio was not in existence during this period.
Without the advisory fee waived by WRL the ratio would be 3.28% for the
International Equity Portfolio and 2.07% for the U.S. Equity Portfolio.
(c) The inception of this portfolio was December 3, 1992.
(d) The inception of the portfolio was March 1, 1993.
(e) The inception of this portfolio was March 1, 1994.
(f) The inception of this portfolio was January 3, 1995.
(g) The inception of this portfolio was May 1, 1995.
(h) The inception of this portfolio was May 1, 1996.
(i) The inception of this portfolio was January 2, 1997.
</FN>
</TABLE>
9
<PAGE>
PORTFOLIOS AT A GLANCE
The Fund consists of twenty-one portfolios. This Prospectus provides
information on sixteen portfolios of the Fund. WRL Investment Management, Inc.
("WRL Management") serves as the Fund's investment adviser ("Investment
Adviser"), and contracts on behalf of each Portfolio with an investment
sub-adviser ("Sub-Adviser") to provide investment advisory assistance and
portfolio management advice for each Portfolio. See "Management of the Fund,"
p. 41. Each Portfolio has its own distinct investment objective and policies
which are summarized below:
/diamond/ AGGRESSIVE GROWTH PORTFOLIO
OBJECTIVE: Seeks long-term capital appreciation.
INVESTMENT POLICY: The Aggressive Growth Portfolio invests primarily in a
diversified, actively managed portfolio of equity securities, such as common
stock or preferred stocks, or securities convertible into or exchangeable for
equity securities, including warrants and rights.
INVESTOR PROFILE: For the investor who aggressively seeks capital growth, and
who can tolerate substantial volatility in the value of an investment.
SUB-ADVISER: Fred Alger Management, Inc.
/diamond/ EMERGING GROWTH PORTFOLIO
OBJECTIVE: Seeks capital appreciation by investing primarily in common stocks
of small and medium-sized companies.
INVESTMENT POLICY: The Emerging Growth Portfolio invests primarily in common
stocks of small and medium-sized companies. Under normal conditions, at least
65% of the Portfolio's total assets will be invested in common stocks of small
and medium-sized companies, both domestic and foreign, in the early stages of
their life cycle, believed to have the potential to become major enterprises.
INVESTOR PROFILE: For the investor seeking greater opportunities for growth of
capital and willing to accept certain special risks. See "Portfolio Securities
and Risk Factors" on p. 32.)
SUB-ADVISER: Van Kampen American Capital Asset Management, Inc.
/diamond/ INTERNATIONAL EQUITY PORTFOLIO
OBJECTIVE: Seeks long-term growth of capital.
INVESTMENT POLICY: The International Equity Portfolio invests primarily in the
common stock of foreign issuers traded on overseas exchanges and in foreign
over-the-counter ("OTC") markets.
INVESTOR PROFILE: For the investor who seeks long-term growth of capital
through investments in foreign securities. The investor should also be able to
tolerate the significant risk factors associated with foreign investing.
CO-SUB-ADVISERS: Scottish Equitable Investment Management Limited and GE
Investment Management Incorporated.
/diamond/ GLOBAL PORTFOLIO
OBJECTIVE: Seeks long-term growth of capital in a manner consistent with
preservation of capital.
INVESTMENT POLICY: The Global Portfolio invests primarily in common stocks of
foreign and domestic issuers.
INVESTOR PROFILE: For the investor who wants capital growth without being
limited to investments in U.S. securities. The investor should also be able to
tolerate the significant risk factors associated with foreign investing.
SUB-ADVISER: Janus Capital Corporation
/diamond/ GROWTH PORTFOLIO
OBJECTIVE: Seeks growth of capital.
INVESTMENT POLICY: The Growth Portfolio invests primarily in common stocks
listed on a national securities exchange or traded on NASDAQ, which the
Portfolio's Sub-Adviser believes have a good potential for capital growth.
INVESTOR PROFILE: For the investor who wants capital growth in a broadly
diversified stock portfolio, and who can tolerate significant fluctuations in
value.
SUB-ADVISER: Janus Capital Corporation
/diamond/ C.A.S.E. GROWTH PORTFOLIO
OBJECTIVE: Seeks capital growth through investments in common stocks of small
to medium-sized companies.
INVESTMENT POLICY: The C.A.S.E. Growth Portfolio will primarily invest in
smaller, less well-established companies, with limited product lines and
financial resources. The Portfolio, however, seeks to invest in such companies
with above-market growth characteristics in several investment classifications
including sales, earnings, returns and institutional support.
INVESTOR PROFILE: For the investor who seeks growth in excess of the Standard &
Poor's Index of 500 Common
10
<PAGE>
Stocks (the "S&P 500") on a quarterly basis, but wants a diversified portfolio
that seeks to have investments in companies that have below-market risk
characteristics. The investor should be comfortable with the price fluctuations
of a stock portfolio.
SUB-ADVISER: C.A.S.E. Management, Inc.
/diamond/ U.S. EQUITY PORTFOLIO
OBJECTIVE: Seeks long-term growth of capital.
INVESTMENT POLICY: The U.S. Equity Portfolio invests primarily in equity
securities of U.S. companies. Under normal conditions, the Portfolio will
invest at least 65% of its assets in equity securities, consisting of common
stocks and preferred stocks, and securities convertible into common stocks,
consisting of convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights issued by U.S. companies.
INVESTOR PROFILE: For the investor seeking growth from a broadly diversified
portfolio consisting of both "value" and "growth" equities, which the
Portfolio's Sub-Adviser believes will have characteristics similar to the S&P
500 and the potential to outperform the S&P 500 on a total return basis. The
investor should be comfortable with the price fluctuations of a stock
portfolio.
SUB-ADVISER: GE Investment Management Incorporated
/diamond/ VALUE EQUITY PORTFOLIO
OBJECTIVE: Seeks to achieve maximum, consistent total return with minimum risk
to principal.
INVESTMENT POLICY: The Value Equity Portfolio invests 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.
INVESTOR PROFILE: For the investor who seeks both capital preservation and
long-term capital appreciation.
SUB-ADVISER: NWQ Investment Management Company, Inc.
/diamond/ GLOBAL SECTOR PORTFOLIO
OBJECTIVE: Seeks growth of capital.
INVESTMENT POLICY: The Global Sector Portfolio follows an asset allocation
strategy that shifts among a wide range of asset categories and within them,
market sectors. The Portfolio will invest primarily 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; real
estate investment trusts ("REITs"); equity securities of companies involved in
the exploration, mining, processing, or dealing or investing in gold; gold
bullion; and domestic money market instruments.
INVESTOR PROFILE: For the investor who seeks long-term capital appreciation and
protection of buying power who, at the same time, can tolerate an increased
exposure to risk. The Portfolio is geared towards investors willing to
concentrate in industries and countries that offer an opportunity for greater
capital appreciation and are willing to take the additional risks associated
with sector investing and asset rotation.
SUB-ADVISER: Meridian Investment Management Corporation (Prior to March 1,
1997, INVESCO Global Asset Management Limited served as Co-Sub-Adviser to this
Portfolio.)
/diamond/ TACTICAL ASSET ALLOCATION PORTFOLIO
OBJECTIVE: Seeks preservation of capital and competitive investment returns.
INVESTMENT POLICY: The Tactical Asset Allocation Portfolio invests primarily in
stocks, U.S. Treasury bonds, notes and bills, and money market funds.
INVESTOR PROFILE: For the investor who wants a combination of capital growth
and income, and who is comfortable with the risks associated with an actively
traded portfolio which shifts assets between equity and debt.
SUB-ADVISER: Dean Investment Associates
/diamond/ STRATEGIC TOTAL RETURN PORTFOLIO
OBJECTIVE: Seeks to provide current income, long-term growth of income and
capital appreciation.
INVESTMENT POLICY: The Strategic Total Return Portfolio invests primarily in a
blend of equity and fixed-income securities, including common stocks, income
producing securities convertible into common stocks, and fixed-income
securities.
INVESTOR PROFILE: For the investor who wants current income with the prospect
of income growth, plus the prospect of capital growth. The investor should be
comfortable with the price fluctuations of a stock portfolio that invests in
both equity and fixed income securities.
SUB-ADVISER: Luther King Capital Management Corporation
11
<PAGE>
/diamond/ GROWTH & INCOME PORTFOLIO
OBJECTIVE: Seeks total return by investing in securities that have defensive
characteristics.
INVESTMENT POLICY: The Growth & Income Portfolio invests primarily in a
diversified portfolio of equity and debt securities with an emphasis on sector
investing.
INVESTOR PROFILE: For the investor who seeks high current income and moderate
capital appreciation and is willing to accept certain special risks associated
with sector investing.
SUB-ADVISER: Federated Investment Counseling
/diamond/ BALANCED PORTFOLIO
OBJECTIVE: Seeks preservation of capital, reduced volatility, and superior
long-term risk-adjusted returns.
INVESTMENT POLICY: The Balanced Portfolio invests primarily in common stock,
convertible securities and fixed-income securities.
INVESTOR PROFILE: For the investor who wants capital growth and income from the
same investment, but who also wants an investment which has the prospect of
sustaining its interim principal value through maintaining a balance between
equity and debt. The Portfolio is not designed for investors who desire a
consistent level of income.
SUB-ADVISER: AEGON USA Investment Management, Inc.
/diamond/ BOND PORTFOLIO
OBJECTIVE: Seeks the highest possible current income within the confines of the
primary goal of insuring the protection of capital by investing in debt
securities issued by the U.S. Government and its agencies and in medium to
high-quality corporate debt securities.
INVESTMENT POLICY: The Bond Portfolio invests at least 65% of assets in debt
securities issued by the U.S. Government and its agencies and in medium to
high-quality corporate debt securities.
INVESTOR PROFILE: For the investor seeking current income consistent with
preservation of capital, and who can tolerate the fluctuation in the principal
associated with changes in interest rates.
SUB-ADVISER: Janus Capital Corporation
/diamond/ SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO
OBJECTIVE: Seeks as high a level of current income as is consistent with
preservation of capital.
INVESTMENT POLICY: The Short-to-Intermediate Government Portfolio seeks to
achieve its objective by investing primarily in U.S. Government securities. At
least 65% of the Portfolio's total assets will be invested in U.S. Government
securities, including repurchase agreements with respect to U.S. Government
securities.
INVESTOR PROFILE: For the investor seeking current income consistent with
preservation of capital, and who can tolerate the fluctuation in the principal
associated with changes in interest rates.
SUB-ADVISER: AEGON USA Investment Management, Inc.
/diamond/ MONEY MARKET PORTFOLIO
OBJECTIVE: Seeks to obtain maximum current income consistent with preservation
of principal and maintenance of liquidity.
INVESTMENT POLICY: The Money Market Portfolio maintains a dollar-weighted
average portfolio maturity of not more than 90 days by investing in U.S.
dollar-denominated securities which have effective maturities of not more than
13 months and present minimal credit risks.
INVESTOR PROFILE: For the investor seeking current income, preservation of
capital and maintenance of liquidity.
SUB-ADVISER: J.P. Morgan Investment Management Inc.
PERFORMANCE INFORMATION
The Fund may include quotations of a Portfolio's total return or yield in
connection with the total return for the appropriate Separate Account, in
advertisements, sales literature or reports to Policyholders 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 Accounts or charges
12
<PAGE>
and deductions against the Policies or the Annuity Contracts. Where relevant,
the prospectuses for the Policies and the Annuity Contracts contain performance
information which show total return and yield for the Separate Accounts,
Policies or Annuity Contracts.
/diamond/ TOTAL RETURN
Total return refers to the average annual percentage change in value of an
investment in a Portfolio held for a stated period of time as of a stated
ending date. When a Portfolio has been in operation for the stated period, the
total return for such period 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. They also reflect the deduction of a
proportionate share of a Portfolio's investment advisory fees and direct
Portfolio expenses, and assume that all dividends and capital gains
distributions during the period are reinvested in the Portfolio when made.
The rates of return shown below depict the actual investment experience of each
of the Portfolios for the periods shown. (The International Equity and U.S.
Equity Portfolios had not commenced operations as of December 31, 1996, so
performance information is not yet available for these Portfolios.) THE
INFORMATION PROVIDED BELOW SHOWS THE HISTORICAL INVESTMENT EXPERIENCE OF EACH
OF THE PORTFOLIOS. IT DOES NOT REPRESENT PROJECTED FUTURE INVESTMENT
PERFORMANCE.
Also shown are comparable figures for the unmanaged S & P 500 and IBC's Taxable
Money Funds, widely used measures of market performance.
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
Inception
Fund Portfolio Inception 10 Years 5 Years 1 Year Date
- ---------------------------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Aggressive Growth 15.50% N/A N/A 10.45% March 1, 1994
Emerging Growth 20.04% N/A N/A 18.88% March 1, 1993
International Equity N/A N/A N/A N/A January 1, 1997
Global 20.82% N/A N/A 27.74% December 3, 1992
Growth 17.66% 17.98% 11.11% 17.96% October 2, 1986
C.A.S.E. Growth 23.22% N/A N/A 17.50% May 1, 1995
U.S. Equity N/A N/A N/A N/A January 1, 1997
Value Equity 13.19% N/A N/A N/A May 1, 1996
Global Sector 6.08% N/A N/A N/A May 1, 1996
Tactical Asset Allocation 17.27% N/A N/A 14.42% January 3, 1995
Strategic Total Return (1) 13.36% N/A N/A 15.00% March 1, 1993
Growth & Income (2) 10.69% N/A N/A 11.64% March 1, 1994
Balanced 8.19% N/A N/A 10.72% March 1, 1994
Bond 7.63% 7.40% 6.77% 0.14% October 2, 1986
Short-to-Intermediate
Government 5.18% N/A N/A 3.48% December 3, 1992
Money Market 4.98% 4.99% 3.86% 5.03% October 2, 1986
Standard & Poor's Index
of 500 Common Stocks 15.46% 15.28% 15.22% 22.96%
IBC's Taxable Money Funds 5.55% N/A 4.03% 4.85%
<FN>
- --------------
(1) Prior to May 1, 1997, this Portfolio was known as Equity-Income Portfolio.
(2) Prior to May 1, 1997, this Portfolio was known as Utility Portfolio.
</FN>
</TABLE>
/diamond/ YIELD
Yield quotations for the Bond Portfolio and the Short-to-Intermediate Government
Portfolio refer to the income generated by a hypothetical investment in a
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.
The Money Market Portfolio yield quotation refers to the income generated by a
hypothetical investment in the
13
<PAGE>
Money Market 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
Money Market Portfolio refers to the same calculation adjusted to reflect the
compounding effect of earnings on reinvested dividends.
/diamond/ PERFORMANCE SHOWN IN ADVERTISING
The Portfolios may disclose in advertisements, sales literature and reports to
Policyholders or to prospective investors, total returns for a Portfolio for
periods in addition to those required to be presented. They may also disclose
other nonstandardized data, such as cumulative total returns, actual
year-by-year returns, or any combination thereof.
/diamond/ PERFORMANCE RANKINGS AND COMPARISONS TO STANDARD INDEXES
Performance of the Portfolios may also be compared to: (1) indexes, such as the
S&P 500, the Dow Jones Industrial Average or other widely recognized indexes;
(2) other mutual funds whose performance is reported by all or any of Lipper
Analytical Services, Inc., ("Lipper"), Variable Annuity Research & Data Service
("VARDS") and Morningstar, Inc. ("Morningstar"), or as 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 indexes, such as the
S&P 500, may assume the reinvestment of dividends but usually do not reflect
any "deduction" for the expenses associated with operating and managing a fund.
In connection with a ranking, a Portfolio will also provide information in
sales literature, advertisements, and reports with respect to the ranking,
including the particular category of fund 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 any fee waivers and/or expense reimbursements.
/diamond/ SUB-ADVISER PERFORMANCE
A Portfolio may disclose in advertisements, supplemental sales literature, and
reports to Policyholders or to prospective investors total returns of an
EXISTING SEC-REGISTERED fund that is managed by the Portfolio's Sub-Adviser and
that has investment objectives, policies, and strategies substantially similar
to those of such Portfolio (a "Similar Sub-Adviser Fund"). ALTHOUGH THE SIMILAR
SUB-ADVISER FUNDS HAVE SUBSTANTIALLY SIMILAR INVESTMENT OBJECTIVES, POLICIES,
AND STRATEGIES AS THE DESIGNATED PORTFOLIO, AND ARE MANAGED BY THE SAME
SUB-ADVISER AS THE DESIGNATED PORTFOLIO, YOU SHOULD NOT ASSUME THAT ANY
PORTFOLIO WILL HAVE THE SAME FUTURE PERFORMANCE AS SIMILAR SUB-ADVISER FUNDS
WHOSE TOTAL RETURNS ARE SHOWN. For example, any Portfolio's future performance
may be greater or less than the historical performance of the corresponding
Similar Sub-Adviser Fund, due to, among other things, certain inherent
differences between a Portfolio and the Similar Sub-Adviser Fund.
The table below sets forth certain Portfolios of the Fund and, for each
Portfolio's respective Similar Sub-Adviser Fund, the fund's inception date,
asset size, and the average annual total returns for the one, five and ten year
periods (or life of the Similar Sub-Adviser Fund, if shorter) ended December 31,
1996. These figures are based on the actual investment performance of the
Similar Sub-Adviser Funds. Each Similar Sub-Adviser Fund has higher total
expenses than its corresponding Portfolio of the Fund. The average annual total
returns for the Similar Sub-Adviser Funds are shown with and without the
deductions of any applicable sales load. YOU SHOULD NOTE THAT THE PERFORMANCE OF
THE SIMILAR SUB-ADVISER FUNDS DOES NOT REFLECT THE HISTORICAL PERFORMANCE OF ANY
PORTFOLIOS.
14
<PAGE>
<TABLE>
<CAPTION>
SIMILAR SUB-ADVISER FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN
(WITH SALES LOADS)
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
<S> <C> <C> <C> <C> <C> <C>
GLOBAL PORTFOLIO Janus Worldwide 5/15/91 5,046,304,293 26.40(1) 17.45(1) 19.86(1)
Aggressive The Alger Fund
Growth Portfolio Capital Appreciation 11/1/93 156,027,971 9.79(2) N/A(2) 28.50
Emerging Van Kampen
Growth Portfolio American Capital Class A
Emerging Growth 10/2/70 1,652,300 11.13(3) 15.21(3) 16.54(3)
<FN>
- --------------
(1) The Janus Worldwide Fund does not have a sales load.
(2) Total return reflects a deferred sales load of - 5.0% during the first year
and 2.0% during the fifth year.
(3) Total returns are for Class A shares of the Van Kampen American Capital
Emerging Growth Fund and reflect a deduction of a 5.75% front end sales
load. The fund also has Class B and Class C shares with different sales
loads. Calculating total return with those sales loads may have resulted
in lower total returns.
</FN>
</TABLE>
<TABLE>
<CAPTION>
SIMILAR SUB-ADVISER FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN
(WITHOUT SALES LOADS)
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
<S> <C> <C> <C> <C> <C> <C>
GLOBAL PORTFOLIO Janus Worldwide 5/15/91 5,046,304,293 26.40 17.45 19.86
Aggressive The Alger Fund
Growth Portfolio Capital Appreciation 11/1/93 156,027,971 13.80 N/A 28.90
Emerging Van Kampen
Growth Portfolio American Capital Class A
Emerging Growth 10/2/70 1,652,300 17.91 16.58 17.23
</TABLE>
THE PERFORMANCE OF SIMILAR SUB-ADVISER FUNDS DOES NOT REFLECT ANY OF THE
CHARGES, FEES, AND EXPENSES IMPOSED UNDER THE POLICIES AND ANNUITY CONTRACTS.
SUCH PERFORMANCE WOULD IN EACH CASE BE LOWER IF IT REFLECTED THESE CHARGES, FEES
AND EXPENSES. SEE THE CONTRACT FORM OR DISCLOSURE DOCUMENT FOR THE POLICY OR
ANNUITY CONTRACT. (THE DISCLOSURE DOCUMENTS FOR THE POLICY OR ANNUITY CONTRACT
DESCRIBE SIMILAR SUB-ADVISER FUNDS AS "OTHER PORTFOLIOS.")
(See the SAI for more information about the Portfolios' performance.)
THE PORTFOLIOS IN DETAIL
This section takes a closer look at each Portfolio's policies and
techniques, and the securities in which the Portfolios invest. PLEASE CAREFULLY
REVIEW THE "OTHER INVESTMENT POLICIES AND RESTRICTIONS" AND "PORTFOLIO
SECURITIES AND RISK FACTORS" SECTIONS OF THIS PROSPECTUS FOR A DESCRIPTION OF
EACH OF THE PORTFOLIO INVESTMENTS IDENTIFIED BELOW AND THE RISKS ASSOCIATED
WITH THOSE INVESTMENTS. You should carefully consider your goals, time horizon
and risk tolerance before choosing a Portfolio.
15
<PAGE>
Each Portfolio's investment objective and, unless otherwise noted,
investment policies and techniques, may be changed by the Board of Directors of
the Fund (the "Fund's Board") without Shareholder or Policyholder approval. A
change in the investment objective or policies of a Portfolio may result in
that Portfolio having an investment objective or policies different from that
which a Policyholder deemed appropriate at the time of investment. You will be
notified of any such change so that you may determine whether that Portfolio
remains an appropriate investment for your Policy or Annuity Contract. More
information about each Portfolio's investment techniques and restrictions is
set forth in the Fund's SAI, which is available without charge upon request.
PORTFOLIO POLICIES AND TECHNIQUES
/diamond/ AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio seeks to achieve its investment objective by
investing in a diversified, actively managed portfolio of equity securities,
such as common or preferred stocks, or securities convertible into or
exchangeable for equity securities, including warrants and rights. The
Portfolio may engage in leveraging and options and futures transactions, which
are deemed to be speculative and which may increase fluctuations in the
Portfolio's net asset value.
Except during temporary defensive periods, the Portfolio invests at least 85%
of its net assets in equity securities of companies of any size. The Portfolio
will generally invest in companies whose securities are traded on domestic
stock exchanges or in the OTC market. These companies may still be in the
developmental stage, may be older companies that appear to be entering a new
stage of growth progress (owing to factors such as management changes or
development of new technology, products or markets), or may be companies
providing products or services with a high unit volume growth rate.
To afford the Portfolio the flexibility to take advantage of new opportunities
for investment in accordance with its investment objective, the Portfolio may
hold up to 15% of its net assets in money market instruments and repurchase
agreements and in excess of that amount (up to 100% of its assets) during
temporary defensive periods. This amount may be higher than that maintained by
other funds with similar investment objectives. The Portfolio will only invest
in convertible debt securities rated in one of the three highest rating
categories by any nationally recognized statistical rating organizations
("NRSRO"). (See Appendix A, for further information on such ratings.)
The Portfolio may also borrow money for the purchase of additional securities
(leverage). The Portfolio may borrow only from banks and may not borrow in
excess of one-third of the market value of its assets, less liabilities other
than such borrowing. Funds that leverage through borrowing, which is a
speculative technique, offer an opportunity for greater capital appreciation,
but at the same time increase exposure to capital risk.
The Portfolio may purchase put and call options and sell (write) covered call
and put options on securities and securities indexes to increase gain and to
hedge against the risk of unfavorable price movements, and it may enter into
futures contracts on securities indexes and purchase and sell call and put
options on these futures contracts.
The Portfolio may also invest in short sales; restricted and illiquid (up to
15% of net assets) securities (including those issued under Rule 144A); U.S.
Government securities; foreign bank obligations; variable rate master demand
notes; and repurchase agreements.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
/diamond/ EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio seeks to achieve its investment objective by
investing primarily in common stocks of small and medium-sized companies. Under
normal conditions, at least 65% of the Portfolio's total assets will be
invested in common stocks of small and medium-sized companies, both domestic
and foreign, in the early stages of their life cycle, that the Sub-Adviser
believes have the potential to become major enterprises. Investments in such
companies may offer greater opportunities for growth of capital than larger,
more established companies, but also involve certain special risks. Emerging
growth companies often have limited product lines, markets, or financial
resources, and they may be dependent upon one or a few key people for
management. The securities of such companies may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general.
The Portfolio does not limit its investments to any single group or type of
security. The Portfolio does not intend to invest more than 5% of its net
assets in unseasoned
16
<PAGE>
companies or special situations involving new management, special products and
techniques, unusual developments, mergers or liquidations. Investments in
unseasoned companies and special situations often involve much greater risks
than are inherent in ordinary investments, because securities of such companies
may be more than likely to experience unexpected fluctuations in price.
The Portfolio's primary approach is to seek what the Sub-Adviser believes to be
unusually attractive growth investments on an individual company basis. The
Portfolio may invest in securities that have above average volatility of price
movement. The Portfolio attempts to reduce overall exposure to risk from
declines in securities prices by spreading its investments over many different
companies in a variety of industries.
While the Portfolio invests primarily in common stocks, it may invest to a
limited extent in other securities such as preferred stocks, convertible
securities, warrants (up to 5% of assets), illiquid securities (up to 15% of
its net assets), repurchase agreements, restricted securities (up to 5% of
assets) and up to 20% of its total assets in securities of foreign issuers,
including American Depositary Receipts ("ADRs").
The Portfolio expects to utilize options on securities, futures contracts and
options thereon in several different ways, depending upon the status of the
Portfolio's investment portfolio and the Sub-Adviser's expectations concerning
the securities markets.
In times of stable or rising stock prices, the Portfolio generally seeks to
obtain maximum exposure to the stock market, I.E., to be "fully invested." Even
when the Portfolio is fully invested, the Sub-Adviser believes that prudent
management may require that at least a small portfolio of assets be available
as cash to honor redemption requests and for other short term needs. The
Portfolio may also have cash on hand that has not yet been invested. The
portion of the Portfolio's assets that is invested in cash equivalents does not
fluctuate with stock market prices, so that, in times of rising market prices,
the Portfolio may underperform the market in proportion to the amount of cash
equivalents in its portfolio. By purchasing stock index futures contracts,
stock index call options, or call options on stock index futures contracts,
however, the Portfolio can "equitize" the cash portion of its assets and obtain
equivalent performance to investing 100% of its assets in equity securities.
Although the Portfolio's assets will be invested primarily in equity securities
at most times, the Portfolio's assets may be invested up to 100% in U.S.
Government securities, high-grade commercial paper, cash, high-quality money
market instruments, corporate bonds and debentures, preferred stocks or
certificates of deposit of commercial banks, when, in the opinion of the
Sub-Adviser, a temporary defensive position is warranted, or so that the
Portfolio may receive a return on its idle cash.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
/diamond/ INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio seeks to achieve its investment objective by
investing primarily in the common stock of foreign issuers traded on overseas
exchanges and in foreign OTC markets. While the Portfolio will primarily invest
in common stock, the Portfolio may also invest in preferred stocks, convertible
securities, warrants or rights, or fixed-income instruments when the
Co-Sub-Advisers deem appropriate.
Division of daily cash inflows attributable to shares purchased by the Separate
Accounts and periodic rebalancing of portfolio assets managed by each
Co-Sub-Adviser will be made with the objective of keeping equal the total
assets managed by each Co-Sub-Adviser. It is anticipated that each
Co-Sub-Adviser may purchase securities for the Portfolio with its allocation of
daily cash inflows which are different from the securities purchased by the
other Co-Sub-Adviser with its respective allocation. In return, each
Co-Sub-Adviser will receive compensation, paid monthly, equal to 50% of the
investment management fees received by the Investment Adviser with respect to
the amount of Portfolio assets managed by each Co-Sub-Adviser during such
period, and, until at least April 30, 1998, less 50% of the amount of any
excess expenses paid by the Investment Adviser on behalf of the Portfolio
pursuant to an expense limitation (see "Management of the Fund - Investment
Adviser," p. 41).
The Portfolio will seek to be invested in a minimum of 50 stocks of issuers
from approximately 15-25 countries, based on (i) the country in which an issuer
is organized; (ii) the country from which an issuer derives at least 50% of its
revenues or profits; or (iii) the principal trading market for the issuer's
securities. Under normal circumstances, the Portfolio will not be invested in
issuers of fewer than twelve countries other than the U.S. at any time. (For
this purpose, ADRs, European Depositary Receipts ("EDRs"), and Global
Depositary Receipts ("GDRs") will be considered to be issued by the issuer of
the securities underlying the receipt.) Typically, the Portfolio will be
invested broadly, not only in the larger stock markets of the United Kingdom,
Continental
17
<PAGE>
Europe, Japan and the Far East, but also, to a lesser extent, in the smaller
stock markets of Asia, Europe and Latin America.
At any time, overseas economies may not be moving in the same direction and
will be subject to substantially different fiscal and monetary policies. These
provide situations the Portfolio will aim to exploit. The Portfolio will aim to
add value through both active country allocation and stock selection in
international equity markets.
In selecting investments on behalf of the Portfolio, GE Investment Management
Incorporated ("GEIM") seeks companies that are expected to grow faster than
relevant markets and whose securities are available at a price that does not
fully reflect the potential growth of those companies. GEIM typically focuses on
companies that possess one or more of a variety of characteristics, including
strong earnings growth relative to price-to-earnings and price-to-cash earnings
ratios, low price-to-book value, strong cash flow, presence in an industry
experiencing strong growth and high quality management.
In selecting investments on behalf of the Portfolio, Scottish Equitable
Investment Management Limited ("Scottish Equitable"), seeks initially to
identify countries where economic growth conditions are favorable (through
analysis of gross domestic product growth rates, inflation, interest rates and
other economic factors), and where stock market valuations generally do not
fully reflect growth potential. Scottish Equitable then seeks to identify
within each of the individual markets, companies whose earnings are undervalued
(that is, where future earnings potential is not reflected in the present share
price). Scottish Equitable will utilize measures of value appropriate to local
market conditions, which may include low price earnings ratios, low price to
book value, low price to cash flow ratios, as well as considering such factors
as industry position and management quality.
Under normal circumstances, the Portfolio will seek to invest as described
above, and may for cash management purposes and to meet operating expenses,
invest a portion of its total assets in cash and/or money market instruments as
described under "Portfolio Securities and Risk Factors" p. 31, pending
investment in accordance with its investment objective and policies. During
periods when a Co-Sub-Adviser believes there are unstable market, economic,
political or currency conditions abroad, the Portfolio may assume a temporary
defensive posture and (i) restrict the securities markets in which its assets
will be invested and/or invest all or a significant portion of its assets in
securities of the types described above issued by companies incorporated in
and/or having their principal activities in the United States, or (ii) without
limitation, hold cash and/or invest in such money market instruments. To the
extent that it holds cash or invests in money market instruments, the Portfolio
may not achieve its investment objective of long-term growth of capital.
The Portfolio may purchase and sell financial futures contracts, stock index
futures contracts, and foreign currency futures contracts and related options,
forward foreign currency contracts, and interest rate swaps, caps and floors
for hedging purposes only and not for speculation, subject to certain
limitations.
The Portfolio may invest in convertible securities; stock index futures
contracts, including indexes on specific securities, as a hedge against changes
in the market value of common stocks; interest rate future contracts as a
hedge against changes in interest rates; and illiquid securities (up to 15% of
net assets).
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
/diamond/ GLOBAL PORTFOLIO
The Global Portfolio seeks to achieve its investment objective by investing in
companies on a worldwide basis, regardless of country of organization or place
of principal business activity, as well as domestic and foreign governments,
government agencies and other governmental entities. Realization of income is
not a significant investment consideration and any income realized on the
Portfolio's investments will, therefore, be incidental to the Portfolio's
objective.
The Portfolio's assets will normally be invested in securities of issuers from
at least five different countries, including the United States. The Portfolio
may, on a temporary basis, invest all of its assets in less than five, or even
a single country. When recommending allocations of the Portfolio's investments
among regions and countries, the Portfolio's Sub-Adviser considers various
factors such as prospects for relative economic growth among countries, regions
or geographic areas; expected levels of inflation; government policies
influencing business conditions; and the outlook for currency relationships.
Although it is the policy of the Portfolio to purchase and hold securities for
long-term capital growth in a manner consistent with preservation of capital,
changes in the Portfolio will generally be made when the Sub-Adviser believes
they are advisable, typically either as a result of a security having reached a
price objective or by reason of developments not foreseen at the time of the
security's purchase.
18
<PAGE>
Because the sale of a security ordinarily will be made without reference to the
length of time the 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 a security has been held for an insufficient length of time. Increased
portfolio turnover necessarily results in correspondingly higher brokerage
costs for the Portfolio. These are ultimately borne by the Policyholders.
The Sub-Adviser seeks to reduce the risks associated with these considerations
through diversification and active professional management.
The Portfolio seeks to invest substantially all of its assets in common stocks
when the Sub-Adviser believes that the relevant market environment favors
profitable investing in equity securities. Common stock investments are selected
from industries and companies that the Sub-Adviser believes are experiencing
favorable demand for their products and services, and which operate in a
favorable competitive environment and regulatory climate.
Although the assets of the Portfolio are ordinarily invested in common stocks at
most times, the Portfolio may increase its cash position (up to 100% of assets)
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, bank obligations, high-grade commercial paper,
preferred stocks, certificates of deposits or other securities of U.S. issuers.
These investments will be made when the Sub-Adviser perceives an opportunity for
capital growth from such securities, or to enable the Portfolio to 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 government
entities. The Portfolio may invest up to 15% of its net assets in illiquid
securities.
The Portfolio may also invest in futures contracts, related options, repurchase
and reverse repurchase agreements, forward foreign currency contracts and other
derivative instruments, up to 5% in high-yield bonds, and when issued
securities (up to 20% of its assets).
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
/diamond/ GROWTH PORTFOLIO
The Growth Portfolio seeks to achieve its investment objective by investing
substantially all of its assets in common stocks when the Sub-Adviser believes
that the relevant market environment favors profitable investing in those
securities.
Common stock investments are selected in industries and companies which the
Sub-Adviser believes are experiencing favorable demand for their products and
services, and which operate in a favorable competitive environment and
regulatory climate. The Sub-Adviser's analysis and selection process focuses on
stocks issued by companies with earnings growth potential. In particular, the
Portfolio intends to buy stocks with earnings growth potential that may not be
recognized by the market. Securities are selected solely for their growth
potential; investment income is not a consideration.
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. In such case, 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.
The Portfolio may also invest in repurchase and reverse repurchase agreements,
illiquid securities (up to 15% of its net assets), futures contracts, related
options, forward foreign currency contracts, and other derivatives, and
when-issued securities (up to 20% of its assets). The Portfolio may also invest
up to 25% of its net assets in foreign securities (which may be purchased
through ADRs, EDRs and GDRs, as well as directly) and up to 5% in high-yield
bonds.
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/diamond/ C.A.S.E. GROWTH PORTFOLIO
The C.A.S.E. Growth Portfolio seeks to achieve its investment objective 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. The Sub-Adviser
considers
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"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 if its assets in common stocks
when the Sub-Adviser believes that the relevant market environment favors
profitable investing in those securities. Common stock investments are selected
from industries and companies that the Sub-Adviser 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 OTC 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 Policyholders'
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 for significant future growth. As
a result of these investment policies, the market price of many of the
securities purchased by the Portfolio may fluctuate widely; and 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. Because 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.
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 deposit 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 does not presently intend to invest more than 5% of its
assets in debt securities rated less than investment grade.
Subject to certain limitations, the Portfolio may engage in hedging strategies
involving futures contracts and related options, forward currency contracts,
and interest rate swaps, caps and floors.
The Portfolio may engage in hedging strategies to attempt to reduce the overall
length 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 the Portfolio will assist it in achieving its investment
objective.
The Portfolio may invest in repurchase and reverse repurchase agreements,
illiquid securities (up to 15% of its net assets), when-issued securities and
"special situations." (The Portfolio does not intend to invest more than 20% of
its assets in when-issued securities.)
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The Portfolio may invest up to 25% of its net assets in the securities of
foreign issuers and obligors. Investments may be made in both domestic and
foreign companies. If appropriate and available, the Sub-Adviser may purchase
foreign securities through ADRs, EDRs, GDRs and other types of receipts of
shares evidencing ownership of the underlying foreign securities.
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/diamond/ U.S. EQUITY PORTFOLIO
The U.S. Equity Portfolio seeks to achieve its investment objective through
investment primarily in equity securities of U.S. companies. In pursuing its
objective, the Portfolio, under normal conditions, invests at least 65% of its
assets in equity securities, including common stocks and preferred stocks, and
securities convertible into common stocks, including convertible bonds,
convertible debentures, convertible notes, convertible preferred stocks and
warrants or rights issued by U.S. companies. In managing the assets of the
Portfolio, the Sub-Adviser uses a combination of "value-oriented" and
"growth-oriented" investing. Value-oriented investing involves seeking
securities that may have low price-to-earnings ratios, or high yields, or that
sell for less than intrinsic value as determined by the Sub-Adviser, or that
appear attractive on a dividend discount model. These securities generally are
sold from the Portfolio's portfolio when their prices approach targeted levels.
Growth-oriented investing generally involves buying securities with above
average earnings growth rates at reasonable prices. The Portfolio holds these
securities until the Sub-Adviser determines that their growth prospects diminish
or that they have become overvalued when compared with alternative investments.
In investing on behalf of the Portfolio, the Sub-Adviser seeks to produce a
portfolio that it believes will have similar characteristics to the S&P 500, by
virtue of blending investments in both "value" and "growth" securities. Since
the Portfolio's strategy seeks to combine the basic elements of companies
comprising the S&P 500, but is designed to select investments deemed to be the
most attractive within each category, the Sub-Adviser believes that the
strategy should be capable of outperforming the U.S. equity market as reflected
by the S&P 500 on a total return basis.
The equity securities issued by U.S. companies in which the Portfolio invests
typically are traded on U.S. securities exchanges; those U.S. equity securities
held by the Portfolio that are not exchange-traded are non-publicly traded or
traded in the U.S. OTC market. Up to 15% of the Portfolio's assets may be
invested in foreign securities.
The Portfolio also may invest in certain equity-indexed securities and
securities of foreign issuers in the form of depositary receipts.
The Portfolio may, under normal market conditions, invest up to 35% of its
assets in notes, bonds and debentures issued by corporate or governmental
entities when the Sub-Adviser determines that investing in these kinds of debt
securities is consistent with the Portfolio's investment objective of long-term
growth of capital. The Sub-Adviser believes that such a determination could be
made, for example, upon the Portfolio's investing in the debt securities of a
company whose securities the Sub-Adviser anticipates will increase in value as a
result of a development particularly or uniquely applicable to the company, such
as a liquidation, reorganization, recapitalization or merger, material
litigation, technological breakthrough or new management or management policies.
In addition, the Sub-Adviser believes such a determination could be made with
respect to an investment by the Portfolio in debt instruments issued by a
governmental entity upon the Sub-Adviser's concluding that the value of the
instruments will increase as a result of improvements or changes in public
finances, monetary policies, external accounts, financial markets, exchange rate
policies or labor conditions of the country in which the governmental entity is
located.
During normal market conditions, a portion of the Portfolio's total assets may
be held in cash and/or invested in money market instruments of the types
described on p. 31 under "Portfolio Securities and Risk Factors" for cash
management purposes, pending investment in accordance with the Portfolio's
investment objective and policies, and to meet operating expenses. During
periods in which the Sub-Adviser believes that investment opportunities in the
U.S. equity markets are diminished (due to either fundamental changes in those
markets or an anticipated general decline in the value of U.S. equity
securities), the Portfolio may, for temporary defensive purposes, hold cash
and/or invest in the same types of money market instruments without limitation.
Included among the money market instruments in which the Portfolio may invest
are repurchase agreements. To the extent that it holds cash or invests in money
market instruments, the Portfolio may not achieve its investment objective of
long-term growth of capital.
The Portfolio's investments in debt securities are limited to those that are
rated investment grade, except that up
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to 5% of the Portfolio's assets may be invested in securities rated lower than
investment grade. A security is considered investment grade if it is rated at
the time of purchase within the four highest grades assigned by Standard & Poors
Corporation ("S&P") or by Moody's Investors Service, Inc. ("Moody's") or has
received an equivalent rating from an NRSRO or, if unrated, is deemed by the
Sub-Adviser to be of comparable quality. (See Appendix A for a description of
debt securities ratings.)
The Portfolio, in addition to investing as described above, may hold the
following types of instruments: non-publicly traded securities, illiquid
securities, and securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act"), but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act (each, a
"Rule 144A Security" and collectively, "Rule 144A Securities"). In addition, the
Portfolio may engage in the following types of investment techniques and
strategies: purchasing put and call options on securities; writing put and call
options on securities; purchasing put and call options on securities indexes;
entering into interest rate, financial and stock or bond index futures contracts
or related options that are traded on a U.S. or foreign exchange or board of
trade or in the over-the-counter market; engaging in forward currency
transactions; purchasing and writing put and call options on foreign currencies;
entering into securities transactions on a when-issued or delayed-delivery
basis; and lending portfolio securities.
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/diamond/ VALUE EQUITY PORTFOLIO
The Value Equity Portfolio seeks to achieve its investment objective by
investing its assets in common stocks with above-average statistical value which
the Sub-Adviser believes are in fundamentally attractive industries and are
undervalued at the time of purchase. The Sub-Adviser will seek to identify
stocks of above-average statistical value by using statistical measures to
screen for below-average price-to earnings and price-to-book value ratios,
above-average dividend yields and strong financial stability.
The Sub-Adviser will begin the process of evaluating potential common stock and
equity-related securities investments by screening a universe of 1,100
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 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 different from those of other
value-oriented investment managers in the following ways: the use of earnings
averaged over both strong and weak periods 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 a part of 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.
Company visits and interviews with management augment fundamental research in
seeking to identify the potential value in these investments. The Portfolio
will seek to be concentrated in those industries with positive fundamentals and
likewise will seek to 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 U.S.-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 presently intends to limit its
investment in foreign securities and ADRs to up to 25% of its total assets.
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. Some of the other securities
the Portfolio may invest in are repurchase agreements (up to 25% of its total
assets); certificates of
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deposit and certain bankers' acceptance and other securities; when-issued,
delayed settlement or forward delivery securities; short-term investments;
illiquid securities (up to 15% of its net assets) and Rule 144A securities; and
non-investment grade convertible bonds and preferred stock (up to 10% of its
assets).
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/diamond/ GLOBAL SECTOR PORTFOLIO
The Global Sector Portfolio seeks to achieve its investment 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 OTC 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. The Sub-Adviser
determines the allocation of the Portfolio's assets among the asset categories
described above, based on proprietary quantitative research.
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 the SAI 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 U.S. 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 U.S., although the Sub-Adviser expects 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.
Market sectors within the asset categories include the industry, country or
bond markets available for investment.
The Portfolio's investment in stocks, bonds and cash securities may vary from
time to time, depending upon the Sub-Adviser's assessment of business, economic
and market conditions. If the Sub-Adviser's assessment determines these
conditions to be abnormal, the Portfolio may depart from its basic investment
objective and assume a temporary defensive position, with up to 100% of its
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 the SAI
for a description of these securities.)
The Portfolio reserves the right to hold equity, debt and cash securities, in
whatever proportion is deemed desirable, at any time for defensive purposes.
While the 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 Portfolio to seek to avoid capital losses during market
downturns. Under normal market conditions, the Portfolio does not expect to
have a substantial portion of its assets invested in cash securities.
In selecting 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 which the Portfolio invests, the
Sub-Adviser attempts to identify companies that have demonstrated or, in the
Sub-Adviser'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 OTC market.
Most of the 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) in which the
Portfolio may invest must be rated in the four highest grades as determined by
Moody's or S&P. However, the Portfolio may also invest up to 15% of its total
assets in debt securities rated below these four levels (commonly referred to
as "junk bonds"). In no event will the Portfolio
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ever invest in a debt security rated below Caa by Moody's or CCC by S&P. (See
Appendix A for a description of debt securities ratings.)
In order to hedge its portfolio, the Portfolio 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 debt securities and
instruments based on financial indexes (collectively, "futures contracts"),
options on futures contracts and interest rate swaps and swap-related products.
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, the Portfolio may enter into forward foreign
currency contracts.
Investments made by the Portfolio in short-term securities may include
repurchase agreements. The Portfolio may enter into repurchase agreements with
respect to debt instruments eligible for investment by the Portfolio.
/diamond/ TACTICAL ASSET ALLOCATION PORTFOLIO
The Tactical Asset Allocation Portfolio seeks to achieve its investment
objective by investing primarily in stocks, U.S. Treasury bonds, notes and
bills, and money market funds. The Portfolio will seek to achieve income yield
in excess of the dividend income yield of the S&P 500. The Portfolio seeks to
invest its assets primarily in income producing common or preferred stock, while
the remainder of the Portfolio will ordinarily be invested in debt obligations,
typically some of which will be convertible into common stock.
The principles by which the Sub-Adviser makes its stock selection are based on
value investing - combining safety of principal with above average returns. A
company is attractive if it is reasonably priced and the Sub-Adviser believes it
will perform better than the current expectations for earning/cash flow over the
next several years.
The Sub-Adviser's focus is on primarily high quality, liquid, large
capitalization stocks. The selection process starts with a "bottom-up" screening
of the market to identify stocks that are statistically undervalued, based on
financial characteristics such as Price to Cash Flow, Price to Sales, Price to
Earnings, Dividend Yield, and Return on Equity relative to the stock's
historical norms.
The Sub-Adviser believes that investors' expectations and the company's
operating performance ultimately determine which statistically "undervalued"
stocks make good investments. Finally, undervalued stocks, by definition, are
out of favor with most investors. Therefore, the analysis of the Sub-Adviser
includes a thorough fundamental and technical evaluation of stocks to determine
their likely prospects for positive investment performance. The Sub-Adviser's
goal is to choose stocks which the market has undervalued based on
"overreaction" to perceived risks.
A stock's fundamentals dominate the selection process. However, technical
analysis is used to improve the timeliness of the Sub-Adviser's trading
decisions.
The Sub-Adviser utilizes a series of linear statistical models that attempt to
forecast total stock market returns for both short (12 to 18 months) and long
(36 to 60 months) run time periods. These time series models assist the
Sub-Adviser in comparing the risks and rewards of holding stocks versus
treasury notes and money market funds, and assist the Sub-Adviser in
determining when to "tactically" adjust the asset allocation through a gradual
shifting of assets among stocks, U.S. Treasury bonds and notes, and money
market funds. A combination of fundamental, technical, subjective and monetary
variables are used in the forecasting models.
The Portfolio may invest up to 25% of its total assets in equity securities of
foreign issuers. It is anticipated that most of the Portfolio's investments in
securities of foreign issuers will be ADRs. The Portfolio may also invest in
American Depositary Shares ("ADSs").
The Portfolio may also invest in U.S. Government securities, corporate bonds
and debentures, high-grade commercial paper (rated Prime-1 by Moody's or A-1 by
S&P), preferred stocks, certificates of deposit or other securities of U.S.
issuers when the Sub-Adviser perceives attractive opportunities from such
securities, or so that the Portfolio may receive a competitive return on its
uninvested cash. The Portfolio may only invest in debt securities of U.S.
issuers. Corporate debt securities in which the Portfolio may invest will have
a rating within the four highest grades as determined by Moody's or S&P. In the
event that ratings decline after the Portfolio's investment in securities, the
Sub-Adviser will consider all such factors as it deems relevant to the
advisability of retaining such securities. (See Appendix A for a description of
debt securities ratings.)
The Portfolio may invest up to 10% of its total assets in money market funds,
within limits imposed by the 1940 Act upon investment by the Portfolio in other
investment companies. If the forecasting models predict a decline in the stock
market, the Sub-Adviser will reduce equity
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exposure which will increase the Portfolio's cash position, including investment
in money market funds.
The Portfolio may also invest in zero coupon bonds, "strips" and convertible
securities.
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/diamond/ STRATEGIC TOTAL RETURN PORTFOLIO
The Strategic Total Return Portfolio (prior to May 1, 1997, the Equity-Income
Portfolio) seeks to achieve its investment objective by investing primarily in a
blend of equity and fixed-income securities, including common stocks, income
producing securities convertible into common stocks, and fixed-income
securities. The Portfolio will primarily invest in equity and debt securities of
companies with established operating histories and strong fundamental
characteristics. The Portfolio seeks to achieve an income yield in excess of the
dividend income yield of the S&P 500 primarily by utilizing both equity and
fixed-income securities. It is anticipated that approximately 25% of the
Portfolio's assets will be invested in fixed-income securities, some of which
may be convertible into common stocks.
In selecting equity and fixed-income securities for the Portfolio, the
Sub-Adviser typically seeks companies which exhibit strong fundamental
characteristics and considers fundamental factors such as cash flow generation,
earnings and dividend growth record and outlook, balance sheet quality, and
profitability levels. However, the Sub-Adviser may select securities based on
factors other than those described above.
For example, some securities may be purchased at an apparent discount to their
appropriate value, anticipating that they will increase to that value over time.
The Sub-Adviser's objective in investing in such undervalued companies is to
purchase shares of these companies at a discount to net asset value and have the
investment accrue to that value over time. The Portfolio does not presently
intend to invest more than 20% of its total assets in equity securities which do
not pay a dividend. It is anticipated that a majority of the equity securities
in which the Portfolio invests will be listed on a national securities exchange
or traded on NASDAQ or in the U.S. OTCs.
The Portfolio may increase its cash position when the Sub-Adviser determines
that investment opportunities with desirable risk/reward characteristics are
unavailable.
The Portfolio may invest up to 10% of its total assets in foreign securities
not publicly traded in the United States. In addition, the Portfolio may invest
in ADRs.
The Portfolio may also invest in U.S. and foreign government securities,
corporate bonds and debentures, high-grade commercial paper (rated Prime-1 by
Moody's or A-1 by S&P), preferred stocks, certificates of deposit or other
securities of U.S. issuers when the Sub-Adviser perceives attractive
opportunities from such securities, or so that the Portfolio may receive a
competitive return on its uninvested cash. The Portfolio may invest in debt
securities of U.S. and foreign issuers. The Portfolio may invest up to 15% of
its net assets in illiquid securities.
Corporate debt securities in which the Portfolio invests will generally have a
rating within the four highest grades as determined by Moody's or S&P. (See
Appendix A for a description of debt securities ratings.)
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/diamond/ GROWTH & INCOME PORTFOLIO
The Growth & Income Portfolio (prior to May 1, 1997, the Utility Portfolio)
seeks to achieve its investment objective by investing its assets in a
diversified portfolio of equity and debt securities with an emphasis on sector
investing. Industry sectors in which the Portfolio may invest include, but are
not limited to, utilities, financial services, real estate investment trusts,
health care, natural resources and energy sectors. Except for utilities, the
Portfolio will not concentrate its investments in any single industry.
The Portfolio's investment approach is based on the conviction that over the
long-term, the economy will continue to expand and develop and that this
economic growth will be reflected in the growth of the revenues and earnings of
such companies. Sectors which have had historical emphasis in defensive
characteristics are selected for investment.
The Portfolio's stock selection emphasizes those common stocks in each sector
that have good value, attractive yield or dividend growth potential. The common
stocks are selected by the Portfolio's Sub-Adviser on the basis of traditional
research techniques, including assessment of earnings and dividend growth
prospects and of the risk and volatility of the company's industry. However,
other factors, such as product position, market share, or profitability will
also be considered by the Sub-Adviser. While the Portfolio invests primarily in
common stocks, it may invest in other securities such as convertible securities,
preferred stocks, U.S. Government securities, money market instruments,
corporate bonds, notes and warrants.
The Portfolio may invest in the securities of foreign issuers which are freely
traded on U.S. securities exchanges
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or in the OTC market in the form of ADRs, as well as securities of foreign
issuers that trade on foreign stock exchanges. The Portfolio will limit its
investment in foreign securities not publicly traded on recognized exchanges to
15% of its total assets.
Restricted securities are any securities in which the Portfolio may otherwise
invest pursuant to its investment objective and policies, but which are subject
to restriction on resale under federal securities law. To the extent restricted
securities are deemed to be illiquid, the Portfolio will limit their purchase,
including non-negotiable time deposits, repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities determined by the Fund's Board not be be liquid, up to 15% of its net
assets.
The Portfolio may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the 1933 Act.
The Portfolio may invest in convertible securities. Convertible securities are
fixed income securities which may be exchanged or converted into a predetermined
number of the issuer's underlying common stock at the option of the holder
during a specified time period.
The Portfolio may invest temporarily in cash, cash items, and short-term
instruments, including notes and commercial paper, for liquidity and during
times of unusual market conditions for defensive purposes (up to 100% of its
assets).
The Portfolio may purchase securities on a when-issued or delayed delivery
basis. The Portfolio will limit purchases of securities on a when-issued or
delayed delivery basis to no more than 10% of the value of its total assets.
The Portfolio may purchase put options on its portfolio securities. These
options will be used as a hedge to attempt to protect securities which the
Portfolio holds against decreases in value. The Portfolio will only purchase
puts which are traded on a recognized exchange.
The Portfolio may also write call options on all or any portion of its
portfolio to generate income for the Portfolio. The Portfolio will write call
options on securities either held in its portfolio or for which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration. The call options
which the Portfolio writes must be listed on a recognized options exchange.
Although the Portfolio reserves the right to write covered call options on its
entire portfolio, it will not write such options on more than 25% of its total
assets unless a higher limit is authorized by the Fund's Board.
The Portfolio may purchase and sell financial futures contracts to hedge all or
a portion of its portfolio of long-term debt securities against changes in
interest rates.
The Portfolio may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. The Portfolio may not purchase or sell futures or
related options if, immediately thereafter, the sum of the amount of margin
deposits on the Portfolio's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Portfolio's total
assets.
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/diamond/ BALANCED PORTFOLIO
The Balanced Portfolio seeks to achieve its investment objective by investing
primarily in common stock, convertible securities and fixed-income securities.
The Portfolio may also invest in preferred stocks and interests in REITs. A
minimum of 25% of the Portfolio's assets will always be invested in
non-convertible fixed-income securities.
In seeking current income and growth opportunities, the Portfolio will
primarily select companies with established operating histories and potential
for dividend growth. The Portfolio will seek to achieve income yield in excess
of the dividend income yield of the S&P 500.
The Portfolio does not presently intend to invest more than 20% of its total
assets in equity securities which do not pay a dividend. It is anticipated that
almost all of the equity securities in which the Portfolio invests will be
listed on a national securities exchange or on NASDAQ or will be traded in the
U.S. OTC markets.
The Portfolio seeks to invest its assets primarily in income-producing common
or preferred stock when the Sub-Adviser believes that the relevant market
environment favors profitable investing in those securities.
In selecting equity securities and securities convertible into equity securities
for the Portfolio, the Sub-Adviser typically seeks companies which exhibit
strong fundamental characteristics such as balance sheet quality, cash flow
generation, earnings and dividend growth record and outlook, and profitability
levels. The Sub-Adviser presently intends to consider these and other
fundamental characteristics in determining attractive investment opportunities.
However, the Sub-Adviser may select securities based on factors other than those
described above.
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The remainder of the Portfolio will ordinarily be invested in debt obligations,
typically some of which will be convertible into common stock. However, the
Portfolio may increase its cash position when the Sub-Adviser determines that
investment opportunities with desirable risk/reward characteristics are
unavailable.
The Portfolio may invest up to 25% of its total assets in securities of foreign
issuers. It is anticipated that most of the Portfolio's investments in
securities of foreign issuers will be ADRs.
The Portfolio may invest in Government securities, corporate bonds and
debentures, high-grade commercial paper (rated Prime-1 by Moody's or A-1 by
S&P), preferred stocks, certificates of deposit or other securities of U.S.
issuers when the Sub-Adviser perceives attractive opportunities from such
securities, or to enable the Portfolio to receive a competitive return on its
uninvested cash. The Portfolio may invest in debt securities of U.S. and
foreign issuers.
Corporate debt securities in which the Portfolio invests will generally have a
rating within the four highest grades as determined by Moody's or S&P. 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). If the securities are unrated, the Portfolio will not
invest if they are judged by the Sub-Adviser not to possess investment
qualities at least equivalent to a "B" or "b" rating. (See Appendix A for a
description of debt securities ratings.)
In the event that ratings decline after the Portfolio's investment in such
securities, the Sub-Adviser will consider all factors as it deems relevant to
the advisability of retaining such securities.
The Portfolio may also invest in zero coupon bonds, "strips", illiquid
securities (up to 15% of its net assets) and convertible securities.
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/diamond/ BOND PORTFOLIO
The Bond Portfolio seeks to achieve its investment objective by investing at
least 65%, and usually a higher percentage, of its assets in debt securities
issued by the U.S. Government and its agencies and instrumentalities and in
other medium to high-quality debt securities.
Generally, the Portfolio will invest in debt securities that have a rating
within the three highest grades as determined by Moody's or S&P. The Portfolio
may, however, invest in debt securities within the fourth highest grade as
determined by Moody's or S&P, if the Sub-Adviser determines such investments
meet the Portfolio's investment objective. (See Appendix A for a description of
debt securities ratings.)
An increase in interest rates tends to reduce the market value of fixed income
investments, and a decline in interest rates tends to increase their value. The
Portfolio's performance is, accordingly, quite sensitive to market interest
rate fluctuations. To take advantage of differences in securities prices and
yields, or fluctuations in interest rates, consistent with its investment
objective, the Portfolio may trade for short-term profits.
The Portfolio may invest in repurchase and reverse repurchase agreements,
illiquid securities (up to 15% of its net assets) when-issued securities (up to
20% of its assets), futures contracts, related options and other derivatives,
zero coupon bonds, up to 5% in high-yield bonds, "strips", pay-in-kind and step
coupon securities and, up to 25% of its net assets in foreign securities. If
appropriate and available, the Sub-Adviser may purchase foreign securities
through ADRs, EDRs and GDRs, and other types of receipts or shares evidencing
ownership of the underlying foreign securities. The Portfolio does not intend
to invest more than 10% of its assets in zero coupon bonds or "strips".
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/diamond/ SHORT-TO-INTERMEDIATE GOVERNMENT PORTFOLIO
The Short-to-Intermediate Government Portfolio seeks to achieve its investment
objective by investing primarily in U.S. Government securities and certain
other securities as described below. Under normal conditions, at least 65% of
the Portfolio's total assets will be invested in U.S. Government securities,
including repurchase agreements with respect to U.S. Government securities. The
Portfolio will not enter into a repurchase agreement or reverse repurchase
agreement which would cause more than 15% of its net assets to be subject to
repurchase or reverse repurchase agreements not terminable within seven days,
together with other illiquid investments. The Portfolio itself, and its share
price and yield, are not guaranteed by the U.S. Government.
The Portfolio seeks to manage share price stability by investing in obligations
with short or intermediate maturities that are not as sensitive to interest rate
changes as obligations with longer maturities. In selecting securities for the
Portfolio, the Portfolio's Sub-Adviser attempts to maintain the Portfolio's
overall sensitivity to interest rates in a range similar to the average for
short-term to intermediate-term Government bonds with an aggregate average
dollar-weighted remaining maturity of one to seven years. The Portfolio's
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dollar-weighted average maturity may be longer than seven years from time to
time, but will not exceed ten years under normal operating conditions. The
Portfolio may hold individual securities with maturities of more than ten years
as long as its average maturity remains within this range.
The Portfolio may also invest in debt securities of all types, E.G., bonds,
debentures, notes, equipment lease and trust certificates (debt securities
secured by direct or indirect interest in specified equipment or equipment
leases), mortgage-backed securities, asset-backed securities (rated at least "A"
by S&P or Moody's), taxable municipal bonds, bond warrants, obligations issued
or guaranteed by supranational issuers or collateralized mortgage obligations
("CMOs") assembled for sale to investors by governmental agencies ("mortgage
securities"). The Portfolio may also invest in commercial paper (rated Prime-1
by Moody's or A-1 by S&P).
Corporate debt securities in which the Portfolio invests will generally have a
rating within the three highest grades as determined by Moody's or S&P. The
Portfolio may, however, invest in debt securities within the fourth highest
grade as determined by Moody's or S&P, if the Sub-Adviser determines the debt
securities' ratings are supported by an internal credit review that the Sub-
Adviser will conduct in each such instance. (See Appendix A for a description of
debt securities ratings.)
The Portfolio may invest a portion of its assets in very short-term instruments
with remaining maturities of one year or less, including U.S. Treasury bills and
repurchase agreements. When it is believed that market conditions warrant a
temporary defensive position, the Portfolio may invest up to 100% of its assets
in these instruments.
The Portfolio may invest up to 15% of its net assets in illiquid securities.
The Portfolio may also invest up to 10% of its total assets in foreign
securities.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
/diamond/ MONEY MARKET PORTFOLIO
The Money Market 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 seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days through
investment in U.S. dollar-denominated securities which have effective
maturities of not more than 13 months and which, in accordance with guidelines
adopted by the Fund's Board, are determined to present minimal credit risks.
(See the SAI for a more detailed description of these instruments.) Such
instruments may include:
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.
4. Commercial paper, including variable amount master demand notes 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.
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The Portfolio will limit its investment to securities that present minimum
credit risks, as determined by guidelines adopted by the Fund's Board. In
addition, the Portfolio will limit its investment in the securities of any one
issuer to 5% of its total assets, measured at the time of purchase. (U.S.
Government securities and securities that benefit from certain types of credit
enhancement arrangements are not included in this limitation.) The Portfolio may
invest up to 25% of its total assets in securities of a single issuer if the
securities will not be held for more than three business days.
Also, the Portfolio will not purchase any security (other than a U.S. Government
security) unless (i) it (or a comparable security of the same issuer) is rated
with the highest rating assigned to short-term debt securities by at least two
NRSROs, such as Moody's and S&P, or (ii) it (or a comparable security of the
same issuer) 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 Fund's Board. The Fund's Board must
approve or ratify the acquisition of any unrated security or a security rated by
only one NRSRO.
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 Fund's Board, except in certain circumstances where
there is a finding by the Fund's Board that disposing of the investment would
not be in the Portfolio's best interest. (For a description of the NRSRO
ratings, see Appendix A.)
The Portfolio may also invest in securities of a when-issued or delayed delivery
basis and in certain privately-placed securities and repurchase and reverse
repurchase agreements. The Portfolio may invest up to 10% of its net assets in
illiquid securities.
The Portfolio may invest up to 10% of its total assets, calculated at the time
of purchase, in the securities of money market funds, which are investment
companies. The Portfolio may not invest (i) more than 5% of its total assets in
the securities of any one investment company or (ii) in more than 3% of the
voting securities of any other investment company. The Portfolio will indirectly
bear its proportionate share of any investment advisory fees and expenses paid
by the money market funds in which it invests, in addition to the Portfolio's
own investment advisory fee and expenses paid.
The Portfolio operates under a rule of the SEC that permits it, subject to
certain conditions, to use the amortized cost method of valuing its shares.
(See the SAI for a description of these conditions.)
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
OTHER INVESTMENT POLICIES
AND RESTRICTIONS
The Portfolios are subject to certain other investment policies and
restrictions which are described in the SAI for the Portfolios. Unless
otherwise noted, the investment policies, techniques, and percentage
restrictions described below are non-fundamental and may be changed by the
Fund's Board without Policyholder approval.
Unless otherwise stated, each of the following policies applies to all of the
Portfolios. In addition, unless otherwise stated below, the percentage
limitations included in these policies and elsewhere in this Prospectus apply
only at the time of purchase of the security.
/diamond/ CASH POSITION
A Portfolio may, at times, choose to hold some portion of its net assets in
cash, or to invest that cash in a variety of debt securities. This may be done
as a defensive measure at times when desirable risk/reward characteristics are
not available in stocks or to earn income from otherwise uninvested cash. When
a Portfolio increases its cash or debt investment position, its income may
increase while its ability to participate in stock market advances or declines
decreases.
/diamond/ DIVERSIFICATION AND CONCENTRATION
The 1940 Act classifies investment companies as either diversified or
non-diversified.
Diversification is the practice of spreading a portfolio's assets over a number
of investments, investment types, industries or countries to reduce risk. A
non-diversified portfolio has the ability to take larger positions in fewer
issuers. Because the appreciation or depreciation of a single security may have
a greater impact on the net asset value of a non-diversified portfolio, its
share price can be expected to fluctuate more than a comparable portfolio.
All of the Portfolios qualify as diversified funds under the 1940 Act. The
Portfolios are subject to the following diversification requirements (which are
set forth in full in the SAI):
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/diamond/ As a fundamental policy, with respect to 75% of the total assets of a
Portfolio, the Portfolio may not own more than 10% of the outstanding
voting shares of any issuer (other than U.S. Government securities) as
defined in the 1940 Act and, with respect to some Portfolios, in other
types of cash items.
/diamond/ As a fundamental policy, with respect to 75% of the total assets of a
Portfolio, the Portfolio will not purchase a security of any issuer if
such purchase would cause the Portfolio's holdings of that issuer to
amount to more than 5% of the Portfolio's total assets.
/diamond/ As a fundamental policy governing concentration, no Portfolio (except
the Growth & Income Portfolio) will invest more than 25% of its assets
in any one particular industry, other than U.S. Government securities.
Under normal market conditions, the Growth & Income Portfolio will
invest at least 25% of its assets in utilities.
/diamond/ PORTFOLIO TURNOVER
A portfolio turnover rate is, in general, the percentage calculated 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. (See "Financial Highlights"
for each Portfolio on pages 1-9 for more information on historical turnover
rates.)
Changes in security holdings are made by a Portfolio's Sub-Adviser when it is
deemed necessary. Such changes may result from: liquidity needs; securities
having reached a price or yield objective; anticipated changes in interest rates
or the credit standing of an issuer; or developments not foreseen at the time of
the investment decision.
A Sub-Adviser may engage in a significant number of short-term transactions if
such investing serves a Portfolio's objective. The rate of portfolio turnover
will not be a limiting factor when such short-term investing is considered
appropriate.
Increased turnover results in higher brokerage costs or mark-up charges for a
Portfolio; these charges are ultimately borne by the Policyholders. For further
discussion of portfolio turnover, see the SAI.
/diamond/ BORROWING
Each Portfolio may borrow money from banks for temporary or emergency purposes.
The amount borrowed shall not exceed 331/3% of total assets for the Global
Sector, the International Equity, the U.S. Equity and the Aggressive Growth
Portfolios; 10% of total assets for the Value Equity Portfolio; and 25% of
total assets for all other Portfolios. (The Growth & Income Portfolio does not
presently intend to borrow.)
To secure borrowings, a Portfolio may not mortgage or pledge its securities in
amounts that exceed 15% of its net assets (10% for the Value Equity Portfolio).
(See the SAI for any exceptions to this limitation.)
The Portfolios with a common Sub-Adviser may also borrow (or lend) money to
other funds that permit such transactions and are also advised by that
Sub-Adviser, provided each Portfolio seeks and obtains permission from the SEC.
There is no assurance that such permission would be granted.
The Aggressive Growth Portfolio may borrow for investment purposes - this is
called "leveraging." The Portfolio may borrow only from banks, not from other
investment companies. There are risks associated with leveraging:
/diamond/ If a Portfolio's asset coverage drops below 300% of borrowings, the
Portfolio may be required to sell securities within three days to
reduce its debt and restore the 300% coverage, even though it may be
disadvantageous to do so.
/diamond/ Leveraging may exaggerate the effect on net asset value of any
increase or decease in the market value of a Portfolio's securities.
/diamond/ Money borrowed for leveraging will be subject to interest costs. In
certain cases, interest costs may exceed the return received on the
securities purchased.
/diamond/ A Portfolio may be required to maintain minimum average balances in
connection with borrowing or to pay a commitment or other fee to
maintain a line of credit. Either of these requirements would increase
the cost of borrowing over the stated interest rate.
State laws and regulations may impose additional limitations on borrowings. See
the SAI for further information on borrowing.
/diamond/ LENDING
Each Portfolio may lend securities to broker-dealers and financial institutions
to realize additional income. As a fundamental policy, the Growth & Income and
Global Sector Portfolios will not lend securities or other assets, if as a
result, more than 33-1/3% of total assets would be lent to other parties; the
International Equity Portfolio, the U.S. Equity Portfolio and the
Short-to-Intermediate Government Portfolio may lend up to 30% of total assets;
and all other Portfolios (except the Aggressive Growth Portfolio) may lend up
to 25% of total assets.
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The Aggressive Growth Portfolio may not make loans to others, except through
buying qualified debt obligations, lending portfolio securities or entering
into repurchase agreements. The Aggressive Growth Portfolio will not lend
securities or other assets if, as a result, more than 20% of its total assets
would be lent to other parties.
If the borrower of a security defaults, a Portfolio may be delayed or prevented
from recovering collateral, or may be otherwise required to cover a transaction
in the security loaned.
If portfolio securities are loaned, collateral values must be continuously
maintained at no less than 100% by pricing both the securities loaned and the
collateral 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 actions as may be
appropriate in order to vote its shares.
The Growth, Bond, Global, International Equity, Short-to-Intermediate
Government, Emerging Growth and Strategic Total Return Portfolios may also lend
(or borrow) money to other funds that are managed by their respective
Sub-Adviser provided each Portfolio seeks and obtains permission from the SEC.
For more information about Portfolio lending, see the SAI.
/diamond/ SHORT SALES
Each Portfolio may sell securities "short against the box." A short sale is the
sale of a security that the Portfolio does not own. A short sale is "against
the box" if at all times when the short position is open, the Portfolio owns an
equal amount of the securities sold short or securities convertible into, or
exchangeable without further consideration for, securities of the same issue as
the securities sold short.
/diamond/ OTHER INVESTMENT COMPANIES
Certain Portfolios may invest up to 10% of their total assets, calculated at
the time of purchase, in the securities of money market funds, which are
investment companies. The Portfolios may not invest (i) more than 5% of their
total assets in the securities of any one investment company or (ii) in more
than 3% of the voting securities of any other investment company. (Investments
by the International Equity and U.S. Equity Portfolios in the GEI Short-Term
Investment Trust, as described below under "Portfolio Securities and Risk
Factors - Money Market Instruments," are not considered an investment in
another investment company for purposes of these limitations.) A Portfolio will
indirectly bear its proportionate share of any investment advisory fees and
expenses paid by the funds in which it invests, in addition to the investment
advisory fee and expenses paid by the Portfolio. However, if the Growth, Bond
or Global Portfolio invests in a Janus money market fund, Janus Capital will
remit to such Portfolio the fees it receives from the Janus money market fund
to the extent such fees are based on the Portfolio's assets.
/diamond/ SPECIAL SITUATIONS
Each Portfolio may invest in "special situations" from time to time. A special
situation arises when, in the opinion of its Sub-Adviser, 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 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.
PORTFOLIO SECURITIES
AND RISK FACTORS
This section provides a more detailed description of some of the types of
securities and other instruments in which a Portfolio may invest. A Portfolio
may invest in these instruments to the extent permitted by its investment
objective, policies, and restrictions. Not all of these instruments are used by
each Portfolio. A Portfolio is not limited by this discussion and may invest in
other types of instruments not precluded by the policies discussed above. (See
"Portfolio Policies and Techniques," p.16, and the SAI for more information
regarding a Portfolio's investment objective and its policies, that include
limitations imposed on certain investments.)
/diamond/ EQUITY SECURITIES
Equity securities include common stocks, preferred stocks and securities
convertible into common stocks, such as rights, warrants and convertible debt
securities. Equity securities may also include certain equity-indexed
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securities, the value of which is linked to a securities index (E.G., the S&P
500).
/diamond/ COMMON STOCK represents the basic ownership of a corporation. Common
stocks historically have provided the greatest long-term growth
potential in a company, but future results are not guaranteed. Owners
of common stock share directly in the success or failure of the
business.
/diamond/ PREFERRED STOCK ranks senior to common stock and has certain
fixed-income features.
Preferred stockholders receive dividends before they are distributed to the
common stockholders.
/diamond/ RISK FACTORS
The price of any equity security rises and falls. Common stocks
generally represent the riskiest investment in a company. It is
possible that investors may lose their entire investment.
In addition to the risk associated with individual equity securities,
an equity-indexed security carries overall market risk and the risk of
fluctuation inherent in the indexed security as distinguished from the
securities comprising the applicable index.
Any equity security also presents the risks inherent in the particular
industry of the issuer of the equity security. Certain of these
sectors, and the risks presented by such sectors, are described below.
/diamond/ GOLD STOCK AND GOLD BULLION - Gold stocks are equity securities
involved in the exploration, mining, processing, or dealing or
investing in gold. Investments in gold bullion involve the purchase of
bars or ingots of the precious metal.
/diamond/ RISK FACTORS
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
gold producers - South Africa and the Commonwealth of Independent
States (the former Soviet Union) - may have a direct impact on the
price of gold worldwide.
A Portfolio's 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, a Portfolio 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.
/diamond/ HEALTH CARE - Health care stocks are equity securities of companies
primarily engaged in the design, manufacture, or sale of products or
services used for, or in connection with, health care or medicine.
/diamond/ RISK FACTORS
Securities in the health care sector are subject to price
fluctuations based on industry changes, changes in a company's
financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
/diamond/ FINANCIAL SERVICES - Financial Services investing includes equity
securities of companies that provide financial services to consumers
and industry. A company is principally engaged in the industry if it
derives more than 15% of revenues or profits from brokerage or
investment management activities.
/diamond/ RISK FACTORS
Companies in the financial services industry are subject to
various risks related to that industry, such as government
regulation, changes in interest rates, and exposure on loans,
including loans to foreign borrowers. The performance of equity
securities of this industry may be affected by the conditions that
affect this industry.
/diamond/ UTILITIES - Utility Stocks are equity and debt securities of utility
companies that produce, transmit, or distribute gas and electric
energy as well as those companies that provide communications
facilities such as telephone and telegraph companies.
/diamond/ RISK FACTORS
Risks associated with the utility industry include difficulty in
earning adequate returns on investments despite frequent rate
increases, restriction on operation and increased costs and delays
due to government regulations, building or construction delays,
environmental regulations, difficulty of the capital markets in
absorbing utility debt and equity securities, and difficulties in
obtaining fuel at reasonable prices.
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/diamond/ ENERGY - Energy stocks are equity securities of companies in the
energy service field, including those that provide services and
equipment to the conventional areas of oil, gas, electricity and coal,
and newer sources of energy such as nuclear, geothermal, oil shale and
solar power.
/diamond/ RISK FACTORS
Risks associated with the energy industry include difficulty in
adequate returns due to increased costs and delays due to
government regulations, building or construction delays, and
environmental regulations.
/diamond/ NATURAL RESOURCES - Natural Resource stocks are equity securities of
domestic and foreign companies with substantial natural resource
assets. Natural resource assets are materials derived from natural
sources which have economic value. Examples of natural resource assets
include precious metals (E.G. gold, silver and platinum), ferrous and
nonferrous metals (E.G. iron, steel, aluminum and copper), strategic
metals (E.G., uranium and titanium), hydrocarbons (E.G., coal, oil and
natural gas), timber land, undeveloped real property and agricultural
commodities.
/diamond/ RISK FACTORS
During periods of economic or financial instability, the
securities of such companies are subject to extreme price
fluctuations, reflecting the high volatility of certain natural
resources, such as precious metals, during these periods. In
addition the instability of prices of these natural resources may
result in volatile earnings of related companies, which in turn,
may affect adversely the financial condition of such companies.
/diamond/ SMALL CAPITALIZATION COMPANIES
A Portfolio may invest in equity securities issued by small-cap companies. For
these purposes, a Sub-Adviser may define small-cap companies differently.
Generally a small-cap company will have market capitalizations of $1 billion or
less. A Portfolio's 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. See each Portfolio's discussion of small-cap
companies under the section "The Portfolios In Detail."
/diamond/ DEBT SECURITIES AND FIXED-INCOME INVESTING
Debt securities include such securities as corporate bonds and debentures,
commercial paper, debt securities issued by the U.S. Government, its agencies
and instrumentalities, or foreign governments, asset-backed securities, CMOs,
zero coupon bonds, "strips", pay-in-kind and step securities.
Fixed-income investing is the purchase of a debt security that maintains a
level of income that does not change. For instance, bonds paying interest at a
specified rate that does not change are fixed-income securities. When a debt
security is purchased, the Portfolio owns "debt" and becomes a creditor to the
company or government.
Fixed-income securities generally include short- and long-term government,
corporate and municipal obligations that pay a specified rate of interest or
coupons for a specified period of time, or preferred stock, which pays fixed
dividends. Coupon and dividend rates may be fixed for the life of the issue or,
in the case of adjustable and floating rate securities, for a shorter period of
time. A Portfolio may vary the average maturity of its portfolio of debt
securities based on the Sub-Adviser's analysis of interest rate trends and
factors.
Bonds rated Baa by Moody's or BBB by S&P are considered medium grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security for such bonds 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. (See Appendix A for a description of debt securities ratings.)
/diamond/ RISK FACTORS
Investments in debt securities are generally 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.
An increase in interest rates will tend to reduce the market value of debt
securities, whereas a decline in interest rates will tend to increase their
value.
Generally, shorter term securities are less sensitive to interest rate changes,
but longer term securities offer
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higher yields. The Portfolio's share price and yield will also depend, in part,
on the quality of its investments in debt securities.
Such securities may be affected by changes in the creditworthiness of the
issuer of the security. The extent that such changes are reflected in the
Portfolio's share price will depend upon the extent of the Portfolio's
investment in such securities.
/diamond/ CONVERTIBLE SECURITIES
Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock of the issuer or a related financial entity
(for example, a merged or acquired company or partner). Convertible securities
may include, but are not limited to: convertible bonds or debentures;
convertible preferred stock; units consisting of usable bonds and warrants; or
securities which cap or otherwise limit returns to the convertible security
hold, such as DECS - (Dividend Enhanced Convertible Stock, or Debt Exchangeable
for Common Stock when issued as a debt security.), LYONS - (Liquid Yield Option
Notes, which are corporate bonds that are purchased at prices below par with no
coupons and are convertible into stock), PERCS - (Preferred Equity Redeemable
Stock, (an equity issue that pays a high cash dividend, has a cap price and
mandatory conversion to common stock at maturity), and PRIDES - (Preferred
Redeemable Increased Dividend Securities, which are essentially the same as
DECS; the difference is little more than who initially underwrites the issue.)
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 decline in market value than the issuer's common stock. However, the extent
to which such risk is reduced depends greatly 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.
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issurer's balance sheet, hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated.
/diamond/ RISK FACTORS
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 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.
/diamond/ REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
A repurchase agreement involves the purchase of a security by a Portfolio and a
simultaneous agreement (generally from a bank or broker-dealer) to repurchase
that security back from the Portfolio at a specified price and date 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. Repurchase agreements not terminable within seven days are considered
illiquid securities.
A Portfolio invests in a reverse repurchase agreement when 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, a Portfolio will segregate with its
custodian cash and other liquid assets 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.
/diamond/ RISK FACTORS
Repurchase agreements involve the risk that the seller will fail to repurchase
the security, as agreed. In that case, a Portfolio will bear the risk of market
value fluctuations until the security can be sold and may encounter delays and
incur costs in liquidating the security. In
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the event of bankruptcy or insolvency of the seller, delays and costs are
incurred.
Reverse repurchase agreements may expose a Portfolio to greater fluctuations in
the value of its assets.
/diamond/ MONEY MARKET INSTRUMENTS
Except as described below with respect to the International Equity and U.S.
Equity Portfolios, a Portfolio, other than the Money Market Portfolio, may
invest in the following types of money market instruments: U.S. Government
Securities; obligations issued or guaranteed by foreign governments or by any of
their political subdivisions, authorities, agencies or instrumentalities; bank
obligations (including certificates of deposit, time deposits and bankers'
acceptances of foreign or domestic banks, domestic savings and loan associations
and other banking institutions); commercial paper; and repurchase agreements.
The International Equity and U.S. Equity Portfolios may also invest in the GEI
Short-Term Investment Fund (the "Investment Fund"), a private investment fund
created specifically to serve as a vehicle for the collective investment of cash
balances of these Portfolios and other accounts advised by GE Investment
Management Incorporated ("GEIM") or its affiliate, General Electric Investment
Corporation ("GEIC"). The Investment Fund is not registered with the SEC as an
investment company. The Investment Fund invests exclusively in the money market
instruments described in (i) through (vii) below. The Investment Fund is advised
by GEIM. No advisory fee is charged by GEIM to the Investment Fund, nor will a
Portfolio incur any sales charge, redemption fee, distribution fee or service
fee in connection with its investments in the Investment Fund. The International
Equity and U.S. Equity Portfolios may each invest up to 25% of its assets in the
Investment Fund. The types of money market instruments in which the
International Equity and U.S. Equity Portfolios may invest directly or
indirectly through their investment in the Investment Fund are as follows: (i)
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities; (ii) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers; (iii) commercial paper
and notes, including those with variable and floating rates of interest; (iv)
debt obligations of foreign branches of U.S. banks, U.S. branches of foreign
banks and foreign branches of foreign banks; (v) debt obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities, including obligations of
supranational entities; (vi) debt securities issued by foreign issuers; and
(vii) repurchase agreements.
/diamond/ U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as those of the
Government National Mortgage Association ("GNMA"), are supported by the "full
faith and credit" of the U.S. Government; others, such as those of the
Export-Import Bank of the U.S., are supported by the right of the issuer to
borrow from the U.S. Treasury; others, such as those of the Federal National
Mortgage Association ("FNMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
/diamond/ RISK FACTORS
Investors should be aware that the value of the U.S. Government securities held
by a Portfolio will fluctuate with changes in interest rates, with a decrease
in interest rates generally resulting in an increase in the value of the
securities and an increase in interest rates having the opposite effect.
In addition, certain obligations, such as long-term obligations issued by the
GNMA and the FNMA, represent ownership interest in pools of mortgages that may
be subject to significant unscheduled prepayments as a result of a drop in
mortgage interest rates. Because these prepayments must be reinvested, possibly
in pools including mortgages bearing lower interest rates, these obligations
may have less potential for capital appreciation during periods of declining
interest rates than other investments of comparable maturity. They have a
comparable risk of decline during periods of rising interest rates.
/diamond/ BANK OBLIGATIONS
Subject to its investment policy, a Portfolio may invest in bank obligations
such as CDs or time deposits. Such investments involve the risks that an
investment in the banking industry may entail.
/diamond/ RISK FACTORS
Banks are subject to extensive governmental regulations which may limit both
the amount and types of loans and other financial commitments which may be made
and interest rates and fees which may be charged.
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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.
Exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations.
/diamond/ FOREIGN BANK OBLIGATIONS
A Portfolio may invest in foreign bank obligations and obligations of foreign
branches of domestic banks. These investments prevent certain risks.
/diamond/ RISK FACTORS
Risks include the impact of future political and economic developments, the
possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls and/or the addition of other foreign governmental
restrictions that might adversely affect the payment of principal and interest
on these obligations.
In addition, there may be less publicly available and reliable information
about a foreign bank than about domestic banks owing to different accounting,
auditing, reporting and recordkeeping standards.
/diamond/ FOREIGN SECURITIES
Foreign securities include equity and debt securities of foreign issuers. Each
Portfolio may invest in foreign securities subject to its investment
limitations.
In addition to direct foreign investment, many of the Portfolios may invest in
foreign securities through ADRs or ADSs, which are dollar-denominated receipts
issued by domestic banks or securities firms. ADRs and ADSs are publicly traded
on U.S. exchanges, and may not involve the same risks as securities denominated
in foreign currency.
Some Portfolios may also indirectly invest in foreign securities through EDRs,
which are typically issued by European banks; in GDRs, which may be issued by
domestic or foreign banks; and in other types of receipts evidencing ownership
of foreign securities.
/diamond/ RISK FACTORS
For U.S. investors, the returns on foreign securities are influenced not only
by the returns on the foreign investments themselves, but also by several risks
which include:
/diamond/ CURRENCY RISK. Changes in the value of the currencies in which the
securities are denominated relative to the U.S. dollar may affect the
value of foreign securities and the value of their dividend or
interest payments and, therefore, a Portfolio's share price and
returns.
Generally, in a period when the U.S. dollar commonly rises against
foreign currencies, the return 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.
Exchange rates are affected by numerous factors, including relative
interest rates, balances of trade, levels of foreign investment and
manipulation by central banks. The foreign currency market is
essentially unregulated and can be subject to speculative trading.
From time to time, many countries impose exchange controls which limit
or prohibit trading in certain currencies.
ADRs and ADSs do not involve the same direct currency and liquidity
risks as securities denominated in foreign currencies. However, the
value of the currency in which the foreign security represented by the
ADR or ADS is denominated may affect the value of the ADR or ADS. To
the extent that a Portfolio invests in foreign securities denominated
in foreign currencies, its share price reflects the price movements
both of its securities and of the currencies in which they are
denominated. The share price of a Portfolio that invests in both U.S.
and foreign securities may have a low correlation with movements in
the U.S. markets. If most of the securities in a Portfolio are
denominated in foreign currencies or depend on the value of foreign
currencies, the relative strength of the U.S. dollar against those
foreign currencies may be an important factor in the Portfolio's
performance.
/diamond/ CURRENCY TRADING COSTS. A Portfolio incurs costs in converting foreign
currencies into U.S. dollars, and vice versa.
/diamond/ DIFFERENT ACCOUNTING AND REPORTING PRACTICES. Foreign companies are
generally subject to tax laws and to accounting, auditing and
financial reporting standards, practices and requirements different
from those that apply in the U.S.
/diamond/ LESS INFORMATION AVAILABLE. There is generally less public information
available about foreign companies.
/diamond/ MORE DIFFICULT BUSINESS NEGOTIATIONS. A Portfolio may find it
difficult to enforce obligations in foreign
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countries or to negotiate favorable brokerage commission rates.
/diamond/ REDUCED LIQUIDITY/INCREASED VOLATILITY. Some foreign securities are
less liquid and their prices more volatile, than securities of
comparable U.S. companies.
/diamond/ SETTLEMENT DELAYS. Settling foreign securities may take longer than
settlements in the U.S.
/diamond/ HIGHER CUSTODY CHARGES. Custodianship of shares may cost more for
foreign securities than it does for U.S. securities.
/diamond/ ASSET VULNERABILITY. In some foreign countries, there is a risk of
direct seizure or appropriation through taxation of assets of a
Portfolio. Certain countries may also impose limits on the removal of
securities or other assets of a Portfolio. Interest, dividends and
capital gains on foreign securities held by a Portfolio may be subject
to foreign withholding taxes.
/diamond/ POLITICAL INSTABILITY. In some countries, political instability, war
or diplomatic developments could affect investments.
These risks may be greater in developing countries or in countries with limited
or developing markets. In particular, developing countries have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade only a small number of securities. As a result, securities of
issuers located in developing countries may have limited marketability and may
be subject to abrupt or erratic price fluctuations.
At times, a Portfolio's foreign securities may be listed on exchanges or traded
in markets which are open on days (such as Saturday) when the Portfolio does
not compute a price or accept orders for purchase, sale or exchange of shares.
As a result, the net asset value of the Portfolio may be significantly affected
by trading on days when Policyholders cannot make transactions.
ADRS AND ADSS are subject to some of the same risks as direct investments in
foreign securities, including the currency risk discussed above. The regulatory
requirements with respect to ADRs and ADSs that are issued in sponsored and
unsponsored programs are generally similar but the issuers of unsponsored ADRs
and ADSs are not obligated to disclose material information in the U.S., and,
therefore, such information may not be reflected in the market value of the
ADRs and ADSs.
/diamond/ ILLIQUID SECURITIES
Securities 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 sold 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-Advisers will
determine the liquidity of Rule 144A Securities under guidelines approved by
the Fund's Board. (See the SAI for a description of these guidelines.)
/diamond/ RISK FACTORS
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, the
Portfolio might have to bear the expense and incur the delays associated with
effecting a registration required in order to qualify for resale.
/diamond/ FUTURES, OPTIONS AND OTHER DERIVATIVES
Instruments commonly called "derivatives" include options on securities or
foreign currency futures contracts, options on futures contracts, forward
contracts, interest rate swaps, caps and floors, stock index futures and
options on stock index futures. These instruments are commonly called
derivatives because their price is derived from an underlying index, security
or other measure of value.
A Portfolio may engage in futures contracts and options. The Portfolios intend
to use such derivatives primarily for bona fide hedging purposes, including to
protect portfolio positions against market, interest rate or currency
fluctuations, to equitize a cash position, for duration management, or to
reduce the risk inherent in the management of the portfolio involved. If used
for other purposes as may be permitted under applicable rules pursuant to which
the Portfolio would remain exempt from the definition of a "commodity pool
operator" under the rules of the CFTC, the aggregate initial margin and
premiums required to establish any non-hedging positions will not exceed 5% of
the fair market value of the Portfolio's net assets.
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis. A
Portfolio may enter into forward currency
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contracts to hedge against declines in the value of non-dollar denominated
securities or to reduce the impact of currency appreciation on purchases of
non-dollar denominated securities. A Portfolio may also enter into forward
contracts to purchase or sell securities or other financial indices.
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. A Portfolio may buy and sell futures contracts on foreign currencies,
securities and financial indexes including interest rates or an index of U.S.
Government, foreign government, equity or fixed-income securities.
A Portfolio may also buy options on futures contracts. An option on a futures
contract gives the buyer the right, but not the obligation, to buy or sell a
futures contract at a specific price on or before a specified date.
Futures contracts and options on futures are standardized and traded on
designated exchanges.
INTEREST RATE SWAPS involve the exchange by two parties of their respective
commitments to pay or receive interest (E.G., an exchange of floating rate
payments for fixed rate payments).
INTEREST RATE FUTURES CONTRACTS involve the purchase or sale of contracts for
the future delivery of fixed-income securities at an established price. 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.
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. A Portfolio may purchase put and call options on securities, securities
indexes and foreign currencies, subject to its investment restrictions.
CALL OPTIONS give a buyer the right to purchase a portfolio security
at a designated price until a certain date. The option must be
"covered" - for example, the seller may own the securities required to
fulfill the contract.
PUT OPTIONS give the buyer the right to sell the security at a
designated price until a certain date. Put options are "covered", for
example, by segregating an amount of cash or securities equal to the
exercise price.
STOCK INDEX FUTURES obligate the seller to deliver (and the purchaser to take)
an amount of cash equal to a specific dollar amount times the difference
between the value of a specified stock index at the close of the last trading
day of the contract and the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in a stock index futures contract at a
specified exercise price at any time prior to the expiration date of the
option.
/diamond/ RISK FACTORS
There can be no assurance the use of derivatives will help a Portfolio achieve
its investment objective. Derivatives involve special risks and transaction
costs, and draw upon skills and experience which are different from those
needed to choose the other securities or instruments in which a Portfolio
invests. Special risks of these instruments include:
/diamond/ INACCURATE MARKET PREDICTIONS. If interest rates, securities prices or
currency markets do not move in the direction expected by a
Sub-Adviser who used derivatives based on those measures, these
instruments may fail in their intended purpose and result in losses to
the Portfolio.
/diamond/ IMPERFECT CORRELATION. Derivatives' prices may be imperfectly
correlated with the prices of the securities, interest rates or
currencies being hedged. When this happens, the expected benefits may
be diminished.
/diamond/ ILLIQUIDITY. A liquid secondary market may not be available for a
particular instrument at a particular time. A Portfolio may therefore
be unable to control losses by closing out a derivative position.
/diamond/ TAX CONSIDERATIONS. A Portfolio may have to delay closing out certain
derivative positions to avoid adverse tax consequences.
The risk of loss from investing in derivative instruments is potentially
unlimited.
/diamond/ FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("forward contract") is used to purchase or
sell foreign currencies at a future date as a hedge against fluctuations in
foreign exchange rates pending the settlement of transactions in foreign
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securities or during the time a Portfolio has exposure to foreign currencies. 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.
/diamond/ RISK FACTORS
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 portfolio 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.
/diamond/ WHEN-ISSUED, DELAYED SETTLEMENT AND FORWARD DELIVERY SECURITIES
Securities may be purchased and sold on a "when-issued," "delayed settlement,"
or "forward (delayed) delivery" basis.
"When-issued" or "forward delivery" refers to securities whose terms 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.
A 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 a
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 purpose of investment leverage.
"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 a Portfolio until it receives payment or
delivery from the other party to any of the above transactions.
The Portfolio will segregate with its custodian cash, U.S. Government
securities or other liquid assets 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 a Portfolio may earn
income in securities it has segregated to collateralize its delayed delivery
purchases.
New issues of stocks and bonds, private placements and U.S. Government
securities may be sold in this manner.
/diamond/ RISK FACTORS
At the time of settlement, the market value of the security may be more or less
than the purchase price. The Portfolio bears the risk of such market value
fluctuations. These transactions also involve risk to a Portfolio if the other
party to the transaction defaults on its obligation to make payment or
delivery, and the Portfolio is delayed or prevented from completing the
transaction.
/diamond/ MORTGAGE-AND OTHER ASSET-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 Portfolio.
CMOs are "pass-through" securities collateralized by mortgages or
mortgage-backed securities. (Pass-through securities mean that principal and
interest payments on the underlying securities, less servicing fees, are passed
through to Policyholders on a pro rata basis.) CMOs are issued in classes and
series that have different maturities and often are retired in sequence.
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.
/diamond/ RISK FACTORS
Prepayments will shorten these securities' weighted average life and may lower
their returns. The value of these securities may change because of changes in
the market's perception of the creditworthiness of the federal agency or
private institution that issued them, in the case of mortgage-backed
securities, or in the servicing agent for the pool, the originator of the pool
or the financial institution providing the credit support or enhancement in the
case of asset-backed securities. Interest rate risks are also involved with
these investments; see "Debt Securities and Fixed-Income Investing," page 33.
In addition, the mortgage securities market may be adversely affected by
changes in government regulation or tax policies.
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/diamond/ REAL ESTATE INVESTMENT TRUSTS ("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 Policyholders provided they comply with several requirements of
the Internal Revenue Code of 1986, as amended (the "Code").
/diamond/ RISK FACTORS
REITs may subject a Portfolio 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.
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 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. (See "Debt Securities and
Fixed-Income Investing," page 33.)
/diamond/ ZERO COUPON, STRIPS, PAY-IN-KIND AND STEP COUPON SECURITIES
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. Step coupon bonds sell at a
discount and pay a low coupon rate for an initial period and a higher coupon
rate thereafter. Pay-in-kind securities may pay interest in cash or a similar
bond. Strips are debt securities that are stripped of their interest after the
securities are issued, but otherwise are comparable to zero coupon bonds.
/diamond/ RISK FACTORS
The market value of zero coupon bonds, step coupon bonds, pay-in-kind securities
and strips generally fluctuates in response to changes in interest rates to a
greater degree than interest-paying securities of comparable term and quality.
A Portfolio may realize greater gains or losses as a result of such
fluctuations. In order to pay cash distributions from these types of securities,
a Portfolio may sell certain portfolio securities and may incur a gain or loss
on such sales.
/diamond/ HIGH-YIELD/HIGH-RISK SECURITIES
High-yield/high-risk securities (or "junk bonds") are debt securities rated
below investment grade by the primary rating agencies (such as S&P and
Moody's). (See Appendix A for a description of debt securities ratings.)
/diamond/ RISK FACTORS
The value of lower quality securities generally is more dependent on the
ability of the issuer to meet interest and principal payments (I.E., credit
risk) than is the case for higher quality securities. Conversely, the value of
higher quality securities may be more sensitive to interest rate movements than
lower rated securities. Issuers of high-yield securities may not be as strong
financially as those issuing bonds with higher credit ratings. Investments in
such companies are considered to be more speculative than higher quality
investments.
Issuers of high-yield securities are more vulnerable to real or perceived
economic changes (for instance, an economic downturn or prolonged period of
rising interest rates), political changes or adverse developments specific to
the issuer. Adverse economic, political or other developments may impair the
issuer's ability to service principal and interest obligations, to meet
projected business goals and to obtain additional financing, particularly if
the issuer is highly leveraged.
In the event of a default, a Portfolio would experience a reduction of its
income and could expect a decline in the market value of the defaulted
securities.
The market for lower quality securities is generally less liquid than the
market for higher quality bonds. Adverse
40
<PAGE>
publicity and investor perceptions, as well as new or proposed laws, may also
have a greater negative impact on the market for lower quality securities.
Unrated debt, while not necessarily of lower quality than rated securities, may
not have as broad a market as higher quality securities.
/diamond/ VARIABLE RATE MASTER DEMAND NOTES
Variable rate master demand notes are unsecured commercial paper instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. Because variable rate master demand notes are
direct lending arrangements between a Portfolio and the issuer, they are not
normally traded.
Although no active secondary market may exist for these notes, a Portfolio may
demand payment of principal and accrued interest at any time or may resell the
note to a third party.
While the notes are not typically rated by credit rating agencies, issuers of
variable rate master demand notes must satisfy a Sub-Adviser that the ratings
are within the two highest ratings of commercial paper. (See the SAI for
further information on these ratings.)
In addition, when purchasing variable rate master demand notes, a Sub-Adviser
will consider the earning power, cash flows, and other liquidity ratios of the
issuers of the notes and will continuously monitor their financial status and
ability to meet payment on demand.
/diamond/ RISK FACTORS
In the event an issuer of a variable rate master demand note defaulted on its
payment obligations, a Portfolio might be unable to dispose of the note because
of the absence of a secondary market and could, for this or other reasons,
suffer a loss to the extent of the default.
/diamond/ 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.
/diamond/ RISK FACTORS
Warrants and rights may be considered more speculative than certain other types
of investments because they do not entitle a holder to the dividends or voting
rights for the securities that may be purchased. They do not 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. A warrant or right ceases to have value if
it is not exercised prior to the expiration date.
MANAGEMENT OF THE FUND
/diamond/ DIRECTORS
The Board of Directors is responsible for managing the business affairs of the
Fund. It oversees the operation of the Fund by its officers. It also reviews
the management of the Portfolios' assets by the Investment Adviser and
Sub-Advisers. Information about the Directors and executive officers of the
Fund is contained in the SAI.
/diamond/ 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 of the Fund's Board, 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
41
<PAGE>
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.
/diamond/ ADVISORY FEES PAID BY THE PORTFOLIOS
Subject to the supervision and direction of the Fund's Board, the Investment
Adviser is responsible for managing the Portfolios in accordance with each
Portfolio's stated investment objective and policies. As compensation for its
services to the Portfolios, the Investment Adviser receives monthly
compensation at an annual rate of a percentage of the average daily net assets
of each Portfolio. The table below lists each Portfolio and the annual rate of
the monthly compensation the Investment Adviser received for the fiscal year
ended December 31, 1996.
<TABLE>
<CAPTION>
ADVISORY ADVISORY
PORTFOLIO FEE PORTFOLIO FEE
<S> <C> <C> <C>
Growth 0.80% Emerging Growth 0.80%
Bond 0.50% Strategic Total Return(2) 0.80%
Global 0.80% Aggressive Growth 0.80%
Money Market 0.40% (prior to 5/1/96, Growth & Income(3) 0.75%
0.50%) Tactical Asset Allocation 0.80%
Short-to-Intermediate Government 0.60% C.A.S.E. Growth 0.80%
Balanced 0.80% Value Equity 0.80%
International Equity 1.00%(1) Global Sector 1.10%(4)
U.S. Equity 0.80%(1)
<FN>
- --------------
(1) No advisory fees were paid by these Portfolios in 1996 because they had not
commenced operations as of December 31, 1996.
(2) Prior to May 1, 1997, this Portfolio was named the Equity-Income Portfolio.
(3) Prior to May 1, 1997, this Portfolio was named the Utility Portfolio.
(4) Subject to shareholder approval, which will be sought on or about June 16,
1997, the Investment Advisory Fee will be reduced to 0.80% of average
daily net assets.
</FN>
</TABLE>
/diamond/ ADVISORY FEE REIMBURSEMENT
The Investment Adviser has voluntarily undertaken, until at least April 30,
1998, to pay expenses on behalf of the Portfolios (except the Global Sector
Portfolio) to the extent normal operating expenses (including investment
advisory fees but excluding interest, taxes, brokerage fees, commissions and
extraordinary charges) exceed a certain percentage of each Portfolio's average
daily net assets. The table below shows the expense limit and actual expenses
for each Portfolio and the reimbursement a Portfolio received, if any, for the
fiscal year ended December 31, 1996.
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<PAGE>
EXPENSE ACTUAL
PORTFOLIO LIMIT EXPENSES REIMBURSEMENT
Growth 1.00% 0.88% NONE
Bond 0.70% 0.64% NONE
Global 1.00% 0.99% NONE
Money Market 0.70% 0.52% NONE
Short-to-Intermediate Government 1.00% 0.76% NONE
Balanced 1.00% 0.97% NONE
Emerging Growth 1.00% 0.94% NONE
Strategic Total Return(3) 1.00% 0.91% NONE
Aggressive Growth 1.00% 0.98% NONE
Growth & Income(4) 1.00% 1.00% NONE
Tactical Asset Allocation 1.00% 0.90% NONE
C.A.S.E. Growth 1.00% 1.64% 73,269
Value Equity(1) 1.00% 1.03% 13,672
International Equity(2) 1.50% N/A NONE
U.S. Equity(2) 1.30% N/A NONE
- --------------
(1) This Portfolio commenced operations May 1, 1996.
(2) These Portfolios had not commenced operations as of December 31, 1996.
(3) Prior to May 1, 1997, this Portfolio was named the Equity-Income Portfolio.
(4) Prior to May 1, 1997, this Portfolio was named the Utility Portfolio.
In addition to the Investment Adviser's responsibilities discussed above, the
Investment Adviser's advisory agreement with the Fund (the "Advisory Agreement")
contemplates that the Investment Adviser, in connection with the performance of
its responsibilities under the Advisory Agreement, will enter into sub-advisory
agreements ("Sub-Advisory-Agreements") with Sub-Advisers to provide each
Portfolio with portfolio management. Under current law, every Sub-Advisory
Agreement must be submitted to and approved by shareholders of a Portfolio
before the Sub-Adviser can provide investment advice to that Portfolio. For
example, if a new Sub-Adviser were retained, shareholders would be required to
approve the Sub-Advisory agreement with that Sub-Adviser. Similarly, if a
Sub-Advisory Agreement currently in effect were amended in any material respect,
such amendment would generally be deemed to result in a new contract for which
shareholder approval would also be required. Moreover, in most instances when
there is a change of control of a Sub-Adviser, shareholder approval is required.
The Fund's Board of Directors has determined that shareholders of each Portfolio
have, in effect, elected to have the Investment Adviser select one or more
Sub-Advisers best suited to achieve the Portfolio's investment objectives. The
Board believes that part of a shareholder's investment decision is a
determination to have those selections made by the Investment Adviser, a
professional management organization with personnel having substantial
experience in making such evaluations, selections and terminations.
Under applicable law, the Fund is not generally required to hold annual
shareholders' meetings, and does not generally hold such meetings, unless
legally required to do so, in order to avoid the attendant costs. The Fund is
currently required to call a meeting of shareholders of a Portfolio whenever it
decides to employ new or additional Sub-Advisers, or to approve a new
Sub-Advisory Agreement after an "assignment," or due to a material change in
Sub-Advisory Agreement terms, with respect to such Portfolio. Given the nature
of the Fund's operations and shareholders' reasons for investing in various of
the Portfolios, such expenses are considered to provide little if any benefit
to shareholders. For these reasons, the Fund and the Investment Adviser have
applied to the SEC for an exemption from the provisions of the 1940 Act to
permit the Fund and the Investment Adviser, subject to certain conditions, to
enter into, materially amend, and terminate, and to permit Sub-Advisers to act
pursuant to, Sub-Advisory Agreements without shareholder approval (the
"Proposed Sub-Advisory Arrangement").
If the SEC exemption is granted, certain conditions would apply. The conditions
are intended to ensure that shareholders receive adequate disclosure about the
Sub-Advisers or a decision by the Investment Adviser and the Fund's Board of
Directors to appoint a new Sub-Adviser or to change materially the terms of a
Sub-Advisory Agreement. In addition, before a Portfolio could rely on the
exemption, the Proposed Sub-Advisory Arrangement must be approved by a majority
of the outstanding voting shares of the Portfolio. Shareholders of
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<PAGE>
the Emerging Growth Portfolio, Global Sector Portfolio, US Sector Portfolio and
Foreign Sector Portfolio will be asked in the near future to approve the
Proposed Sub- Advisory Arrangement, and the Fund's Board of Directors and the
Investment Adviser intend to ask shareholders of the other Portfolios from time
to time to approve the Proposed Sub-Advisory Arrangement.
/diamond/ DISTRIBUTION AND SERVICE PLANS
DISTRIBUTION PLAN AND DISTRIBUTION AGREEMENT
Effective January 1, 1997, the Fund adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Distribution Plan") and pursuant to the Plan,
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 include, but not
necessarily be limited to, the following: costs 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 that it will not seek payment
by the Fund of distribution expenses with respect to any Portfolio during the
fiscal year ending December 31, 1997. Prior to ISI seeking reimbursement,
Policyowners will be notified in advance.
/diamond/ ADMINISTRATIVE AND TRANSFER AGENCY SERVICES
Effective January 1, 1997, the Fund entered into an Administrative Services and
Transfer Agency Agreement with WRL Investment Services, Inc. ("WRL Services"),
located at 201 Highland Avenue, Largo, Florida 33770, 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 Fund's 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.
/diamond/ SUB-ADVISERS
Each Sub-Adviser provides investment advisory assistance and portfolio
management advice to the Investment Adviser for its respective Portfolio(s).
Subject to review and supervision by the Investment Adviser and the Fund's
Board, each Sub-Adviser is responsible for the actual investment management of
its Portfolio(s) and for making decisions to buy, sell or hold any particular
security. Each Sub-Adviser also places orders to buy or sell securities on
behalf of that Portfolio. Each 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 its Portfolio(s).
Each Sub-Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
JANUS CAPITAL CORPORATION
Janus Capital Corporation ("Janus Capital"), located at 100 Fillmore Street,
Denver, CO 80206, serves as the Sub-Adviser to the Growth, Bond and Global
Portfolios.
44
<PAGE>
Thomas H. Bailey is the President of Janus Capital. Kansas City Southern
Industries, Inc. owns approximately 83% of Janus Capital.
Janus Capital provides investment management and related services to other
mutual funds, and individuals, corporate, charitable and retirement accounts.
See "Management of the Fund - The Sub-Advisers" in the SAI for a more detailed
description of the previous experience of Janus Capital as an investment
adviser.
/diamond/ PORTFOLIO MANAGERS:
SCOTT W. SCHOELZEL has served as the Portfolio Manager for the Growth Portfolio
since January 2, 1996. Mr. Schoelzel also serves as co-portfolio manager of
other mutual funds. Mr. Schoelzel is a Vice President of Janus Capital, where
he has been employed since 1994. From 1991 to 1993, Mr. Schoelzel was a
portfolio manager with Founders Asset Management, Denver, Colorado. Prior to
1991, he was a general partner of Ivy Lane Investments, Denver, Colorado (a
real estate investment brokerage).
RONALD V. SPEAKER serves as Co-Portfolio Manager and began serving as Portfolio
Manager for the Bond Portfolio in 1988. Mr. Speaker also serves as portfolio
manager of other mutual funds. Mr. Speaker is also an Executive Vice President
of Janus Investment Fund and Janus Aspen Series and previously served as a
securities analyst and research associate of Janus Capital (from 1986).
In January 1997, Mr. Speaker settled an SEC administrative action involving two
personal trades made by him in January of 1993. Without admitting or denying
the allegations, Mr. Speaker agreed to civil money penalty, disgorgement, and
interest payments totaling $37,199 and to a 90-day suspension that began on or
about January 27, 1997.
SANDY R. RUFENACHT has served as a Co-Portfolio Manager for the Bond Portfolio
since January, 1997. Mr. Rufenacht joined Janus Capital in 1990 and gained
experience as a trader and research analyst before assuming management
responsibilities. He holds a Bachelor of Arts in Business from the University
of North Colorado. Mr. Rufenacht is also an Executive Vice President of Janus
Investment Fund and serves as portfolio manager or co-manager of other mutual
funds.
HELEN Y. HAYES has served as Portfolio Manager of the Global Portfolio since
its inception. Ms. Hayes also serves as a portfolio manager of other mutual
funds. Ms. Hayes is also an Executive Vice President of Janus Investment Fund
and Janus Aspen Series. Ms. Hayes has been employed by Janus Capital since
1987.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
J.P. MORGAN INVESTMENT MANAGEMENT INC.
J. P. Morgan Investment Management Inc. ("J.P. Morgan Investment"), located at
522 Fifth Avenue, New York, NY 10036, has served as the Sub-Adviser to the Money
Market Portfolio since May 1, 1996. J. P. Morgan Investment is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated. J.P. Morgan Investment provides
investment management and related services for corporate, public, and union
employee benefit funds, foundations, endowments, insurance companies and
government agencies.
/diamond/ PORTFOLIO MANAGER:
ROBERT R. JOHNSON serves as Portfolio Manager of the Money Market Portfolio.
Mr. Johnson is responsible for several short term fixed income portfolios and
the business development of short term fixed income products. Mr. Johnson is a
Vice President of J.P. Morgan Investment. He is also a member of the Fixed
Income Peer Review Committee. Prior to joining J.P. Morgan Investment in 1988,
he founded and managed R.R. Johnson Associates, merchant bankers. He also held
senior positions with the Bank of Montreal and U.S. Steel. He is a graduate of
Dartmouth College and has done graduate work at both Wayne State and Duquesne
Universities.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
AEGON USA INVESTMENT MANAGEMENT, INC.
AEGON USA Investment Management, Inc. ("AIMI"), located at 4333 Edgewood Road,
N.E., Cedar Rapids, IA 52499, serves as the Sub-Adviser to the Short-to-
Intermediate Government and Balanced Portfolios. AIMI is an indirect
wholly-owned subsidiary of AEGON.
/diamond/ PORTFOLIO MANAGERS:
CLIFFORD A. SHEETS, CFA, AND JARRELL D. FREY, CFA, serve as Portfolio Managers
of the Short-to-Intermediate Government Portfolio. Mr. Sheets has served as the
Portfolio Manager of the Short-to-Intermediate Government Portfolio since its
inception. Mr. Sheets has been a Senior Vice President of AIMI since 1990. Prior
to joining AIMI, Mr. Sheets was head of the Fixed Income Management Department
of the Trust and Asset Management Group of Bank One, Indianapolis NA. Mr. Frey
has served as Portfolio Manager for the Short-to-Intermediate Government
Portfolio since May, 1995. Mr. Frey joined AIMI in 1994. Prior to joining AIMI,
Mr. Frey was employed for five years by Woodmen Accident and Life Company in
Lincoln, NE where he analyzed fixed income (both public and private debt
offerings) and equity securities.
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<PAGE>
MICHAEL VAN METER has served as the Senior Portfolio Manager of the Balanced
Portfolio since its inception. Mr. Van Meter also serves as Chairman of the
Equity Investment Policy Committee of AIMI. Mr. Van Meter was President and
Managing Partner of Perpetual Investment Advisors from 1983 to 1989, when AEGON
acquired that firm.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC.
Van Kampen American Capital Asset Management, Inc. ("Van Kampen"), located at
One Parkview Plaza, Oakbrook Terrace, IL 60181, serves as the Sub-Adviser to
the Emerging Growth Portfolio.
Van Kampen became an indirect wholly-owned subsidiary of Morgan Stanley Group
Inc. on October 31, 1996. It is anticipated that in mid-June, 1997, Morgan
Stanley Group Inc. will merge with Dean Witter, Discover & Co., a financial
services company.
/diamond/ PORTFOLIO MANAGER:
GARY M. LEWIS has served as Portfolio Manager for the Emerging Growth Portfolio
since its inception. Mr. Lewis has also served as portfolio manager at American
Capital Asset Management, Inc., a predecessor firm of Van Kampen American
Capital Asset Management, Inc. for over six years and portfolio manager for the
Van Kampen American Capital Emerging Growth Fund, Inc. since April, 1989.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
LUTHER KING CAPITAL
MANAGEMENT CORPORATION
Luther King Capital Management Corporation ("Luther King Capital"), located at
301 Commerce Street, Suite 1600, Fort Worth, TX 76102, serves as the
Sub-Adviser to the Strategic Total Return Portfolio. Ultimate control of Luther
King Capital is exercised by J. Luther King, Jr. Luther King Capital provides
investment management services to accounts of individual investors, mutual
funds and other institutional investors. See "Management of the Fund - The
Sub-Advisers" in the SAI for a more detailed description of the previous
experience of Luther King Capital as an investment adviser.
/diamond/ PORTFOLIO MANAGERS:
LUTHER KING, JR. AND SCOT HOLLMANN have served as Portfolio Managers of the
Strategic Total Return Portfolio since its inception. Mr. King has been
President of Luther King Capital since 1979. Mr. Hollmann has served as Vice
President of Luther King Capital since 1983.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
FRED ALGER MANAGEMENT, INC.
Fred Alger Management, Inc. ("Alger Management"), located at 75 Maiden Lane,
New York, NY 10038, serves as the Sub-Adviser to the Aggressive Growth
Portfolio. Alger Management is a wholly-owned subsidiary of Fred Alger &
Company, Incorporated ("Alger, Inc."), which, in turn, is a wholly-owned
subsidiary of Alger Associates, Inc., a financial services holding company
controlled by Fred M. Alger and David D. Alger. As of March 31, 1997, Alger
Management had approximately $6.4 billion in assets under management for
investment companies and private accounts.
/diamond/ PORTFOLIO MANAGERS:
DAVID D. ALGER, SEILAI KHOO AND RONALD TARTARO are primarily responsible for
the day-to-day management of the Aggressive Growth Portfolio. Mr. Alger has
been employed by Alger Management as Executive Vice President and Director of
Research since 1971 and as President since 1995. Ms. Khoo has been employed by
Alger Management as a senior research analyst since 1989 and as a Senior Vice
President since 1995. Mr. Tartaro has been employed by Alger Management as a
senior research analyst since 1990 and as a Senior Vice President since 1995.
Mr. David Alger has served as Portfolio Manager of the Aggressive Growth
Portfolio since its inception. Ms. Khoo and Mr. Tartaro have each served as
Co-Portfolio Managers of the Aggressive Growth Portfolio since May 1, 1996. Mr.
Alger, Ms. Khoo and Mr. Tartaro also serve as portfolio managers for other
mutual funds and investment accounts managed by Alger Management.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
FEDERATED INVESTMENT COUNSELING
Federated Investment Counseling ("Federated"), located at Federated Investors
Tower, Pittsburgh, PA 15222-3779, serves as the Sub-Adviser to the Growth &
Income Portfolio. Federated is a Delaware business trust organized on April 11,
1989. It is a subsidiary of Federated Investors. Federated serves as investment
adviser to a number of investment companies and private accounts. Total assets
under management or administered by Federated and other subsidiaries of
Federated Investors is approximately $110 billion.
/diamond/ PORTFOLIO MANAGERS:
LINDA A. DUESSEL serves as Portfolio Manager of the Growth & Income Portfolio.
Ms. Duessel served as Co-Portfolio Manager of the Growth & Income Portfolio
from July, 1996 until February, 1997. Ms. Duessel is
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<PAGE>
a Chartered Financial Analyst and also serves as co-portfolio manager for other
funds managed by Federated. Ms. Duessel received her B.S., Finance from the
Wharton School of the University of Pennsylvania and her M.S.I.A. from Carnegie
Mellon University. Ms. Duessel has been a Vice President of an affiliate of
Federated since 1995, and was an Assistant Vice president from 1991 - 1995.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
DEAN INVESTMENT ASSOCIATES
Dean Investment Associates ("Dean"), a Division of C.H. Dean and Associates,
Inc., located at 2480 Kettering Tower, Dayton, OH 45423-2480, serves as the
Sub-Adviser to the Tactical Asset Allocation Portfolio. Dean is wholly-owned by
C.H. Dean and Associates, Inc. Founded in 1972, Dean manages portfolios for
individuals and institutional clients worldwide. Dean provides a full range of
investment advisory services and, as of January, 1997, had $3.8 billion of
assets under management.
/diamond/ PORTFOLIO MANAGERS:
The Tactical Asset Allocation Portfolio is managed by a team of 10 senior
investment professionals (Central Investment Committee), with over 135 years of
total investment experience.
JOHN C. RIAZZI, CFA, has served as the Senior Portfolio Manager of the Tactical
Asset Allocation Portfolio and ARVIND SACHDEVA, CFA has served as Senior Equity
Strategist of this Portfolio since its inception. Mr. Riazzi joined Dean in
March of 1989. Before being promoted to Vice President and Director of
Consulting Services at Dean, Mr. Riazzi was responsible for client servicing,
portfolio execution and trading operations. Mr. Riazzi has been a member of the
Central Investment Committee and a Senior Institutional Portfolio Manager for
the past four years. He received a B.A. in Economics from Kenyon College in
1985 and was awarded the Chartered Financial Analyst designation in 1993. Mr.
Sachdeva joined Dean in 1993. Prior to working at Dean, he was the Senior
Security Analyst and Equity Portfolio Manager for Carillon Advisors, Inc., from
January, 1985 to September, 1993. Carillon Advisors, Inc. is an investment
subsidiary of the Union Central Life Insurance Co.
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C.A.S.E. MANAGEMENT, INC.
C.A.S.E. Management, Inc. ("C.A.S.E."), located at 2255 Glades Road, Suite
221-A, Boca Raton, FL 33431, serves as the Sub-Adviser to the C.A.S.E. Growth
Portfolio. C.A.S.E. is 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 C.A.S.E. C.A.S.E. provides investment management services to
financial institutions, high net worth individuals, and other professional money
managers.
/diamond/ PORTFOLIO MANAGERS:
Informally, C.A.S.E.'s Board members confer on a continuous basis, gathering
economic sector, industry and stock specific information from C.A.S.E.'s
research and management resources. Each Board member is individually
responsible for the analytical coverage of one or two of the market's eight
economic sectors. C.A.S.E.'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 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.
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NWQ INVESTMENT MANAGEMENT COMPANY, INC.
NWQ Investment Management Company, Inc. ("NWQ Investment"), located at 655
South Hope Street, 11th Floor, Los Angeles, CA 90017, serves as the Sub-
Adviser to the Value Equity Portfolio. NWQ Investment was founded in 1982 and
is a wholly-owned subsidiary of United Asset Management Corporation. NWQ
Investment provides investment management services to institutions and high net
worth individuals. As of December 31, 1996, NWQ Investment had over $6.4
billion in assets under management.
/diamond/ PORTFOLIO MANAGER:
An investment policy committee is responsible for the day-to-day management of
the Value Equity Portfolio's investments. David A. Polak, CFA, Edward C.
Friedel, CFA, James H. Galbreath, CFA, Phyllis G. Thomas, CFA, and Jon D.
Bosse, CFA, constitute the committee.
EDWARD C. FRIEDEL, CFA serves as Senior Portfolio Manager for the Value Equity
Portfolio. Mr. Friedel has been a managing director and investment
strategist/portfolio manager of NWQ Investment 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).
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
47
<PAGE>
MERIDIAN INVESTMENT
MANAGEMENT CORPORATION
Meridian Investment Management Corporation ("Meridian"), located at 12835 East
Arapahoe Road, Tower II, Penthouse, Englewood, CO 80112, serves as Sub-Adviser
to the Global Sector Portfolio. 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 March 1, 1997, had aggregate assets of approximately $700
million. Meridian provides investment advisory assistance, portfolio management
advice and quantitative investment research to the Investment Adviser for the
Global Sector Portfolio.
/diamond/ PORTFOLIO MANAGER:
Meridian's Investment Committee determines the guidelines for asset, country,
industry and securities weightings based on Meridian's proprietary quantitative
research methods. The Committee is comprised of Dr. Craig T. Callahan, Michael
J. Hart, Patrick S. Boyle and Bryan M. Ritz. Dr. Craig T. Callahan is Chairman
of the Investment Committee and Chief Investment Officer of Meridian, and
directs Meridian's investment research and analysis. Dr. Callahan obtained his
D.B.A. from Kent State University. Michael Hart is President of Meridian
Investment Management and holds an M.B.A. from the University of Denver. Patrick
S. Boyle, a Chartered Financial Analyst, acts as a portfolio manager for several
of Meridian's private accounts. Bryan R. Ritz, also a Chartered Financial
Analyst, serves as a portfolio manager for Meridian's private accounts. Mr. Ritz
holds a Bachelor of Science in Business Administration and a M.B.A. from the
University of Denver. In performing sub-advisory services, Meridian may draw
upon additional members of its research team. These employees are generally
specialists within Meridian's research department. However, the Investment
Committee supervises the members of the research department and remains fully
responsible for all such services.
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
SCOTTISH EQUITABLE INVESTMENT
MANAGEMENT LIMITED
Scottish Equitable Investment Management Limited ("Scottish Equitable"), located
at Edinburgh Park, Edinburgh EH12 9SE, Scotland, serves as a Co-Sub-Adviser to
the International Equity Portfolio. Scottish Equitable is a wholly-owned
subsidiary of Scottish Equitable plc. Scottish Equitable plc, is successor to
Scottish Equitable Life Assurance Society, which was founded in Edinburgh in
1831. As of December 31, 1996, Scottish Equitable plc had approximately $21
billion in assets under management. Like the Investment Adviser, Scottish
Equitable is also an indirect wholly-owned subsidiary of AEGON nv. Scottish
Equitable has not previously advised a U.S.-registered mutual fund. Scottish
Equitable currently provides investment advisory and management services to
certain of its affiliates, including Scottish Equitable plc and to external
organizations.
/diamond/ PORTFOLIO MANAGER:
CAROL CLARK has served as Portfolio Manager of the International Equity
Portfolio since its inception. Ms. Clark is the Manager of Scottish Equitable's
Asset Allocation group and has served both as a Portfolio Manager and
Investment Analyst. Ms. Clark joined Scottish Equitable in 1983 directly from
Glasgow University where she earned a MA (Honors) in Political Economy; and she
also holds the Securities Industry Diploma.
GE INVESTMENT MANAGEMENT INCORPORATED
GEIM serves as a Co-Sub-Adviser to the International Equity Portfolio and as
the Sub-Adviser to the U.S. Equity Portfolio. GEIM, located at 3003 Summer
Street, Stamford, Connecticut 06905, was formed under the laws of Delaware in
1988. GEIM is a wholly-owned subsidiary of General Electric Company ("GE").
GEIM's principal officers and directors serve in similar capacities with
respect to General Electric Investment Corporation ("GEIC", and, together with
GEIM and their predecessors, collectively referred to as "GE Investments"),
which like GEIM is a wholly-owned subsidiary of GE. GEIC serves as investment
adviser to various GE pension and benefit plans and certain employee mutual
funds. GE Investments has roughly 70 years of investment management experience,
and has managed mutual funds since 1935. As of December 31, 1996, GEIM and GEIC
together managed assets in excess of $56.9 billion.
/diamond/ PORTFOLIO MANAGERS:
RALPH R. LAYMAN has served as a Portfolio Manager of the International Equity
Portfolio since its inception. Mr. Layman has more than 17 years of investment
experience and has held positions with GE Investments since 1991. From 1989 to
1991, Mr. Layman served as Executive Vice President, Partner and Portfolio
Manager of Northern Capital Management, and prior thereto, served as Vice
President and portfolio manager of Templeton Investment Counsel. Mr. Layman is
currently a Director and Executive Vice President of GE Investments.
48
<PAGE>
EUGENE K. BOLTON is responsible for the overall management of the U.S. Equity
Portfolio and has served in that capacity since its inception. Mr. Bolton is
specifically responsible for selecting the Portfolio Managers of the U.S.
Equity Portfolio, and is also responsible for monitoring the investment
strategies employed by the Portfolio Managers of the U.S. Equity Portfolio to
ensure that they are consistent with the Portfolio's investment objective and
strategies. Mr. Bolton has more than 12 years of investment experience and has
held positions with GE Investments since 1984. Mr. Bolton is currently a
Director and Executive Vice President of GE Investments.
DAVID B. CARLSON is one of the four Portfolio Managers for the U.S. Equity
Portfolio and has served in that capacity since its inception. He has more than
14 years of investment experience and has held positions with GE Investments
since 1982. Mr. Carlson is currently a Senior Vice president of GE Investments.
CHRISTOPHER D. BROWN is one of the four Portfolio Managers for the U.S. Equity
Portfolio and has served in that capacity since its inception. He has more than
ten years of investment experience, and has held positions with GE Investments
since 1985. Mr. Brown is currently a Vice President of GE Investments.
PETER J. HATHAWAY is one of the four Portfolio Managers for the U.S. Equity
Portfolio and has served in that capacity since its inception. He has more than
36 years of investment experience and has held positions with GE Investments
since 1985. Mr. Hathaway is currently a Senior Vice President of GE
Investments.
PAUL C. REINHARDT is one of the four Portfolio Managers for the U.S. Equity
Portfolio and has served in that capacity since its inception. He has more than
15 years of investment experience and has held positions with GE Investments
since 1982. Mr. Reinhardt is currently a Senior Vice President of GE
Investments.
49
<PAGE>
/diamond/ SUB-ADVISERS' COMPENSATION
Each Sub-Adviser receives monthly compensation from the Investment Adviser at
the annual rate of a specified percentage of the average daily net assets of
each Portfolio managed by that Sub-Adviser. The table below lists those
percentages by Portfolio.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
PORTFOLIO DAILY NET ASSETS
--------- ---------------------
<S> <C>
Growth 0.40%
Bond 0.25%
Global 0.40%
Money Market 0.15% (Prior to May 1, 1996, Janus Capital
Corporation, previous Sub-Adviser, received
0.25%)
Short-to-Intermediate Government 0.30%, less 50% of amount of excess expenses(1)
Balanced 0.40%, less 50% of amount of excess expenses(1)
Emerging Growth 0.40%, less 50% of amount of excess expenses(1)
Strategic Total Return 0.40%
Aggressive Growth 0.40%
Tactical Asset Allocation 0.40%, less 50% of amount of excess expenses(1)
C.A.S.E. Growth 0.40%
Growth & Income 0.50% of the first $30 million of
average daily net assets;
0.35% of the next $20 million in
average daily net assets,
and 0.25% of average daily net assets
in excess of $50 million
Value Equity 0.40%, less 50% of amount of excess expenses(1)
Global Sector 0.30% of first $100 million in average
daily net assets and 0.35% of assets
in excess of $100 million(3)
International Equity Scottish Equitable: 0.50% of assets managed by
Scottish Equitable, less 50% of amount of excess
expenses attributable to such assets*
GEIM: 0.50% of assets managed by GEIM, less
50% of amount of excess expenses attributable to
such assets(2)
U.S. Equity 0.40%, less 50% of amount of excess expenses(2)
<FN>
- --------------
(1) Excess expenses are those expenses paid by the Investment Adviser on behalf
of a Portfolio pursuant to any expense limitation.
(2) Any amount borne by GEIM pursuant to any expense limitation constitutes an
agreement between the Investment Adviser and GEIM only for the first
twelve months following the Portfolio's commencement of operations.
Thereafter, any such arrangements will be as mutually agreed upon by GEIM
and the Investment Adviser.
(3) Prior to March 1, 1997, INVESCO Global Asset Management Limited ("INVESCO")
served as a co-sub-adviser to the Global Sector Portfolio; for periods
prior to that date, INVESCO received monthly compensation from the
Investment Adviser at the annual rate of 0.40% of first $100 million
average daily net assets of the Portfolio and 0.35% of assets in excess of
$100 million; and Meridian received monthly compensation from the
Investment Adviser at the annual rate of 0.30% of first $100 million of
average daily net assets of the Portfolio and 0.35% of assets in excess of
$100 million. Subject to shareholder approval, which will be sought on or
about June 16, 1997, Meridian will receive monthly compensation from the
Investment Adviser at an annual rate of 0.40% of average daily net assets.
</FN>
</TABLE>
/diamond/ /diamond/ /diamond/ /diamond/ /diamond/
50
<PAGE>
/diamond/ PORTFOLIO TRANSACTIONS
Each Sub-Adviser is also responsible for selecting the broker-dealers who
execute the portfolio transactions for its respective Portfolio(s). 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. Within
these parameters, each 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. 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 a Portfolio.
With respect to the Aggressive Growth Portfolio, it is anticipated that Alger,
Inc., an affiliate of Alger Management, will serve as the Portfolio's broker in
effecting substantially all of the Aggressive Growth Portfolio's transactions
on securities exchanges and will retain commissions in accordance with certain
regulations of the SEC.
With respect to the Short-to-Intermediate Government and Balanced Portfolios,
it is anticipated that AEGON Management may occasionally place portfolio
business with ISI and AEGON USA Securities, Inc., affiliated brokers of the
Investment Adviser and AEGON Management.
The other Sub-Advisers may also from time to time place portfolio brokerage
with their affiliates in accordance with SEC regulations.
OTHER INFORMATION
/diamond/ JOINT TRADING ACCOUNTS
Subject to approval by the Fund's Board, the Growth, Bond and Global Portfolios
may transfer uninvested cash balances on a daily basis into certain joint
trading accounts. Assets in the joint trading accounts are invested in money
market instruments. All other participants in the joint trading accounts will
be other clients, including registered mutual fund clients, of Janus Capital or
its affiliates. The Growth, Bond and Global Portfolios will participate in the
joint trading accounts only to the extent that the investments of the joint
trading accounts are consistent with each Portfolio's investment policies and
restrictions. Janus Capital anticipates that the investment made by a Portfolio
through the joint trading accounts will be at least as advantageous to that
Portfolio as if the Portfolio had made such investment directly. (See
"Management of the Fund - The Sub-Advisers" in the SAI.)
/diamond/ 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 Fund's Board. 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
Code of Ethics and Insider Trading Policies appropriate to their operations.
Each Sub-Adviser is required to report to the Fund's Board 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.
/diamond/ 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.
/diamond/ 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 a Portfolio share is computed by dividing the value of the
net assets of the Portfolio by the total number of shares outstanding in the
Portfolio.
Except for money market instruments maturing in 60 days or less, securities held
by Portfolios other than the Money Market Portfolio are valued at market value.
51
<PAGE>
Securities for which market values are not readily available are valued at fair
value as determined in good faith by the Investment Adviser or Sub-Adviser under
the supervision of the Fund's Board. Money market instruments maturing in 60
days or less are valued on the amortized cost basis. (See the SAI for details.)
The Fund's Board has determined that the most appropriate method for valuing
the securities of the Money Market 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 SAI
for details concerning the amortized cost valuation method, including the
conditions under which it may be used.)
/diamond/ 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 the
Life Companies to fund benefits under variable life insurance or variable
annuity contracts issued by the Life Companies. Shares may be offered to other
life insurance companies in the future. 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 of the Life Companies 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
policyholders or to variable annuity contract owners. Any Life Company may
notify the Fund's Board of a potential or existing conflict. The Fund's Board
will then determine if a material conflict exists and what action, if any,
should be taken in response. 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
policyholders and those given by variable annuity contract owners. The Fund's
Board might conclude that separate funds should be established for variable
life and variable annuity Separate Accounts. If this happens, the affected Life
Companies will bear the attendant expenses of establishing separate funds. As a
result, variable life insurance policyholders and variable annuity contract
owners 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 a Portfolio have equal voting rights, but only shares of a particular
Portfolio are entitled to vote on matters concerning only that Portfolio. Each
of the issued and outstanding shares of a 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 a 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. 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 so choose. 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. To the
extent required by law, the 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 persons 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 Policyholder 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 the Fund's 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.
/diamond/ REPORTS TO POLICYHOLDERS
The fiscal year of each Portfolio ends on December 31 of each year. The Fund
will send to the Portfolios' Policyholders, at least semi-annually, reports
showing the Portfolios' composition and other information. An annual report,
containing financial statements audited by the Fund's independent accountants,
will be sent to Policyholders each year.
/diamond/ CUSTODIAN AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111, acts as
Custodian and Dividend Disbursing Agent of the Portfolios' assets.
/diamond/ 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.
52
<PAGE>
DISTRIBUTIONS AND TAXES
/diamond/ DIVIDENDS AND DISTRIBUTIONS
Each Portfolio intends to distribute substantially all of its net investment
income, if any. Dividends from investment income of a 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.
/diamond/ 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 qualified under Subchapter M, a Portfolio is not subject
to Federal income tax on that part of its investment company taxable income
that it distributes to its Policyholders. Taxable income consists 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. It is each
Portfolio's intention to distribute all such income and gains.
Shares of each 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, an insurance company pays no tax with respect to
income of a qualifying separate account when the income is 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.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on each Portfolio. Each Portfolio intends to
comply with the diversification requirements. These requirements are in
addition to the diversification requirements imposed on each Portfolio by
Subchapter M and the 1940 Act. The 817(h) requirements place certain
limitations on the assets of each separate account that may be invested in
securities of a single issuer. These limitations 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 "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 a 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 a Portfolio and its Policyholders; see the
SAI for a more detailed discussion. Prospective investors are urged to consult
their tax advisors.
53
<PAGE>
APPENDIX A
BRIEF EXPLANATION OF RATING CATEGORIES
<TABLE>
<CAPTION>
BOND RATING EXPLANATION
----------- -----------
<S> <C> <C>
STANDARD & POOR'S CORPORATION AAA Highest rating; extremely strong capacity to pay principal and interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more susceptible to
the adverse effects of changing circumstances and economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit adequate
protection parameters, but adverse economic conditions or changing
circumstances more likely to lead to a weakened capacity to pay principal and
interest than for higher rated bonds.
BB,B, and Predominantly speculative with respect to the issuer's capacity to meet
CC,CC,C required interest and principal payments. BB - lowest degree of speculation;
C- the highest degree of speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to adverse
conditions.
D In default.
</TABLE>
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.
<TABLE>
<S> <C> <C>
MOODY'S INVESTORS SERVICE, INC. Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the high-grade bond
group.
A Upper-medium grade obligations; many favorable investment attributes.
Baa Medium-grade obligations; neither highly protected nor poorly secured. Interest
and principal appear adequate for the present but certain protective elements
may be lacking or may be unreliable over any great length of time.
Ba More uncertain, with speculative elements. Protection of interest and principal
payments not well safeguarded during good and bad times.
B Lack characteristics of desirable investment; potentially low assurance of
timely interest and principal payments or maintenance of other contract terms
over time.
Caa Poor standing, may be in default; elements of danger with respect to principal
or interest payments.
Ca Speculative in a high degree; could be in default or have other marked short-
comings.
C Lowest-rated; extremely poor prospects of ever attaining investment
standing.
</TABLE>
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>
WRL SERIES FUND, INC.
OFFICE OF THE FUND:
WRL Series Fund, Inc.
201 Highland Avenue
Largo, Florida 33770-2597
(800) 851-9777
(813) 585-6565
INVESTMENT ADVISER: CUSTODIAN:
WRL Investment Management, Inc. Investors Bank & Trust Company
201 Highland Avenue 89 South Street
Largo, FL 33770-2597 Boston, MA 02111
<TABLE>
<S> <C> <C>
DISTRIBUTOR: INDEPENDENT ACCOUNTANTS: TRANSFER AGENT:
InterSecurities, Inc. Price Waterhouse LLP WRL Investment Services, Inc.
201 Highland Avenue 1055 Broadway 201 Highland Avenue
Largo, FL 33770-2597 Kansas City, MO 64105 Largo, FL 33770-2597
</TABLE>
SUB-ADVISERS:
JANUS CAPITAL CORPORATION
100 Fillmore Street
Denver, CO 80206
LUTHER KING CAPITAL MANAGEMENT CORPORATION
301 Commerce Street
Fort Worth, TX 76102
FEDERATED INVESTMENT COUNSELING
Federated Investors Tower
Pittsburgh, PA 15222-3779
C.A.S.E. MANAGEMENT, INC.
2255 Glades Road
Suite 221-A
Boca Raton, FL 33431
J.P. MORGAN INVESTMENT MANAGEMENT INC.
522 Fifth Avenue
New York, NY 10036
MERIDIAN INVESTMENT MANAGEMENT CORPORATION
12835 East Arapahoe Road
Tower II, Penthouse
Englewood, CO 80112
AEGON USA INVESTMENT MANAGEMENT, INC.
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499
DEAN INVESTMENT ASSOCIATES
2480 Kettering Tower
Dayton, OH 45423-2480
FRED ALGER MANAGEMENT, INC.
75 Maiden Lane
New York, NY 10038
VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
NWQ INVESTMENT MANAGEMENT COMPANY, INC.
655 South Hope Street
11th Floor
Los Angeles, CA 90017
GE INVESTMENT MANAGEMENT INCORPORATED
3003 Summer Street
Stamford, CT 06905
SCOTTISH EQUITABLE INVESTMENT MANAGEMENT LIMITED
Edinburgh Park
Edinburgh EH12 9SE, Scotland
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.
<PAGE>
WRL SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
U.S. EQUITY PORTFOLIO
SUPPLEMENT DATED JUNE 30, 1997 TO STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1997
Unaudited financial statements for the period January 2, 1997 through April
30, 1997 for the International Equity Portfolio and the U.S. Equity Portfolio
are attached. A copy of the Fund's Statement of Additional Information and the
Fund's Annual Report may be obtained without charge by calling (1-800)851-9777.
<PAGE>
WRL SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
ASSETS: APRIL 30, 1997
Investments in securities, at market value
(cost $ 5,160,276)...................... $ 5,212,768
Short-term securities, at amortized cost... 0
Cash....................................... 1,222,909
Receivables:
Fund shares sold........................ 0
Securities sold......................... 56,481
Interest................................ 3,558
Dividends............................... 11,575
Foreign Receivable...................... 1,098
Foreign currency contracts.............. 5,554
Other .................................. 0
---------------
Total assets.......................... 6,513,943
---------------
LIABILITIES:
Fund shares purchased...................... 0
Securities purchased....................... 638,177
Accounts payable and accrued liabilities:
Investment advisory fees................ 3,968
Custody fees............................ 0
Auditing and accounting fees............ 0
Dividends to shareholders............... 0
Deposits for securities on loan......... 0
Foreign currency contracts.............. 42
Other Fees.............................. 1,984
---------------
Total liabilities..................... 644,171
---------------
Total net assets.................... $ 5,869,772
===============
NET ASSETS:
Capital stock
($ .01 par value 75,000,000 authorized) $ 5,705
Additional paid-in-capital................. 5,744,438
Accumulated undistributed net investment
income (loss)......................... 11,616
Accumulated undistributed net realized
gain (loss) on:
Investment and foreign currency transactions 48,743
Net unrealized appreciation (depreciation) on:
Investment securities................... 52,492
Foreign currency transactions........... 6,778
Future contracts........................ 0
---------------
Net assets applicable to outstanding
shares of capital....................... $ 5,869,772
===============
Shares outstanding at April 30, 1997....... 570,515
===============
Net asset value per share.................. $ 10.29
===============
STATEMENT OF OPERATIONS
PERIOD ENDED
INVESTMENT INCOME: APRIL 30, 1997*
Interest .................................. $ 11,719
Dividends (net of foreign tax of $ 2,323).. 15,872
---------------
Total investment income............... 27,591
---------------
EXPENSES:
Investment advisory fees................... 10,649
Printing and shareholder reports........... 451
Custody fees............................... 26,110
Legal fees................................. 32
Auditing and accounting fees............... 1,372
Directors fees............................. 8
Registration fees.......................... 2
Other fees................................. 278
---------------
Total expenses........................ 38,902
Less:
Advisory fee waiver
and expense reimbursement............. 21,404
Fees paid indirectly.................... 1,523
---------------
Net expenses........................ 15,975
---------------
Net investment income (loss)............... 11,616
---------------
Net realized gain (loss) on:
Investment securities................... (5,102)
Foreign currency transactions........... 53,845
---------------
Total net realized gain (loss)........ 48,743
---------------
Change in unrealized appreciation (depreciation) on:
Investment securities................... 52,492
Foreign currency transactions........... 6,778
---------------
Total change in unrealized appreciation
(depreciation)...................... 59,270
---------------
Net gain (loss) on investments............. 108,013
---------------
Net increase (decrease) in net assets
resulting from operations............. $ 119,629
===============
* The inception of this portfolio was January 2, 1997.
The notes to the financial statements are an integral part of this report.
<PAGE>
WRL SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1997*
OPERATIONS:
<S> <C>
Net investment income (loss)......................................................................................$ 11,616
Net realized gain (loss) on investments and foreign currency transactions......................................... 48,743
Change in unrealized appreciation (depreciation) on investments and foreign currency transactions................. 59,270
--------------
Net increase (decrease) in net assets resulting from operations................................................ 119,629
--------------
DISTRIBUTION TO SHAREHOLDERS:
Net investment income............................................................................................. 0
Net realized gains................................................................................................ 0
--------------
Total distributions............................................................................................ 0
--------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares................................................................................. 7,271,662
Dividends and distributions reinvested............................................................................ 0
Cost of shares repurchased........................................................................................ (1,521,519)
--------------
Increase (decrease) in net assets from capital share transactions.............................................. 5,750,143
--------------
Net increase (decrease) in net assets.......................................................................... 5,869,772
NET ASSETS:
Beginning of period............................................................................................... 0
--------------
End of period.....................................................................................................$ 5,869,772
=============
Undistributed net investment income............................................................................$ 11,616
=============
SHARE ACTIVITY:
Shares outstanding - beginning of period.......................................................................... 0
--------------
Shares issued..................................................................................................... 720,908
Shares issued - reinvestment of dividends and distributions....................................................... 0
Shares redeemed................................................................................................... (150,393)
--------------
Increase (decrease) in shares outstanding......................................................................... 570,515
--------------
Shares outstanding - end of period................................................................................ 570,515
==============
<FN>
* The inception of this portfolio was January 2, 1997.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
<PAGE>
WRL SERIES FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
(UNAUDITED)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS*
FOR THE PERIOD ENDED
APRIL 30
1997 /dagger/
Net asset value, beginning of period................. $ 10.00
Income from operations:
Net investment income (loss).................... .04
Net realized and unrealized
gain (loss) on investments.................... .25
-------
Total income (loss) from operations........... .29
-------
Distributions:
Dividends from net investment income............ .00
Dividends in excess of net investment income.... .00
Distributions from net realized gains
on investments................................ .00
Distributions in excess of net realized
gains on investments.......................... .00
-------
Total distributions........................... .00
-------
Net asset value, end of period....................... $ 10.29
=======
Total return......................................... 2.93%
Ratios and supplemental data:
Net assets at end of period
(in thousands).................................. $ 5,870
Ratio of expenses to average net assets........... 1.50%
Ratio of net investment income (loss)
to average net assets........................... 1.02%
Ratio of commissions paid to number of shares..... 2.25%
Portfolio turnover rate........................... 6.66%
* The above table illustrates the change for a share outstanding computed
using average shares outstanding throughout each period. See Note 6.
/dagger/ The inception of this portfolio was January 2, 1997. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
<PAGE>
WRL SERIES FUND, INC.
U.S. EQUITY PORTFOLIO
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
ASSETS: APRIL 30, 1997
Investments in securities, at market value
(cost $ 4,170,180)...................... $ 4,158,139
Short-term securities, at amortized cost... 0
Cash....................................... 535,574
Receivables:
Fund shares sold........................ 0
Securities sold......................... 815
Interest................................ 1,451
Dividends............................... 6,088
Foreign Receivable...................... 12
Other .................................. 1,500
---------------
Total assets.......................... 4,703,579
---------------
LIABILITIES:
Fund shares purchased...................... 0
Securities purchased....................... 0
Accounts payable and accrued liabilities:
Investment advisory fees................ 3,109
Due to foreign sub-custodian............ 815
Auditing and accounting fees............ 0
Dividends to shareholders............... 0
Deposits for securities on loan......... 0
Other fees.............................. 1,943
---------------
Total liabilities..................... 5,867
---------------
Total net assets.................... $ 4,697,712
===============
NET ASSETS:
Capital stock
($ .01 par value 75,000,000 authorized) $ 4,537
Additional paid-in-capital................. 4,745,063
Accumulated undistributed net investment
income (loss)......................... 16,467
Accumulated undistributed net realized
gain (loss) on:
Investment and foreign currency
transactions (73,906)
Net unrealized appreciation (depreciation) on:
Investment securities................... (12,041)
Foreign currency transactions........... (8)
Future contracts........................ 17,600
---------------
Net assets applicable to outstanding
shares of capital....................... $ 4,697,712
===============
Shares outstanding at April 30, 1997....... 453,715
===============
Net asset value per share.................. $ 10.35
===============
STATEMENT OF OPERATIONS
PERIOD ENDED
INVESTMENT INCOME: APRIL 30, 1997*
Interest .................................. $ 18,084
Dividends (net of foreign tax $ 34)....... 12,333
---------------
Total investment income............... 30,417
---------------
EXPENSES:
Investment advisory fees................... 8,585
Printing and shareholder reports........... 508
Custody fees............................... 13,599
Legal fees................................. 37
Auditing and accounting fees............... 1,372
Directors fees............................. 11
Registration fees.......................... 2
Other fees................................. 355
---------------
Total expenses........................ 24,469
Less:
Advisory fee waiver
and expense reimbursement............. 8,109
Fees paid indirectly.................... 2,410
---------------
Net expenses........................ 13,950
---------------
Net investment income (loss)............... 16,467
---------------
Net realized gain (loss) on:
Investment securities................... (73,909)
Foreign currency transactions........... 3
---------------
Total net realized gain (loss)........ (73,906)
---------------
Change in unrealized appreciation
(depreciation) on:
Investment securities................... 5,559
Foreign currency transactions........... (8)
---------------
Total change in unrealized
appreciation (depreciation)......... 5,551
---------------
Net gain (loss) on investments............. (68,355)
---------------
Net increase (decrease) in net assets
resulting from operations............... $ (51,888)
===============
* The inception of this portfolio was January 2, 1997.
The notes to the financial statements are an integral part of this report.
<PAGE>
WRL SERIES FUND, INC.
U.S. EQUITY PORTFOLIO
(UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1997*
OPERATIONS:
<S> <C>
Net investment income (loss)......................................................................................$ 16,467
Net realized gain (loss) on investments and foreign currency transactions......................................... (73,906)
Change in unrealized appreciation (depreciation) on investments and foreign currency transactions................. 5,551
--------------
Net increase (decrease) in net assets resulting from operations................................................ (51,888)
--------------
DISTRIBUTION TO SHAREHOLDERS:
Net investment income............................................................................................. 0
Net realized gains................................................................................................ 0
--------------
Total distributions............................................................................................ 0
--------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares................................................................................. 7,060,917
Dividends and distributions reinvested............................................................................ 0
Cost of shares repurchased........................................................................................ (2,311,317)
--------------
Increase (decrease) in net assets from capital share transactions.............................................. 4,749,600
--------------
Net increase (decrease) in net assets.......................................................................... 4,697,712
NET ASSETS:
Beginning of period............................................................................................... 0
--------------
End of period.....................................................................................................$ 4,697,712
=============
Undistributed net investment income............................................................................$ 16,467
=============
SHARE ACTIVITY:
Shares outstanding - beginning of period.......................................................................... 0
--------------
Shares issued..................................................................................................... 689,572
Shares issued - reinvestment of dividends and distributions....................................................... 0
Shares redeemed................................................................................................... (235,857)
--------------
Increase (decrease) in shares outstanding......................................................................... 453,715
--------------
Shares outstanding - end of period................................................................................ 453,715
==============
<FN>
* The inception of this portfolio was January 2, 1997.
</FN>
</TABLE>
The notes to the financial statements are an integral part of this report.
<PAGE>
WRL SERIES FUND, INC.
U.S. EQUITY PORTFOLIO
(UNAUDITED)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS*
FOR THE PERIOD ENDED
APRIL 30
1997 /dagger/
Net asset value, beginning of period................. $ 10.00
Income from operations:
Net investment income (loss).................... .05
Net realized and unrealized
gain (loss) on investments.................... .30
-------
Total income (loss) from operations........... .35
-------
Distributions:
Dividends from net investment income............ .00
Dividends in excess of net investment income.... .00
Distributions from net realized gains
on investments................................ .00
Distributions in excess of net realized
gains on investments.......................... .00
-------
Total distributions........................... .00
-------
Net asset value, end of period....................... $ 10.35
=======
Total return......................................... 3.54%
Ratios and supplemental data:
Net assets at end of period
(in thousands).................................. $ 4,698
Ratio of expenses to average net assets........... 1.30%
Ratio of net investment income (loss)
to average net assets........................... 1.54%
Ratio of commission paid to number of shares...... 3.00%
Portfolio turnover rate........................... 37.92%
* The above table illustrates the change for a share outstanding computed
using average shares outstanding throughout each period. See Note 6.
/dagger/ The inception of this portfolio was January 2, 1997. The total
return is not annualized.
The notes to the financial statements are an integral part of this report.
<PAGE>
WRL SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
APRIL 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WRL Series Fund, Inc. (the "Fund") is a diversified, open-end,
investment management company registered under the Investment Company Act of
1940, as amended. The Fund was incorporated on August 21, 1985 as a Maryland
Corporation and commenced operations with three Portfolios on October 2, 1986.
The Fund consists of a series of investment portfolios, including the
International Equity Portfolio and the U.S. Equity Portfolio (the "Portfolios").
Shares of the Fund are sold to the WRL Series Life Account (the "Life Account")
and the WRL Series Annuity Account (the "Annuity Account"), collectively called
the Separate Accounts of Western Reserve Life Assurance Co. of Ohio ("WRL"), to
fund benefits under variable universal life insurance policies and variable
annuity contracts issued by WRL.
On January 2, 1997, WRL supplied seed capital as follows:
PORTFOLIO CONTRIBUTION
--------- ------------
International Equity $ 1,000,000
U.S. Equity $ 500,000
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. VALUATION OF INVESTMENTS
Securities held by the Portfolios are valued at market value, except for
short-term debt securities. Short-term debt securities maturing in 60 days
or less are valued on the amortized cost basis, which approximates market
value. Stocks are valued at the latest sale price on the last business day
of the fiscal period as reported by the principal securities exchange on
which the issue is traded or, if no sale is reported for a stock, the
latest bid price is used. Bonds are valued using prices quoted by a major
dealer in bonds which offers a pricing service. Certain pricing
methodologies, such as matrix pricing of bonds, may differ. Securities for
which quotations may not be readily available are valued as determined in
good faith in accordance with procedures established by and under the
general supervision of the Fund's Board of Directors.
The value of foreign securities are translated into U.S. dollars using
foreign exchange spot rates.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Security gains and
losses are calculated on the first-in first-out basis for both tax and
financial reporting purposes. Dividend income is recorded on the
ex-dividend date, and interest income, including amortization of bond
premium and accretion of discount, is accrued daily based on settlement
date. Dividend income on foreign securities is recorded net of foreign
tax expense.
The accounting records of the Fund are maintained in U.S. dollars. For
transactions denominated in a currency other than the U.S. dollar,
purchases and sales of securities, income received, and expenses paid are
translated into U.S. dollars at the foreign exchange spot rate on the date
the transaction is recorded. Currency gain and loss is also calculated on
payables and receivables that are denominated in foreign currencies. The
payables and receivables are generally related to security transactions
and income.
The unrealized gain or loss on forward foreign currency contracts is due
to the difference between the foreign exchange contract rate and the
foreign exchange forward rate applicable to that contract at the end of
the period. This gain or loss becomes realized when the contract is closed
or settled.
Futures contracts and options are valued based upon daily settlement
prices with the fluctuations in value recorded as unrealized gains and
losses. These gains and losses become realized when the position is
closed. The risks associated with the use of options and futures contracts
involve the possibilities of an illiquid market and an imperfect
correlation between the value of the instrument and the underlying
security.
C. FEDERAL INCOME TAXES
It is the Fund's policy to distribute substantially all its taxable income
and capital gains to its shareholders and otherwise qualify as a regulated
investment company under the Internal Revenue Code. Pursuant to Code
Section 4982(f), regulated investment companies serving as funding
vehicles for life insurance company separate accounts are not subject to
excise tax distribution requirements. Accordingly, no provision for
Federal income taxes has been made.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
<PAGE>
WRL SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 (CONTINUED)
D. DIVIDENDS AND DISTRIBUTIONS
Dividends of the Portfolios are declared and reinvested semi-annually,
while capital gain distributions are declared and reinvested annually.
Dividends and distributions of the Fund are generally paid to and
reinvested by the Separate Account on the next business day after
declaration.
E. ORGANIZATION COSTS
All costs incurred in connection with the formation of the Fund and its
portfolios were paid by WRL.
F. EXPENSE OFFSET ARRANGEMENT
Fees paid indirectly, in the accompanying Statement of Operations,
represent reductions in custody expenses in lieu of interest income earned
on incidental uninvested cash balances. Such fees have been added to
custody fees to reflect total Porfolio expenses.
NOTE 2 - INVESTMENT ADVISORY AND TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY
The Fund has entered into an annually renewable investment advisory
agreement on behalf of each Portfolio with WRL Investment Management, Inc.
as investment adviser. The Fund pays to WRL Investment Management, Inc.,
and charges to each respective Portfolio, advisory fees each month at the
following annual rate expressed as a percentage of the average daily net
assets of the respective Portfolio:
PORTFOLIO PERCENT OF ASSETS
--------- -----------------
International Equity 1.00%
U.S. Equity .80%
WRL Investment Management, Inc. has entered into a sub-advisory agreement
with various management companies. Pursuant to the sub-advisory
agreements, fifty percent of the advisory fee paid to WRL Investment
Management, Inc. less fifty percent of any expense reimbursement is due
the respective management company for the Portfolios:
PORTFOLIO INVESTMENT MANAGER
--------- ------------------
International Equity GE Investment Mgmt.
Incorporated (GE)
Scottish Equitable
Investment Mgmt. Limited
U.S. Equity GE
WRL Investment Management, Inc. currently voluntarily waives its advisory
fees to the extent a Portfolio's normal operating expenses exceeds the
percentage of average daily net assets on an annualized basis of the
Portfolio as listed below:
PORTFOLIO PERCENT OF NET ASSETS
--------- ---------------------
International Equity 1.50%
U.S. Equity 1.30%
The Portfolios are charged for expenses that specifically relate to their
individual operations. All other operating expenses of the Fund that are
not attributable to a specific portfolio are allocated based upon the
proportionate number of policy and contract owners of the underlying
sub-accounts. WRL Investment Services, Inc. directly incurs and pays these
operating expenses relating to the Fund, which subsequently reimburses WRL
Investment Services, Inc. All normal operating expenses that exceed the
established expense limit set forth above will be borne by WRL Investment
Management, Inc.
B. AFFILIATES
WRL Investment Management, Inc. and WRL Investment Services, Inc., are
direct wholly-owned subsidiaries of WRL, which, in turn, is an indirect,
wholly-owned subsidiary of AEGON USA, Inc., which, along with Scottish
Equitable are indirect wholly-owned subsidiaries of AEGON nv, a
Netherlands corporation.
C. PLAN OF DISTRIBUTION
Effective January 1, 1997, the Fund adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended ("Distribution Plan") and pursuant to the Plan, has entered into a
Distribution Agreement with InterSecurities, Inc. ("ISI").
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.
ISI has determined that it will not seek payment by the Fund of
distribution expenses incurred with respect to any Portfolio during the
fiscal year ending December 31, 1997. Prior to ISI seeking reimbursement,
Policy and Contract Owners will be notified in advance.
D. DEFERRED COMPENSATION PLAN
Each eligible Director of the Fund who is not an officer or affiliated
person as defined under the Investment Company Act of 1940, as amended,
may elect to participate in the Deferred Compensation Plan for Directors
of the Fund.
<PAGE>
WRL SERIES FUND, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE D (CONTINUED)
(the "Plan"). Under the Plan, such Directors may elect to defer payment of
a percentage of their total fees earned as a Director of the Fund.
These deferred amounts may be invested in any Portfolio of the IDEX Series
Fund. It is not expected that the Plan will affect the Fund. Invested plan
amounts are included in other assets. The total liability for deferred
compensation to Directors under the Plan at April 30, 1997 is included in
other liabilities in the accompanying Statement of Assets and Liabilities.
NOTE 3 - SECURITIES TRANSACTIONS
Securities transactions are summarized as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY U.S. EQUITY
PORTFOLIO PORTFOLIO
-------------------- -------------
<S> <C> <C>
For the period ended April 30, 1997:
Purchases of securities:
Long-term excluding U.S. Government........................... $ 5,363,961 $ 5,210,618
U.S. Government securities.................................... 0 0
Proceeds from maturities and sales of securities:
Long-term excluding U.S. Government........................... 195,703 1,014,438
U.S. Government securities.................................... 0 0
</TABLE>
NOTE 4 - FEDERAL INCOME TAX MATTERS
The income, expenses, gains and losses on securities transactions
attributed to each Portfolio for accounting purposes, are also attributed to
that Portfolio for Federal income tax purposes. Gains and losses on forward
currency contracts, if applicable, are treated as ordinary income for Federal
income tax purposes pursuant to Section 988 of the Internal Revenue Code.
Each Portfolio has and will continue to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, and
accordingly, has made or intends to make sufficient distributions of net
investment income and net realized gains, if any, to relieve it from all Federal
and state income taxes and Federal excise taxes.
Each Portfolio will elect to treat the net capital losses incurred in the
two month period ending December 31, 1997, (Post-October Losses), if applicable,
as having been incurred in the following fiscal year. The aggregate cost of
investments and composition of unrealized appreciation and depreciation for
Federal income tax purposes as of April 30, 1997 are as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO COST BASIS APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
International Equity... $5,160,594 $ 195,584 $ 143,410 $ 52,174
U.S. Equity............ 4,170,179 94,977 107,017 (12,040)
</TABLE>
<PAGE>
WRL SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 5 - COMMITMENTS
The Portfolios are authorized to enter into foreign exchange contracts for
the purpose of hedging against foreign exchange risk arising from the
Portfolio's investment in securities denominated in foreign currencies. All
foreign exchange contracts are marked-to-market daily at the applicable foreign
exchange rates and the resulting unrealized gains or losses recorded in the
Portfolio's financial statements. These gains and losses are realized when the
contract is extinguished either by entering into a closing transaction or by
delivery of the currency. The risks that may arise from these contracts are the
potential inability of the counterparties to meet the terms of their contracts,
and from unanticipated movements in the currency's value relative to the U.S.
dollar.
The International Equity Portfolio entered into forward foreign currency
contracts, which obligate the Portfolio to deliver currencies at specified
future dates. The open contracts at April 30, 1997 are as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997
VALUE IN NET UNREALIZED
SETTLEMENT U.S. DOLLARS APPRECIATION
CURRENCY BOUGHT (SOLD) DATE BOUGHT (SOLD) (DEPRECIATION)
- ------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
German Deutschemark (350,000) 05/28/97 $ (202,599) $ 2,127
French Franc (550,000) 05/28/97 (94,492) 750
Greek Drachma 1,546,339 05/02/97 5,622 (42)
Japanese Yen (29,000,000) 05/28/97 (229,530) 2,007
Dutch Guilder (136,000) 05/28/97 (69,972) 670
------------ ------------
$ (590,971) $ 5,512
============ ============
</TABLE>
The U.S. Equity Portfolio entered into S&P 500 futures and contracts, which
obligate the Fund to settle variation margins in cash daily. Securities with an
aggregate market value of $ 58,450 have been segregated with the custodian to
cover margin requirements for the following open future contracts at April 30,
1997:
UNREALIZED
TYPE CONTRACTS APPRECIATION
- ---- --------- ------------
S&P 500 1 $ 17,600
------------
$ 17,600
============
NOTE 6 - FINANCIAL HIGHLIGHTS
The Financial Highlights for each Portfolio is for the period from
inception, which is less than one year; therefore the total return shown is not
annualized.
The total return and the change in value of the Portfolio reflect the
advisory fee and all other Portfolio expenses and include reinvestment of
dividends and capital gains; they do not reflect the charges against the
corresponding sub-accounts or the charges and deduction under the applicable
annuity contracts.
The ratio of expenses to average net assets in the financial highlights is
net of advisory fee waiver (see Note 2). The April 30, 1997 ratio is annualized,
along with the ratio of net investment income to average net assets.
Without the advisory fee waived by WRL, the ratio would be as follows:
International Equity 3.28%
U.S. Equity 2.07%
<PAGE>
WRL SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
Incorporated by reference herein is the above-referenced Statement of Additional
Information dated May 1, 1997, as filed with Post-Effective Amendment No. 28 to
the Registration Statement on Form N1-A of WRL Series Fund, File
No.33-507/811-4419 (April 24, 1997)
<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., certifies that it meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 29 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 25th day of June,
1997.
WRL SERIES FUND, INC.
(Registrant)
By: /s/ JOHN R. KENNEY
-------------------------
John R. Kenney
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 29 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 June 25, 1997
- ----------------------------
Chairman of the Board, Chief
Executive Officer and President
John R. Kenney
/s/ G. JOHN HURLEY June 25, 1997
- ----------------------------
Executive Vice President and Director
G. John Hurley
/s/ PETER R. BROWN June 25, 1997
- ----------------------------
Director - Peter R. Brown *
/s/ CHARLES C. HARRIS June 25, 1997
- ----------------------------
Director - Charles C. Harris *
/s/ RUSSELL A. KIMBALL, JR. June 25, 1997
- -----------------------------
Director - Russell A. Kimball, Jr. *
<PAGE>
SIGNATURE AND TITLE DATE
- ------------------- ----
/s/ ALLAN J. HAMILTON June 25, 1997
- ---------------------------
Treasurer and Principal
Financial Officer -
Allan J. Hamilton
/s/ KENNETH P. BEIL June 25, 1997
- --------------------------
Principal Accounting Officer
Kenneth P. Beil
/s/ THOMAS E. PIERPAN
- --------------------------
* Signed by Thomas E. Pierpan
as Attorney-in-fact
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
1. Financial Highlights for the International Equity Portfolio
and the U.S. Equity Portfolio are included in the Supplement
dated June 30, 1997 to the WRL Series Fund Prospectus dated
May 1, 1997. (Part A)
2. Unaudited Financial Statements of the International Equity
Portfolio and U.S. Equity Portfolio are included in the
Supplement dated June 30, 1997 to the WRL Series Fund
Statement of Additional Information dated May 1, 1997. (Part
B).
(b) Exhibits
1. (A) Articles of Incorporation of WRL Series Fund, Inc. (3)
(B) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(C) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3
(D) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(E) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(F) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(G) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(H) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(I) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(J) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (5)
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
Portfolios of the WRL Series Fund. (5)
(ii) Form of Co-Sub-Advisory Agreements on behalf of the
International Equity Portfolio of the Fund. (3)
(iv) Form of Sub-Advisory Agreement on behalf of the U.S.
Equity Portfolio of the Fund. (3)
6. Form of Distribution Agreement. (4)
7. Directors Deferred Compensation Plan. (2)
8. Form of Custodian Agreement. (4)
9. Administrative Services and Transfer Agency Agreement. (4)
10. Opinion and consent of Thomas E. Pierpan, Esq. as to legality
of the securities being registered. (1)
11. Consent of Price Waterhouse LLP.
12. Not applicable.
13. Not applicable.
<PAGE>
14. Not applicable.
15. Plan of Distribution.
16. Schedules for Computations of Performance Quotations. (5)
17. Financial Data Schedules.
18. Power of Attorney. (1)
- ---------------------
(1) Previously filed with Post-Effective Amendment No. 19
to Form N-1A dated April 21, 1995 and incorporated herein by reference.
(2) Previously filed with Post-Effective Amendment No. 23 to Form N-1A dated
April 19, 1996 and incorporated herein by reference.
(3) Previously filed with Post-Effective Amendment No. 25 to Form N-1A dated
October 17, 1996, and incorporated herein by reference.
(4) Previously filed with Post-Effective Amendment No. 26 to Form N-1A dated
December 26, 1996 and incorporated herein by reference.
(5) Previously filed with Post-Effective Amendment No. 28 to Form N-1A dated
April 24, 1997, and incorporated herein by reference.
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 APRIL 30, 1997
-------------- ------------------------
International Equity Portfolio
Common Stock ($.01 par value) 2
U.S. Equity Portfolio
Common Stock ($.01 par value) 2
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
<PAGE>
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 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. WRL INVESTMENT MANAGEMENT, INC.
WRL Investment Management, Inc. ("WRL Management") is principally
engaged in offering investment advisory services.
The only business, professions, vocations or employments of a
substantial nature of Messrs. Kenney, Hurley and Yaeger, directors of
WRL Management, are described in the Statement of Additional
Information under the section entitled "Management of the Fund."
Additionally, the following describes the principal occupations of
other persons who serve as executive officers of WRL Management:
Kenneth P. Beil, President and Treasurer, is Assistant Vice President
and Principal Accounting Officer of the WRL Series Fund, Inc. and is
Vice President and Assistant Treasurer of Western Reserve Life
Assurance Co. of Ohio; William H. Geiger, Esq., Secretary, is Vice
President and Assistant Secretary of the WRL Series Fund and is Senior
Vice President, Secretary, General Counsel and Group Vice President -
Compliance of Western Reserve Life; and Thomas E. Pierpan, Esq., Vice
President, is Vice President and Assistant Secretary of the WRL Series
Fund, Inc. and Vice President, Associate General Counsel and Assistant
Secretary of Western Reserve Life Assurance Co.
of Ohio.
B. INTERNATIONAL EQUITY PORTFOLIO: CO-SUB-ADVISERS - SCOTTISH EQUITABLE
INVESTMENT MANAGEMENT LIMITED AND GE INVESTMENT MANAGEMENT
INCORPORATED
Scottish Equitable Investment Management Limited ("Scottish
Equitable") serves as a Co-Sub-Adviser to the International Equity
Portfolio. See "Management of the Fund - The Co-Sub-Advisers" in the
Prospectus and Statement of Additional Information for regarding the
business of Scottish Equitable. Scottish Equitable is a wholly-owned
subsidiary of Scottish Equitable plc.
The Directors and Officers of Scottish Equitable are listed below.
Unless otherwise indicated, each Director and Officer has a principal
business address of Edinburgh Park, Edinburgh EH12 9SE: William W.
Stewart, Chairman of the Board and Executive Director,
<PAGE>
Strategy; Russell Hogan, Investment Development Director; Roy Patrick,
Director and Company Secretary; Paul N. Ritchie, Director and
Investment Administration Manager; Otto Thoresen, Director,
International Business.
None of these Directors or Officers has any substantial business,
profession, vocation or employment other than their positions with
Scottish Equitable, Scottish Equitable plc and other group companies.
GE Investment Management Incorporated ("GEIM") also serves as a
Co-Sub-Adviser for the International Equity Portfolio. GEIM is a
wholly-owned subsidiary of General Electric Company ("GE"). GEIM's
principal officers and directors serve in similar capacities with
respect to General Electric Investment Corporation ("GEIC," and,
together with GEIM, collectively referred to as "GE Investments"),
which like GEIM is a wholly-owned subsidiary of GE. GEIC serves as
investment adviser to various GE pension and benefit plans and certain
employee mutual funds. The directors and executive officers of GEIC
are: John H. Myers, Chairman, Director and CEO; Michael J. Cosgrove,
Executive Vice President, Alan M. Lewis, Executive Vice President and
General Counsel; Robert A. MacDougall, Executive Vice President;
Eugene K. Bolton, Executive Vice President; Donald W. Torey, Executive
Vice President and Ralph R. Layman, Executive Vice President. All of
these officers and/or directors have no substantial business,
profession, vocation or employment other than their positions with
GEIM and/or its subsidiaries and affiliates.
C. U.S. EQUITY PORTFOLIO: SUB-ADVISER - GE INVESTMENT MANAGEMENT
INCORPORATED
GE Investment Management Incorporated ("GEIM") serves as the
Sub-Adviser for the U.S. Equity Portfolio. GEIM is a wholly-owned
subsidiary of General Electric Company ("GE"). GEIM's principal
officers and directors serve in similar capacities with respect to
General Electric Investment Corporation ("GEIC," and, together with
GEIM, collectively referred to as "GE Investments") which like GEIM is
a wholly-owned subsidiary of GE. GEIC serves as investment adviser to
various GE pension and benefit plans and certain employee mutual
funds. The directors and executive officers of GEIC are: John H.
Myers, Chairman, Director and CEO; Michael J. Cosgrove, Executive Vice
President, Alan M. Lewis, Executive Vice President and General
Counsel; Robert A. MacDougall, Executive Vice President; Eugene K.
Bolton, Executive Vice President; Donald W. Torey, Executive Vice
President and Ralph R. Layman, Executive Vice President. All of these
officers and/or directors have no substantial business, profession,
vocation or employment other than their positions with GEIM and/or its
subsidiaries and affiliates.
Item 29. PRINCIPAL UNDERWRITERS.
(a) The Registrant has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), whose address is P.O. Box 9053,
Clearwater, FL 34618-9053, to act as the principal underwriter of Fund
Shares. ISI also serves as an investment adviser and principal
underwriter to the IDEX Series Fund and as principal underwriter to the
WRL Series Life Account and the WRL Series Annuity Account.
(b) Directors and Officers of Principal Underwriter:
(1) (2) (3)
POSITIONS AND OFFICES
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
- ------------------ -------------------------- ----------------------
John R. Kenney* Chairman and Director Chairman and President
G. John Hurley* Director, President and CEO Director and Executive
<PAGE>
Rebecca A. Ferrell* Assistant Vice President, Secretary, Vice
President and Counsel
William H. Geiger* Director and Secretary Vice President and
Assistant Secretary
Thomas R. Moriarty* Senior Vice President N/A
Christopher G. Roetzer* Assistant Vice President N/A
Duncan Cameron* Assistant Vice President N/A
Cynthia L. Remley* Vice President, Counsel and N/A
Assistant Secretary
Terry L. Garvin* Vice President N/A
Gordon E. Hippner* Vice President N/A
Gerald P. Kirk* Vice President N/A
Stanley R. Orr* Vice President N/A
William G. Cummings* Vice President and Treasurer N/A
James Kiely* Assistant Secretary N/A
Kristy L. Dowd* Vice President - Project N/A
Development
Ronald L. Hall* Vice President, Sales and N/A
Marketing
Diane Rogers* Assistant Vice President N/A
Ronald J. Klimas* Assistant Vice President N/A
Russell W. Crooks* Assistant Vice President N/A
Gregory Limardi* Assistant Vice President N/A
Laura Schneider* Assistant Secretary N/A
Stuart Walsky* Assistant Vice President N/A
Christine M. Goodwin* Assistant Vice President N/A
- ---------------
*201 Highland Avenue, Largo, Florida 33770
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 WRL Investment Services, Inc. at its offices at 201
Highland Avenue, Largo, Florida 33770, or at the offices of the Fund's
custodian, Investors Bank & Trust Company, 89 South Street, Boston, MA
02111.
<PAGE>
Item 31. MANAGEMENT SERVICES.
Not applicable.
Item 32. UNDERTAKINGS.
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.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
POST-EFFECTIVE AMENDMENT NO. 29 TO
REGISTRATION STATEMENT
ON FORM N-1A
WRL SERIES FUND, INC.
REGISTRATION NO. 33-507
<PAGE>
Exhibit Index
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
11. Consent of Price Waterhouse LLP
15. Plan of Distribution
17. Financial Data Schedules
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post Effective
Amendment No. 29 to the registration statement on Form N1-A (the "Registration
Statement") of our report dated January 31, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report of the WRL Series Fund, Inc., which is also incorporated by reference
into the Registration Statement. We also consent to the references to us under
the heading "Independent Accountants" in the Prospectus and Statement of
Additional Information.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Kansas City, Missouri
June 30, 1997
EXHIBIT 15
PLAN OF DISTRIBUTION
<PAGE>
WRL SERIES FUND, INC.
PLAN OF DISTRIBUTION PURSUANT TO
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, WRL Series Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act") as an open-end
management investment company; and
WHEREAS, the Fund currently offers its shares of the Portfolios of the Fund
(the `Portfolios") for sale to separate accounts established by insurance
companies to fund the benefits under certain individual variable life insurance
policies and individual and group variable annuity contracts (collectively, the
"Separate Accounts"), and may distribute its shares to other offerees in the
future. The Separate Accounts may or may not be registered with the Securities
and Exchange Commission; and
WHEREAS, the Fund desires to adopt a Plan of Distribution (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act applicable to the shares of the
Portfolios during the continuous offering of such shares; and
WHEREAS, the Fund's board of directors (the "Board") has, pursuant to and
in accordance with Rule 12b-1, exercised reasonable business judgment and
observed its fiduciary duties under state law and under Section 36(a) and (b) of
the 1940 Act in determining that there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders;
NOW THEREFORE, the Fund hereby adopts this Plan in accordance with Rule
12b-1 under the 1940 Act with respect to the shares of the Portfolios.
1. For the period commencing with the date on which this Plan shall
first become effective and ending on December 31 of that year and for each
twelve month period (or portion thereof) thereafter in which this Plan shall
continue in effect, the Fund on behalf of the Portfolios, as listed on Schedule
A of this Agreement, 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. Such fee shall be measured and
accrued daily and paid monthly.
2. Expenses permitted to be paid pursuant to this Plan shall include, but not
necessarily be limited to, the following:
(a) the cost for printing and mailing of Fund prospectuses and statements
of additional information, and any supplements thereto to potential
investors;
(b) the costs relating to the development and preparation of Fund
advertisements, sales literature, and brokers' and other promotional
materials describing and/or relating to the Fund;
(c) expenses incurred in connection with the presentation of seminars and
sales meetings describing the Fund attended by sales personnel and
potential investors;
(d) the development of consumer-oriented sales materials describing and/or
relating to the Fund; and
(e) expenses attributable to "distribution-related services" provided to
the Fund. "Distribution-related services" includes, but are not
limited to: salaries and benefits;
<PAGE>
office expenses; equipment expenses (I.E., computers, software, office
equipment, etc.); training costs; travel costs; printing costs; supply
expenses; computer programming time; and data center expenses, each as
they relate to the promotion of the sale of Fund shares.
3. This Plan shall not take effect with respect to shares of a Portfolio until
it has been approved by a vote of at least a majority of the outstanding voting
securities (as defined in the 1940 Act) of such Portfolio.
4. This Plan, together with any related agreements, shall not take effect until
they have been approved, by a vote of the majority of the Fund's Board,
including a majority of those members of the Board who are not "interested
persons" of the Fund (as defined in the 1940 Act), and who have no direct or
indirect financial interest in the operation of this Plan or in any agreements
related to the Plan (the "Independent Directors"), cast in person at a meeting
called for the purpose of voting on this Plan and such agreements.
5. This Plan shall continue in effect for as long as such continuance is
specifically approved at least annually by the Board and Independent Directors
in the manner provided in paragraph 4.
6. Any person authorized to direct the disposition of monies paid or payable by
the Fund pursuant to this Plan or any related agreement shall provide to the
Fund's Board, and the Board shall review, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made, and shall furnish the Board with such other information as the Board may
reasonably request in connection with such payments in order to enable the Board
to make an informed determination as to whether the Plan should be continued.
7. This Plan may be terminated at any time with respect to a Portfolio by vote
of a majority of the Independent Directors, or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of such Portfolio.
8. Any agreement related to the Plan, including its implementation, shall be in
writing and shall provide:
(a) that such agreement, with respect to a Portfolio, may be
terminated at any time, without payment of any penalty, by vote
of a majority of the Independent Directors or by vote of a
majority of the outstanding voting securities (as defined in the
1940 Act) of such Portfolio, on not more than 60 days' written
notice to the other party/parties to such agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
9. This Plan may not be amended to increase materially the amount of
distribution expenses permitted to be paid by a Portfolio pursuant to paragraphs
1 and 2 without the approval of the shareholders of such Portfolio, and any
material amendment to the Plan must be approved by the Board and Independent
Directors in the manner provided in paragraph 4.
10. As long as the Plan is in effect, the selection and nomination of those
members of the Board who are not interested persons (as defined in the 1940 Act)
of the Fund shall be committed to the discretion of such disinterested directors
then in office.
11. The Fund will preserve copies of this Plan, and any related agreements and
reports, for a period of not less than six years from the date of those
documents, the first two years in an easily accessible place.
2
<PAGE>
12. Any provision of this Plan that is invalid, illegal, or unenforceable in any
jurisdiction will, as to that jurisdiction, be ineffective to the extent of such
invalidity, illegality, or unenforceability, without affecting in any way the
remaining provisions of this Plan in such jurisdiction, or without rendering
that or any other provisions of this Plan invalid, illegal, or unenforceable in
any other jurisdiction.
IN WITNESS WHEREOF, the Fund has executed this Plan on the day and year set
forth below in Largo, Florida.
Dated as of: January 1, 1997
ATTEST: WRL SERIES FUND, INC.
/s/PRISCILLA I. HECHLER By: /s/ JOHN R. KENNEY
- ------------------------ --------------------------
Priscilla I. Hechler John R. Kenney
Assistant Vice President Chairman of the Board and
and Assistant Secretary President
3
<PAGE>
Schedule A
PARTICIPATING PORTFOLIOS AS OF JANUARY 1, 1997
Growth
Bond
Global
Money Market
Short-to-Intermediate Government
Emerging Growth
Equity-Income
Balanced
Aggressive Growth
Utility
Tactical Asset Allocation
Value Equity
C.A.S.E. Growth
C.A.S.E. Growth & Income
C.A.S.E. Quality Growth
Global Sector
US Sector
Foreign Sector
International Equity
U.S. Equity Portfolio
4
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. INTERNATIONAL EQUITY PORTFOLIO FOR THE
PERIOD ENDED APRIL 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000778207
<NAME> WRL SERIES FUND, INC.
<SERIES>
<NUMBER> 01
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,160
<INVESTMENTS-AT-VALUE> 5,213
<RECEIVABLES> 78
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,223
<TOTAL-ASSETS> 6,514
<PAYABLE-FOR-SECURITIES> 638
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 644
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,750
<SHARES-COMMON-STOCK> 571
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 12
<OVERDISTRIBUTION-NII> 12
<ACCUMULATED-NET-GAINS> 49
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59
<NET-ASSETS> 5,870
<DIVIDEND-INCOME> 16
<INTEREST-INCOME> 12
<OTHER-INCOME> 0
<EXPENSES-NET> 16
<NET-INVESTMENT-INCOME> 12
<REALIZED-GAINS-CURRENT> 49
<APPREC-INCREASE-CURRENT> 59
<NET-CHANGE-FROM-OPS> 120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 721
<NUMBER-OF-SHARES-REDEEMED> (150)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,870
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39
<AVERAGE-NET-ASSETS> 3,418
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. U.S. EQUITY PORTFOLIO, FOR THE PERIOD ENDED
APRIL 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000778207
<NAME> WRL SERIES FUND, INC.
<SERIES>
<NUMBER> 02
<NAME> U.S. EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 4,170
<INVESTMENTS-AT-VALUE> 4,158
<RECEIVABLES> 10
<ASSETS-OTHER> 536
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,704
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,750
<SHARES-COMMON-STOCK> 454
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 16
<OVERDISTRIBUTION-NII> 0
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<NET-INVESTMENT-INCOME> 16
<REALIZED-GAINS-CURRENT> (74)
<APPREC-INCREASE-CURRENT> 6
<NET-CHANGE-FROM-OPS> (52)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 690
<NUMBER-OF-SHARES-REDEEMED> (236)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,698
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<OVERDISTRIB-NII-PRIOR> 0
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<PER-SHARE-NAV-END> 10.35
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</TABLE>
