WRL SERIES FUND INC, 497, 1999-05-10

WRL SERIES FUND INC
497, 1999-05-10

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WRL SERIES FUND, INC.

WRL VKAM EMERGING GROWTH
WRL T. ROWE PRICE SMALL CAP
WRL GOLDMAN SACHS SMALL CAP
WRL PILGRIM BAXTER MID CAP GROWTH
WRL ALGER AGGRESSIVE GROWTH
WRL THIRD AVENUE VALUE
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
WRL JANUS GLOBAL
WRL SALOMON ALL CAP
WRL JANUS GROWTH
WRL GOLDMAN SACHS GROWTH
WRL C.A.S.E. GROWTH
WRL GE U.S. EQUITY
WRL DREYFUS MID CAP
WRL NWQ VALUE EQUITY
WRL T. ROWE PRICE DIVIDEND GROWTH
WRL DEAN ASSET ALLOCATION
WRL LKCM STRATEGIC TOTAL RETURN
WRL J.P. MORGAN REAL ESTATE SECURITIES
WRL FEDERATED GROWTH & INCOME
WRL AEGON BALANCED
WRL AEGON BOND
WRL J.P. MORGAN MONEY MARKET

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information is not a prospectus but supplements
and should be read in conjunction with the WRL Series Fund, Inc. (the "Fund")
Prospectus. A copy of the Prospectus may be obtained from the Fund by writing
the Fund at 570 Carillon Parkway, St. Petersburg, FL 33716 or by calling the
Fund at (800) 851-9777.

Investment Adviser:

WRL INVESTMENT MANAGEMENT, INC.

Sub-Advisers:

VAN KAMPEN ASSET MANAGEMENT INC.
T. ROWE PRICE ASSOCIATES, INC.
GOLDMAN SACHS ASSET MANAGEMENT INC.
FRED ALGER MANAGEMENT, INC.
GE INVESTMENT MANAGEMENT INCORPORATED
SCOTTISH EQUITABLE INVESTMENT MANAGEMENT LIMITED
JANUS CAPITAL CORPORATION
EQSF ADVISERS, INC.
THE DREYFUS CORPORATION
SALOMON BROTHERS ASSET MANAGEMENT INC.
PILGRIM BAXTER & ASSOCIATES, LTD.
C.A.S.E. MANAGEMENT, INC.
NWQ INVESTMENT MANAGEMENT COMPANY, INC.
DEAN INVESTMENT ASSOCIATES
LUTHER KING CAPITAL MANAGEMENT CORPORATION
FEDERATED INVESTMENT COUNSELING
AEGON USA INVESTMENT MANAGEMENT, INC.
J.P. MORGAN INVESTMENT MANAGEMENT INC.

The date of the Prospectus to which this Statement of Additional Information
relates and the date of this Statement of Additional Information is May 1,
1999.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page in this Statement
of
Additional Information
-----------------------
<S> <C>
FUND HISTORY 1

INVESTMENT OBJECTIVES AND POLICIES 2

INVESTMENT RESTRICTIONS 2

WRL VKAM Emerging Growth 2
WRL T. Rowe Price Small Cap 3
WRL T. Rowe Price Dividend Growth 3
WRL Goldman Sachs Small Cap 4
WRL Goldman Sachs Growth 4
WRL Pilgrim Baxter Mid Cap Growth 5
WRL Alger Aggressive Growth 5
WRL Third Avenue Value 6
WRL GE/Scottish Equitable International Equity 7
WRL Janus Global 8
WRL Salomon All Cap 9
WRL Janus Growth 10
WRL C.A.S.E. Growth 10
WRL AEGON Bond 10
WRL GE U.S. Equity 11
WRL Dreyfus Mid Cap 12
WRL NWQ Value Equity 13
WRL Dean Asset Allocation 13
WRL LKCM Strategic Total Return 14
WRL J.P. Morgan Real Estate Securities 15
WRL Federated Growth & Income 16
WRL AEGON Balanced 17
WRL J.P. Morgan Money Market 18

INVESTMENT POLICIES 19

Lending 19
Borrowing 19
Short Sales 20
Foreign Securities 20
Foreign Bank Obligations 21
Forward Foreign Currency Contracts 21
When-Issued, Delayed Settlement and Forward Delivery Securities 21
Investment Funds (WRL GE/Scottish Equitable International Equity) 22
Repurchase and Reverse Repurchase Agreements 22
Temporary Defensive Position 22
U.S. Government Securities 22
Non-Investment Grade Debt Securities 23
Convertible Securities 23
Investments in Futures, Options and Other Derivative Instruments 24
Zero Coupon, Pay-In-Kind and Step Coupon Securities 33
Warrants and Rights 34
Mortgage-Backed Securities 34
Asset-Backed Securities 35
Pass-Through Securities 35
Other Income Producing Securities 35
Illiquid and Restricted/144A Securities 36
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
Page in this Statement
of
Additional Information
-----------------------
<S> <C>
Money Market Reserves
(WRL T. Rowe Price Small Cap and
WRL T. Rowe Price Dividend Growth) 36
Other Investment Companies 36
Quality and Diversification Requirements
(WRL J.P. Morgan Money Market) 37
Bank and Thrift Obligations 37
Investments in the Real Estate Industry and Real Estate Investment Trusts
("REITs") 38
Variable Rate Master Demand Notes 38
Debt Securities and Fixed-Income Investing 39
High Yield/High-Risk Securities 39
Trade Claims 40

MANAGEMENT OF THE FUND 40

Directors and Officers 40
The Investment Adviser 42
The Sub-Advisers 45
Joint Trading Accounts 52
Personal Securities Transactions 53
Administrative and Transfer Agency Services 53

PORTFOLIO TRANSACTIONS AND BROKERAGE 53

Portfolio Turnover 53
Placement of Portfolio Brokerage 54

PURCHASE AND REDEMPTION OF SHARES 56

Determination of Offering Price 56
Net Asset Valuation 56

CALCULATION OF PERFORMANCE
RELATED INFORMATION 57

Total Return 57
Yield Quotations 57
Yield Quotations - WRL J.P. Morgan
Money Market 57

TAXES 58

CAPITAL STOCK OF THE FUND 60

REGISTRATION STATEMENT 60

FINANCIAL STATEMENTS 60

OTHER INFORMATION 60

Independent Accountants 60
Custodian 60

Appendix A - Description of Portfolio Securities A-1

Appendix B - Brief Explanation of
Rating Categories B-1
</TABLE>

ii
<PAGE>

[GRAPHIC OMITTED] FUND HISTORY

The Fund was incorporated under the laws of the State of Maryland on August 21,
1985 and is registered with the Securities and Exchange Commission ("SEC") as
an open-end management investment company.

The Fund offers its shares only for purchase by the separate accounts of life
companies to fund benefits under variable life insurance policies or variable
annuity contracts issued by AUSA Life Insurance Company, Inc. ("AUSA"), PFL
Life Insurance Company ("PFL"), Western Reserve Life Assurance Co. of Ohio
("WRL") and Peoples Benefit Life Insurance Company ("Peoples") (the "Life
Companies"). Shares may be offered to other life insurance companies in the
future. On April 30, 1999, AUSA and PFL redeemed shares of the WRL Janus Growth
portfolio owned by them to fund certain variable annuity contracts. Prior to the
redemption, AUSA and PFL together owned approximately 20% of the portfolio's
outstanding securities.

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
policyowners, 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 Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund does not hold regular or special policyowner
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 policyowners are described in
more detail in the prospectuses or disclosure documents for the policies and
the annuity contracts, respectively.

1
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives of the WRL VKAM Emerging Growth, WRL T. Rowe Price
Small Cap, WRL Goldman Sachs Small Cap, WRL Alger Aggressive Growth, WRL
GE/Scottish Equitable International Equity, WRL Janus Global, WRL Third Avenue
Value, WRL Dreyfus Mid Cap, WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap
Growth, WRL Janus Growth, WRL Goldman Sachs Growth, WRL C.A.S.E. Growth, WRL GE
U.S. Equity, WRL NWQ Value Equity, WRL T. Rowe Price Dividend Growth, WRL Dean
Asset Allocation, WRL LKCM Strategic Total Return, WRL Federated Growth &
Income, WRL AEGON Balanced, WRL J.P. Morgan Real Estate Securities, WRL AEGON
Bond and WRL J.P. Morgan Money Market (a "portfolio" or collectively, the
"portfolios") of the Fund are described in the portfolios' Prospectus. Shares
of the portfolios are sold only to the separate accounts of WRL and to separate
accounts of certain of its affiliated life insurance companies (collectively,
the "separate accounts") to fund the benefits under certain variable life
insurance policies (the "policies") and variable annuity contracts (the
"annuity contracts").

As indicated in the prospectus, each portfolio's investment objective and,
unless otherwise noted, its investment policies and techniques may be changed
by the Board of Directors of the Fund without approval of shareholders or
holders of the policies or annuity contracts (collectively, "policyowners"). A
change in the investment objective or policies of a portfolio may result in the
portfolio having an investment objective or policies different from those which
a policyowner deemed appropriate at the time of investment.

As indicated in the prospectus, each portfolio is subject to certain
fundamental policies and restrictions which may not be changed without the
approval of the holders of a majority of the outstanding voting securities of
the portfolio. "Majority" for this purpose and under the 1940 Act means the
lesser of (i) 67% of the outstanding voting securities represented at a meeting
at which more than 50% of the outstanding voting securities of a portfolio are
represented or (ii) more than 50% of the outstanding voting securities of a
portfolio. A complete statement of all such fundamental policies is set forth
below. State insurance laws and regulations may impose additional limitations
on the Fund's investments, including the Fund's ability to borrow, lend and use
options, futures and other derivative instruments. In addition, such laws and
regulations may require that a portfolio's investments meet additional
diversification or other requirements.

INVESTMENT RESTRICTIONS

[GRAPHIC OMITTED] WRL VKAM EMERGING GROWTH
(FORMERLY EMERGING GROWTH PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

1. With respect to 75% of the portfolio's total assets purchase the
securities of any one issuer (other than Government securities as defined in
the 1940 Act) if immediately after and as a result of such purchase (a) the
value of the holdings of the portfolio in the securities of such issuer exceeds
5% of the value of the portfolio's total assets, or (b) the portfolio owns more
than 10% of the outstanding voting securities of any one class of securities of
such issuer.

2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.

3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
portfolio from investing in securities or other instruments backed by physical
commodities).

4. Purchase or sell real estate (but this shall not prevent the portfolio
from investing in securities or other instruments backed by real estate,
including mortgage-backed securities, or securities of companies engaged in the
real estate business).

5. Lend any security or make any other loan if, as a result, more than
25% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of commercial paper, debt securities or repurchase
agreements).

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

2
<PAGE>

7. Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 25% of the value of the
portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
portfolio's total assets by reason of a decline in total assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation. This policy shall not prohibit reverse repurchase agreements.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short, provided that margin payments and other deposits in connection with
transactions in options, futures contracts and options on futures contracts
shall not be deemed to constitute selling securities short.

(B) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions and that margin payments and other deposits in connection with
transactions in options, futures contracts and options on futures contracts
shall not be deemed to constitute purchasing securities on margin.

(C) The portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization.

(D) The portfolio may not mortgage or pledge any securities owned or held
by the portfolio in amounts that exceed, in the aggregate, 15% of the
portfolio's net assets, provided that this limitation does not apply in the
case of assets deposited to provide margin or guarantee positions in options,
futures contracts and options on futures contracts or the segregation of assets
in connection with such contracts.

(E) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which the Board of Directors has made a determination as to liquidity, as
permitted under the 1940 Act.

(F) The portfolio may not invest in companies for the purpose of
exercising control or management.

(G) The portfolio may not invest in securities of foreign issuers
denominated in foreign currency and not publicly traded in the United States if
at the time of acquisition more than 20% of the portfolio's total assets would
be invested in such securities.

[GRAPHIC OMITTED] WRL T. ROWE PRICE SMALL CAP AND
WRL T. ROWE PRICE DIVIDEND GROWTH

The portfolio may not, as a matter of fundamental policy:

1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other than Government securities as defined in
the 1940 Act) if immediately after and as a result of such purchase (a) the
value of the holdings of the portfolio in the securities of such issuer exceeds
5% of the value of the portfolio's total assets, or (b) the portfolio owns more
than 10% of the outstanding voting securities of any one class of securities of
such issuer.

2. Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 331/3% of the value of the
portfolio's total assets (including amount borrowed) less liabilities (other
than borrowings). Any borrowings that exceed 331/3% of the value of the
portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 331/3%
limitation. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to margin or guarantee positions in futures, options, swaps
or forward contracts, or the segregation of assets in connection with such
contracts.

3. Purchase or sell physical commodities (but this shall not prevent the
portfolio from entering into future contracts and options thereon).

4. Invest more than 25% of the portfolio's total assets in the securities
of issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptance.

5. Lend any security although the portfolio may lend portfolio securities
provided that the aggregate of such loans do not exceed 331/3% of the value of
the portfolio's total assets. The portfolio may purchase money market
securities, enter into repurchase agreements and acquire publicly distributed
or privately placed debt securities, and purchase debt.

6. Purchase or sell real estate (but this shall not prevent the portfolio
from investing in securities or other instruments backed by real estate,
including mortgage-backed securities, or securities of companies engaged in the
real estate business).

3
<PAGE>

7. Issue senior securities, except as permitted by the 1940 Act.

8. Underwrite securities issued by other persons, except to the extent
that the portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
objective.

Furthermore, the portfolios have adopted the following non-fundamental
restrictions which may be changed by the Board of Directors of the Fund without
shareholder approval:

(A) A portfolio may not purchase additional securities when money
borrowed exceeds 5% of its total assets.

(B) A portfolio may not purchase a futures contract or an option thereon,
if, with respect to positions in futures or options on futures which do not
represent bona fide hedging, the aggregate initial margin and premiums on such
options would exceed 5% of the portfolio's net asset value.

(C) A portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which a determination as to liquidity has been made pursuant to
guidelines adopted by the Board of Directors, as permitted under the 1940 Act.

(D) A portfolio may not invest in companies for the purpose of exercising
control or management.

(E) A portfolio may not purchase securities of open-end or closed-end
investment companies except (i) in compliance with the 1940 Act; or (ii)
securities of the Reserve Investment Funds.

(F) A portfolio may not purchase securities on margin, except (i) for use
of short-term credit necessary for clearance of purchases of portfolio
securities; and (ii) it may make margin deposits in connection with futures
contracts or other permissible investments.

(G) A portfolio may not mortgage, pledge, hypothecate or, in any manner,
transfer any security owned by the portfolio as security for indebtedness
except as may be necessary in connection with permissible borrowings or
investments and then such mortgaging, pledging or hypothecating may not exceed
331/3% of the portfolio's total assets at the time of borrowing or investment.

(H) A portfolio may not sell securities short, except short sales
"against the box."

[GRAPHIC OMITTED] WRL GOLDMAN SACHS GROWTH AND
WRL GOLDMAN SACHS SMALL CAP

Each portfolio may not, as a matter of fundamental policy:

2. Borrow money except (a) the portfolio may borrow from banks (as
defined in the 1940 Act) or through reverse repurchase agreements in amounts up
to 331/3% of its total assets (including the amount borrowed), (b) the
portfolio may, to the extent permitted by applicable law, borrow up to an
additional 5% of its total assets for temporary purposes, (c) the portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities, (d) the portfolio may purchase
securities on margin to the extent permitted by applicable law and (e) the
portfolio may engage in mortgage dollar rolls which are accounted for as
financings.

3. Purchase or sell physical commodities (but this shall not prevent the
portfolio from investing in currency and financial instruments and contracts
that are commodities or commodity contracts).

4. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.

5. Make loans, except through (a) the purchase of debt obligations in
accordance with the portfolio's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions, and (c) loans of securities as permitted by applicable law.

7. Issue senior securities, except as permitted by the 1940 Act.

4
<PAGE>

Furthermore, the portfolios have adopted the following non-fundamental
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) A portfolio may not invest in companies for the purpose of exercising
control or management.

(B) A portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which a determination as to liquidity has been made pursuant to
guidelines adopted by the Board of Directors, as permitted under the 1940 Act.

(D) A portfolio may not make short sales of securities, except short
sales "against the box."

[GRAPHIC OMITTED] WRL PILGRIM BAXTER MID CAP GROWTH

The portfolio may not, as a matter of fundamental policy:

2. Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 10% of the value of the
portfolio's total assets. This borrowing provision is included solely to
facilitate the orderly sale of portfolio securities to accommodate substantial
redemption requests if they should occur and is not for investment purposes.
All borrowings in excess of 5% of the portfolio's total assets will be repaid
before making investments.

3. Make loans, except that the portfolio, in accordance with its
investment objectives and policies, may purchase or hold debt securities, and
enter into repurchase agreements as described in the portfolio's prospectus and
this Statement of Additional Information.

4. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodity contracts, except that
this shall not prevent the portfolio from (i) investing in readily marketable
securities of issuers which can invest in real estate or commodities,
institutions that issue mortgages, or real estate investment trusts which deal
in real estate or interests therein, pursuant to the portfolio's investment
objective and policies, and (ii) entering into futures contracts and options
thereon that are listed on a national securities or commodities exchange where,
as a result thereof, no more than 5% of the portfolio's total assets (taken at
market value at the time of entering into the futures contracts) would be
committed to margin deposits on such futures contracts and premiums paid for
unexpired options on such futures contracts; provided that, in the case of an
option that is "in-the-money" at the time of purchase, the "in-the-money"
amount, as defined under the Commodities Futures Trading Commission
regulations, may be excluded in computing the 5% limit. The portfolio (as a
matter of operating policy) will utilize only listed futures contracts and
options thereon.

5. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.

6. Issue senior securities, except as permitted by the 1940 Act.

7. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services, for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.

Furthermore, the portfolio has adopted the following non-fundamental
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not invest in companies for the purpose of
exercising control.

(B) The portfolio may not pledge, mortgage or hypothecate assets, except
(i) to secure temporary borrowings as permitted by the portfolio's limitation
on permitted borrowings, or (ii) in connection with permitted transactions
regarding options and futures contracts.

(C) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such Rule,
Section 4(2) commercial paper or any other securities as to which the Board of
Directors has made a determination as to liquidity, as permitted under the 1940
Act.

(D) Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder.

[GRAPHIC OMITTED] WRL ALGER AGGRESSIVE GROWTH
(FORMERLY AGGRESSIVE GROWTH PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other

5
<PAGE>

than Government securities as defined in the 1940 Act) if immediately after and
as a result of such purchase (a) the value of the holdings of the portfolio in
the securities of such issuer exceeds 5% of the value of the portfolio's total
assets, or (b) the portfolio owns more than 10% of the outstanding voting
securities of any one class of securities of such issuer.

2. Purchase any securities that would cause more than 25% of the value of
the portfolio's total assets to be invested in the securities of issuers
conducting their principal business activities in the same industry; provided
that there shall be no limit on the purchase of U.S. Government securities.

3. Invest in commodities except that the portfolio may purchase or sell
stock index futures contracts and related options thereon if thereafter no more
than 5% of its total assets are invested in aggregate initial margin and
premiums.

4. Purchase or sell real estate or real estate limited partnerships,
except that the portfolio may purchase and sell securities secured by real
estate, mortgages or interests therein and securities that are issued by
companies that invest or deal in real estate.

5. Make loans to others, except through purchasing qualified debt
obligations, lending portfolio securities or entering into repurchase
agreements.

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

7. Borrow money, except that the portfolio may borrow from banks for
investment purposes as set forth in the Prospectus. Immediately after any
borrowing, including reverse repurchase agreements, the portfolio will maintain
asset coverage of not less than 300% with respect to all borrowings.

8. Issue senior securities, except that the portfolio may borrow from
banks for investment purposes so long as the portfolio maintains the required
coverage.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not sell securities short or purchase securities on
margin, except that the portfolio may obtain any short-term credit necessary
for the clearance of purchases and sales of securities. These restrictions
shall not apply to transactions involving selling securities "short against the
box."

(B) The portfolio may not invest in securities of other investment
companies, except as it may be acquired as part of a merger, consolidation,
reorganization, acquisition of assets or offer of exchange.

(C) The portfolio may not pledge, hypothecate, mortgage or otherwise
encumber more than 10% of the value of the portfolio's total assets except as
noted in (E) below. These restrictions shall not apply to transactions
involving reverse repurchase agreements or the purchase of securities subject
to firm commitment agreements or on a when-issued basis.

(D) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which the Board of Directors has made a determination as to liquidity, as
permitted under the 1940 Act.

(E) The portfolio may not invest in companies for the purpose of
exercising control or management.

[GRAPHIC OMITTED] WRL THIRD AVENUE VALUE
(FORMERLY THIRD AVENUE VALUE PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

1. Act as underwriter of securities issued by other persons, except to
the extent that, in connection with the disposition of portfolio securities, it
may technically be deemed to be an underwriter under certain securities laws.

2. Invest 25% or more of the value of its total assets in the securities
of issuers (other than Government securities) which are determined to be
engaged in the same industry or similar trades or businesses or related trades
or businesses.

3. Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the marketable securities of
companies which invest in or sponsor such programs.

4. Buy or sell commodities or commodity contracts or future contracts
(other than gold or foreign currencies unless acquired as a result of ownership
of securities).

5. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the portfolio may own debt or equity
securities issued by companies engaged in those businesses.

6. Borrow money or pledge, mortgage or hypothecate any of its assets
except that the portfolio may borrow on a secured or unsecured basis as a
temporary measure for extraordinary or emergency purposes. Such temporary
borrowing may not exceed 5% of the value of the portfolio's total assets when
the borrowing is made.

7. Issue any senior security except as permitted by the 1940 Act.

8. Lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of commercial paper, debt securities or to
repurchase agreements).

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be

6
<PAGE>

changed by the Board of Directors of the Fund without shareholder or
policyowner approval:

(A) The portfolio may not make short sales of securities or maintain a
short position. This restriction shall not apply to transactions involving
selling securities "short against the box."

(B) The portfolio may not participate on a "joint" or "joint and several"
basis in any trading account in securities.

(C) The portfolio may not invest in securities of other investment
companies if the portfolio, after such purchase or acquisition owns, in the
aggregate, (i) more than 3% of the total outstanding voting stock of the
acquired company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of the
portfolio, or (iii) securities issued by the acquired company and all other
investment companies (other than treasury stock of the portfolio) having an
aggregate value in excess of 10% of the value of the total assets of the
portfolio.

[GRAPHIC OMITTED] WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
(FORMERLY INTERNATIONAL EQUITY PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances. For
purposes of this restriction, (a) the government of a country, other than the
United States, will be viewed as one industry; and (b) all supranational
organizations together will be viewed as one industry.

3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall not
prevent the portfolio from purchasing or selling options, futures, swaps and
forward contracts or from investing in securities or other instruments backed
by physical commodities).

4. Invest directly in real estate or interests in real estate; however,
the portfolio may own securities or other instruments backed by real estate,
including mortgage-backed securities, or debt or equity securities issued by
companies engaged in those businesses.

5. Lend any security or make any other loan if, as a result, more than
30% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of commercial paper, debt securities or to
repurchase agreements).

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

7. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 33 1/3% of the value of the
portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 33 1/3% of the value of the
portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 33 1/3%
limitation. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to margin or guarantee positions in futures, options, swaps
or forward contracts, or the segregation of assets in connection with such
contracts.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not (i) enter into any futures contracts or options
on futures contracts for purposes other than bona fide hedging transactions
within the meaning of Commodity Futures Trading Commission regulations if the
aggregate initial margin deposits and premiums required to establish positions
in futures contracts and related options that do not fall within the definition
of bona fide hedging transactions would exceed 5% of the fair market value of
the portfolio's net assets, after taking into account unrealized profits and
losses on such contracts it has entered into and (ii) enter into any futures
contracts or options on futures contracts if the aggregate amount of the
portfolio's commitments under outstanding futures contracts positions and
options on futures contracts would exceed the market value of its total assets.

(B) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short and provided that transactions in options, swaps and forward futures
contracts are not deemed to constitute selling securities short.

7
<PAGE>

(C) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, provided that margin payments and other deposits in connection
with transactions in options, futures, swaps and forward contracts shall not be
deemed to constitute purchasing securities on margin.

(D) The portfolio may not purchase securities of other investment
companies, other than a security acquired in connection with a merger,
consolidation, acquisition, reorganization or offer of exchange and except as
otherwise permitted under the 1940 Act. Investments by the portfolio in GEI
Short-Term Investment Fund, a private investment fund advised by GE Investment
Management Incorporated ("GEIM"), created specifically to serve as a vehicle
for the collective investment of cash balances of the portfolio and other
accounts advised by GEIM or General Electric Investment Corporation ("GEIC"),
are not subject to this restriction, pursuant to and in accordance with
necessary regulatory approvals.

(E) The portfolio may not mortgage or pledge any securities owned or held
by the portfolio in amounts that exceed, in the aggregate, 15% of the
portfolio's net assets, provided that this limitation does not apply to reverse
repurchase agreements or in the case of assets deposited to margin or guarantee
positions in futures, options, swaps or forward contracts or the segregation of
assets in connection with such contracts.

(F) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which a determination as to liquidity has been made pursuant to
guidelines adopted by the Board of Directors, as permitted under the 1940 Act.

(G) The portfolio may not invest in companies for the purpose of
exercising control or management.

With respect to investment restriction 2. above, the portfolio may use the
industry classifications reflected by the S&P 500 Composite Stock Index, if
applicable at the time of determination. For all other portfolio holdings, the
portfolio may use the Directory of Companies Required to File Annual Reports
with the SEC and Bloomberg Inc. In addition, the portfolio may select its own
industry classifications, provided such classifications are reasonable.

[GRAPHIC OMITTED] WRL JANUS GLOBAL
(FORMERLY GLOBAL PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

1. (a) With respect to 75% of the portfolio's assets, invest in the
securities (other than Government securities as defined in the 1940 Act) of any
one issuer if immediately thereafter, more than 5% of the portfolio's total
assets would be invested in securities of that issuer; or (b) with respect to
100% of the portfolio's assets, own more than either (i) 10% in principal
amount of the outstanding debt securities of an issuer, or (ii) 10% of the
outstanding voting securities of an issuer, except that such restrictions shall
not apply to Government securities, bank money market instruments or bank
repurchase agreements.

2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.

4. Invest directly in real estate or interests in real estate; however,
the portfolio may own debt or equity securities issued by companies engaged in
those businesses.

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

7. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 25% of the value of the
portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to margin or guarantee positions in futures, options, swaps
or forward contracts, or the segregation of assets in connection with such
contracts.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental
investment restrictions which may be changed by the Board of Directors of the
Fund without shareholder or policyowner approval:

8
<PAGE>

(D) The portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies.

Limitations (i) and (ii) do not apply to money market funds or to securities
received as dividends, through offers of exchange, or as a result of a
consolidation, merger or other reorganization.

(F) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which the Board of Directors has made a determination as to liquidity, as
permitted under the 1940 Act.

(G) The portfolio may not invest in companies for the purpose of
exercising control or management.

[GRAPHIC OMITTED] WRL SALOMON ALL CAP

The portfolio may not, as a matter of fundamental policy:

1. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts; however, the portfolio may: (a) purchase interests in real
estate investment trusts or companies which invest in or own real estate if the
securities of such trusts or companies are registered under the Securities Act
of 1933 and are readily marketable or holding or selling real estate received
in connection with securities it holds; and (b) may enter into futures
contracts, including futures contracts on interest rates, stock indices and
currencies, and options thereon, and may engage in forward currency contracts
and buy, sell and write options on currencies and shall not be prohibited from
reverse repurchase agreements or deposits of assets to margin or guarantee
positions in futures, options, swaps or forward contracts, or the segregation
of assets in connection with such contracts.

3. Borrow money, except that the portfolio may borrow from banks for
investment purposes up to an aggregate of 15% of the value of its total assets
taken at the time of borrowing. The portfolio may borrow for temporary or
emergency purposes an aggregate amount not to exceed 5% of the value of its
total assets at the time of borrowing.

4. Issue senior securities, except as permitted by the 1940 Act.

5. Underwrite securities issued by other persons, except to the extent
that the portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
objective.

6. Make loans, except that the portfolio may purchase debt obligations in
which the portfolio may invest consistent with its investment objectives and
policies or enter into, and make loans of its portfolio securities, as
permitted under the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental
restrictions that may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

9
<PAGE>

(A) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which a determination as to liquidity has been made pursuant to
guidelines adopted by the Board of Directors, as permitted under the 1940 Act.

(B) The portfolio may not invest in companies for the purpose of
exercising control or management.

(C) The portfolio may not sell securities short. This restriction shall
not apply to transactions involving selling securities "short against the box."

[GRAPHIC OMITTED] WRL JANUS GROWTH, WRL C.A.S.E. GROWTH AND WRL AEGON BOND
(FORMERLY GROWTH PORTFOLIO, C.A.S.E. GROWTH PORTFOLIO AND
BOND PORTFOLIO)

A portfolio may not, as a matter of fundamental policy:

1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other than cash items and "Government securities"
as defined in the 1940 Act) if immediately after and as a result of such
purchase (a) the value of the holdings of the portfolio in the securities of
such issuer exceeds 5% of the value of the portfolio's total assets, or (b) the
portfolio owns more than 10% of the outstanding voting securities of any one
class of securities of such issuer.

2. Invest more than 25% (15% for C.A.S.E. Growth portfolio) of the value
of the portfolio's assets in any particular industry (other than Government
securities).

3. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this restriction
shall not prevent the portfolio from purchasing or selling options, futures
contracts, caps, floors and other derivative instruments, engaging in swap
transactions or investing in securities or other instruments backed by physical
commodities).

4. Invest directly in real estate or interests in real estate, including
limited partnership interests; however, the portfolio may own debt or equity
securities issued by companies engaged in those businesses.

5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the portfolio.

6. Lend any security or make any other loan if, as a result, more than
25% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of commercial paper, debt securities or to
repurchase agreements).

7. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 25% of the value of the
portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
restriction. This policy shall not prohibit reverse repurchase agreements or
deposits of assets to provide margin or guarantee positions in connection with
transactions in options, future contracts, swaps, forward contracts, or other
derivative instruments or the segregation of assets in connection with such
transactions.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolios have adopted the following non-fundamental
investment restrictions which may be changed by the Board of Directors of the
Fund without shareholder or policyowner approval:

(A) A portfolio may not, as a matter of non-fundamental policy: (i) enter
into any futures contracts or options on futures contracts for purposes other
than bona fide hedging transactions within the meaning of Commodity Futures
Trading Commission regulations if the aggregate initial margin deposits and
premiums required to establish positions in futures contracts and related
options that do not fall within the definition of bona fide hedging transactions
would exceed 5% of the fair market value of the portfolio's net assets, after
taking into account unrealized profits and losses on such contracts it has
entered into and (ii) enter into any futures contracts or options on futures
contracts if the aggregate amount of the portfolio's commitments under
outstanding futures contracts positions and options on futures contracts would
exceed the market value of its total assets.

(B) A portfolio may not mortgage or pledge any securities owned or held
by the portfolio in amounts that exceed, in the aggregate, 15% of the
portfolio's net assets, provided that this limitation does not apply to reverse
repurchase agreements or in the case of assets deposited to provide margin or
guarantee positions in options, futures contracts, swaps, forward contracts or
other derivative instruments or the segregation of assets in connection with
such transactions.

(C) A portfolio may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in options, futures contracts, swaps,
forward contracts and other derivative instruments are not deemed to constitute
selling securities short.

(D) A portfolio may not purchase securities on margin, except that a
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, swaps, forward
contracts, and other derivative instruments shall not be deemed to constitute
purchasing securities on margin.

10
<PAGE>

(E) A portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any securities for
which the Board of Directors or the Sub-Adviser has made a determination of
liquidity, as permitted under the 1940 Act.

(F) A portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Restrictions (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers to
exchange, or as a result of reorganization, consolidation, or merger. If the
portfolio invests in a money market fund, the Investment Adviser will reduce
its advisory fee by the amount of any investment advisory or administrative
service fees paid to the investment manager of the money market fund.

(G) A portfolio may not invest more than 25% of its net assets at the
time of purchase in the securities of foreign issuers and obligors.

(H) A portfolio may not invest in companies for the purpose of exercising
control or management.

[GRAPHIC OMITTED] WRL GE U.S. EQUITY
(FORMERLY U.S. EQUITY PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

2. Purchase any security that would cause more than 25% of the value of
the portfolio's total assets to be invested in the securities of issuers
conducting their principal business activities in the same industry; provided
that there shall be no limit on the purchase of U.S. Government securities (as
defined in the 1940 Act). For purposes of this restriction, (a) the government
of a country, other than the United States, will be viewed as one industry; and
(b) all supranational organizations together will be viewed as one industry.

3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
portfolio from purchasing or selling options, futures, swaps and forward
contracts or from investing in securities or other instruments backed by
physical commodities).

4. Purchase or sell real estate (but this shall not prevent the portfolio
from investing in securities or other instruments backed by real-estate,
including mortgage-backed securities, or securities of companies engaged in the
real estate business).

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

7. Borrow money or issue senior securities (as defined in the 1940 Act),
except that the portfolio may borrow money from banks for temporary or
emergency purposes (not for leveraging or investment) in an aggregate amount
not exceeding 33 1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings) at the time the borrowing is
made. Whenever borrowings, including reverse repurchase agreements, of 5% or
more of the portfolio's total assets are outstanding, the portfolio will not
purchase securities.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount of the securities
sold short.

(B) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for clearance of
transactions. (For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts, financial
futures contracts or related options, and options on securities, options on
securities indexes and options on currencies will not be deemed to be a
purchase of securities on margin by the portfolio.)

(C) The portfolio may not purchase securities of other investment
companies, other than a security acquired in connection with a merger,
consolidation, acquisition, reorganization or offer of exchange and except as
otherwise permitted under the 1940 Act. Investments by the portfolio in GEI
Short-Term Investment Fund, a private investment fund advised by GEIM, created
specifically to serve as a vehicle for the collective investment of cash
balances of the portfolio and other accounts advised by GEIM or GEIC are not
subject to this restriction, pursuant to and in accordance with necessary
regulatory approvals.

(D) The portfolio may not invest more than 15% of its net assets in
illiquid securities. For purposes of this

11
<PAGE>

restriction, illiquid securities are securities that cannot be disposed of by
the portfolio within seven days in the ordinary course of business at
approximately the amount at which the portfolio has valued the securities. This
Restriction does not include securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 or any other securities as to which a
determination as to liquidity has been made pursuant to guidelines adopted by
the Board of Directors, as permitted under the 1940 Act.

(E) The portfolio may not purchase restricted securities if more than 10%
of the total assets of the portfolio would be invested in restricted
securities. Restricted securities are securities that are subject to
contractual or legal restrictions on transfer, excluding for purposes of this
restriction, restricted securities that are eligible for resale pursuant the
Rule 144A under the Securities Act of 1933, as amended ("Rule 144A
Securities"), that have been determined to be liquid under guidelines
established by the Fund's Board of Directors. In no event will the portfolio's
investment in illiquid and non-publicly traded securities, in the aggregate,
exceed 15% of its net assets.

(F) The portfolio may not invest in companies for the purpose of
exercising control or management, except to the extent that exercise by the
portfolio of its rights under agreements related to portfolio securities would
be deemed to constitute such control.

(G) The portfolio may not purchase or sell put options, call options,
spreads or combinations of put options, call options and spreads, except that
the portfolio may purchase and sell covered put and call options on securities
and stock indexes, and futures contracts and options on futures contracts.

[GRAPHIC OMITTED] WRL DREYFUS MID CAP

The portfolio may not, as a matter of fundamental policy:

2. Purchase any securities which would cause more than 25% of the value
of the portfolio's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal activities in
the same industry. (For purposes of this limitation, U.S. Government
securities, and state or municipal governments and their political subdivisions
are not considered members of any industry. In addition, this limitation does
not apply to investments in domestic banks, including U.S. branches of foreign
banks and foreign branches of U.S. banks.)

3. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) the portfolio may borrow money in an amount not exceeding
one-third of the portfolio's total assets at the time of such borrowings, and
(b) the portfolio may issue multiple classes of shares. The purchase or sale of
futures contracts and related options shall not be considered to involve the
borrowing of money or issuance of senior securities.

4. Make loans or lend securities, if as a result thereof more than
one-third of the portfolio's total assets would be subject to all such loans.
For purposes of this limitation debt instruments and repurchase agreements
shall not be treated as loans.

5. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the portfolio
from investing in securities or other instruments backed by real estate,
including mortgage loans, or securities of companies that engage in real estate
business or invest or deal in real estate interests therein).

6. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and later disposition of such securities in
accordance with the portfolio's investment program may be deemed an
underwriting.

7. Purchase or sell commodities except that the portfolio may enter into
futures contracts and related options, forward currency contracts and other
similar instruments.

Furthermore, the portfolio has adopted the following non-fundamental
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio shall not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short, and provided that transactions in futures contracts and options are
not deemed to constitute selling short.

(B) The portfolio shall not purchase securities on margin, except that
the portfolio may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.

12
<PAGE>

(C) The portfolio will invest no more than 15% of the value of its net
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in excess of
seven days and other securities which are not readily marketable. For purposes
of this limitations, illiquid securities shall not include Section 4(2) paper
and securities which may be resold under Rule 144A under the Securities Act of
1933, provided the Board of Directors, or its delegate, determines that such
securities are liquid based upon the trading market for the specific security.

(D) The portfolio may not invest in securities of other investment
companies, except as they may be acquired as part of a merger, consolidation or
acquisition of assets and except to the extent otherwise permitted by the 1940
Act.

(E) The portfolio shall not purchase any security while borrowings
representing more than 5% of the portfolio's total assets are outstanding.

[GRAPHIC OMITTED] WRL NWQ VALUE EQUITY
(FORMERLY VALUE EQUITY PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

3. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives and policies or by entering into repurchase
agreements or (ii) by lending the portfolio securities to banks, brokers,
dealers and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or interpretations
of the SEC thereunder.

4. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.

5. Purchase or sell real estate or real estate limited partnerships (but
this shall not prevent the portfolio from investing in securities or other
instruments backed by real estate, including mortgage-backed securities, or
securities of companies engaged in the real estate business).

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

7. Borrow money, except from banks for temporary or emergency purposes
(not for leveraging or investment) in an amount exceeding 10% of the value of
the portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 10% of the value of the
portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 10%
limitation. The portfolio may not purchase additional securities when
borrowings exceed 5% of total assets.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not purchase on margin or sell short.

(B) The portfolio may not invest more than an aggregate of 15% of the net
assets of the portfolio, determined at the time of investment, in illiquid
securities, subject to legal or contractual restrictions on resale or
securities for which there are no readily available markets.

(D) The portfolio may not pledge, mortgage or hypothecate any of its
assets to an extent greater than 10% of its total assets at fair market value.

(E) The portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends, through offers of
exchange, or as a result of a consolidation, merger or other reorganization.

[GRAPHIC OMITTED] WRL DEAN ASSET ALLOCATION
(FORMERLY TACTICAL ASSET ALLOCATION PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other

13
<PAGE>

3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

7. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in excess of 25% of the value of the portfolio's
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 25% of the value of the portfolio's
total assets by reason of a decline in net assets will be reduced within three
business days to the extent necessary to comply with the 25% limitation.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short.

(B) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions.

(D) The portfolio may not mortgage or pledge any securities owned or held
by the portfolio in amounts that exceed, in the aggregate, 15% of the
portfolio's net assets.

(E) The portfolio may not invest in companies for the purpose of
exercising control or management.

(F) The portfolio may not invest in securities of foreign issuers
denominated in foreign currency and not publicly traded in the United States if
at the time of acquisition more than 25% of the portfolio's total assets would
be invested in such securities. (SEE "Foreign Securities," p. 20.)

[GRAPHIC OMITTED] WRL LKCM STRATEGIC TOTAL RETURN
(FORMERLY STRATEGIC TOTAL RETURN PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services, for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.

5. Lend any security or make any other loan if, as a result, more than
25% of its total assets would be lent to

14
<PAGE>

other parties (but this limitation does not apply to purchases of commercial
paper or debt securities).

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short, and provided that margin payments and other deposits in connection
with transactions in options, swaps and forward futures contracts are not
deemed to constitute selling securities short.

(B) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and that margin payments and other deposits in connection with
transactions in options, futures, swaps and forward contracts shall not be
deemed to constitute purchasing securities on margin.

Limitations (i) and (ii) do not apply to money market funds or to securities
received as dividends, through offers of exchange, or as a result of a
consolidation, merger or other reorganization.

(D) The portfolio may not mortgage or pledge any securities owned or held
by the portfolio in amounts that exceed, in the aggregate, 15% of the
portfolio's net assets, provided that this limitation does not apply in the
case of assets deposited to margin or guarantee positions in options, futures
contracts and options on futures contracts or placed in a segregated account in
connection with such contracts.

(E) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 Act or any other
securities as to which the Board of Directors has made a determination as to
liquidity, as permitted under the 1940 Act.

(F) The portfolio may not invest in companies for the purpose of
exercising control or management.

(G) The portfolio may not invest in securities of foreign issuers
denominated in foreign currency and not publicly traded in the United States if
at the time of acquisition more than 10% of the portfolio's total assets would
be invested in such securities.

[GRAPHIC OMITTED] WRL J.P. MORGAN REAL ESTATE SECURITIES
(FORMERLY REAL ESTATE SECURITIES PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

1. Invest less than 25% of its assets in securities of issuers primarily
engaged in the real estate industry. The portfolio will not invest more than
25% of its assets in the securities of issuers primarily engaged in any other
single industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

2. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall not
prevent the portfolio from purchasing or selling options, futures, swaps and
forward contracts or from investing in securities or other instruments backed
by physical commodities).

3. Invest directly in real estate or interests in real estate; however,
the portfolio may own securities or other instruments backed by real estate,
including mortgage-backed securities, or debt or equity securities issued by
companies engaged in those businesses and the portfolio may hold and sell real
estate acquired by the portfolio as a result of the ownership of securities.

4. Make loans, except that the portfolio (i) may lend portfolio
securities with a value not exceeding one-third of the portfolio's total
assets, (ii) enter into repurchase agreements, and (iii) purchase all or a
portion of an issue of debt obligations (including privately issued debt
obligations), loan participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities.

5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

6. Borrow money except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33 1/3% of the value of the
portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 33 1/3% of the value of the
portfolio's total assets

15
<PAGE>

by reason of the decline in net assets will be reduced within three business
days to the extent necessary to comply with the 33 1/3% limitation. This policy
shall not prohibit reverse repurchase agreements or deposits of assets to
margin or guarantee positions in futures, options, swaps or forward contracts,
or the segregation of assets in connection with such contracts.

7. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(B) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short and provided that transactions in options, futures contracts, swaps,
forward contracts and other derivative instruments are not deemed to constitute
selling securities short.

(C) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, provided that margin payments and other deposits in connection
with transactions in options, futures contracts, swaps and forward contracts
and other derivative instruments shall not be deemed to constitute purchasing
securities on margin.

(E) The portfolio may not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other securities
as to which a determination as to liquidity has been made pursuant to
guidelines adopted by the Board of Directors, as permitted under the 1940 Act.

(F) The portfolio may not invest in companies for the purpose of
exercising control or management.

[GRAPHIC OMITTED] WRL FEDERATED GROWTH & INCOME
(FORMERLY GROWTH & INCOME PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

3. Purchase or sell commodities. However, the portfolio may purchase put
options on portfolio securities and on financial futures contracts. In
addition, the portfolio reserves the right to hedge the portfolio by entering
into financial futures contracts and to sell calls on financial futures
contracts.

4. Purchase or sell real estate, although it may invest in the securities
of companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.

5. Lend any of its assets except portfolio securities up to one-third of
the value of its total assets. This shall not prevent the purchase or holding
of corporate bonds, debentures, notes, certificates of indebtedness or other
debt securities of an issuer, repurchase agreements, or other transactions
which are permitted by the portfolio's investment objective and policies.

6. Underwrite any issue of securities, except as it may be deemed to be
an underwriter under the 1933 Act in connection with the sale of restricted
securities which the portfolio may purchase pursuant to its investment
objective and policies.

7. Borrow money or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or emergency measure to
facilitate management of the Portfolio by enabling the portfolio to meet
redemption requests when the liquidation of portfolio securities is deemed to
be inconvenient

16
<PAGE>

or disadvantageous. The portfolio will not purchase any securities while any
borrowings are outstanding. However, during the period any reverse repurchase
agreements are outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the portfolio will restrict
the purchase of portfolio instruments to money market instruments maturing on
or before the expiration date of the reverse repurchase agreements.

8. Issue senior securities, except that the portfolio may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its net assets, including the amounts borrowed.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio will not sell securities short unless: (i) during the
time the short position is open, it owns an equal amount of the securities sold
or securities readily and freely convertible into or exchangeable, without
payment of additional consideration, for securities of the same issue as, and
equal in amount to, the securities sold short; and (ii) not more than 10% of
the portfolio's net assets (taken at current value) is held as collateral for
such sales at any one time.

(B) The portfolio will not purchase securities on margin, other than in
connection with the purchase of put options on financial futures contracts, but
may obtain such short-term credits as may be necessary for the clearance of
transactions.

(C) The portfolio will not invest more than 15% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any securities for
which the Board of Directors or the Sub-Adviser has made a determination of
liquidity, as permitted under the 1940 Act.

(D) The portfolio will not purchase securities of a company for the
purpose of exercising control or management. However, the portfolio will
acquire no more than 10% of the voting securities of an issuer and may exercise
its voting power in the portfolio's best interest. From time to time, the
portfolio, together with other investment companies advised by affiliates or
subsidiaries of Federated Investors, may together buy and hold substantial
amounts of a company's voting stock. All such stock may be voted together. In
some cases, the portfolio and the other investment companies might collectively
be considered to be in control of the company in which they have invested.

(E) The portfolio will not purchase the securities of any issuer (other
than the U.S. Government, its agencies, or instrumentalities or instruments
secured by securities of such issuers, such as repurchase agreements or cash or
cash items) if, as a result, more than 5% of the value of its total assets
would be invested in the securities of such issuer, or acquire more than 10% of
any class of voting securities of any issuer. For these purposes the portfolio
takes all common stock and all preferred stock of an issuer each as a single
class, regardless of priorities, series, designations, or other differences.

(F) The portfolio will not write call options on securities unless the
securities are held in the portfolio's portfolio or unless the portfolio is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. The portfolio will not
purchase put options on securities unless the securities are held in the
portfolio's portfolio.

[GRAPHIC OMITTED] WRL AEGON BALANCED
(FORMERLY BALANCED PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

5. Lend any security or make any other loan if, as a result, more than
25% of its total assets would be lent to other parties (but this limitation
does not apply to purchase of commercial paper or debt securities).

6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of its portfolio securities.

17
<PAGE>

7. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in excess of 25% of the value of the portfolio's
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that exceed 25% of the value of the portfolio's
total assets by reason of decline in net assets will be reduced within three
business days to the extent necessary to comply with the 25% limitation.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short.

(B) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions.

(D) The portfolio may not mortgage or pledge any securities owned or held
by the portfolio in amounts that exceed, in the aggregate, 15% of the
portfolio's net assets.

(F) The portfolio may not invest in companies for the purpose of
exercising control or management.

(G) The portfolio may not invest in securities of foreign issuers
denominated in foreign currency and not publicly traded in the United States if
at the time of acquisition more than 25% of the portfolio's total assets would
be invested in such securities. (SEE "Foreign Securities," p. 20.)

[GRAPHIC OMITTED] WRL J.P. MORGAN MONEY MARKET
(FORMERLY MONEY MARKET PORTFOLIO)

The portfolio may not, as a matter of fundamental policy:

2. Invest more than 25% of the value of the portfolio's assets in any
particular industry (other than Government securities or obligations of U.S.
branches of U.S. banks).

3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities.

4. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate (including real estate limited partnerships), commodities,
or commodity contracts or interest in oil, gas or mineral exploration or
development programs or leases. However, the portfolio may purchase debt
securities or commercial paper issued by companies which invest in real estate
or interest therein, including real estate investment trusts.

5. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the portfolio.

7. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 25% of the value of the
portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that exceed 25% of the value of the
portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
restriction. This policy shall not prohibit reverse repurchase agreements or
the segregation of assets in connection with such transactions.

8. Issue senior securities, except as permitted by the 1940 Act.

Furthermore, the portfolio has adopted the following non-fundamental investment
restrictions which may be changed by the Board of Directors of the Fund without
shareholder or policyowner approval:

(A) The portfolio may not mortgage or pledge any securities owned or held
by the portfolio in amounts that exceed, in the aggregate, 15% of the
portfolio's net assets, provided that this limitation does not apply to reverse
repurchase agreements or the segregation of assets in connection with such
transactions.

18
<PAGE>

(B) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short.

(C) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions.

(D) The portfolio may not invest more than 10% of its net assets in
illiquid securities. This does not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 or any securities for
which the Board of Directors or the Sub-Adviser has made a determination of
liquidity, as permitted under the 1940 Act.

(E) The portfolio may not (i) purchase securities of other investment
companies, except in the open market where no commission except the ordinary
broker's commission is paid, or (ii) purchase or retain securities issued by
other open-end investment companies. Restrictions (i) and (ii) do not apply to
securities received as dividends, through offers to exchange, or as a result of
reorganization, consolidation, or merger.

(F) The portfolio may not invest in companies for the purpose of
exercising control or management.

Except with respect to borrowing money, if a percentage limitation set forth
above in the investment restrictions for each portfolio is complied with at the
time of the investment, a subsequent change in the percentage resulting from
any change in value of a portfolio's net assets will not result in a violation
of such restriction. State laws and regulations may impose additional
limitations on borrowing, lending, and the use of options, futures, and other
derivative instruments. In addition, such laws and regulations may require a
portfolio's investments in foreign securities to meet additional
diversification and other requirements.

INVESTMENT POLICIES

This section explains certain other portfolio policies, subject to each
portfolio's investment restrictions. PLEASE CAREFULLY REVIEW THE "INVESTMENT
RESTRICTIONS" FOR EACH PORTFOLIO LISTED ABOVE.

[GRAPHIC OMITTED] LENDING

Each of the portfolios may lend its portfolio securities subject to the
restrictions stated in this Statement of Additional Information. Under
applicable regulatory requirements (which are subject to change), the following
conditions apply to securities loans: (a) the loan must be continuously secured
by liquid assets maintained on a current basis in an amount at least equal to
the market value of the securities loaned; (b) each portfolio must receive any
dividends or interest paid by the issuer on such securities; (c) each portfolio
must have the right to call the loan and obtain the securities loaned at any
time upon notice of not more than five business days, including the right to
call the loan to permit voting of the securities; and (d) each portfolio must
receive either interest from the investment of collateral or a fixed fee from
the borrower.

State laws and regulations may impose additional limitations on borrowings.

Securities loaned by a portfolio remain subject to fluctuations in market
value. A portfolio may pay reasonable finders, custodian and administrative
fees in connection with a loan. Securities lending, as with other extensions of
credit, involves the risk that the borrower may default. Although securities
loans will be fully collateralized at all times, a portfolio may experience
delays in, or be prevented from, recovering the collateral. During the period
that the portfolio seeks to enforce its rights against the borrower, the
collateral and the securities loaned remain subject to fluctuations in market
value. The portfolios do not have the right to vote securities on loan, but
would terminate the loan and regain the right to vote if it were considered
important with respect to the investment. A portfolio may also incur expenses
in enforcing its rights. If a portfolio has sold a loaned security, it may not
be able to settle the sale of the security and may incur potential liability to
the buyer of the security on loan for its costs to cover the purchase.

The WRL GE/Scottish Equitable International Equity, WRL GE U.S. Equity, WRL
VKAM Emerging Growth, WRL LKCM Strategic Total Return, WRL T. Rowe Price
Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL Goldman
Sachs Growth, WRL Goldman Sachs Small Cap, WRL Dreyfus Mid Cap and WRL Pilgrim
Baxter Mid Cap Growth 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.

[GRAPHIC OMITTED] BORROWING

Subject to its investment restrictions, each portfolio may borrow money from
banks for temporary or emergency purposes. As a fundamental policy, the amount
borrowed shall not exceed 33 1/3% of total assets for the WRL GE/Scottish
Equitable International Equity, WRL GE U.S. Equity, WRL Alger Aggressive
Growth, WRL T. Rowe Price Small Cap, WRL T. Rowe Price Dividend Growth, WRL
Dreyfus Mid Cap, WRL J. P. Morgan Real Estate Securities, and WRL Salomon All
Cap; 10% of total assets for the WRL NWQ Value Equity and WRL Pilgrim Baxter
Mid Cap Growth; 5% of total assets for the WRL Third Avenue Value; and 25% of
total assets for all other portfolios.

To secure borrowings, a portfolio may not mortgage or pledge its securities in
amounts that exceed 15% of its

19
<PAGE>

net assets (10% for the WRL NWQ Value Equity and 5% for the WRL Third Avenue
Value).

The portfolios with a common Sub-Adviser may also borrow (or lend) money to
other portfolios or funds that permit such transactions and are also advised by
that Sub-Adviser, provided each portfolio or fund seeks and obtains permission
from the SEC. There is no assurance that such permission would be granted.

The WRL Alger Aggressive Growth 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.

[GRAPHIC OMITTED] 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.

[GRAPHIC OMITTED] FOREIGN SECURITIES

Subject to a portfolio's investment restricitions and policies, a portfolio may
purchase certain foreign securities. Investments in foreign securities,
particularly those of non-governmental issuers, involve considerations which
are not ordinarily associated with investing in domestic issuers. These
considerations include:

o CURRENCY TRADING COSTS. A portfolio incurs costs in converting
foreign currencies into U.S. dollars, and vice versa.

o 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.

o LESS INFORMATION AVAILABLE. There is generally less public
information available about foreign companies.

o MORE DIFFICULT BUSINESS NEGOTIATIONS. A portfolio may find it
difficult to enforce obligations in foreign countries or to
negotiate favorable brokerage commission rates.

o REDUCED LIQUIDITY/INCREASED VOLATILITY. Some foreign securities are
less liquid and their prices more volatile, than securities of
comparable U.S. companies.

o SETTLEMENT DELAYS. Settling foreign securities may take longer than
settlements in the U.S.

o HIGHER CUSTODY CHARGES. Custodianship of shares may cost more for
foreign securities than it does for U.S. securities.

o 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.

o POLITICAL INSTABILITY. In some countries, political instability, war
or diplomatic developments could affect investments.

These risks may be greater in emerging countries or in countries with limited
or emerging 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.

A portfolio may also purchase American Depositary Receipts ("ADRs"), which are
dollar-denominated receipts issued generally by domestic banks and represent
the deposit with the bank of a security of a foreign issuer. A portfolio may
also invest in American Depositary Shares ("ADSs"), European Depositary
Receipts ("EDRs") or Global Depositary Receipts ("GDRs") and other types of
receipts of shares evidencing ownership of the underlying foreign security.

20
<PAGE>

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 ADS.

FOREIGN EXCHANGE TRANSACTIONS. To the extent a portfolio invests directly in
foreign securities, a portfolio will engage in foreign exchange transactions.
The foreign currency exchange market is subject to little government
regulation, and such transactions generally occur directly between parties
rather than on an exchange or in an organized market. This means that a
portfolio is subject to the full risk of default by a counterparty in such a
transaction. Because such transactions often take place between different time
zones, a portfolio may be required to complete a currency exchange transaction
at a time outside of normal business hours in the counterparty's location,
making prompt settlement of such transaction impossible. This exposes a
portfolio to an increased risk that the counterparty will be unable to settle
the transaction. Although the counterparty in such transactions is often a bank
or other financial institution, currency transactions are generally not covered
by insurance otherwise applicable to such institutions.

[GRAPHIC OMITTED] FOREIGN BANK OBLIGATIONS

A portfolio may invest in foreign bank obligations and obligations of foreign
branches of domestic banks. These investments present 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.

[GRAPHIC OMITTED] 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
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.

[GRAPHIC OMITTED] 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 trasaction. 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 or purchase
commitments until payment is made. Such of the 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.

21
<PAGE>

/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 a 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.

[GRAPHIC OMITTED] INVESTMENT FUNDS (WRL GE/SCOTTISH EQUITABLE INTERNATIONAL
EQUITY)

The WRL GE/Scottish Equitable International Equity may invest in investment
funds which have been authorized by the governments of certain countries
specifically to permit foreign investment in securities of companies listed and
traded on the stock exchanges in these respective countries. If the portfolio
invests in such investment funds, the portfolio's shareholders will bear not
only their proportionate share of the expenses of the portfolio (including
operating expenses and the fees of the Investment Adviser), but also will bear
indirectly similar expenses of the underlying investment funds. In addition,
the securities of these investment funds may trade at a premium over their net
asset value.

[GRAPHIC OMITTED] REPURCHASE AND REVERSE REPURCHASE AGREEMENTS

Subject to a portfolio's investment restrictions and policies, a portfolio may
enter into repurchase or reverse repurchase agreements.

In a repurchase agreement, a portfolio purchases a security and simultaneously
commits to resell that security to the seller at an agreed upon price on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon incremental amount that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value (at least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security. A portfolio may engage in a
repurchase agreement with respect to any security in which it is authorized to
invest. While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to a portfolio
in connection with bankruptcy proceedings), it is the policy of the portfolio
to limit repurchase agreements to those parties whose creditworthiness has been
reviewed and found satisfactory by a portfolio's Sub-Adviser.

In a reverse repurchase agreement, a portfolio sells a portfolio security to
another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase the instrument at a particular price and time. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests or for temporary or emergency purposes without necessity of selling
portfolio securities or to earn additional income on portfolio securities such
as U.S. Treasury bills and notes. While a reverse repurchase agreement is
outstanding, the portfolio will segregate with its custodian cash and
appropriate 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. A portfolio will enter into reverse repurchase
agreements only with parties that the portfolio's Sub-Adviser deems
creditworthy, and that have been reviewed by the Board of Directors of the
Fund. The WRL Goldman Sachs Small Cap and WRL Goldman Sachs Growth may,
together with other registered investment companies managed by GSAM or its
affiliates, transfer uninvested cash balances into a single joint account, the
daily aggregate balance of which will be invested in one or more repurchase
agreements.

/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 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.

[GRAPHIC OMITTED] TEMPORARY DEFENSIVE POSITION

For temporary defensive purposes, 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 decrease. Furthermore, when a
portfolio assumes a temporary defensive position it may not be able to achieve
its investment objective.

[GRAPHIC OMITTED] U.S. GOVERNMENT SECURITIES

Subject to a portfolio's investment restrictions or policies, a portfolio may
invest in U.S. Government obligations which generally include direct
obligations of the U.S.

22
<PAGE>

Treasury (such as U.S. Treasury bills, notes, and bonds) and obligations issued
or guaranteed by U.S. Government agencies or instrumentalities. Examples of the
types of U.S. Government securities that the portfolio may hold include the
Federal Housing Administration, Small Business Administration, General Services
Administration, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
and Maritime Administration. U.S. Government securities may be supported by the
full faith and credit of the U.S. Government (such as securities of the Small
Business Administration); by the right of the issuer to borrow from the U.S.
Treasury (such as securities of the Federal Home Loan Bank); by the
discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association);
or only by the credit of the issuing agency.

Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. Government are: Federal Land Banks; Central
Bank for Cooperatives; Federal Intermediate Credit Banks; Federal Home Loan
Banks; Farmers Home Administration; and Federal National Mortgage Association
("FNMA").

[GRAPHIC OMITTED] NON-INVESTMENT GRADE DEBT SECURITIES

Subject to limitations set forth in a portfolio's investment policies, a
portfolio may invest its assets in debt securities below the four highest
grades ("lower grade debt securities" commonly referred to as "junk bonds"), as
determined by Moody's Investors Service, Inc. ("Moody's") (lower than Baa) or
Standard & Poor's Corporation ("S&P") (lower than BBB). Bonds and preferred
stock rated "B" or "b" by Moody's are not considered investment grade debt
securities. (See Appendix B for a description of debt securities ratings.)

Before investing in any lower-grade debt securities, a portfolio's Sub-Adviser
will determine that such investments meet the portfolio's investment objective.
Lower-grade debt securities usually have moderate to poor protection of
principal and interest payments, have certain speculative characteristics, and
involve greater risk of default or price declines due to changes in the
issuer's creditworthiness than investment-grade debt securities. Because the
market for lower-grade debt securities may be thinner and less active than for
investment grade debt securities, there may be market price volatility for
these securities and limited liquidity in the resale market. Market prices for
lower-grade debt securities may decline significantly in periods of general
economic difficulty or rising interest rates. Through portfolio diversification
and credit analysis, investment risk can be reduced, although there can be no
assurance that losses will not occur.

The quality limitation set forth in each portfolio's investment policies is
determined immediately after the portfolio's acquisition of a given security.
Accordingly, any later change in ratings will not be considered when
determining whether an investment complies with the portfolio's investment
policies.

[GRAPHIC OMITTED] CONVERTIBLE SECURITIES

Subject to any investment limitations set forth in a portfolio's policies or
investment restrictions, a portfolio may invest in convertible securities.
Convertible securities may include corporate notes or preferred stock, but
ordinarily are a long-term debt obligation of the issuer convertible at a
stated exchange rate into common stock of the issuer. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price
of the common stock underlying a convertible security exceeds the conversion
price, the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield
basis, and thus may not depreciate to the same extent as the underlying common
stock.

DECS (Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common
Stock when-issued as a debt security) offer a substantial dividend advantage
with the possibility of unlimited upside potential if the price of the
underlying common stock exceeds a certain level. DECS convert to common stock
at maturity. The amount received is dependent on the price of the common stock
at the time of maturity. DECS contain two call options at different strike
prices. The DECS participate with the common stock up to the first call price.
They are effectively capped at that point unless the common stock rises above a
second price point, at which time they participate with unlimited upside
potential.

PERCS (Preferred Equity Redeemable Stock, converts into an equity issue that
pays a high cash dividend, has a cap price and mandatory conversion to common
stock at maturity) offer a substantial dividend advantage, but capital
appreciation potential is limited to a predetermined level. PERCS are less
risky and less volatile than the underlying common stock because their superior
income mitigates declines when the common falls, while the cap price limits
gains when the common rises.

Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk
of declines in market value than the issuer's common stock. However, the extent
to which such risk is reduced depends in large measure upon the degree to which
the convertible security sells above its value as a fixed-income security. In
evaluating investment in a convertible security, primary emphasis will be given
to the attractiveness of the

23
<PAGE>

underlying common stock. The convertible debt securities in which a portfolio
may invest are subject to the same rating criteria as the portfolio's
investment in non-convertible debt securities.

[GRAPHIC OMITTED] INVESTMENTS IN FUTURES, OPTIONS AND OTHER DERIVATIVE
INSTRUMENTS

The following investments are subject to limitations as set forth in each
portfolio's investment restrictions and policies:

FUTURES CONTRACTS. A portfolio may enter into contracts for the purchase or
sale for future delivery of equity or fixed-income securities, foreign
currencies or contracts based on financial indices, including interest rates or
indices of U.S. Government or foreign government securities or equity or
fixed-income securities ("futures contracts"). U.S. futures contracts are
traded on exchanges that have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant ("FCM"), or brokerage firm, which is a member of
the relevant contract market. Through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing
members of the exchange. Since all transactions in the futures market are made
through a member of, and are offset or fulfilled through a clearinghouse
associated with, the exchange on which the contracts are traded, a portfolio
will incur brokerage fees when it buys or sells futures contracts.

When a portfolio buys or sells a futures contract, it incurs a contractual
obligation to receive or deliver the underlying instrument (or a cash payment
based on the difference between the underlying instrument's closing price and
the price at which the contract was entered into) at a specified price on a
specified date. Transactions in futures contracts generally would be made to
seek to hedge against potential changes in interest or currency exchange rates
or the prices of a security or a securities index which might correlate with or
otherwise adversely affect either the value of a portfolio's securities or the
prices of securities which the portfolio is considering buying at a later date.
Futures may also be used for managing a portfolio's exposure to change in
securities prices and foreign currencies; as an efficient means of adjusting
its overall exposure to certain markets, or in an effort to enhance income.

The buyer or seller of futures contracts is not required to deliver or pay for
the underlying instrument unless the contract is held until the delivery date.
However, both the buyer and seller are required to deposit "initial margin" for
the benefit of an FCM when the contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain high-grade liquid assets. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments with an FCM to settle the change in value on a daily basis. The party
that has a gain may be entitled to receive all or a portion of this amount.
Initial and variation margin payments are similar to good faith deposits or
performance bonds, unlike margin extended by a securities broker, and initial
and variation margin payments do not constitute purchasing securities on margin
for purposes of the portfolio's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a portfolio, the portfolio
may be entitled to return of margin owed to the portfolio only in proportion to
the amount received by the FCM's other customers. The portfolio's Sub-Adviser
will attempt to minimize the risk by careful monitoring of the creditworthiness
of the FCM with which the portfolio does business and by depositing margin
payments in a segregated account with the custodian when practical or otherwise
required by law.

Although a portfolio would hold cash and liquid assets in a segregated account
with a value sufficient to cover the portfolio's open futures obligations, the
segregated assets would be available to the portfolio immediately upon closing
out the futures position, while settlement of securities transactions could
take several days. However, because the portfolio's cash that may otherwise be
invested would be held uninvested or invested in liquid assets so long as the
futures position remains open, the portfolio's return could be diminished due
to the opportunity cost of foregoing other potential investments.

The acquisition or sale of a futures contract may occur, for example, when a
portfolio holds or is considering purchasing equity securities and seeks to
protect itself from fluctuations in prices without buying or selling those
securities. For example, if prices were expected to decrease, a portfolio might
sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the portfolio
and thereby preventing a portfolio's net asset value from declining as much as
it otherwise would have. A portfolio also could seek to protect against
potential price declines by selling portfolio securities and investing in money
market instruments. However, since the futures market is more liquid than the
cash market, the use of futures contracts as an investment technique allows a
portfolio to maintain a defensive position without having to sell portfolio
securities.

Similarly, when prices of equity securities are expected to increase, futures
contracts may be bought to attempt to hedge against the possibility of having
to buy equity securities at higher prices. This technique is sometimes known as
an anticipatory hedge. Since the fluctuations in the value of futures contracts
should be similar to those of equity securities, a portfolio could take
advantage of the potential rise in the value of equity securities without
buying them until the market has stabilized. At

24
<PAGE>

that time, the futures contracts could be liquidated and the portfolio could
buy equity securities on the cash market. To the extent a portfolio enters into
futures contracts for this purpose, the assets in the segregated asset account
maintained to cover the portfolio's obligations with respect to futures
contracts will consist of liquid assets from its portfolio in an amount equal
to the difference between the contract price and the aggregate value of the
initial and variation margin payments made by the portfolio with respect to the
futures contracts.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced and prices in the futures market
distorted. Third, from the point of view of speculators, the margin deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
the foregoing distortions, a correct forecast of general price trends by a
portfolio's Sub-Adviser still may not result in a successful use of futures
contracts.

Futures contracts entail risks. Although each portfolio's Sub-Adviser believes
that use of such contracts can benefit a portfolio, if the Sub-Adviser's
investment judgment is incorrect, a portfolio's overall performance could be
worse than if the portfolio had not entered into futures contracts. For
example, if a portfolio has attempted to hedge against the effects of a
possible decrease in prices of securities held by the portfolio and prices
increase instead, the portfolio may lose part or all of the benefit of the
increased value of these securities because of offsetting losses in the
portfolio's futures positions. In addition, if the portfolio has insufficient
cash, it may have to sell securities from its portfolio to meet daily variation
margin requirements. Those sales may, but will not necessarily, be at increased
prices which reflect the rising market and may occur at a time when the sales
are disadvantageous to a portfolio.

The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to
a portfolio will not match exactly the portfolio's current or potential
investments. A portfolio may buy and sell futures contracts based on underlying
instruments with different characteristics from the securities in which it
typically invests - for example, by hedging investments in portfolio securities
with a futures contract based on a broad index of securities - which involves a
risk that the futures position will not correlate precisely with the
performance of the portfolio's investments.

Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments correlate with a portfolio's
investments. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments, and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a portfolio's investments and its futures positions may
also result from differing levels of demand in the futures markets and the
securities markets, from structural differences in how futures and securities
are traded, and from imposition of daily price fluctuation limits for futures
contracts. A portfolio may buy or sell futures contracts with a greater or
lesser value than the securities it wishes to hedge or is considering
purchasing in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases. If price changes in a portfolio's futures
positions are poorly correlated with its other investments, its futures
positions may fail to produce desired gains or result in losses that are not
offset by the gains in the portfolio's other investments.

Because futures contracts are generally settled within a day from the date they
are closed out, compared with longer settlement periods for some types of
securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance a liquid secondary
market will exist for any particular futures contract at any particular time.
In addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a portfolio to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a portfolio may not be able to promptly liquidate unfavorable
positions and potentially be required to continue to hold a futures position
until the delivery date, regardless of changes in its value. As a result, the
portfolio's access to other assets held to cover its futures positions also
could be impaired.

Although futures contracts by their terms call for the delivery or acquisition
of the underlying commodities or a cash payment based on the value of the
underlying commodities, in most cases the contractual obligation is offset
before the delivery date of the contract by buying, in the case of a
contractual obligation to sell, or selling, in the

25
<PAGE>

case of a contractual obligation to buy, an identical futures contract on a
commodities exchange. Such a transaction cancels the obligation to make or take
delivery of the commodities.

Each portfolio intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in the futures markets.
Such guidelines presently require that to the extent that a portfolio enters
into futures contracts or options on a futures position that are not for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial margin
and premiums on these positions (excluding the amount by which options are
"in-the-money") may not exceed 5% of the portfolio's net assets.

OPTIONS ON FUTURES CONTRACTS. A portfolio may buy and write options on futures
contracts. An option on a futures contract gives the portfolio the right (but
not the obligation) to buy or sell a futures contract at a specified price on
or before a specified date. The purchase and writing of options on futures
contracts is similar in some respects to the purchase and writing of options on
individual securities. See "Options on Securities" on page 28. Transactions in
options on futures contracts will generally not be made other than to attempt
to hedge against potential changes in interest rates or currency exchange rates
or the price of a security or a securities index which might correlate with or
otherwise adversely affect either the value of the portfolio's securities or
the process of securities which the portfolio is considering buying at a later
date.

The purchase of a call option on a futures contract may or may not be less
risky than ownership of the futures contract or the underlying instrument,
depending on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the underlying
instrument. As with the purchase of futures contracts, when a portfolio is not
fully invested it may buy a call option on a futures contract to attempt to
hedge against a market advance.

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the portfolio's
holdings. The writing of a put option on a futures contract may constitute a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract.
If the futures price at expiration of the option is higher than the exercise
price, the portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the portfolio is considering buying. If a call or put option a portfolio has
written is exercised, the portfolio will incur loss which will be reduced by
the amount of the premium it received. Depending on the degree of correlation
between change in the value of its portfolio securities and changes in the
value of the futures positions, a portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.

The purchase of a put option on a futures contract is similar in some respect
to the purchase of protective put options on portfolio securities. For example,
a portfolio may buy a put option on a futures contract to attempt to hedge the
portfolio's securities against the risk of falling prices.

The amount of risk a portfolio assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.

FORWARD CONTRACTS. A portfolio may enter into forward foreign currency exchange
contracts ("forward currency contracts") to attempt to minimize the risk to the
portfolio from adverse changes in the relationship between the U.S. dollar and
other currencies. A forward currency contract is an obligation to buy or sell
an amount of a specified currency for an agreed price (which may be in U.S.
dollars or a foreign currency) at a future date which is individually
negotiated between currency traders and their customers. A portfolio may invest
in forward currency contracts with stated contract values of up to the value of
the portfolio's assets.

A portfolio may exchange foreign currencies for U.S. dollars and for other
foreign currencies in the normal course of business and may buy and sell
currencies through forward currency contracts in order to fix a price for
securities it has agreed to buy or sell. A portfolio may enter into a forward
currency contract, for example, when it enters into a contract to buy or sell a
security denominated in or exposed to fluctuations in a foreign currency in
order to "lock in" the U.S. dollar price of the security ("transaction hedge").

Additionally, when a portfolio's Sub-Adviser believes that a foreign currency
in which portfolio securities are denominated may suffer a substantial decline
against the U.S. dollar, a portfolio may enter into a forward currency contract
to sell an amount of that foreign currency (or a proxy currency whose
performance is expected to replicate the performance of that currency) for U.S.
dollars approximating the value of some or all of the portfolio securities
denominated in that currency (not exceeding the value of the portfolio's assets
denominated in that currency) or by participating in options or futures
contracts with respect to the currency, or, when

26
<PAGE>

the portfolio's Sub-Adviser believes that the U.S. dollar may suffer a
substantial decline against a foreign currency for a fixed U.S. dollar amount
("position hedge"). This type of hedge seeks to minimize the effect of currency
appreciation as well as depreciation, but does not protect against a decline in
the security's value relative to other securities denominated in the foreign
currency.

A portfolio also may enter into a forward currency contract with respect to a
currency where the portfolio is considering the purchase of investments
denominated in that currency but has not yet done so ("anticipatory hedge").

In any of the above circumstances a portfolio may, alternatively, enter into a
forward currency contract with respect to a different foreign currency when a
portfolio's Sub-Adviser believes that the U.S. dollar value of that currency
will correlate with the U.S. dollar value of the currency in which portfolio
securities of, or being considered for purchase by, the portfolio are
denominated ("cross-hedge"). For example, if a portfolio's Sub-Adviser believes
that a particular foreign currency may decline relative to the U.S. dollar, a
portfolio could enter into a contract to sell that currency or a proxy currency
(up to the value of the portfolio's assets denominated in that currency) in
exchange for another currency that the Sub-Adviser expects to remain stable or
to appreciate relative to the U.S. dollar. Shifting a portfolio's currency
exposure from one foreign currency to another removes the portfolio's
opportunity to profit from increases in the value of the original currency and
involves a risk of increased losses to the portfolio if the portfolio's Sub-
Adviser's projection of future exchange rates is inaccurate.

A portfolio also may enter into forward contracts to buy or sell at a later
date instruments in which a portfolio may invest directly or on financial
indices based on those instruments. The market for those types of forward
contracts is developing and it is not currently possible to identify
instruments on which forward contracts might be created in the future.

A portfolio will cover outstanding forward currency contracts by maintaining
liquid portfolio securities denominated in the currency underlying the forward
contract or the currency being hedged. To the extent that a portfolio is not
able to cover its forward currency positions with underlying portfolio
securities, the Fund's custodian will segregate cash or other liquid assets
having a value equal to the aggregate amount of the portfolio's commitments
under forward contracts entered into with respect to position hedges and
cross-hedges. If the value of the segregated securities declines, additional
cash or liquid assets will be segregated on a daily basis so that the value of
the account will be equal to the amount of the portfolio's commitments with
respect to such contracts. As an alternative to maintaining all or part of the
segregated assets, a portfolio may buy call options permitting the portfolio to
buy the amount of foreign currency subject to the hedging transaction by a
forward sale contract or the portfolio may buy put options permitting the
portfolio to sell the amount of foreign currency subject to a forward buy
contract.

While forward contracts are not currently regulated by the CFTC, the CFTC may
in the future assert authority to regulate forward contracts. In such event a
portfolio's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts will reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unforeseen changes in currency prices may result in poorer overall
performance for a portfolio than if it had not entered into such contracts. The
use of foreign currency forward contracts will not eliminate fluctuations in
the underlying U.S. dollar equivalent value of the proceeds of or rates of
return on a portfolio's foreign currency denominated portfolio securities.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedging transaction generally will not be precise. In
addition, a portfolio may not always be able to enter into forward contracts at
attractive prices and accordingly may be limited in its ability to use these
contracts in seeking to hedge the portfolio's assets.

Also, with regard to a portfolio's use of cross-hedging transactions, there can
be no assurance that historical correlations between the movement of certain
foreign currencies relative to the U.S. dollar will continue. Thus, at any time
poor correlation may exist between movements in the exchange rates of the
foreign currencies underlying a portfolio's cross-hedges and the movements in
the exchange rates of the foreign currencies in which the portfolio's assets
that are subject of the cross-hedging transactions are denominated.

OPTIONS ON FOREIGN CURRENCIES. A portfolio may buy put and call options and may
write covered put and call options on foreign currencies for hedging purposes
in a manner similar to that in which futures contracts or forward contracts on
foreign currencies may be utilized. For example, a decline in the U.S. dollar
value of a foreign currency in which portfolio securities are denominated will
reduce the U.S. dollar value of such securities, even if their value in the
foreign currency remains constant. In order to protect against such diminutions
in the value of portfolio securities, a portfolio may buy put options on the
foreign currency. If the value of the currency declines, the portfolio will
have the right to sell such currency for a fixed amount in U.S. dollars and
will thereby offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted.

Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a portfolio may buy call options thereon. The

27
<PAGE>

purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates, although, in the event of exchange rate movements adverse to a
portfolio's option position, the portfolio could sustain losses on transactions
in foreign currency options which would require that the portfolio lose a
portion or all of the benefits of advantageous changes in those rates. In
addition, in the case of other types of options, the benefit to a portfolio
from purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs.

A portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, in attempting to hedge against a potential
decline in the U.S. dollar value of foreign currency denominated securities due
to adverse fluctuations in exchange rates, a portfolio could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised and the
diminution in value of portfolio securities will be offset by the amount of the
premium received.

Similarly, instead of purchasing a call option to attempt to hedge against a
potential increase in the U.S. dollar cost of securities to be acquired, a
portfolio could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the portfolio
to hedge the increased cost up to the amount of premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium received, and
only if exchange rates move in the expected direction. If that does not occur,
the option may be exercised and the portfolio would be required to buy or sell
the underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, a portfolio also
may lose all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.

A portfolio may write covered call options on foreign currencies. A call option
written on a foreign currency by a portfolio is "covered" if the portfolio owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the portfolio has a
call on the same foreign currency and in the same principal amount as the call
written if the exercise price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater than the exercise price
of the call written, and if the difference is maintained by the portfolio in
cash or high-grade liquid assets in a segregated account with the Fund's
custodian.

A portfolio may also write call options on foreign currencies for cross-hedging
purposes that may not be deemed to be covered. A call option on a foreign
currency is for cross-hedging purposes if it is not covered but is designed to
provide a hedge against a decline due to an adverse change in the exchange rate
in the U.S. dollar value of a security which the portfolio owns or has the
right to acquire and which is denominated in the currency underlying the
option. In such circumstances, the portfolio collateralizes the option by
maintaining segregated assets in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked-to-market daily.

A portfolio may buy or write options in privately negotiated transactions on
the types of securities and indices based on the types of securities in which
the portfolio is permitted to invest directly. A portfolio will effect such
transactions only with investment dealers and other financial institutions
(such as commercial banks or savings and loan institutions) deemed
creditworthy, and only pursuant to procedures adopted by the portfolio's Sub-
Adviser for monitoring the creditworthiness of those entities. To the extent
that an option bought or written by a portfolio in a negotiated transaction is
illiquid, the value of an option bought or the amount of the portfolio's
obligations under an option written by the portfolio, as the case may be, will
be subject to the portfolio's limitation on illiquid investments. In the case
of illiquid options, it may not be possible for the portfolio to effect an
offsetting transaction at the time when the portfolio's Sub-Adviser believes it
would be advantageous for the portfolio to do so.

OPTIONS ON SECURITIES. In an effort to reduce fluctuations in net asset value,
a portfolio may write covered put and call options and may buy put and call
options and warrants on securities that are traded on United States and foreign
securities exchanges and over-the-counter ("OTC"). A portfolio also may write
call options that are not covered for cross-hedging purposes. A portfolio may
write and buy options on the same types of securities that the portfolio could
buy directly and may buy options on financial indices as described above with
respect to futures contracts. There are no specific limitations on a
portfolio's writing and buying options on securities.

A put option gives the holder the right, upon payment of a premium, to deliver
a specified amount of a security to the writer of the option on or before a
fixed date at a predetermined price. A call option gives the holder the right,
upon payment of a premium, to call upon the writer to deliver a specified
amount of a security on or before a fixed date at a predetermined price.

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A put option written by a portfolio is "covered" if the portfolio (i) maintains
cash not available for investment or other liquid assets with a value equal to
the exercise price in a segregated account with its custodian or (ii) holds a
put on the same security and in the same principal amount as the put written
and the exercise price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the buyer of an option will
reflect, among other things, the relationship of the exercise price to the
market price and the volatility of the underlying security, the remaining term
of the option, supply and demand and interest rates. A call option written by a
portfolio is "covered" if the portfolio owns the underlying security covered by
the call or has an absolute and immediate right to acquire that security
without additional cash consideration (or has segregated additional cash
consideration with its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also deemed to be covered if
the portfolio holds a call on the same security and in the same principal
amount as the call written and the exercise price of the call held (i) is equal
to or less than the exercise price of the call written or (ii) is greater than
the exercise price of the call written if the difference is maintained by the
portfolio in cash and high-grade liquid assets in a segregated account with its
custodian.

A portfolio collateralizes its obligation under a written call option for
cross-hedging purposes by segregating with its custodian cash or other liquid
assets in an amount not less than the market value of the underlying security,
marked-to-market daily. A portfolio would write a call option for cross-hedging
purposes, instead of writing a covered call option, when the premium to be
received from the cross-hedge transaction would exceed that which would be
received from writing a covered call option and the portfolio's Sub-Adviser
believes that writing the option would achieve the desired hedge.

If a put or call option written by a portfolio was exercised, the portfolio
would be obligated to buy or sell the underlying security at the exercise
price. Writing a put option involves the risk of a decrease in the market value
of the underlying security, in which case the option could be exercised and the
underlying security would then be sold by the option holder to the portfolio at
a higher price than its current market value. Writing a call option involves
the risk of an increase in the market value of the underlying security, in
which case the option could be exercised and the underlying security would then
be sold by the portfolio to the option holder at a lower price than its current
market value. Those risks could be reduced by entering into an offsetting
transaction. The portfolio retains the premium received from writing a put or
call option whether or not the option is exercised.

The writer of an option may have no control when the underlying security must
be sold, in the case of a call option, or bought, in the case of a put option,
since with regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation. Whether or not
an option expires unexercised, the writer retains the amount of the premium.
This amount, of course, may, in the case of a covered call option, be offset by
a decline in the market value of the underlying security during the option
period. If a call option is exercised, the writer experiences a profit or loss
from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security.

The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.

Effecting a closing transaction in the case of a written call option will
permit a portfolio to write another call option on the underlying security with
either a different exercise price or expiration date or both or, in the case of
a written put option, will permit a portfolio to write another put option to
the extent that the exercise price thereof is secured by deposited high-grade
liquid assets. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other portfolio investments. If a portfolio desires to sell a
particular security on which the portfolio has written a call option, the
portfolio will effect a closing transaction prior to or concurrent with the
sale of the security.

A portfolio may realize a profit from a closing transaction if the price of the
purchase transaction is less than the premium received from writing the option
or the price received from a sale transaction is more than the premium paid to
buy the option; a portfolio may realize a loss from a closing transaction if
the price of the purchase transaction is less than the premium paid to buy the
option. Because increases in the market of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the portfolio.

An option position may be closed out only where there exists a secondary market
for an option of the same series. If a secondary market does not exist, it
might not be possible to effect closing transactions in particular options with
the result that a portfolio would have to exercise the options in order to
realize any profit. If a

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portfolio is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or the portfolio delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market may include the following:
(i) there may be insufficient trading interest in certain options, (ii)
restrictions may be imposed by a national securities exchange on which the
option is traded ("Exchange") on opening or closing transactions or both, (iii)
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities, (iv) unusual
or unforeseen circumstances may interrupt normal operations on an Exchange, (v)
the facilities of an Exchange or the Options Clearing Corporation ("OCC") may
not at all times be adequate to handle current trading volume, or (vi) one or
more Exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on that Exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would continue to be exercisable in accordance with their
terms.

A portfolio may write options in connection with buy-and-write transactions;
that is, a portfolio may buy a security and then write a call option against
that security. The exercise price of a call option may be below ("in-the-
money"), equal to ("at-the-money") or above ("out-of-the-money") the current
value of the underlying security at the time the option is written.
Buy-and-write transactions using in-the-money call options may be used when it
is expected that the price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-write transactions using
at-the-money call options may be used when it is expected that the price of the
underlying security will remain fixed or advance moderately during the option
period. Buy-and-write transactions using out-of-the-money call options may be
used when it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, a portfolio's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the difference between the
portfolio's purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying security declines,
the amount of such decline will be offset by the amount of premium received.

The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a portfolio's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, the portfolio may elect to close the
position or take delivery of the security at the exercise price and a
portfolio's return will be the premium received from the put options minus the
amount by which the market price of the security is below the exercise price.

A portfolio may buy put options to attempt to hedge against a decline in the
value of its securities. By using put options in this way, a portfolio will
reduce any profit it might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and by transaction costs.

A portfolio may buy call options to attempt to hedge against an increase in the
price of securities that the portfolio may buy in the future. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by a portfolio upon exercise of the option, and, unless the price of
the underlying security rises sufficiently, the option may expire worthless to
the portfolio.

In purchasing an option, a portfolio would be in a position to realize a gain
if, during the option period, the price of the underlying security increased
(in the case of a call) or decreased (in the case of a put) by an amount in
excess of the premium paid and would realize a loss if the price of the
underlying security did not increase (in the case of a call) or decrease (in
the case of a put) during the period by more than the amount of the premium. If
a put or call option brought by a portfolio were permitted to expire without
being sold or exercised, the portfolio would lose the amount of the premium.

Although they entitle the holder to buy equity securities, warrants on and
options to purchase equity securities do not entitle the holder to dividends or
voting rights with respect to the underlying securities, nor do they represent
any rights in the assets of the issuer of those securities.

INTEREST RATE SWAPS AND SWAP-RELATED PRODUCTS. In order to attempt to protect
the value of a portfolio's investments from interest rate or currency exchange
rate fluctuations, a portfolio may enter into interest rate swaps, and may buy
or sell interest rate caps and floors. A portfolio expects to enter into these
transactions primarily to attempt to preserve a return or spread on a
particular investment or portion of its portfolio. A portfolio also may enter
into these transactions to attempt to protect against any increase in the price
of securities the portfolio may consider buying at a later date. A portfolio
does not intend to use these transactions as a speculative investment. Interest
rate swaps involve the exchange by a portfolio with another party of their
respective commitments to pay or receive interest, e.g.,

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an exchange of floating rate payments for fixed rate payments. The exchange
commitments can involve payments to be made in the same currency or in
different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a contractually based
principal amount from the party selling the interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of
interest on a contractually based principal amount from the party selling the
interest rate floor.

Swap and swap-related products are specialized OTC instruments and their use
involves risks specific to the markets in which they are entered into. A
portfolio will usually enter into interest rate swaps on a net basis, i.e., the
two payment streams are netted out, with the portfolio receiving or paying, as
the case may be, only the net amount of the two payments. The net amount of the
excess, if any, of a portfolio's obligations over its entitlements with respect
to each interest rate swap will be calculated on a daily basis and an amount of
cash or other liquid assets having an aggregate net asset value of at least
equal to the accrued excess will be segregated with the Fund's custodian. If a
portfolio enters into an interest rate swap on other than a net basis, the
portfolio would segregate assets in the full amount accrued on a daily basis of
the portfolio's obligations with respect to the swap. A portfolio will not
enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto
is rated in one of the three highest rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction. A portfolio's Sub-Adviser will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, a portfolio will have
contractual remedies pursuant to the agreements related to the transaction.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. The Sub-Advisers have determined
that, as a result, the swap market has become relatively liquid. Caps and
floors are more recent innovations for which standardized documentation has not
yet been developed and, accordingly, they are less liquid than swaps. To the
extent a portfolio sells (i.e., writes) caps and floors, it will segregate with
the custodian cash or other liquid assets having an aggregate net asset value
at least equal to the full amount, accrued on a daily basis, of the portfolio's
obligations with respect to any caps or floors.

Interest rate swap transactions are subject to limitations set forth in each
portfolio's policies. These transactions may in some instances involve the
delivery of securities or other underlying assets by a portfolio or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the interest payments that
a portfolio is contractually obligated to make. If the other party to an
interest rate swap that is not collateralized defaults, a portfolio would risk
the loss of the net amount of the payments that the portfolio contractually is
entitled to receive. A portfolio may buy and sell (i.e., write) caps and floors
without limitation, subject to the segregated account requirement described
above.

In addition to the instruments, strategies and risks described in this
Statement of Additional Information and in the Prospectus, there may be
additional opportunities in connection with options, futures contracts, forward
currency contracts, and other hedging techniques, that become available as each
portfolio's Sub-Adviser develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new instruments and
techniques are developed. A Sub-Adviser may use these opportunities to the
extent they are consistent with each portfolio's respective investment
objective and are permitted by each portfolio's respective investment
limitations and applicable regulatory requirements.

SUPRANATIONAL AGENCIES. A portfolio may invest up to 10% of its assets in debt
obligations of supranational agencies such as: the International Bank for
Reconstruction and Development (commonly referred to as the World Bank), which
was chartered to finance development projects in developing member countries;
the European Community, which is a twelve-nation organization engaged in
cooperative economic activities; the European Coal and Steel Community, which
is an economic union of various European nations' steel and coal industries;
and the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions. Debt obligations of
supranational agencies are not considered Government Securities and are not
supported, directly or indirectly, by the U.S. Government.

INDEX OPTIONS. In seeking to hedge all or a portion of its investments, a
portfolio may purchase and write put and call options on securities indices
listed on U.S. or foreign securities exchanges or traded in the
over-the-counter market, which indices include securities held in the
portfolios. The portfolios with such option writing authority may write only
covered options. A portfolio may also use securities index options as a means
of participating in a securities market without making direct purchases of
securities.

A securities index measures the movement of a certain group of securities by
assigning relative values to the securities included in the index. Options on
securities

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indexes are generally similar to options on specific securities. Unlike options
on securities, however, options on securities indices do not involve the
delivery of an underlying security; the option in the case of an option on a
securities index represents the holder's right to obtain from the writer in
cash a fixed multiple of the amount by which the exercise price exceeds (in the
case of a call) or is less than (in the case of a put) the closing value of the
underlying securities index on the exercise date. A portfolio may purchase and
write put and call options on securities indexes or securities index futures
contracts that are traded on a U.S. exchange or board of trade or a foreign
exchange, to the extent permitted under rules and interpretations of the
Commodity Futures Trading Commission ("CFTC"), as a hedge against changes in
market conditions and interest rates, and for duration management, and may
enter into closing transactions with respect to those options to terminate
existing positions. A securities index fluctuates with changes in the market
values of the securities included in the index. Securities index options may be
based on a broad or narrow market index or on an industry or market segment.

The delivery requirements of options on securities indices differ from options
on securities. Unlike a securities option, which contemplates the right to take
or make delivery of securities at a specified price, an option on a securities
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (i) the amount, if any, by which the fixed exercise price of the
option exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying index on the date of exercise, multiplied
by (ii) a fixed "index multiplier." Receipt of this cash amount will depend
upon the closing level of the securities index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the exercise price of the option. The amount of cash received will be equal to
the difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in securities index options
prior to expiration by entering into a closing transaction on an exchange or it
may allow the option to expire unexercised.

The effectiveness of purchasing or writing securities index options as a
hedging technique will depend upon the extent to which price movements in the
portion of a securities portfolio being hedged correlate with price movements
of the securities index selected. Because the value of an index option depends
upon movements in the level of the index rather than the price of a particular
security, whether a portfolio realizes a gain or loss from the purchase of
writing of options on an index depends upon movements in the level of prices in
the market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular security. As
a result, successful use by a portfolio of options on securities indices is
subject to the sub-adviser's ability to predict correctly movements in the
direction of the market generally or of a particular industry. This ability
contemplates different skills and techniques from those used in predicting
changes in the price of individual securities.

Securities index options are subject to position and exercise limits and other
regulations imposed by the exchange on which they are traded. The ability of a
portfolio to engage in closing purchase transactions with respect to securities
index options depends on the existence of a liquid secondary market. Although a
portfolio will generally purchase or write securities index options only if a
liquid secondary market for the options purchased or sold appears to exist, no
such secondary market may exist, or the market may cease to exist at some
future date, for some options. No assurance can be given that a closing
purchase transaction can be effected when the sub-adviser desires that a
portfolio engage in such a transaction.

WEBS AND OTHER INDEX-RELATED SECURITIES. A portfolio may invest in shares in an
investment company whose shares are known as "World Equity Benchmark Shares" or
"WEBS." WEBS have been listed for trading on the American Stock Exchange, Inc.
The portfolios also may invest in the CountryBaskets Index Fund, Inc., or
another fund the shares of which are the substantial equivalent of WEBS. A
portfolio may invest in S&P Depositary Receipts, or "SPDRs." SPDRs are
securities that represent ownership in a long-term unit investment trust that
holds a portfolio of common stocks designed to track the performance of the S&P
500 Index. A portfolio investing in a SPDR would be entitled to the dividends
that accrue to the S&P 500 stocks in the underlying portfolio, less trust
expenses.

SPECIAL INVESTMENT CONSIDERATIONS AND RISKS. The successful use of the
investment practices described above with respect to futures contracts, options
on futures contracts, forward contracts, options on securities and on foreign
currencies, and swaps and swap-related products draws upon skills and
experience which are different from those needed to select the other
instruments in which the portfolios invest. Should interest or exchange rates
or the prices of securities or financial indices move in an unexpected manner,
a portfolio may not achieve the desired benefits of futures, options, swaps and
forwards or may realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded futures contracts and
options on futures contracts, there are no daily price fluctuation limits with
respect to options on currencies, forward contracts and other negotiated or OTC
instruments, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the price

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of the securities and currencies hedged or used for cover will not be perfect
and could produce unanticipated losses.

A portfolio's ability to dispose of its positions in the foregoing instruments
will depend on the availability of liquid markets in the instruments. Markets
in a number of the instruments are relatively new and still developing, and it
is impossible to predict the amount of trading interest that may exist in those
instruments in the future. Particular risks exist with respect to the use of
each of the foregoing instruments and could result in such adverse consequences
to a portfolio as the possible loss of the entire premium paid for an option
bought by the portfolio, the inability of the portfolio, as the writer of a
covered call option, to benefit from the appreciation of the underlying
securities above the exercise price of the option and the possible need to
defer closing out positions in certain instruments to avoid adverse tax
consequences. As a result, no assurance can be given that a portfolio will be
able to use those instruments effectively for the purposes set forth above.

In connection with certain of its hedging transactions, assets must be
segregated with the Fund's custodian bank to ensure that the portfolio will be
able to meet its obligations under these instruments. Assets held in a
segregated account generally may not be disposed of for so long as the
portfolio maintains the positions giving rise to the segregation requirement.
Segregation of a large percentage of the portfolio's assets could impede
implementation of the portfolio's investment policies or the portfolio's
ability to meet redemption requests or other current obligations.

ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD CONTRACTS AND
FOREIGN INSTRUMENTS. Unlike transactions entered into by a portfolio in futures
contracts, options on foreign currencies and forward contracts are not traded
on contract markets regulated by the CFTC or (with the exception of certain
foreign currency options) by the SEC. To the contrary, such instruments are
traded through financial institutions acting as market-makers, although foreign
currency options are also traded OTC. In an OTC trading environment, many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of
time. Although the buyer of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, an option writer and a buyer or seller of futures or forward
contracts could lose amounts substantially in excess of any premium received or
initial margin or collateral posted due to the potential additional margin and
collateral requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges are available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby reducing the
risk of counterparty default. Further, a liquid secondary market in options
traded on a national securities exchange may be more readily available than in
the OTC market, potentially permitting a portfolio to liquidate open positions
at a profit prior to exercise or expiration, or to limit losses in the event of
adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the OTC market. For example, exercise
and settlement of such options must be made exclusively through the OCC, which
has established banking relationships in applicable foreign countries for this
purpose. As a result, the OCC may, if it determines that foreign government
restrictions or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or its clearing
member, impose special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions, on exercise.

In addition, options on U.S. Government securities, futures contracts, options
on futures contracts, forward contracts and options on foreign currencies may
be traded on foreign exchanges and OTC in foreign countries. Such transactions
are subject to the risk of governmental actions affecting trading in or the
prices of foreign currencies or securities. The value of such positions also
could be adversely affected by (i) other complex foreign political and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in a portfolio's ability to act upon
economic events occurring in foreign markets during nonbusiness hours in the
United States, (iv) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States, and (v) low
trading volume.

[GRAPHIC OMITTED] ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES

Subject to any limitations set forth in the policies and investment
restrictions for a portfolio, a portfolio may invest in zero coupon,
pay-in-kind or step coupon securities. Zero coupon and step coupon bonds are
issued

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and traded at a discount from their face amounts. They do not entitle the
holder to any periodic payment of interest prior to maturity or prior to a
specified date when the securities begin paying current interest. The discount
from the face amount or par value depends on the time remaining until cash
payments begin, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. Pay-in-kind securities may pay all or a
portion of their interest or dividends in the form of additional securities.
Because they do not pay current income, the price of pay-in-kind securities can
be very volatile when interest rates change.

Current Federal income tax law requires holders of zero coupon securities and
step coupon securities to report the portion of the original issue discount on
such securities that accrues that year as interest income, even though the
holders receive no cash payments of interest during the year. In order to
qualify as a "regulated investment company" under the Internal Revenue Code,
each portfolio must distribute its investment company taxable income, including
the original issue discount accrued on zero coupon or step coupon bonds.
Because a portfolio will not receive cash payments on a current basis in
respect of accrued original-issue discount on zero coupon bonds or step coupon
bonds during the period before interest payments begin, in some years a
portfolio may have to distribute cash obtained from other sources in order to
satisfy the distribution requirements under the Code. A portfolio might obtain
such cash from selling other portfolio holdings. These actions are likely to
reduce the assets to which a portfolio's expenses could be allocated and to
reduce the rate of return for the portfolio. In some circumstances, such sales
might be necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it undesirable for the
portfolio to sell the securities at the time.

Generally, the market prices of zero coupon, step coupon and pay-in-kind
securities are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates
to a greater degree than other types of debt securities having similar
maturities and credit quality.

[GRAPHIC OMITTED] WARRANTS AND RIGHTS

Subject to its investment limitations, a portfolio may invest in warrants and
rights. Warrants are, in effect, longer-term call options. They give the holder
the right to purchase a given number of shares of a particular company at
specified prices, usually higher than the market price at the time of issuance,
for a period of years or to perpetuity. The purchaser of a warrant expects the
market price of the security will exceed the purchase price of the warrant plus
the exercise price of the warrant, thus giving him a profit. Of course, because
the market price may never exceed the exercise price before the expiration date
of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form
with other securities of an issuer. Units of warrants and common stock may be
employed in financing young unseasoned companies. The purchase price of a
warrant varies with the exercise price of the warrant, the current market value
of the underlying security, the life of the warrant and various other
investment factors.

In contrast, rights, which also represent the right to buy common shares,
normally have a subscription price lower than the current market value of the
common stock and a life of two to four weeks.

Warrants and rights may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the securities which may be purchased, nor do they
represent any rights in the assets of the issuing company. Also, the value of a
warrant or right does not necessarily change with the value of the underlying
securities and a warrant or right ceases to have value if it is not exercised
prior to the expiration date.

[GRAPHIC OMITTED] MORTGAGE-BACKED SECURITIES

A portfolio may invest in mortgage-backed securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, or institutions such as
banks, insurance companies, and savings and loans. Some of these securities,
such as Government National Mortgage Association ("GNMA") certificates, are
backed by the full faith and credit of the U.S. Treasury while others, such as
Federal Home Loan Mortgage Corporation ("Freddie Mac") certificates, are not.

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. These securities are often
subject to more rapid repayment than their stated maturity dates would indicate
as a result of principal prepayments on the underlying loans. This can result
in significantly greater price and yield volatility than with traditional fixed
income securities. During periods of declining interest rates, prepayments can
be expected to accelerate which will shorten these securities weighted average
life and may lower their return. Conversely, in a rising interst rate
environment, a declining prepayment rate will extend the weighted average life
of these securities which generally would cause their values to fluctuate more
widely in response to changes in interest rates.

The value of these securities also may change because of changes in the
market's perception of the creditworthiness of the federal agency or private
institution that issued them. In addition, the mortgage securities market

34
<PAGE>

in general may be adversely affected by changes in governmental regulation or
tax policies.

[GRAPHIC OMITTED] ASSET-BACKED SECURITIES

Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as
pass-through securities. Interest and principal payments ultimately depend on
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The underlying
assets (e.g., loans) are subject to prepayments which shorten the securities'
weighted average life and may lower their returns. If the credit support or
enhancement is exhausted, losses or delays in payment may result if the
required payments of principal and interest are not made. The value of these
securities also may change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the
pool, or the financial institution providing the credit support or enhancement.
A portfolio will invest its assets in asset-backed securities subject to any
limitations set forth in its investment policies or restrictions.

[GRAPHIC OMITTED] PASS-THROUGH SECURITIES

Subject to a portfolio's investment restrictions and policies, a portfolio may
invest its net assets in various types of pass-through securities, such as
mortgage-backed securities, asset-backed securities and participation
interests. A pass-through security is a share or certificate of interest in a
pool of debt obligations that have been repackaged by an intermediary, such as
a bank or broker-dealer. The purchaser receives an undivided interest in the
underlying pool of securities. The issuers of the underlying securities make
interest and principal payments to the intermediary which are passed through to
purchasers, such as the portfolio. The most common type of pass-through
securities are mortgage-backed securities. GNMA Certificates are
mortgage-backed securities that evidence an undivided interest in a pool of
mortgage loans. GNMA Certificates differ from traditional bonds in that
principal is paid back monthly by the borrowers over the term of the loan
rather than returned in a lump sum at maturity. The portfolio will generally
purchase "modified pass-through" GNMA Certificates, which entitle the holder to
receive a share of all interest and principal payments paid and owned on the
mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagor actually makes the payment. GNMA Certificates are backed
as to the timely payment of principal and interest by the full faith and credit
of the U.S. Government.

The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates
in that each PC represents a pro rata share of all interest and principal
payments made and owned on the underlying pool. FHLMC guarantees timely
payments of interest on PCs and the full return of principal. GMCs also
represent a pro rata interest in a pool of mortgages. However, these
instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. This type of security is guaranteed by FHLMC as to
timely payment of principal and interest, but is not backed by the full faith
and credit of the U.S. Government.

FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. This type of security is guaranteed by
FNMA as to timely payment of principal and interest, but it is not backed by
the full faith and credit of the U.S. Government.

[GRAPHIC OMITTED] OTHER INCOME PRODUCING SECURITIES

Subject to each portfolio's investment restrictions and policies, other types
of income producing securities that a portfolio may purchase include, but are
not limited to, the following types of securities:

VARIABLE AND FLOATING RATE OBLIGATIONS. These types of securities are
relatively long-term instruments that often carry demand features
permitting the holder to demand payment of principal at any time or at
specified intervals prior to maturity.

STANDBY COMMITMENTS. These instruments, which are similar to a put,
give a portfolio the option to obligate a broker, dealer or bank to
repurchase a security held by the portfolio at a specified price.

TENDER OPTION BONDS. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker,
dealer or bank) to grant the holders of such securities the option to
tender the securities to the institution at periodic intervals.

INVERSE FLOATERS. Inverse floaters are instruments whose interest bears
an inverse relationship to the interest rate on another security. A
portfolio will not invest more than 5% of its assets in inverse floaters.

A portfolio will purchase instruments with demand features, standby commitments
and tender option bonds primarily for the purpose of increasing the liquidity
of its portfolio. (See Appendix A regarding income producing securities in
which a portfolio may invest.)

35
<PAGE>

[GRAPHIC OMITTED] ILLIQUID AND RESTRICTED/144A SECURITIES

A portfolio may invest up to 15% (the WRL J.P. Morgan Money Market may only
invest up to 10%) of its net assets in illiquid securities (i.e., securities
that are not readily marketable).

In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933 ("1933
Act"). Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an
efficient institutional market in which such unregistered securities can
readily be resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.

Rule 144A under the 1933 Act established a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities that
might develop as a result of Rule 144A could provide both readily ascertainable
values for restricted securities and the ability to liquidate an investment in
order to satisfy share redemption orders. An insufficient number of qualified
institutional buyers interested in purchasing a Rule 144A-eligible security
held by a portfolio could, however, adversely affect the marketability of such
portfolio security and the portfolio might be unable to dispose of such
security promptly or at reasonable prices.

The Fund's Board of Directors has authorized each portfolio's Sub-Adviser to
make liquidity determinations with respect to Rule 144A securities in
accordance with the guidelines established by the Board of Directors. Under the
guidelines, the portfolio's Sub-Adviser will consider the following factors in
determining whether a Rule 144A security is liquid: 1) the frequency of trades
and quoted prices for the security; 2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; 3)
the willingness of dealers to undertake to make a market in the security; and
4) the nature of the marketplace trades, including the time needed to dispose
of the security, the method of soliciting offers and the mechanics of the
transfer. The sale of illiquid securities often requires more time and results
in higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the OTC markets. The portfolio may be restricted in its ability
to sell such securities at a time when a portfolio's Sub-Adviser deems it
advisable to do so. In addition, in order to meet redemption requests, a
portfolio may have to sell other assets, rather than such illiquid securities,
at a time which is not advantageous.

[GRAPHIC OMITTED] MONEY MARKET RESERVES
(WRL T. ROWE PRICE SMALL CAP AND
WRL T. ROWE PRICE DIVIDEND GROWTH)

It is expected that the portfolios will invest its cash reserves primarily in a
money market fund established for the exclusive use of the T. Rowe Price family
of mutual funds and other clients of T. Rowe Price and Price-Fleming. The
Reserve Investment Fund ("RIF") is a series of Reserve Investment Funds, Inc.
Additional series may be created in the future. This fund was created and
operates under an Exemptive Order issued by the Securities and Exchange
Commission (Investment Company Act Release No. IC-22770, July 29, 1997).

The fund must comply with the requirements of Rule 2a-7 under the 1940 Act
governing money market funds. The RIF invests at least 95% of its total assets
in prime money market instruments receiving the highest credit rating.

The RIF provides a very effecient means of managing the cash reserves of the
portfolios. While the RIF does not pay an advisory fee to the Investment
Manager, it will incur other expenses. However, the RIF is expected by T. Rowe
Price to operate at a very low expense ratio. The portfolios will only invest
in RIF to the extent it is consistent with their objectives and programs.

RIF is not insured or guaranteed by the U.S. government, and there is no
assurance it will maintain a stable net asset value of $1.00 per share.

[GRAPHIC OMITTED] OTHER INVESTMENT COMPANIES

In accordance with certain provisions of the 1940 Act, 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 1940
Act also provides that a portfolio generally 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. 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 WRL Janus Growth, or WRL Janus 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.

The WRL GE/Scottish International Equity and WRL GE U.S. Equity portfolios may
not purchase securities of other investment companies, other than a security
acquired in connection with a merger, consolidation,

36
<PAGE>

acquisition, reorganization or offer of exchange and except as otherwise
permitted under the 1940 Act. Investments by the WRL GE/Scottish Equitable
International Equity and WRL GE U.S. Equity portfolios in the GEI Short-Term
Investment Fund, an investment fund advised by GEIM, created specifically to
serve as a vehicle for the collective investment of cash balances of these
portfolios and other accounts advised by GEIM or GEIC, is not considered an
investment in another investment company for purposes of these restrictions.
The GEI Short-Term Investment Fund is not registered with the SEC as an
investment company.

WRL Goldman Sachs Growth may also purchase Standard & Poors Depositary Receipts
("SPDRs"). SPDRs are American Stock Exchange-traded securities that represent
ownerhsip in the SPDR Trust, a trust which has been established to accumulate
and hold a portfolio of common stocks that is intended to track the price
performance and dividend yield of the S&P 500.

[GRAPHIC OMITTED] QUALITY AND DIVERSIFICATION REQUIREMENTS
(WRL J.P. MORGAN MONEY MARKET)

For the purpose of maintaining a stable net asset value per share, the WRL J.P.
Morgan Money Market will (i) limit its investment in the securities (other than
U.S. Government securities and securities that benefit from certain types of
credit enhancement arrangements) of any one issuer to no more than 5% of its
total assets, measured at the time of purchase, except at any time for an
investment in a single issuer of up to 25% of the portfolio's total assets held
for not more than three business days; and (ii) limit investments to securities
that present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had
a maturity of over one year are subject to more complicated, but generally
similar rating requirements. A description of illustrative credit ratings is
set forth in Appendix B. The portfolio may also purchase unrated securities
that are of comparable quality to the rated securities described above as
determined by the Board of Directors. Additionally, if the issuer of a
particular security has issued other securities of comparable priority and
security and which have been rated in accordance with (ii) above, that security
will be deemed to have the same rating as such other rated securities.

In addition, the Board of Directors of the Fund has adopted procedures which
(i) require the Fund's Directors to approve or ratify purchases by the
portfolio of securities (other than U.S. Government securities) that are rated
by only one NRSRO or that are unrated; (ii) require the portfolio to maintain a
dollar-weighted average portfolio maturity of not more than 90 days and to
invest only in securities with a remaining maturity of not more than 13 months;
and (iii) require the portfolio, in the event of certain downgrading of or
defaults on portfolio holdings, to dispose of the holdings, subject in certain
circumstances to a finding by the Fund's Directors that disposing of the
holding would not be in the portfolio's best interest.

[GRAPHIC OMITTED] BANK AND THRIFT OBLIGATIONS

Bank and thrift obligations in which a portfolio may invest are limited to
dollar-denominated certificates of deposit, time deposits and bankers'
acceptances issued by bank or thrift institutions. Certificates of deposit are
short-term, unsecured, negotiable obligations of commercial banks and thrift
institutions. Time deposits are non-negotiable deposits maintained in bank or
thrift institutions for specified periods of time at stated interest rates.
Bankers' acceptances are negotiable time drafts drawn on commercial banks
usually in connection with international transactions.

Bank and thrift obligations in which the portfolio invests may be, but are not
required to be, issued by institutions that are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). Bank and thrift institutions organized
under Federal law are supervised and examined by Federal authorities and are
required to be insured by the FDIC. Institutions organized under state law are
supervised and examined by state banking authorities but are insured by the
FDIC only if they so elect. State institutions insured by the FDIC are subject
to Federal examination and to a substantial body of Federal law regulation. As
a result of Federal and state laws and regulations, Federally insured bank and
thrift institutions are, among other things, generally required to maintain
specified levels of reserves and are subject to other supervision and
regulation designed to promote financial soundness.

Obligations of foreign branches of domestic banks and of United Kingdom
branches of foreign banks may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks or domestic branches of
foreign banks. These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign exchange controls and
foreign withholding and other taxes on interest income. Foreign branches of
domestic banks and United Kingdom branches of foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to domestic
banks, such as mandatory reserve requirements, loan limitations and accounting,
auditing and financial recordkeeping requirements. In addition, less
information may be publicly available about a foreign branch of a domestic bank
or about a foreign bank than about a domestic bank. Certificates of deposit
issued by wholly-owned Canadian subsidiaries of domestic banks

37
<PAGE>

are guaranteed as to repayment of principal and interest (but not as to
sovereign risk) by the domestic parent bank.

Obligations of domestic branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by governmental regulation as well as
governmental action in the country in which the foreign bank has its head
office. A domestic branch of a foreign bank with assets in excess of $1 billion
may or may not be subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is located if the branch is
licensed by that state. In addition, branches licensed by the Comptroller of
the Currency and branches licensed by certain states ("State Branches") may or
may not be required to: (i) pledge to the regulator, by depositing assets with
a designated bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (ii) maintain assets within the state in an amount equal
to a specified percentage of the aggregate amount of liabilities of the foreign
bank payable at or through all of its agencies or branches within the state.
The deposits of State Branches may not necessarily be insured by the FDIC.

A portfolio may purchase obligations, or all or a portion of a package of
obligations, of smaller institutions that are Federally insured, provided the
obligation of any single institution does not exceed the Federal insurance
coverage of the obligation, presently $100,000.

[GRAPHIC OMITTED] INVESTMENTS IN THE REAL ESTATE INDUSTRY AND 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 policyowners provided they comply with several requirements of
the Internal Revenue Code of 1986, as amended (the "Code").

/diamond/ RISK FACTORS

Investments in the real estate industry are subject to risks associated with
direct investment in real estate. Such risks include, but are not limited to:
declining real estate values; risks related to general and local economic
conditions; over-building; increased competition for assets in local and
regional markets; changes in zoning laws; difficulties in completing
construction; changes in real estate value and property taxes; increases in
operating expenses or interest rates; changes in neighborhood values or the
appeal of properties to tenants; insufficient levels of occupancy; and
inadequate rents to cover operating expenses. The performance of securities
issued by companies in the real estate industry also may be affected by prudent
management of insurance risks, adequacy of financing available in capital
markets, competent management, changes in applicable laws and governmental
regulations (including taxes) and social and economic trends.

REITs also may subject a portfolio to certain risks associated with the direct
ownership of real estate. As described above, 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, 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.")

[GRAPHIC OMITTED] 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
adjustment 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.

In addition, when purchasing variable rate master demand notes, a Sub-Adviser
will consider the earning

38
<PAGE>

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.

[GRAPHIC OMITTED] DEBT SECURITIES AND FIXED-INCOME INVESTING

Debt securities include securities such as corporate bonds and debentures;
commercial paper; trust preferreds, debt securities issued by the U.S.
Government, its agencies and instrumentalities; or foreign governments;
asset-backed securities; CMOs; zero coupon bonds; floating rate, inverse
floating rate and index obligations; "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 payment prospects 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 B 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 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.

[GRAPHIC OMITTED] 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 B for a description of debt securities rating.)

/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
investment.

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 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.

[GRAPHIC OMITTED] TRADE CLAIMS

Trade claims are interests in amounts owed to suppliers of goods or services
and are purchased from creditors of companies in financial difficulty. Trade
claims offer the potential for profits since they are often purchased at a
significant discount from face value and, consequently, may generate capital
appreciation in the event that the

39
<PAGE>

market value of the claim increases as the debtor's financial position improves
or the claim is paid.

/diamond/ RISK FACTORS

An investment in trade claims is speculative and carries a high degree of risk.
Trade claims are illiquid securities which generally do not pay interest and
there can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. The markets in trade claims are not regulated by
Federal securities laws or the SEC. Because trade claims are unsecured, holders
of trade claims may have a lower priority in terms of payment than certain
other creditors in a bankruptcy proceeding.

MANAGEMENT OF THE FUND

[GRAPHIC OMITTED] DIRECTORS AND OFFICERS

The Fund is governed by a Board of Directors. Subject to the supervision of the
Board of Directors, the assets of each portfolio are managed by an investment
adviser and sub-advisers, and by portfolio managers. The Board of Directors is
responsible for managing the business and affairs of the Fund and oversees the
operation of the Fund by its officers. It also reviews the management of the
portfolios' assets by the investment adviser and sub-adviser. Information about
the Directors and officers of the Fund is as follows:

PETER R. BROWN, DIRECTOR (DOB 5/10/28), 1475 South Belcher Road, Largo, Florida
33771. Chairman of the Board, Peter Brown Construction Company,
(construction contractors and engineers), Largo, Florida (1963 - present);
Trustee of IDEX Mutual Funds, Rear Admiral (Ret.) U.S. Navy Reserve, Civil
Engineer Corps.

CHARLES C. HARRIS, DIRECTOR (DOB 7/15/30), 35 Winston Drive, Clearwater,
Florida 34616. Trustee of IDEX Mutual Funds, (March 1994 - present).

RUSSELL A. KIMBALL, JR., DIRECTOR (DOB 8/17/44), 1160 Gulf Boulevard,
Clearwater Beach, Florida 34630. General Manager, Sheraton Sand Key Resort
(resort hotel), Clearwater, Florida (1975 - present).

JOHN R. KENNEY (1, 2) CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT (DOB
2/8/38). Chairman of the Board of Directors (1982 - present), Chief
Executive Officer (1982 - present), President (1978 - 1987 and December,
1992 - present), Director (1978 - present), Western Reserve Life Assurance
Co. of Ohio; Chairman of the Board of Directors (September, 1996 -
present), President (September, 1997 - present) WRL Investment Management,
Inc. (investment adviser), St. Petersburg, Florida; Chairman of the Board
of Directors (September, 1996 - present), WRL Investment Services, Inc.,
St. Petersburg, Florida; Chairman of the Board of Directors (February, 1997
- present) AEGON Asset Management Services, Inc., St. Petersburg, Florida;
Director (December, 1990 - present); Idex Management, Inc. (investment
adviser), St. Petersburg, Florida; Trustee and Chairman (September, 1996 -
present) of IDEX Mutual Funds (investment companies) St. Petersburg,
Florida.

G. JOHN HURLEY (1, 2) DIRECTOR AND EXECUTIVE VICE PRESIDENT (DOB 9/12/48).
Executive Vice President (June, 1993 - present), Chief Operating Officer
(March, 1994 - January, 1997), Western Reserve Life Assurance Co. of Ohio;
Director (September, 1996 - present), WRL Investment Management, Inc.
(investment adviser), St. Petersburg, Florida; Director (September, 1996 -
present), WRL Investment Services, Inc., St. Petersburg, Florida; Director,
President and Chief Executive Officer (February, 1997 - present) AEGON
Asset Management Services, Inc., Largo, Florida; President and Chief
Executive Officer (September, 1990 - September, 1996), Trustee (June, 1990
- September, 1996); Trustee, President and Chief Financial Officer
(September, 1996 - present) of IDEX Mutual Funds; Director and Chairman
(April, 1999 - present) President, Chief Executive Officer and Director of
InterSecurities, Inc. (May, 1988 - April, 1999).

ALLAN HAMILTON (1, 2) TREASURER, PRINCIPAL FINANCIAL OFFICER (DOB 11/26/56).
Vice President and Controller (1987 - present), Treasurer (February, 1997 -
present).

THOMAS E. PIERPAN (1, 2) SECRETARY, VICE PRESIDENT AND ASSOCIATE GENERAL
COUNSEL (DOB 10/18/43). Assistant Secretary (March, 1995 - December, 1997)
of WRL Series Fund, Inc.; Vice President, Counsel and Secretary (December,
1997 - present) of IDEX Mutual Funds (mutual fund); Assistant Vice
President, Counsel and Assistant Secretary (November, 1997 - present) of
InterSecurities, Inc. (broker-dealer); Assistant Secretary and Associate
General Counsel (September, 1997 - present) of WRL Investment Management,
Inc. (investment adviser); Assistant Secretary and Associate General
Counsel (September, 1997 - present) of WRL Investment Services, Inc.; Vice
President (November, 1993 - present), Associate General Counsel (February,
1995 - present), Assistant Secretary (February, 1995 - present) of Western
Reserve Life Assurance Co. of Ohio.

ALAN M. YAEGER (1, 2) EXECUTIVE VICE PRESIDENT (DOB 10/21/46). Executive Vice
President (June, 1993 - present), Chief Financial Officer (December, 1995 -
present), Actuary (1972 - present), Western Reserve Life Assurance Co. of
Ohio; Director (September, 1996 - present), WRL Investment Management, Inc.
(investment adviser) St. Petersburg, Florida; Director

40
<PAGE>

(September, 1996 - present), WRL Investment Services, Inc., St. Petersburg,
Florida.
- ------------------------------
(1) The principal business address is Western Reserve Life Assurance
Co. of Ohio, P.O. Box 5068, Clearwater, Florida 33758-5068.
(2) Interested person as defined in the 1940 Act and affiliated person
of Investment Adviser.

The Fund pays no salaries or compensation to any of its officers, all of whom
are employees of WRL. The Fund pays an annual fee of $6,000 to each Director
who is not affiliated with the Investment Adviser or the Sub-Advisers
("disinterested Director"). Each disinterested Director also receives $500,
plus expenses, per each regular and special Board meeting attended. The table
below shows each portfolio's allocation of Directors' fees and expenses paid
for the year ended December 31, 1998. The compensation table provides
compensation amounts paid to disinterested Directors of the Fund for the fiscal
year ended December 31, 1998.

Director's Fees Paid - Year Ended December 31, 1998
---------------------------------------------------

PORTFOLIO AMOUNT PAID
- --------- -----------
WRL VKAM Emerging Growth $4,000
WRL T. Rowe Price Small Cap (1) 0
WRL Goldman Sachs Small Cap(1) 0
WRL Alger Aggressive Growth 3,000
WRL GE/Scottish Equitable International Equity 0
WRL Janus Global 5,000
WRL Third Avenue Value 0
WRL Dreyfus Mid Cap (1) 0
WRL Salomon All Cap (1) 0
WRL Pilgrim Baxter Mid Cap Growth (1) 0
WRL Janus Growth 7,000
WRL Goldman Sachs Growth (1) 0
WRL C.A.S.E. Growth 1,000
WRL GE U.S. Equity 0
WRL NWQ Value Equity 1,000
WRL T. Rowe Price Dividend Growth (1) 0
WRL Dean Asset Allocation 1,000
WRL LKCM Strategic Total Return 2,000
WRL Federated Growth & Income 1,000
WRL AEGON Balanced 1,000
WRL J.P. Morgan Real Estate Securities 0
WRL AEGON Bond 1,000
WRL J.P. Morgan Money Market 2,000

- ------------------------------
(1) Portfolio had not commenced operations as of December 31, 1998.

Compensation Table
------------------

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS TOTAL COMPENSATION
AGGREGATE ACCRUED AS PAID TO DIRECTORS FROM
COMPENSATION FROM PART OF WRL SERIES FUND, INC. AND
NAME OF PERSON, POSITION WRL SERIES FUND, INC. FUND EXPENSES* IDEX MUTUAL FUNDS
- ------------------------ --------------------- -------------- -----------------
<S> <C> <C> <C>
Peter R. Brown, Director $9,500 0 $32,500
Charles C. Harris, Director 9,500 0 32,500
Russell A. Kimball, Jr., Director 9,500 0 9,500
</TABLE>

- ------------------------------
* The Plan became effective January 1, 1996.

Commencing on January 1, 1996, a non-qualified deferred compensation plan (the
"Plan") became available to directors who are not interested persons of the
Fund. Under the Plan, compensation may be deferred that would otherwise be
payable by the Fund, or IDEX Mutual Funds to a disinterested Director or
Trustee on a current basis for services rendered as director. Deferred
compensation amounts will accumulate based on the value of Class A shares of a
portfolio of IDEX Mutual Funds (without imposition of sales charge), as elected
by the Director. As of April 1, 1999, the Directors and officers of the Fund
beneficially owned in the aggregate less than 1% of the Fund's shares through
ownership of policies and annuity contracts indirectly invested in the Fund.
The Board of Directors has established an Audit Committee consisting of Messrs.
Brown, Harris and Kimball.

[GRAPHIC OMITTED] THE INVESTMENT ADVISER

The information that follows supplements the information provided about the
Investment Adviser under the caption "Management of the Fund - Investment
Adviser" in the Prospectus.

WRL Investment Management, Inc. ("WRL Management") located at 570 Carillon
Parkway, St. Petersburg,

41
<PAGE>

FL 33716, serves as the investment adviser to each portfolio of the Fund
pursuant to an Investment Advisory Agreement dated January 1, 1997 with the
Fund. The Investment Adviser is a direct, wholly-owned subsidiary of WRL, which
is wholly-owned by First AUSA Life Insurance Company ("First AUSA"), a stock
life insurance company, which is wholly-owned by AEGON USA, Inc. ("AEGON USA").
AEGON USA is a financial services holding company whose primary emphasis is on
life and health insurance and annuity and investment products. AEGON USA is a
wholly-owned indirect subsidiary of AEGON N.V., a Netherlands corporation,
which is a publicly traded international insurance group.

The Investment Advisory Agreement was approved by the Fund's Board of
Directors, including a majority of the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) on October 3, 1996 and by the
shareholders of each portfolio of the Fund on December 16, 1996. The Investment
Advisory Agreement provides that it will continue in effect from year to year
thereafter, if approved annually (a) by the Board of Directors of the Fund or
by a majority of the outstanding shares of each portfolio, and (b) by a
majority of the Directors who are not parties to such contract or "interested
persons" of any such party. The Investment Advisory Agreement may be terminated
without penalty on 60 days' written notice at the option of either party or by
the vote of the shareholders of each portfolio and terminates automatically in
the event of its assignment (within the meaning of the 1940 Act).

While the Investment Adviser is at all times subject to the direction of the
Board of Directors of the Fund, the Investment Advisory Agreement provides that
the Investment Adviser, subject to review by the Board of Directors, is
responsible for the actual management of the Fund and has responsibility for
making decisions to buy, sell or hold any particular security. The Investment
Adviser also is obligated to provide all the office space, facilities,
equipment and personnel necessary to perform its duties under the Investment
Advisory Agreement. For further information about the management of each
portfolio of the Fund, see "The Sub-Advisers", on p. 45.

ADVISORY FEE. The method of computing the investment advisory fee is fully
described in the Fund's prospectus. For the years ended December 31, 1998, 1997
and 1996, the Investment Adviser was paid fees for its services to each
portfolio in the following amounts (no information is included for the WRL
Goldman Sachs Small Cap, WRL Dreyfus Mid Cap, WRL Salomon All Cap, WRL Pilgrim
Baxter Mid Cap Growth, WRL Goldman Sachs Growth, WRL T. Rowe Price Dividend
Growth and WRL T. Rowe Price Small Cap as these portfolios had not yet
commenced operations as of December 31, 1998):

Advisory Fees
-------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
PORTFOLIO 1998 1997 1996
- --------------------------------------------------- ------------- --------------------------- --------------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth $ 3,361,604 $ 2,249,801 $ 1,529,679
WRL VKAM Emerging Growth 5,408,098 4,075,498 2,985,089
WRL GE/Scottish Equitable International Equity(2) 275,279 111,702 N/A
WRL Janus Global 7,537,671 5,591,818 3,468,535
WRL Janus Growth 18,111,607 13,716,824 11,137,321
WRL Third Avenue Value(3) 111,928 N/A N/A
WRL C.A.S.E. Growth 515,902 334,892 83,931
WRL GE U.S. Equity (2) 555,341 140,280 N/A
WRL NWQ Value Equity(5) 1,458,166 900,818 111,557
WRL Dean Asset Allocation 2,710,626 2,079,540 1,308,435
WRL LKCM Strategic Total Return 4,485,018 3,703,670 2,462,304
WRL J.P. Morgan Real Estate Securities(4) 9,338 N/A N/A
WRL Federated Growth & Income 578,162 338,267 231,441
WRL AEGON Balanced 680,543 491,901 315,419
WRL AEGON Bond(1) 663,484 479,685 474,926
WRL J.P. Morgan Money Market 644,611 514,968 436,658
----------- ----------- -----------
TOTAL $47,107,378 $34,729,664 $24,545,295
=========== =========== ===========
</TABLE>

- ------------------------------
(1) Prior to January 1, 1998, Janus Capital Corporation served as Sub-Adviser
to the Bond portfolio and received monthly compensation from the
Investment Adviser at the annual rate of 0.25% of average daily net assets
of the portfolio. Effective January 1, 1998, AEGON USA Investment
Management, Inc. serves as the Sub-Adviser to the WRL AEGON Bond (formerly
Bond portfolio) and receives monthly compensation from the Investment
Adviser at the rate of 0.20% of average daily net assets of the portfolio.
(2) Portfolio commenced operations January 2, 1997.
(3) Portfolio commenced operations January 2, 1998
(4) Portfolio commenced operations May 1, 1998.
(5) Portfolio commenced operations May 1, 1996.

PAYMENT OF EXPENSES. Under the terms of the Investment Advisory Agreement, the
Investment Adviser is responsible for providing investment advisory services
and furnishing office space for officers and employees of the Investment
Adviser connected with investment management of the portfolios.

42
<PAGE>

Each portfolio pays: all expenses incurred in connection with the formation and
organization of a portfolio, including the preparation (and filing, when
necessary) of the portfolio's contracts, plans, and documents, conducting
meetings of organizers, directors and shareholders; preparing and filing the
post-effective amendment to the Fund's registration statement effecting
registration of a portfolio and its shares under the 1940 Act and the 1933 Act
and all other matters relating to the information and organization of a
portfolio and the preparation for offering its shares; expenses in connection
with ongoing registration or qualification requirements under Federal and state
securities laws; investment advisory fees; pricing costs (including the daily
calculations of net asset value); brokerage commissions and all other expenses
in connection with execution of portfolio transactions, including interest; all
Federal, state and local taxes (including stamp, excise, income and franchise
taxes) and the preparation and filing of all returns and reports in connection
therewith; any compensation, fees, or reimbursements which the Fund pays to its
Directors who are not "interested persons," as that phrase is defined in the
1940 Act, of the Fund or WRL Management; compensation of the Fund's custodian,
administrative and transfer agent, registrar and dividend disbursing agent;
legal, accounting and printing expenses; other administrative, clerical,
recordkeeping and bookkeeping expenses; auditing fees; certain insurance
premiums; services for shareholders (including allocable telephone and
personnel expenses); costs of certificates and the expenses of delivering such
certificates to the purchaser of shares relating thereto; expenses of local
representation in Maryland; fees and/or expenses payable pursuant to any plan
of distribution adopted with respect to the Fund in accordance with Rule 12b-1
under the 1940 Act; expenses of shareholders' meetings and of preparing,
printing, and distributing notices, proxy statements and reports to
shareholders; expenses of preparing and filing reports with Federal and state
regulatory authorities; all costs and expenses, including fees and
disbursements, of counsel and auditors, filing and renewal fees and printing
costs in connection with the filing of any required amendments, supplements or
renewals of registration statement, qualifications or prospectuses under the
1933 Act and the securities laws of any states or territories, subsequent to
the effectiveness of the initial registration statement under the 1933 Act; all
costs involved in preparing and printing prospectuses of the Fund;
extraordinary expenses; and all other expenses properly payable by the Fund or
the portfolios.

The Investment Adviser has voluntarily undertaken, until at least April 30,
2000, to pay expenses on behalf of the portfolios to the extent normal
operating expenses (including investment advisory fees but excluding interest,
taxes, brokerage fees, commissions and extraordinary charges) exceed, as a
percentage of each portfolio's average daily net assets, 1.00% (0.70% for the
WRL AEGON Bond and WRL J.P. Morgan Money Market, 1.50% for the WRL GE/Scottish
Equitable International Equity and 1.30% for the WRL GE U.S. Equity). The
following expenses were paid by the investment adviser for the fiscal years
ended December 31, 1998, 1997, and 1996 (WRL served as investment adviser for
1996) (there are no expenses included for the WRL Goldman Sachs Growth, the WRL
Goldman Sachs Small Cap, the WRL Dreyfus Mid Cap, the WRL Salomon All Cap, the
WRL Pilgrim Baxter Mid Cap Growth, WRL T. Rowe Price Dividend Growth and WRL T.
Rowe Price Small Cap because these portfolios had not yet commenced operations
as of December 31, 1998):

Portfolio Expenses Paid by Investment Adviser
---------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
PORTFOLIO 1998 1997 1996
- ---------------------------------------------------- ---------- -------------- ---------
<S> <C> <C> <C>
WRL Alger Aggressive Growth -0- -0- -0-
WRL VKAM Emerging Growth -0- -0- -0-
WRL GE/Scottish Equitable International Equity (1) 127,763 179,163 N/A
WRL Janus Global -0- -0- -0-
WRL Janus Growth -0- -0- -0-
WRL Third Avenue Value(4) 14,229 N/A N/A
WRL C.A.S.E. Growth -0- 49,784 73,269
WRL GE U.S. Equity(1) -0- 29,464 N/A
WRL NWQ Value Equity(2) -0- -0- 13,672
WRL Dean Asset Allocation -0- -0- -0-
WRL LKCM Strategic Total Return -0- -0- -0-
WRL J.P. Morgan Real Estate Securities(5) 28,275 N/A N/A
WRL Federated Growth & Income -0- -0- -0-
WRL AEGON Balanced -0- -0- -0-
WRL AEGON Bond(3) -0- -0- -0-
WRL J.P. Morgan Money Market -0- -0- -0-
</TABLE>

- --------------
(1) Portfolio commenced operations on January 2, 1997.
(2) Portfolio commenced operations on May 1, 1996.
(3) Prior to January 1, 1998, Janus Capital Corporation served as the
Sub-Adviser for the WRL AEGON Bond.
(4) Portfolio commenced operations on January 2, 1998
(5) Portfolio commenced operations on May 1, 1998.

43
<PAGE>

SERVICE AGREEMENT. Effective January 1, 1997, the Fund entered into an
Administrative Services and Transfer Agency Agreement ("Services Agreement")
with WRL Investment Services, Inc. ("WRL Services"), an affiliate of WRL
Management and WRL, to furnish the Fund with administrative services to assist
the Fund in carrying out certain of its functions and operations. The Service
Agreement was approved by the Fund's Board of Directors, including a majority
of Directors who are not "interested persons" of the Fund (as defined in the
1940 Act) on October 3, 1996. 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. The following Administrative Services fees were paid by
the portfolios for the fiscal year ended December 31, 1998 (there are no fees
included for WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap, WRL
Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap because these portfolios
had not yet commenced operations as of December 31, 1998):

Administrative Services Fees
----------------------------

PORTFOLIO 1998 1997
- --------- ----------- ------------
WRL Alger Aggressive Growth $73,408 $122,776
WRL VKAM Emerging Growth 95,721 166,269
WRL GE/Scottish Equitable
International Equity 3,731 3,901
WRL Janus Global 99,277 165,294
WRL Janus Growth 143,999 260,374
WRL Third Avenue Value 1,139 N/A
WRL C.A.S.E. Growth 14,345 15,798
WRL GE U.S. Equity 6,364 3,218
WRL NWQ Value Equity 18,893 23,307
WRL Dean Asset Allocation 25,722 41,445
WRL LKCM Strategic Total
Return 47,197 87,766
WRL J.P. Morgan Real Estate
Securities -0- N/A
WRL Federated Growth &
Income 12,140 16,773
WRL AEGON Balanced 10,827 18,333
WRL AEGON Bond 16,871 31,011
WRL J.P. Morgan Money Market 6,378 12,092

DISTRIBUTION AGREEMENT. Effective January 1, 1997, the Fund adopted a
distribution plan ("Distribution Plan") pursuant to Rule 12b-1 under the 1940
Act, as amended. Pursuant to the Distribution Plan, the Fund entered into a
Distribution Agreement with AFSG Securities Corporation (AFSG) located at 4333
Edgewood Road NE, Cedar Rapids, Iowa 52494. (Prior to May 1, 1999,
InterSecurities, Inc. (ISI) served as principal underwriter for the Fund). The
Distribution Plan and related Agreement were approved by the Fund's Board of
Directors, including a majority of Directors who are not "interested persons"
of the Fund (as defined in the 1940 Act) on October 3, 1996 as amended by the
Board March 29, 1999, and the Distribution Plan was approved by the
shareholders of each portfolio of the Fund on December 16, 1996. AFSG is an
affiliate of the Investment Adviser.

Under the Distribution Plan and Distribution Agreement, the Fund, on behalf of
the portfolios, will reimburse AFSG after each calendar month for certain Fund
distribution expenses incurred or paid by AFSG, provided that these expenses in
the aggregate do not exceed 0.15%, on an annual basis, of the average daily net
asset value of shares of each portfolio.

Distribution expenses for which AFSG may be reimbursed under the Distribution
Plan and Distribution Agreement include, but are not limited to, expenses of
printing and distributing the Fund's prospectus and statement of additional
information to potential investors; developing and preparing Fund
advertisements; sales literature and other promotional materials; holding
seminars and sales meetings designed to promote distribution of Fund shares;
the development of consumer-oriented sales materials describing and/or relating
to the Fund; and expenses attributable to "distribution-related services"
provided to the Fund, which include such things as salaries and benefits,
office expenses, equipment expenses, 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.

AFSG submits to the Directors of the Fund for approval annual distribution
budgets and quarterly reports of distribution expenses with respect to each
portfolio. AFSG 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 AFSG deems fair and are approved by the Fund's Board
of Directors. AFSG has determined that it will not seek payment by the Fund of
distribution expenses incurred with respect to any portfolio before April 30,
2000. (ISI waived payment by the Fund for the fiscal year ended December 31,
1998.) Prior to AFSG seeking reimbursement of future expenses, Policyowners
will be notified in advance.

It is anticipated that benefits provided by the Distribution Plan may include
lower fixed costs as a percentage of assets as Fund assets increase through the
growth of the Fund due to enhanced marketing efforts.

[GRAPHIC OMITTED] THE SUB-ADVISERS

Each Sub-Adviser serves, pursuant to each Sub-Advisory Agreement dated January
1, 1997 (January 1, 1998 with respect to the WRL Third Avenue Value and WRL
AEGON Bond and May 1, 1998 with respect to WRL J.P. Morgan Real Estate
Securities) between WRL Management and the respective Sub-Adviser, on behalf of
each

44
<PAGE>

portfolio. The Sub-Advisory Agreements were approved by the Board of Directors
of the Fund, including a majority of the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) on October 3, 1996 as amended
May 1, 1999, (May 1, 1999 with respect to the WRL T. Rowe Price Small Cap, WRL
T. Rowe Price Dividend Growth, WRL Pilgrim Baxter Mid Cap Growth, WRL Salomon
All Cap, WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap and WRL Dreyfus
Mid Cap) and by the shareholders of each portfolio of the Fund on December 16,
1996 ( December 9, 1997 with respect to the WRL AEGON Bond). The Sub-Advisory
Agreements provide that they will continue in effect if approved annually (a)
by the Board of Directors of the Fund or by a majority of the outstanding
shares of each portfolio and (b) by a majority of the Directors who are not
parties to such Agreements or "interested persons" (as defined in the 1940 Act)
of any such party. The WRL AEGON Bond and WRL Third Avenue Value will continue
in effect for an initial term ending January 1, 2000, WRL J.P. Morgan Real
Estate Securities will continue in effect for an initial term ending April 30,
2000 and WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T. Rowe
Price Small Cap, WRL T. Rowe Price Dividend Growth, WRL Salomon All Cap, the
WRL Pilgrim Baxter Mid Cap Growth and WRL Dreyfus Mid Cap will continue in
effect for an initial term ending April 30, 2001), and from year to year
thereafter, if approved annually. The Sub-Advisory Agreements may be terminated
without penalty on 60 days' written notice at the option of either party or by
the vote of the shareholders of each portfolio and terminate automatically in
the event of their assignment (within the meaning of the 1940 Act) or
termination of the Investment Advisory Agreement.

Pursuant to the Sub-Advisory Agreements, each Sub-Adviser provides investment
advisory assistance and portfolio management advice to the Investment Adviser
for their respective portfolio(s). Subject to review by the Investment Adviser
and the Board of Directors of the Fund, the Sub-Advisers are responsible for
the actual management of their respective portfolio(s) and for making decisions
to buy, sell or hold a particular security. Each Sub-Adviser bears all of its
expenses in connection with the performance of its services under their Sub-
Advisory Agreement such as compensating and furnishing office space for their
officers and employees connected with investment and economic research, trading
and investment management of the respective portfolio(s).

Each Sub-Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. The Sub-Advisers for the portfolios of the
Fund are:

/diamond//diamond//diamond//diamond//diamond/

FRED ALGER MANAGEMENT, INC.

Fred Alger Management, Inc. ("Alger") serves as Sub-Adviser to the WRL Alger
Aggressive Growth.

Alger, located at 75 Maiden Lane, New York, New York 10038, is a wholly-owned
subsidiary of Fred Alger & Company, Incorporated, which, in turn, is a wholly-
owned subsidiary of Alger Associates, Inc., a financial services holding
company. Alger is generally engaged in the business of rendering investment
advisory services to institutions and, to a lesser extent, individuals. Alger
has been engaged in the business of rendering investment advisory services
since 1964 and, as of March 31, 1999, had approximately $10.59 billion under
management.

/diamond/ PORTFOLIO MANAGER:

DAVID D. ALGER AND DAVID HYUN are primarily responsible for the day-to-day
management of WRL Alger Aggressive Growth. Mr. Alger has been employed by Alger
Management as Executive Vice President and Director of Research Since 1971 and
as President since 1995. Mr. Hyun has been employed by Alger Management as a
senior research analyst since 1991 and as a portfolio Manager since 1997. Mr.
Alger has served as portfolio Manager of WRL Alger Aggressive Growth since its
inception. Mr. Hyun has served as Co-portfolio Manager of WRL Alger Aggressive
Growth since
February 1998. Mr. Alger and Mr. Hyun also serve as portfolio managers for
other mutual funds and investment accounts managed by Alger Management.

/diamond//diamond//diamond//diamond//diamond/

VAN KAMPEN ASSET
MANAGEMENT INC. (`VKAM")

Van Kampen Asset Management Inc. ("VKAM") serves as Sub-Adviser to WRL VKAM
Emerging Growth.

VKAM, located at 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, Illinois
60181, is a wholly-owned subsidiary of Van Kampen Investments Inc., which, in
turn, is an indirect wholly-owned subsidiary of Morgan Stanley Dean Witter &
Co., a financial services company.

/diamond/ PORTFOLIO MANAGER:

GARY M. LEWIS is primarily responsible for the day-to-day management of WRL
VKAM Emerging Growth. Mr. Lewis has been Senior Vice President of Van Kampen
since October 1995. Previously, he served as Vice President - portfolio Manager
of Van Kampen from 1989 to October 1995.

/diamond//diamond//diamond//diamond//diamond/

JANUS CAPITAL CORPORATION

Janus Capital Corporation ("Janus") serves as the Sub-Adviser to the WRL Janus
Growth and the WRL Janus Global.

Janus, located at 100 Fillmore Street, Denver, Colorado 80206, has been engaged
in the management of the Janus funds since 1969. Janus also serves as
investment adviser or sub-adviser to other mutual funds, and for individual,
corporate, charitable and retirement accounts. The aggregate market value of
the assets managed by Janus was over $120 billion as of
February 1, 1999. Kansas City Southern Industries, Inc. ("KCSI") owns 82% of
Janus. KCSI, whose address is

45
<PAGE>

114 West 11th Street, Kansas City, Missouri 64105-1804, is a publicly-traded
holding company whose largest subsidiary, the Kansas City Southern Railway
Company, is primarily engaged in the transportation industry. Other KCSI
subsidiaries are engaged in financial services and real estate.

/diamond/ PORTFOLIO MANAGERS:

SCOTT W. SCHOELZEL AND EDWARD KEELY serve as co-portfolio Managers for WRL
Janus Growth. Mr. Schoelzel has been portfolio Manager of the portfolio since
January 1996, and served as a co-portfolio manager of the portfolio since 1995.
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.

Edward Keely has served as Co-portfolio Manager since January 1999. Mr. Keely
is Vice President of Investments at Janus. Prior to joining Janus Capital in
1998, Mr. Keely served as Senior Vice President of Investments at Founders
Asset Management, where he was also the portfolio manager of Founders Growth
Fund from 1994-1998. Prior to managing Founders Growth Fund, he was assistant
portfolio Manager of both Founders Discovery and Frontier Funds. Mr. Keely
holds a bachelor's degree in economics from Colorado College.

HELEN YOUNG HAYES has served as portfolio Manager of WRL Janus Global 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/

EQSF ADVISERS, INC.

EQSF Advisers, Inc. ("EQSF") serves as Sub-Adviser to WRL Third Avenue Value.

EQSF, located at 767 Third Avenue, New York, New York 10017-2023, is controlled
by Martin J. Whitman. His control is based upon an irrevocable proxy signed by
his children, who own in the aggregate 75% of the outstanding common stock of
EQSF.

/diamond/ PORTFOLIO MANAGER:

MARTIN J. WHITMAN has served as portfolio Manager of WRL Third Avenue Value
since inception. Mr. Whitman is Chairman and Chief Executive Officer of the
Sub-Adviser. During the past five years, Mr. Whitman has also served in various
executive capacities with M.J. Whitman, Inc. and several other affiliated
companies of the Sub-Adviser engaged in various investment and financial
businesses. Mr. Whitman has over 42 years experience in the securities
industry, has served as a Distinguished Management Fellow at the Yale School of
Management and has been a director of various public and private companies,
currently including Danielson Holding Corporation, an insurance holding
company, Nabors Industries, Inc. an international oil drilling contractor and
Tejon Ranch Company, an agricultural and land development company.

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C.A.S.E. MANAGEMENT, INC.

C.A.S.E. Management, Inc. ("C.A.S.E.") serves as Sub-Adviser to WRL C.A.S.E.
Growth.

C.A.S.E., located at 5355 Town Center Road, Suite 702, Boca Raton, Florida
33486, is a wholly-owned subsidiary of C.A.S.E., Inc. 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") serves as the Sub-Adviser to
the WRL NWQ Value Equity.

NWQ, located at 2049 Century Park East, 4th Floor, Los Angeles, California
90067, is a wholly-owned subsidiary of United Asset Management Corporation and
provides investment management services to institutions and high net worth
individuals. NWQ had approximately $8.1 billion in assets under management as
of December 31, 1998.

/diamond/ PORTFOLIO MANAGER:

An investment policy committee is responsible for the day-to-day management of
WRL NWQ Vaue Equity investments. David A. Polak, CFA, Edward C. Friedel, CFA,
James H. Galbreath, CFA, Phyllis G. Thomas, CFA, Jon D. Bosse, CFA, and Justin
T. Clifford constitute the committee.

EDWARD C. FRIEDEL, CFA serves as Senior portfolio Manager for WRL NWQ Value
Equity. Mr. Friedel has been a managing director and investment
strategist/portfolio manager of NWQ Investment since 1983. Mr. Friedel is a
graduate of the University of California at Berkeley (BS) and Stanford
University (MBA).

46
<PAGE>

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DEAN INVESTMENT ASSOCIATES

Dean Investment Associates ("Dean") serves as Sub-Adviser to WRL Dean Asset
Allocation.

Dean, located at 2480 Kettering Tower, Dayton, Ohio 45423-2480, 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 currently has $4.2 billion of assets under
management.

/diamond/ PORTFOLIO MANAGERS:

The WRL Dean Asset Allocation is managed by a team of 10 senior investment
professionals (Central Investment Committee), with over 137 years of total
investment experience.

JOHN C. RIAZZI, CFA, has served as the Senior portfolio Manager of WRL Dean
Asset Allocation 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 five 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.

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LUTHER KING CAPITAL
MANAGEMENT CORPORATION

Luther King Capital Management Corporation ("LKCM") serves as Sub-Adviser to
WRL LKCM Strategic Total Return.

LKCM is located at 301 Commerce Street, Suite 1600, Fort Worth, Texas 76102.
Ultimate control of Luther King is exercised by J. Luther King, Jr. Luther King
provides investment management services to accounts of individual investors,
mutual funds, and other institutional investors. Luther King has served as an
investment adviser for approximately 18 years; as of December 31, 1998, the
total assets managed by Luther King was approximately $6.0 billion.

/diamond/ PORTFOLIO MANAGERS:

LUTHER KING, JR., CFA, AND SCOT HOLLMANN, CFA, have served as portfolio
Managers of the WRL LKCM Strategic Total Return 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.

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FEDERATED INVESTMENT COUNSELING

Federated Investment Counseling ("Federated") serves as the Sub-Adviser to the
WRL Federated Growth & Income.

Federated, located at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is a wholly-owned subsidiary of Federated Investors, Inc. All of
the voting securities of Federated Investors, Inc. are owned by a trust, the
trustees of which are John F. Donahue, his wife, Rhodora Donahue, and his son,
J. Christopher Donahue.

/diamond/ PORTFOLIO MANAGERS:

STEVEN J. LEHMAN and LINDA A. DUESSEL serve as Co-portfolio Managers of the WRL
Federated Growth & Income. Ms. Duessel has been a portfolio Manager of the WRL
Federated Growth & Income since July, 1996. Mr. Lehman has served as
co-portfolio manager since September, 1997. Mr. Lehman joined Federated in May,
1997 as a Vice President. From 1985 to May, 1997, Mr. Lehman served as a
portfolio manager, then Vice President/Senior portfolio manager, at First
Chicago NBD Investment Management Company. Mr. Lehman is a Chartered Financial
Analyst; he received his M.A. from the University of Chicago.

Ms. Duessel is a Chartered Financial Analyst and also serves as a 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 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.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a
single portfolio manager. It is a fusion of individual talents and
state-of-the-art industry tools and resources. Federated's investment process
involves teams of portfolio managers and analysts, and investment decisions are
executed by traders who are dedicated to specific market sectors and who handle
trillions of dollars in annual trading volume.

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AEGON USA INVESTMENT MANAGEMENT, INC.

AEGON USA Investment Management, Inc. ("AIMI") serves as Sub-Adviser to the WRL
AEGON Bond and the WRL AEGON Balanced.

AIMI, located at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499, is a
wholly-owned subsidiary of AEGON USA and thus is an affiliate of the Investment
Adviser. AIMI also serves as sub-adviser to the two bond portfolios of IDEX
Mutual Funds. AIMI also manages the general account investment portfolios of
the life insurance

47
<PAGE>

subsidiaries of AEGON USA and had in excess of $45 billion under management as
of December 31, 1998.

/diamond/ PORTFOLIO MANAGERS:

CLIFFORD A. SHEETS, CFA, AND JARRELL D. FREY, CFA, serve as portfolio Managers
of the WRL AEGON Bond. Mr. Sheets has served as the portfolio Manager of the
WRL AEGON Bond portfolio since January, 1998. Mr. Sheets has been with AIMI
since 1990 and is currently an Executive Vice President. 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 WRL AEGON since January, 1998. Mr. Frey joined AIMI in
1994 and is currently a Senior Securities Analyst.

MICHAEL VAN METER has served as the Senior portfolio Manager of the WRL AEGON
Balanced 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
USA acquired that firm.

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J.P. MORGAN INVESTMENT MANAGEMENT INC.

J.P. Morgan Investment Management, Inc. ("J.P. Morgan") serves as Sub-Adviser
to WRL J.P. Morgan Money Market and WRL J.P. Morgan Real Estate Securities.

J.P. Morgan, located at 522 Fifth Avenue, New York, New York 10036, is a
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated. J.P. Morgan provides
investment management and related services for corporate, public, and union
employee benefit funds, foundations, endowments, insurance companies and
government agencies.

/diamond/ PORTFOLIO MANAGERS:

ROBERT R. JOHNSON serves as portfolio Manager of Money Market. Mr. Johnson is
responsible for several short-term fixed income portfolios and the business
development of short-term fixed income products. Mr. Johnson joined J.P. Morgan
Investment Management in 1988 and is a Vice President of J.P. Morgan
Investment. He is also a member of the Fixed Income Peer Review Committee. He
is a graduate of Dartmouth College and has done graduate work at both Wayne
State and Duquesne Universities.

DANIEL P. O'CONNOR has served as the portfolio Manager of the WRL J.P. Morgan
Real Estate Securities portfolio since its inception. He is the senior
portfolio manager for all real estate securities investment-related activity at
J.P. Morgan Investment. Prior to joining J.P. Morgan Investment in 1996, he
served for two years as DIrector of Real Estate Securities at INVESCO, an
investment management firm. In that position, Mr. O'Connor was responsible for
developing the firm's REIT investment management process. Mr. O'Connor received
a B.S. from Indiana University, an M.S. from Clemson University, and an M.B.A.
in Finance from the University of Chicago. He is a Chartered Financial Analyst
and is a member of AIMR and the New York Society of Securities Analysts. Mr.
O'Connor serves on the editorial board of the Institutional Real Estate
Securities Newsletter.

/diamond//diamond//diamond//diamond//diamond/

SCOTTISH EQUITABLE INVESTMENT
MANAGEMENT LIMITED

Scottish Equitable Investment Management Limited ("SEIM") serves as a
co-sub-adviser to the WRL GE/Scottish Equitable International Equity.

SEIM is located at Edinburgh Park, Edinburgh EH12 9SE. SEIM is a wholly-owned
subsidiary of Scottish Equitable plc, successor to Scottish Equitable Life
Assurance Society. SEIM is also an indirect wholly-owned subsidiary of AEGON
nv. As of January 31, 1999 SEIM plc had approximately $29 billion in assets
under management. The co-sub-adviser provides investment advisory and
management services to certain of its affiliates and to external organizations.

/diamond/ PORTFOLIO MANAGERS:

At SEIM, investment strategy formulation is the responsibility of the
Investment Strategy Group ("ISG"), which consists of one full-time Investment
Strategist (currently, Alastair Bryne) working with a team of analysts/fund
managers drawn from our equity and fixed-income teams.

On a monthly basis, the ISG presents the proposed investment strategy to the
Investment Management Board ("IMB"). The IMB consists of Russell Hogan, Chief
Investment Officer, Tom Crombie, Chief Investment Manager, Colin Black,
Investment Actuary, Mike Craston, Investment Manager - Business Development,
Andrew Hartley, Investment Manager - UK Equities and Malcolm Jones, Investment
Manager - International Equities.

The role of the IMB is to review critically the proposed investment strategy,
testing the assumptions of the analysis and ensuring internal consistency. Once
the IMB is satisfied with the investment strategy proposal, it is adopted and
translated into asset allocations for the portfolio. The adopted investment
strategy and model asset allocations are communicated to the whole investment
team, which also serves as a final check on the adopted investment strategy. No
one individual is responsible for managing the portfolio.

/diamond//diamond//diamond//diamond//diamond/

GE INVESTMENT MANAGEMENT INCORPORATED

GE Investment Management Incorporated ("GEIM") serves as a co-sub-adviser to
the WRL GE/Scottish Equitable International Equity and as sub-adviser to the
WRL GE U.S. Equity.

GEIM is located at 3003 Summer Street, Stamford, Connecticut 06905. GEIM, which
was formed under the laws of Delaware in 1988, 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",

48
<PAGE>

and, together with GEIM, collectively referred to as "GE Investments"), which
like GEIM is a wholly-owned subsidiary of GE. As of December 31, 1998, GE
Investments manage assets in excess of $78 billion. GE Investments provides
investment management services to external organizations and to certain of its
affiliates.

/diamond/ PORTFOLIO MANAGERS:

RALPH R. LAYMAN is a Director and Executive Vice President of GEIM. Mr. Layman
leads a team of GEIM portfolio mangers for the WRL GE/Scottish Equitable
International Equity. Mr. Layman joined GE Investments in 1991 as Executive
Vice President for International Investments.

EUGENE K. BOLTON is Director and Executive Vice President of GEIM. He manages
U.S. Equity investments for GEIM. He leads a team of portfolio managers for the
overall the WRL GE U.S. Equity and has served in that capacity since its
inception. Mr. Bolton joined GEIM in 1984 as Chief Financial Officer and has
been portfolio manager since 1986. Mr. Bolton is currently a Director and
Executive Vice President of GE Investments.

/diamond//diamond//diamond//diamond//diamond/

GOLDMAN SACHS ASSET MANAGEMENT, INC.

Goldman Sachs Asset Management ("GSAM") serves as the Sub-Adviser to the WRL
Goldman Sachs Growth and WRL Goldman Sachs Small Cap.

GSAM, located at One New York Plaza, New York, NY 10004, is a separate
operating division of Goldman, Sachs & Co. GSAM together with its affiliates
manage assets in excess of $195 billion.

The Goldman Sachs Group, L.P., which controls the sub-adviser, announced that
it will pursue an initial public offering of the firm in the late spring or
early summer of 1999. Simultaneously with the offering, the Goldman Sachs
Group, L.P. will merge into the Goldman Sachs Group, Inc.

/diamond/ PORTFOLIO MANAGER:

HERBERT E. EHLERS has served as head of a six person investment team that has
managed the WRL Goldman Sachs Growth since inception. Prior to joining GSAM in
1997, he was chief investment officer at Liberty Investment Management, Inc.
from 1994-1997.

ROBERT C. JONES, MANAGING DIRECTOR, has served as head of an investment team
that has managed the WRL Goldman Sachs Small Cap since inception. Mr. Jones
joined GSAM as a portfolio manager in 1989.

/diamond//diamond//diamond//diamond//diamond/

SALOMON BROTHERS ASSET
MANAGEMENT, INC.

Salomon Brothers Asset Management Inc. ("SBAM") serves as the Sub-Adviser to
the WRL Salomon All Cap.

SBAM, located at 7 World Trade Center, New York, NY 10048, is a wholly-owned
subsidiary of Salomon Brothers Holding Company, Inc., which is wholly-owned by
Salomon Smith Barney Holdings Inc., which is, in turn, wholly-owned by
Travelers Group, Inc.

/diamond/ PORTFOLIO MANAGERS:

ROSS S. MARGOLIES, has managed this portfolio since inception. Mr. Margolies
joined Salomon in 1992.

ROBERT M. DONAHUE, Jr. assists in the day-to-day management of the portfolio.
Prior to joining SBAM in 1997, Mr. Donahue worked as an equity analyst at
Gabelli & Company.

/diamond//diamond//diamond//diamond//diamond/

THE DREYFUS CORPORATION

The Dreyfus Corporation ("Dreyfus") serves as the Sub-Adviser to the WRL Dreyfus
Mid Cap.

Dreyfus, located at 200 Park Avenue, New York, NY 10166, is a wholly-owned
subsidiary of Mellon Bank, which is a wholly-owned subsidiary of Mellon Bank
Corporation. Dreyfus manages assets in excess of $123 billion, as of January
31, 1999.

/diamond/ PORTFOLIO MANAGER:

JOHN O'TOOLE has served as portfolio manager since its inception and has been
employed by Dreyfus as a portfolio manager since 1994. Mr. O'Toole is a senior
vice president and portfolio manager for Mellon Equity Assocates, LLP, a
wholly-owned subsidiary of Mellon Bank, N.A. He has been with Mellon Bank, N.A.
since 1979.

/diamond//diamond//diamond//diamond//diamond/

T. ROWE PRICE ASSOCIATES, INC.

T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as the Sub-Adviser to
the WRL T. Rowe Price Small Cap and the WRL T. Rowe Price Dividend Growth.

T. Rowe Price is located at 100 E. Pratt Street, Baltimore, MD 21202.

/diamond/ PORTFOLIO MANAGERS:

WILLIAM J. STROMBERG, CFA, has managed the WRL T. Rowe Price Dividend Growth
portfolio since inception and heads the Investment Team for this portfolio. He
joined T. Rowe Price in 1986.

RICHARD T. WHITNEY, CFA, has managed the WRL T. Rowe Price Small Cap portfolio
since inception and heads the Investment Team for this portfolio. He joined T.
Rowe Price in 1985.

49
<PAGE>

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PILGRIM BAXTER AND ASSOCIATES, LTD.

Pilgrim Baxter and Associates, Ltd. ("Pilgrim Baxter") serves as the
Sub-Adviser to the WRL Pilgrim Baxter Mid Cap Growth.

Pilgrim Baxter, located at 825 Duportail Road, Wayne PA 19087, is a
professional investment management firm which, along with its predecessors, has
been in business since 1982. The controlling shareholder of Pilgrim Baxter is
United Asset Management.

/diamond/ PORTFOLIO MANAGER:

JEFF A. WRONA, CFA, has managed this portfolio since inception. Prior to
joining Pilgrim Baxter, he was a senior portfolio manager at Munder Capital
Management.

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 management by the Sub-Adviser. The table below lists those
percentages by portfolio.

<TABLE>
<CAPTION>
PORTFOLIO PERCENTAGE OF AVERAGE DAILY NET ASSETS
- --------- --------------------------------------
<S> <C>

WRL Janus Growth 0.40%(1)
WRL AEGON Bond 0.20% (Prior to January 1, 1998, Janus Capital
Corporation, previous Sub-Adviser, received 0.25%)
WRL Janus Global 0.40%(2)
WRL J.P. Morgan Money Market 0.15%
WRL AEGON Balanced 0.40%, less 50% of amount of excess expenses(3)
WRL VKAM Emerging Growth 0.40%, less 50% of amount of excess expenses(3)
WRL LKCM Strategic Total Return 0.40%
WRL Alger Aggressive Growth 0.40%
WRL Dean Asset Allocation 0.40%, less 50% of amount of excess expenses(3)
WRL C.A.S.E. Growth 0.40%
WRL Federated Growth & Income 0.50% of the first $30 million of
average daily net assets;
0.35% of the next $20 million of average daily net assets;
and 0.25% of average daily net assets
in excess of $50 million
WRL NWQ Value Equity 0.40%, less 50% of amount of excess expenses(3)
WRL GE/Scottish Equitable SEIM: 0.50% of assets managed by
International Equity SEIM, less 50% of amount of excess
expenses attributable to such assets (3)
GEIM: 0.50% of assets managed by GEIM, less 50%
of amount of excess expenses attributable to such assets (3)
WRL GE U.S. Equity 0.40%, less 50% of amount of excess expenses (3)
WRL Third Avenue Value 0.40%, less 50% of amount of excess expenses(3)
WRL J.P. Morgan Real Estate Securities 0.40%
WRL T. Rowe Price Small Cap 0.35%
WRL Pilgrim Baxter Mid Cap 0.50% of the first $100 million of portfolio's average
daily net assets; 0.40% of assets in excess of
$100 million (from first dollar)(4)
WRL Salomon All Cap 0.30% of the first $20 million of portfolio's average daily
net assets; 0.50% of the next $20-100 million of
average daily net assets; and 0.40% of average
daily net assets over $100 million(4)
WRL Goldman Sachs Growth 0.50% of the first $50 million of portfolio's average
daily net assets; 0.45% of the next $50-100 million
in assets; and 0.40% of assets in excess of $100 million
after the first year of the contract, the minimum fees will
be $150,000 (in aggregate)(4)
WRL T. Rowe Price Dividend Growth 0.50% of first $100 million of average daily net assets
and 0.40% of assets over $100 million (from first dollar)(4)
WRL Goldman Sachs Small Cap 0.50% after the first year of the contract, the minimum fees
WRL Dreyfus Mid Cap will be $150,000 (in aggregate)
0.45% of the first $100 million of the portfolio's
average daily net assets; 0.40% of assets in excess
of $100 million (from first dollar)
</TABLE>

- --------------
(1) Janus has voluntarily agreed to waive 0.0125% of its sub-advisory fee for
the first $3 billion of the portfolio's average daily net assets
(resulting in a net fee of 0.3875%) and 0.25% of assets above $3 billion
(resulting in a net fee of 0.375%). This waiver may be terminated at any
time.
(2) Janus has voluntarily agreed to waive 0.0125% of its sub-advisory fee for
the portfolio's average daily net assets above $2 billion (resulting in a
net fee of 0.3875%). This waiver may be terminated at any time.
(3) Excess expenses are those expenses paid by the Investment Adviser on behalf
of a portfolio pursuant to any expense limitation.
(4) The average daily net assets will be determined on a combined basis with the
same name fund managed by the sub-adviser for IDEX Muntual Funds.

50
<PAGE>

The method of computing each Sub-Adviser's fees is set forth above. For the
years ended December 31, 1998, 1997 and 1996 each Sub-Adviser was paid fees for
their services in the following amounts (no fees are included for WRL T. Rowe
Price Small Cap, WRL Goldman Sachs Small Cap, WRL Dreyfus Mid Cap, WRL Salomon
All Cap, WRL Pilgrim Baxter Mid Cap Growth, WRL Goldman Sachs Growth and WRL T.
Rowe Price Dividend Growth as these portfolios had not yet commenced operations
as of December 31, 1998):

Sub-Advisory Fees
-----------------

<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
Sub-adviser Portfolio 1998 1997 1996
- ----------- --------- -------------------------- -------------------------- --------------------
<S> <C> <C> <C> <C>
Alger WRL Alger Aggressive Growth $1,680,802 $1,124,900 $ 764,840
VKAM WRL VKAM Emerging Growth 2,704,049 2,037,749 1,492,545
Janus WRL Janus Growth(8) 9,055,804 6,858,412 5,568,661
WRL Janus Global(9) 3,768,835 2,795,909 1,734,268
WRL J.P. Morgan Money Market(2) N/A N/A 70,041
WRL AEGON Bond(3) N/A 239,843 237,463
EQSF WRL Third Avenue Value(6) 55,964 N/A N/A
C.A.S.E. WRL C.A.S.E. Growth 257,951 167,446 41,966
NWQ WRL NWQ Value Equity(1) 729,083 450,409 48,943
Dean WRL Dean Asset Allocation 1,355,313 1,039,770 654,218
LKCM WRL LKCM Strategic Total Return 2,242,509 1,851,835 1,231,152
Federated WRL Federated Growth & Income 287,959 202,218 150,006
AIMI WRL AEGON Balanced 340,271 245,951 157,709
WRL AEGON Bond(3) 294,882 N/A N/A
J.P. Morgan WRL J.P. Morgan Real Estate
Securities(7) 4,669 N/A N/A
WRL J.P. Morgan Money Market(2) 241,729 193,113 111,216
GEIM WRL GE U.S. Equity(4) 277,671 70,140 N/A
WRL GE/Scottish Equitable
International Equity(4)(5) 69,749 27,889 N/A
SEIM WRL GE/Scottish Equitable
International Equity(4)(5) 67,890 27,962 N/A
</TABLE>

- ------------------------------
(1) Portfolio commenced operations May 1, 1996.
(2) J.P. Morgan became the Sub-Adviser to WRL J.P. Morgan Money Market on May
1, 1996; prior to this date, Janus Capital Corporation served as
Sub-Adviser to the portfolio.
(3) Prior to January 1, 1998, Janus served as Sub-Adviser to Bond and received
monthly compensation from the Investment Adviser at the annual rate of
0.25% of average daily net assets of the portfolio. Effective January 1,
1998, AIMI serves as Sub-Adviser to the WRL AEGON Bond (formerly Bond),
and will receive monthly compensation from the Investment Adviser at the
annual rate of 0.20% of average daily net assets of the portfolio.
(4) Portfolio commenced operations January 2, 1997.
(5) GEIM and SEIM serve as Co-Sub-Advisers for the WRL GE/Scottish Equitable
International Equity.
(6) Portfolio commenced operations January 2, 1998.
(7) Portfolio commenced operations May 1, 1998.
(8) Janus has voluntarily agreed to waive 0.0125% of its sub-advisory fee for
the first $3 billion of the portfolio's average daily net assets
(resulting in a net fee of 0.3875%) and 0.25% of assets above $3 billion
(resulting in a net fee of 0.375%). This waiver may be terminated at any
time.
(9) Janus has voluntarily agreed to waive 0.0125% of its sub-advisory fee for
the portfolio's average daily net assets above $2 billion (resulting in a
net fee of 0.3875%). This waiver may be terminated at any time.

Janus Capital has agreed that it will, provided that it continues to serve as
sub-adviser for the portfolios, compensate WRL for its services in connection
with promotion, marketing and distribution in an amount equal to 0.0375% of the
average daily net assets of WRL Janus Growth on the first $3 billion of assets
and 0.075% on assets in excess of $3 billion. With respect to WRL Janus Global,
the amount will be equal to 0.0375% of the portfolio's average daily net assets
above $2 billion.

[GRAPHIC OMITTED] JOINT TRADING ACCOUNTS

Subject to approval by the Fund's Board, the WRL Janus Growth and WRL Janus
Global 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,

51
<PAGE>

including registered mutual fund clients, of Janus Capital or its affiliates.
The WRL Janus Growth and WRL Janus Global 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.

[GRAPHIC OMITTED] 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.

[GRAPHIC OMITTED] ADMINISTRATIVE AND TRANSFER AGENCY SERVICES

Effective January 1, 1997, the Fund entered into an Administrative Services and
Transfer Agency Agreement with WRL Services located at 570 Carillon Parkway,
St. Petersburg, Florida 33716, 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
servicesin connection with its serving as the Fund's investment adviser.

PORTFOLIO TRANSACTIONS AND BROKERAGE

[GRAPHIC OMITTED] 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 held during the year. The WRL Third Avenue
Value investment policies and objective, which emphasizes long-term holdings,
should tend to keep the number of portfolio transactions relatively low.
Because of this, the WRL Third Avenue Value does not expect its annual
portfolio turnover rate to exceed 50%. The WRL J.P. Morgan Real Estate
Securities does not expect its annual portfolio turnover rate to exceed 100%.

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
policyowners.

In computing the portfolio turnover rate for a portfolio, securities whose
maturities or expiration dates at the time of acquisition are one year or less
are excluded. Subject to this exclusion, the turnover rate for a portfolio is
calculated by dividing (a) the lesser of purchases or sales of portfolio
securities for the fiscal year by (b) the monthly average of portfolio
securities owned by the portfolio during the fiscal year.

52
<PAGE>

The following table provides the portfolios' turnover rates for the fiscal
years ended December 31, 1998, 1997 and 1996 (no information is included for
WRL T. Rowe Price Small Cap, WRL Goldman Sachs Small Cap, WRL Dreyfus Mid Cap,
WRL Salomon All Cap, WRL Pilgrim Baxter Mid Cap Growth, WRL Goldman Sachs
Growth and WRL T. Rowe Price Dividend Growth as these portfolios had not yet
commenced operations as of December 31, 1998):

Portfolio Turnover Rates
------------------------

<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------------
Portfolio 1998 1997 1996
- --------- ----------------------- ----------------------- ---------------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth 117.44% 136.18% 101.28%
WRL VKAM Emerging Growth 99.50% 99.78% 80.02%
WRL GE/Scottish Equitable International Equity(3) 71.74% 54.33% N/A
WRL Janus Global 87.36% 97.54% 88.31%
WRL Janus Growth 35.29% 85.88% 45.21%
WRL Third Avenue Value(4) 4.35% N/A N/A
WRL C.A.S.E. Growth 205.28% 196.50% 160.27%
WRL GE U.S. Equity(3) 63.08% 92.35% N/A
WRL NWQ Value Equity(2) 43.60% 17.28% 7.93%
WRL Dean Asset Allocation 76.62% 63.76% 98.97%
WRL LKCM Strategic Total Return 49.20% 48.20% 49.32%
WRL J.P. Morgan Real Estate Securities(5) 100.80% N/A N/A
WRL Federated Growth & Income 97.17% 155.77% 68.53%
WRL AEGON Balanced 83.94% 77.06% 76.90%
WRL AEGON Bond 51.60% 213.03% 187.72%
WRL J.P. Morgan Money Market(1) N/A N/A N/A
</TABLE>

- ------------------------------
(1) WRL J.P. Morgan Money Market does not have a stated portfolio turnover
rate, as securities of the type in which it invests are excluded in the
usual calculation of that rate.
(2) Portfolio commenced operations on May 1, 1996.
(3) Portfolio commenced operations on January 2, 1997.
(4) Portfolio commenced operations on January 2, 1998.
(5) Portfolio commenced operations on May 1, 1998.

There was a significant increase in the turnover rate for the year ended
December 31, 1996 for the Bond portfolio because Janus Capital, the portfolio's
Sub-Adviser prior to January 1, 1998, determined that the direction of interest
rates was becoming increasingly unclear; so the portfolio was positioned more
conservatively. Specifically, the portfolio's average maturity was reduced to
more closely resemble that of the Lehman Brothers Government/Corporate Bond
Index. For the year ended December 31, 1997, the Bond portfolio's increase in
turnover rate was the result of portfolio management strategies in trying to
maintain benchmark treasury issues. There was also a significant increase in
the turnover rate for the WRL Federated Growth & Income for the year ended
December 31, 1997 because the portfolio changed its investment objective from a
utility based portfolio to a defensive equity portfolio and the portfolio
managers implemented a proprietary defensive equity model in selecting new
stocks.

The future annual turnover rates cannot be precisely predicted, although an
annual turnover rate in excess of 100% is not presently anticipated for the WRL
Alger Aggressive Growth, WRL Dean Asset Allocation, WRL Federated Growth &
Income and WRL AEGON Balanced; 50% for the WRL NWQ Value Equity and WRL Third
Avenue Value; 150% for the WRL Janus Growth; and 200% for the WRL Janus Global.

There are no fixed limitations regarding the portfolio turnover rates of the
portfolios. Portfolio turnover rates are expected to fluctuate under constantly
changing economic conditions and market circumstances. Higher turnover rates
tend to result in higher brokerage fees. Securities initially satisfying the
basic policies and objective of each portfolio may be disposed of when they are
no longer deemed suitable.

[GRAPHIC OMITTED] PLACEMENT OF PORTFOLIO BROKERAGE

Subject to policies established by the Board of Directors of the Fund, each
portfolio's Sub-Adviser is primarily responsible for placement of a portfolio's
securities transactions. In placing orders, it is the policy of a portfolio to
obtain the most favorable net results, taking into account various factors,
including price, dealer spread or commissions, if any, size of the transaction
and difficulty of execution. While each Sub-Adviser generally will seek
reasonably competitive spreads or commissions, a portfolio will not necessarily
be paying the lowest spread or

53
<PAGE>

commission available. A portfolio does not have any obligation to deal with any
broker, dealer or group of brokers or dealers in the execution of transactions
in portfolio securities.

Decisions as to the assignment of portfolio brokerage business for a portfolio
and negotiation of its commission rates are made by the Sub-Adviser, whose
policy is to obtain "best execution" (prompt and reliable execution at the most
favorable security price) of all portfolio transactions. In placing portfolio
transactions, the Sub-Adviser may give consideration to brokers who provide
supplemental investment research, in addition to such research obtained for a
flat fee, to the Sub-Adviser, and pay spreads or commissions to such brokers or
dealers furnishing such services which are in excess of spreads or commissions
which another broker or dealer may charge for the same transaction.

In selecting brokers and in negotiating commissions, the Sub-Adviser considers
such factors as: the broker's reliability; the quality of its execution
services on a continuing basis; the financial condition of the firm; and
research products and services provided, which include: (i) furnishing advice,
either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling specific securities and
the availability of securities or purchasers or sellers of securities and (ii)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends and portfolio strategy and products and other
services (such as third party publications, reports and analyses, and computer
and electronic access, equipment, software, information and accessories) that
assist each Sub-Adviser in carrying out its responsibilities.

Supplemental research obtained through brokers or dealers will be in addition
to, and not in lieu of, the services required to be performed by a Sub-Adviser.
The expenses of a Sub-Adviser will not necessarily be reduced as a result of
the receipt of such supplemental information. A Sub-Adviser may use such
research products and services in servicing other accounts in addition to the
respective portfolio. If a Sub-Adviser determines that any research product or
service has a mixed use, such that it also serves functions that do not assist
in the investment decision-making process, the Sub-Adviser will allocate the
costs of such service or product accordingly. The portion of the product or
service that a Sub-Adviser determines will assist it in the investment
decision-making process may be paid for in brokerage commission dollars. Such
allocation may create a conflict of interest for the Sub-Adviser. Conversely,
such supplemental information obtained by the placement of business for a
Sub-Adviser will be considered by and may be useful to the Sub-Adviser in
carrying out its obligations to a portfolio.

When a portfolio purchases or sells a security in the OTC market, the
transaction takes place directly with a principal market-maker, without the use
of a broker, except in those circumstances where, in the opinion of the
Sub-Adviser, better prices and executions are likely to be achieved through the
use of a broker.

Securities held by a portfolio may also be held by other separate accounts,
mutual funds or other accounts for which the Investment Adviser or Sub-Adviser
serves as an adviser, or held by the Investment Adviser or Sub-Adviser for
their own accounts. Because of different investment objectives or other
factors, a particular security may be bought by the Investment Adviser or Sub-
Adviser for one or more clients when one or more clients are selling the same
security. If purchases or sales of securities for a portfolio or other entities
for which they act as investment adviser or for their advisory clients arise
for consideration at or about the same time, transactions in such securities
will be made, insofar as feasible, for the respective entities and clients in a
manner deemed equitable to all. To the extent that transactions on behalf of
more than one client of the Investment Adviser or Sub-Adviser during the same
period may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.

On occasions when the Investment Adviser or a Sub-Adviser deems the purchase or
sale of a security to be in the best interests of a portfolio as well as other
accounts or companies, it may to the extent permitted by applicable laws and
regulations, but will not be obligated to, aggregate the securities to be sold
or purchased for the portfolio with those to be sold or purchased for such
other accounts or companies in order to obtain favorable execution and lower
brokerage commissions. In that event, allocation of the securities purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner it considers to be most equitable and consistent with
its fiduciary obligations to the portfolio and to such other accounts or
companies. In some cases this procedure may adversely affect the size of the
position obtainable for a portfolio.

The Board of Directors of the Fund periodically reviews the brokerage placement
practices of each Sub-Adviser on behalf of the portfolios, and reviews the
prices and commissions, if any, paid by the portfolios to determine if they
were reasonable.

The Board of Directors of the Fund has authorized the Sub-Advisers to consider
sales of the policies and annuity contracts by a broker-dealer as a factor in
the selection of broker-dealers to execute portfolio transactions. In addition,
the Sub-Advisers may occasionally place portfolio business with affiliated
brokers of the Investment Adviser or a Sub-Adviser, including: InterSecurities,
Inc., P.O. Box 5068, Clearwater, Florida 33758; Fred Alger & Company, Inc., 75
Maiden Lane, New York, New York 10038; M. J. Whitman, Inc.; M. J. Whitman
Senior Debt Corp., 767 Third Avenue, New York, New York 10017-2023; Van

54
<PAGE>

Kampen Funds Inc., 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois
60181, Dreyfus Brokerage Services, Inc., 401 North Maile Drive, Beverly Hills,
CA 90210, Dreyfus Investment Services Corp., Union Trust Building, 501 Grant
St., Pittsburg, PA 15219 and AEGON USA Securities, Inc., P.O. Box 1449, Cedar
Rapids, Iowa 52499. As stated above, any such placement of portfolio business
will be subject to the ability of the broker-dealer to provide best execution
and to the Conduct Rules of the National Association of Securities Dealers,
Inc.

Commissions Paid By The Portfolios
----------------------------------

<TABLE>
<CAPTION>
AGGREGATE COMMISSIONS
YEAR ENDED DECEMBER 31
-------------------------------------------------
PORTFOLIO 1998 1997 1996
- --------- ------------- ----------------- -----------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth(1) $ 916,267 $ 754,459 $ 337,449
WRL VKAM Emerging Growth(5) 920,884 627,400 415,717
WRL Janus Global 2,373,255 2,305,145 1,269,275
WRL Janus Growth 1,023,925 1,367,104 720,978
WRL C.A.S.E. Growth 323,967 335,147 97,761
WRL Third Avenue Value(4)(7) 20,572 N/A N/A
WRL Dean Asset
Allocation 339,951 352,964 344,847
WRL LKCM Strategic
Total Return 469,460 348,083 398,594
WRL Federated Growth &
Income 262,012 175,035 58,921
WRL AEGON Balanced 153,672 105,731 80,216
WRL NWQ Value Equity (2) 191,139 157,512 63,204
WRL GE/Scottish Equitable
International Equity(3) 121,485 102,616 N/A
WRL GE U.S. Equity(3)(6) 102,182 39,301 N/A
WRL J.P. Morgan Real
Estate Securities(7) 8,206 N/A N/A

<CAPTION>
Affiliated Brokerage Commissions
Year Ended December 31
----------------------------------------------------------------------
Portfolio 1998 % 1997 % 1996 %
- --------- -------------- -------------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
WRL Alger Aggressive Growth(1) 912,105 99.55 $749,587 99.35% $329,194 97.55%
WRL VKAM Emerging Growth(5) 1,308 < 1% N/A N/A N/A N/A
WRL Janus Global N/A N/A N/A N/A N/A N/A
WRL Janus Growth N/A N/A N/A N/A N/A N/A
WRL C.A.S.E. Growth N/A N/A N/A N/A N/A
WRL Third Avenue Value(4)(7) 20,568 99.98%
WRL Dean Asset
Allocation N/A N/A N/A N/A N/A N/A
WRL LKCM Strategic
Total Return N/A N/A N/A N/A N/A N/A
WRL Federated Growth &
Income N/A N/A N/A N/A N/A N/A
WRL AEGON Balanced N/A N/A N/A N/A N/A N/A
WRL NWQ Value Equity (2) N/A N/A N/A N/A N/A N/A
WRL GE/Scottish Equitable
International Equity(3) N/A N/A N/A N/A N/A N/A
WRL GE U.S. Equity(3) 325 <1% N/A N/A N/A N/A
WRL J.P. Morgan Real
Estate Securities(6)(8) N/A N/A N/A N/A N/A N/A
</TABLE>

- ------------------------------
(1) The percentage of the portfolio's aggregate dollar amount of transactions
involving the payment of commissions effected through Fred Alger & Company,
Incorporated for the fiscal year ended December 31, 1998, 1997 and 1996 was
99.27%, 98.37% and 96.53%, respectively.
(2) Portfolio commenced operations May 1, 1996.
(3) Portfolio commenced operations January 2, 1997.
(4) The percentage of the portfolio's aggregate dollar amount of transactions
involving the payment of commissions effected through M.J. Whitman, Inc.
for the fiscal year ended December 31, 1998, 1997 and 1996 was 97.91%, N/A
and N/A, respectively.
(5) The percentage of the portfolio's aggregate dollar amount of transactions
involving the payment of commissions effected through Morgan Stanley &
Co., Incorporated for the fiscal year ended December 31, 1998, 1997 and
1996 was <1%, N/A and N/A, respectively.
(6) The percentage of the portfolio's aggregate dollar amount of transactions
involving the payment of commissions effected through Paine Webber, Inc.
for the fiscal year ended December 31, 1998, 1997 and 1996 was <1%, N/A
and N/A, respectively.
(7) Portfolio commenced operations May 1, 1998.
(8) Portfolio commenced operations January 2, 1998.

WRL Alger Aggressive Growth paid all its affiliated brokerage commissions to
Fred Alger & Company, Incorporated; WRL Third Avenue Value portfolio paid
97.91% to M.J. Whitman, Inc.; WRL VKAM Emerging Growth paid less than 1% to
Morgan Stanley & Co., Incorporated; and WRL GE U.S. Equity paid less than 1% to
Paine Webber, Inc.

The WRL AEGON Bond and the WRL J.P. Morgan Money Market did not pay any
brokerage commissions for the years ended December 31, 1998, 1997, and 1996.

PURCHSE AND REDEMPTION OF SHARES

[GRAPHIC OMITTED] DETERMINATION OF OFFERING PRICE

Shares of the portfolios are currently sold only to the separate accounts to
fund the benefits under the Policies and the annuity contracts. The portfolios
may, in the future, offer their shares to other insurance company separate
accounts. The separate accounts invest in shares of a portfolio in accordance
with the allocation instructions received from holders of the policies and the
annuity contracts. Such allocation rights are further described in the
prospectuses and disclosure documents for the policies and the annuity
contracts. Shares of the portfolios are sold and redeemed at their respective
net asset values as described in the prospectus.

[GRAPHIC OMITTED] NET ASSET VALUATION

As stated in the prospectus, the net asset value of the portfolios' shares is
ordinarily determined, once daily, as of the close of the regular session of
business on the New York Stock Exchange ("Exchange") (usually 4:00 p.m.,
Eastern Time) on each day the Exchange is open. (Currently the Exchange is
closed on New Year's Day,

55
<PAGE>

Martin Luther King's Birthday, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.) The per share
net asset value of a portfolio is determined by dividing the total value of the
securities and other assets, less liabilities, by the total number of shares
outstanding. In determining net asset value, securities listed on the national
securities exchanges and traded on the NASDAQ National Market are valued at the
closing prices on such markets, or if such a price is lacking for the trading
period immediately preceding the time of determination, such securities are
valued at their current bid price. Foreign securities and currencies are
converted to U.S. dollars using the exchange rate in effect at the close of the
Exchange. Other securities for which quotations are not readily available are
valued at fair values as determined in good faith by a portfolio's Investment
Adviser under the supervision of the Fund's Board of Directors. Money market
instruments maturing in 60 days or less are valued on the amortized cost basis.
Values of gold bullion held by a portfolio are based upon daily quotes provided
by banks or brokers dealing in such commodities.

CALCULATION OF PERFORMANCE RELATED INFORMATION

The Prospectus contains a brief description of how performance is calculated.
The following sections describe how performance data is calculated in greater
detail.

[GRAPHIC OMITTED] TOTAL RETURN

Total return quotations for each of the portfolios are computed by finding the
average annual compounded rates of return over the relevant periods that would
equate the initial amount invested to the ending redeemable value, according to
the following equation:

P (1+T)n = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value (at the end of the applicable period of
a hypothetical $1,000 payment made at the beginning of the
applicable period)

The total return quotation calculations for a portfolio reflect the deduction
of a proportionate share of the portfolio's investment advisory fee and
portfolio expenses and assume that all dividends and capital gains during the
period are reinvested in the portfolio when made. The calculations also assume
a complete redemption as of the end of the particular period.

Total return quotation calculations do not reflect charges or deductions
against the Series Life Account or the Series Annuity Account or charges and
deductions against the policies or the annuity contracts. Accordingly, these
rates of return do not illustrate how actual investment performance will affect
benefits under the policies or the annuity contracts. Where relevant, the
prospectuses for the policies and the annuity contracts contain performance
information about these products. Moreover, these rates of return are not an
estimate, projection or guarantee of future performance. Additional information
regarding the investment performance of the portfolios appears in the
prospectus.

[GRAPHIC OMITTED] YIELD QUOTATIONS

The yield quotations for a portfolio (for WRL J.P. Morgan Money Market yield,
see "Yield Quotations - WRL J.P. Morgan Money Market ", below) are based on a
specific thirty-day period and are computed by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last date of the period, according to the following formula:

a-b
YIELD = 2 [ (--- + 1)6 - 1]
cd

Where: a = dividends and interest earned during the period by the portfolio
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period

The yield of the WRL AEGON Bond as computed above for the thirty day period
ended December 31, 1998 was 5.26%.

[GRAPHIC OMITTED] YIELD QUOTATIONS - WRL J.P. MORGAN MONEY MARKET

From time to time the WRL J.P. Morgan Money Market portfolio may quote its
yield in reports or other communications to policyholders or in advertising
material. Yield quotations are expressed in annualized terms and reflect
dividends of a portfolio declared and reinvested daily based upon the net
investment income earned by a portfolio each day. The portfolio's yields
fluctuate and the yield on any day for any past period is not an indication as
to future yields on any investment in the portfolio's shares. Future yields are
not guaranteed.

Yield is computed in accordance with a standardized method required by the SEC.
The yields for the WRL

56
<PAGE>

J.P. Morgan Money Market for the seven-day period ended December 31, 1998, was
4.96% and was equivalent to a compound effective yield of 5.08%. The current
yield for the WRL J.P. Morgan Money Market is an annualization, without
compounding, of the portfolio rate of return, and is computed by determining
the net change in the value of a hypothetical pre-existing account in the
portfolio having a balance of one share at the beginning of a seven calendar
day period for which yield is to be quoted, dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return, and annualizing the results (I.E., multiplying the base period return
by 365/7). The net change in the value of the account reflects the value of
additional shares purchased with dividends declared on the original shares and
any such additional shares, but does not include realized gains and losses or
unrealized appreciation and depreciation. The WRL J.P. Morgan Money Market may
also calculate the compound effective annualized yields by adding 1 to the base
period return (calculated as described above), raising that sum to a power
equal to 365/7, and subtracting 1. The yield quotations for the WRL J.P. Morgan
Money Market portfolio do not take into consideration any deductions imposed by
the Series Life Account or the Series Annuity Account.

Yield information is useful in reviewing the WRL J.P. Morgan Money Market's
performance in seeking to meet its investment objective, but, because yields
fluctuate, such information cannot necessarily be used to compare an investment
in shares of the portfolio with bank deposits, savings accounts and similar
investment alternatives, which often provide an agreed or guaranteed fixed
yield for a stated period of time. Also, the portfolio's yields cannot always
be compared with yields determined by different methods used by other funds. It
should be emphasized that yield is a function of the kind and quality of the
instruments in the WRL J.P. Morgan Money Market, portfolio maturity and
operating expenses.

TAXES

Shares of the portfolios are offered only to the Separate Accounts that fund
the policies and annuity contracts. See the respective prospectuses for the
policies and annuity contracts for a discussion of the special taxation of
insurance companies with respect to the Separate Accounts and of the policies,
the annuity contracts and the holders thereof.

Each portfolio has either qualified, and expects to continue to qualify, for
treatment as a regulated investment company ("RIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). In order to qualify for that treatment,
a portfolio must distribute to its Policyowners for each taxable year at least
90% of its investment company taxable income ("Distribution Requirement") and
must meet several additional requirements. These requirements include the
following: (1) the portfolio must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of
the portfolio's taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. Government securities,
securities of other RICs, and other securities that, with respect to any one
issuer, do not exceed 5% of the value of the portfolio's total assets and that
do not represent more than 10% of the outstanding voting securities of the
issuer; and (3) at the close of each quarter of the portfolio's taxable year,
not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or the securities of other
RICs) of any one issuer. If each portfolio qualifies as a regulated investment
company and distributes to its shareholders substantially all of its net income
and net capital gains, then each portfolio should have little or no income
taxable to it under the Code.

As noted in the Prospectus, each portfolio must, and intends to, comply with
the diversification requirements imposed by section 817(h) of the Code and the
regulations thereunder. These requirements, which are in addition to the
diversification requirements mentioned above, place certain limitations on the
proportion of each portfolio's assets that may be represented by any single
investment (which generally includes all securities of the same issuer). For
purposes of section 817(h), all securities of the same issuer, all interests in
the same real property project, and all interest 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.

If a portfolio fails to qualify as a regulated investment company, the
portfolio will be subject to federal, and possibly state, corporate taxes on
its taxable income and gains (without any deduction for its distributions to
its shareholders) and distributions to its shareholders will constitute
ordinary income to the extent of such Fund's available earnings and profits.
Owners of variable life insurance and annuity contracts which have invested in
such a portfolio might be taxed currently on the investment earnings under
their contracts and thereby lose the benefit of tax deferral. In addition, if a
portfolio failed to

57
<PAGE>

comply with the diversification requirements of section 817(h) of the Code and
the regulations thereunder, owners of variable life insurance and annuity
contracts which have invested in the portfolio could be taxed on the investment
earnings under their contracts and thereby lose the benefit of tax deferral.
For additional information concerning the consequences of failure to meet the
requirements of section 817(h), see the prospectuses for the Policies or the
Annuity Contracts.

A portfolio will not be subject to the 4% Federal excise tax imposed on RICs
that do not distribute substantially all their income and gains each calendar
year because that tax does not apply to a RIC whose only shareholders are
segregated asset accounts of life insurance companies held in connection with
variable annuity contracts and/or variable life insurance policies.

The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith by the portfolios.
Income from the disposition of foreign currencies, and income from transactions
in options, futures, and forward contracts derived by a portfolio with respect
to its business of investing in securities or foreign currencies, will qualify
as permissible income under the Income Requirement.

Foreign Investments - portfolios investing in foreign securities or currencies
(which may include [list portfolios so authorized] may be required to pay
withholding, income or other taxes to foreign governments or U.S. possession.
Foreign tax withholding from dividends and interest, if any, is generally at a
rate between 10% and 35%. The investment yield of any portfolio that invests in
foreign securities or currencies is reduced by these foreign taxes. Holders of
Policies and Annuity Contracts investing in such portfolios bear the cost of
any foreign taxes but will not be able to claim a foreign tax credit or
deduction for these foreign taxes. Tax conventions between certain countries
and the United States may reduce or eliminate these foreign taxes, however, and
foreign countries generally do not impose taxes on capital gains in respect of
investments by foreign investors.

Dividends and interest received by each portfolio may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and foreign countries generally do not impose taxes on capital gains
in respect of investments by foreign investors.

Under certain circumstances, a portfolio will be subject to Federal income tax
on a portion of any "excess distribution" received on the stock of a PFIC or of
any gain on disposition of that stock (collectively "PFIC income"), plus
interest thereon, even if the portfolio distributes the PFIC income as a
taxable dividend to its shareholders. The balance of the PFIC income will be
included in a portfolio's investment company taxable income and, accordingly,
will not be taxable to the portfolio to the extent that income is distributed
to its shareholders. If a portfolio invests in a PFIC and elects to treat the
PFIC as a "qualified electing fund," then in lieu of the foregoing tax and
interest obligations, the portfolio will be required to include in income each
year its pro rata share of the qualified electing fund's annual net ordinary
earnings and net capital gain (the excess of net long-term capital gain over
net short-term capital loss), even if they are not distributed to the
portfolio; those amounts would be subject to the Distribution Requirement. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof. A portfolio, however, may
qualify for, and may make, an election permitted under Section 853 of the Code
so that shareholders may be eligible to claim a credit or deduction on their
Federal income tax returns for, and will be required to treat as part of the
amounts distributed to them, their pro rata portion of qualified taxes paid or
incurred by the portfolio to foreign countries (which taxes relate primarily to
investment income). The portfolio may make an election under Section 853 of the
Code, provided that more than 50% of the value of the portfolio's total assets
at the close of the taxable year consists of securities in foreign
corporations, and the portfolio satisfies applicable distribution provisions of
the Code. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code. In addition, another election is
available that would involve marking to market a portfolio's PFIC stock at the
end of each taxable year (and on certain other dates prescribed in the Code),
with the result that unrealized gains are treated as though they were realized
although any such gains recognized will be ordinary income rather than capital
gain. If this election were made, tax at the portfolio level under the PFIC
rules would be eliminated, but a portfolio could, in limited circumstances,
incur nondeductible interest charges. A portfolio's intention to qualify
annually as a regulated investment company may limit a portfolio's
election with respect to PFIC stock.

The foregoing is only a general summary of some of the important Federal income
tax considerations generally affecting the portfolios and their shareholders.
No attempt is made to present a complete explanation of the Federal tax
treatment of the portfolios' activities, and this discussion and the discussion
in the prospectuses and/or statements of additional information for the
Policies and Annuity Contracts are not intended as a substitute for careful tax
planning. Accordingly, potential investors are urged to consult their own tax
advisors for more detailed information and for information regarding any state,
local, or foreign taxes applicable to the policies, annuity contracts and the
holders thereof.

58
<PAGE>

CAPITAL STOCK OF THE FUND

As described in the Prospectus, the Fund offers a separate class of common
stock for each portfolio. The Fund is currently comprised of the following
portfolios: WRL VKAM Emerging Growth, WRL T. Rowe Price Small Cap, WRL Goldman
Sachs Small Cap, WRL Alger Aggressive Growth, WRL GE/Scottish Equitable
International Equity, WRL Janus Global, WRL Dreyfus Mid Cap, WRL Salomon All
Cap, WRL Pilgrim Baxter Mid Cap Growth, WRL Janus Growth, WRL Goldman Sachs
Growth, WRL C.A.S.E. Growth, WRL GE U.S. Equity, WRL NWQ Value Equity, WRL T.
Rowe Price Dividend Growth, WRL Dean Asset Allocation, WRL LKCM Strategic Total
Return, WRL Federated Growth & Income, WRL AEGON Balanced, WRL J.P. Morgan Real
Estate Securities, WRL AEGON Bond and WRL J.P. Morgan Money Market.

REGISTRATION STATEMENT

There has been filed with the Securities and Exchange Commission, Washington,
D.C. a Registration Statement under the Securities Act of 1933, as amended,
with respect to the securities to which this Statement of
Additional Information relates. If further information is desired with respect
to the portfolios or such securities, reference is made to the Registration
Statement and the exhibits filed as part thereof.

FINANCIAL STATEMENTS

The audited financial statements for each portfolio (except the WRL T. Rowe
Price Small Cap, WRL Goldman Sachs Small Cap, WRL Dreyfus Mid Cap, WRL Salomon
All Cap, WRL Pilgrim Baxter Mid Cap Growth, WRL Goldman Sachs Growth and WRL T.
Rowe Price Dividend Growth, which commenced operations on May 1, 1999) of the
Fund for the year ended December 31, 1998 and the report of the Fund's
independent accountants are included in the 1998 Annual Report, and are
incorporated herein by reference to such report.

OTHER INFORMATION

[GRAPHIC OMITTED] INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP, located at 160 Federal Street, Boston,
Massachusetts 02110-9862, serves as the Fund's independent accountants. The
Fund has engaged PricewaterhouseCoopers LLP to examine, in accordance with
generally accepted auditing standards, its annual report.

[GRAPHIC OMITTED] CUSTODIAN

Investors Bank & Trust Company ("IBT"), located at 200 Clarendon Street, 16th
Floor, Boston, Massachusetts 02116, serves as the Fund's Custodian and Dividend
Disbursing Agent. IBT provides comprehensive asset administrative services to
the Fund and other members of the financial industry which include:
multi-currency accounting; institutional transfer agency services; domestic and
global custody; performance measures; foreign exchange; and securities lending
and mutual fund administrative services.

59
<PAGE>

APPENDIX A

DESCRIPTION OF PORTFOLIO SECURITIES

The following is intended only as a supplement to the information
contained in the Prospectus and should be read only in conjunction with the
Prospectus. Terms defined in the Prospectus and not defined herein have the
same meanings as those in the Prospectus.

1. CERTIFICATE OF DEPOSIT.* A certificate of deposit generally is a
short-term, interest bearing negotiable certificate issued by a commercial bank
or savings and loan association against funds deposited in the issuing
institution.

2. EURODOLLAR CERTIFICATE OF DEPOSIT.* A Eurodollar certificate of
deposit is a short-term obligation of a foreign subsidiary of a U.S. bank
payable in U.S. dollars.

3. FLOATING RATE NOTE.* A floating rate note is debt issued by a
corporation or commercial bank that is typically several years in term but
whose interest rate is reset every one to six months.

4. INVERSE FLOATING RATE SECURITIES.* Inverse floating rate securities
are similar to floating rate securities except that their coupon payments vary
inversely with an underlying index by use of a formula. Inverse floating rate
securities tend to exhibit greater price volatility than other floating rate
securities.

5. FLOATING RATE OBLIGATIONS.* Floating rate obligations generally
exhibit a low price volatility for a given stated maturity or average life
because their coupons adjust with changes in interest rates.

6. TIME DEPOSIT.* A time deposit is a deposit in a commercial bank for a
specified period of time at a fixed interest rate for which a negotiable
certificate is not received.

7. BANKERS' ACCEPTANCE.* A bankers' acceptance is a time draft drawn on
a commercial bank by a borrower, usually in connection with international
commercial transactions (to finance the import, export, transfer or storage of
goods). The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity.

8. VARIABLE AMOUNT MASTER DEMAND NOTE.* A variable amount master demand
note is a note which fixes a minimum and maximum amount of credit and provides
for lending and repayment within those limits at the discretion of the lender.
Before investing in any variable amount master demand notes, a portfolio will
consider the liquidity of the issuer through periodic credit analysis based
upon publicly available information.

9. PREFERRED STOCKS. Preferred stocks are securities which represent an
ownership interest in a corporation and which give the owner a prior claim over
common stock on the corporation's earnings and assets. Preferred stock
generally pays quarterly dividends. Preferred stocks may differ in many of
their provisions. Among the features that differentiate preferred stock from
one another are the dividend rights, which may be cumulative or non-cumulative
and participating or non-participating, redemption provisions, and voting
rights. Such features will establish the income return and may affect the
prospects for capital appreciation or risks of capital loss.

10. CONVERTIBLE SECURITIES. A portfolio may invest in debt securities
convertible into or exchangeable for equity securities, or debt securities that
carry with them the right to acquire equity securities, as evidenced by
warrants attached to such securities or acquired as part of units of the
securities. Such securities normally pay less current income than securities
into which they are convertible, and the concomitant risk of loss from declines
in those values.

11. COMMERCIAL PAPER.* Commercial paper is a short-term promissory note
issued by a corporation primarily to finance short-term credit needs.

12. REPURCHASE AGREEMENT.* A repurchase agreement is an instrument under
which a portfolio acquires ownership of a debt security and the seller agrees
to repurchase the obligation at a mutually agreed upon time and price. The
total amount received on repurchase is calculated to exceed the price paid by
the portfolio, reflecting an agreed upon market rate of interest for the period
from the time of a portfolio's purchase of the security to the settlement date
(i.e., the time of repurchase), and would not necessarily relate to the
interest rate on the underlying securities. A portfolio will only enter into
repurchase agreements with underlying securities consisting of U.S. Government
or government agency securities,

- --------------
* Short-term Securities.

A-1
<PAGE>

certificates of deposit, commercial paper or bankers' acceptances, and will be
entered only with primary dealers. While a portfolio may invest in repurchase
agreements for periods up to 30 days, it is expected that typically such
periods will be for a week or less. The staff of the SEC has taken the position
that repurchase agreements of greater than seven days together with other
illiquid investments should be limited to an amount not in excess of 15% of a
portfolio's net assets.

Although repurchase transactions usually do not impose market risks on the
purchaser, a portfolio would be subject to the risk of loss if the seller fails
to repurchase the securities for any reason and the value of the securities is
less than the agreed upon repurchase price. In addition, if the seller
defaults, a portfolio may incur disposition costs in connection with
liquidating the securities. Moreover, if the seller is insolvent and bankruptcy
proceedings are commenced, under current law, a portfolio could be ordered by a
court not to liquidate the securities for an indeterminate period of time and
the amount realized by a portfolio upon liquidation of the securities may be
limited.

13. REVERSE REPURCHASE AGREEMENT. A reverse repurchase agreement involves
the sale of securities held by a portfolio, with an agreement to repurchase the
securities at an agreed upon price, date and interest payment. A portfolio will
use the proceeds of the reverse repurchase agreements to purchase other money
market securities maturing, or under an agreement to resell, at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement. A portfolio will utilize reverse repurchase agreements when the
interest income to be earned from the investment of the proceeds from the
transaction is greater than the interest expense of the reverse repurchase
transactions.

14. ASSET-BACKED SECURITIES. A portfolio may invest in securities backed
by automobile receivables and credit card receivables and other securities
backed by other types of receivables or other assets. Credit support for
asset-backed securities may be based on the underlying assets and/or provided
through credit enhancements by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are
generally provided by the issuer), senior-subordinated structures and
over-collateralization. A portfolio will only purchase an asset-backed security
if it is rated at least "A" by S&P or Moody's.

15. MORTGAGE-BACKED SECURITIES. A portfolio may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. Mortgage-backed securities
include mortgage pass-through securities, mortgage-backed bonds, and mortgage
pay-through securities. A mortgage pass-through security is a pro-rata interest
in a pool of mortgages where the cash flow generated from the mortgage
collateral is passed through to the security holder. Mortgage-backed bonds are
general obligations of their issuers, payable out of the issuers' general funds
and additionally secured by a first lien on a pool of mortgages. Mortgage
pay-through securities exhibit characteristics of both pass-through and
mortgage-backed bonds. Mortgage-backed securities also include other debt
obligations secured by mortgages on commercial real estate or residential
properties. Other types of mortgage-backed securities will likely be developed
in the future, and a portfolio may invest in them if it is determined they are
consistent with the portfolio's investment objective and policies.

16. COLLATERALIZED MORTGAGE OBLIGATIONS. (CMOs) are pay-through
securities collateralized by mortgages or mortgage-backed securities. CMOs are
issued in classes and series that have different maturities and interest rates.

17. STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities are created when the principal and interest payments of a
mortgage-backed security are separated by a U.S. Government agency or a
financial institution. The holder of the "principal-only" security receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security receives interest payments from the same
underlying security.

The value of mortgage-backed securities may change due to changes in the
market's perception of issuers. In addition, the mortgage securities market in
general may be adversely affected by regulatory or tax changes. Non-governmental
mortgage-backed securities may offer a higher yield than those issued by
government entities but also may be subject to greater price change than
government securities.

Like most mortgage securities, mortgage-backed securities are subject to
prepayment risk. When prepayment occurs, unscheduled or early payments are made
on the underlying mortgages, which may shorten the effective maturities of
those securities and may lower their total return. Furthermore, the prices of
stripped mortgage-backed securities can be significantly affected by changes in
interest rates as well. As interest rates fall, prepayment rates tend to
increase, which in turn tends to reduce prices of "interest-only" securities
and increase prices of "principal-only" securities. Rising interest rates can
have the opposite effect.

18. FINANCING CORPORATION SECURITIES. (FICOs) are debt obligations issued
by the Financing Corporation. The Financing Corporation was originally created
to recapitalize the Federal Savings and Loan Insurance Corporation (FSLIC) and
now functions as a financing vehicle for the FSLIC Resolution Fund, which
received substantially all of FSLIC's assets and liabilities.

A-2
<PAGE>

19. U.S. GOVERNMENT SECURITIES. U.S. Government securities are securities
issued by or guaranteed by the U.S. Government or its agencies or
instrumentalities. U.S. Government securities have varying degrees of
government backing. They may be backed by the credit of the U.S. Government as
a whole or only by the issuing agency or instrumentality. For example,
securities issued by the Financing Corporation are supported only by the credit
of the Financing Corporation, and not by the U.S. Government. Securities issued
by the Federal Home Loan Banks and the Federal National Mortgage Association
(FNMA) are supported by the agency's right to borrow money from the U.S.
Treasury under certain circumstances. U.S. Treasury bonds, notes, and bills,
and some agency securities, such as those issued by the Government National
Mortgage Association (GNMA), are backed by the full faith and credit of the
U.S. Government as to payment of principal and interest and are the highest
quality U.S. Government securities. Each portfolio, and its share price and
yield, are not guaranteed by the U.S. Government.

20. ZERO COUPON BONDS. Zero coupon bonds are created three ways:

1) U.S. TREASURY STRIPS (Separate Trading of Registered Interest and
Principal of Securities) are created when the coupon payments and the
principal payment are stripped from an outstanding Treasury bond by the
Federal Reserve Bank. Bonds issued by the Resolution Funding Corporation
(REFCORP) and the Financial Corporation (FICO) also can be stripped in
this fashion.

2) STRIPS are created when a dealer deposits a Treasury Security or a
Federal agency security with a custodian for safe keeping and then sells
the coupon payments and principal payment that will be generated by this
security separately. Proprietary receipts, such as Certificates of
Accrual on Treasury Securities (CATS), Treasury Investment Growth
Receipts (TIGRS), and generic Treasury Receipts (TRs), are stripped U.S.
Treasury securities separated into their component parts through
custodial arrangements established by their broker sponsors. FICO bonds
have been stripped in this fashion. The portfolios have been advised
that the staff of the Division of Investment Management of the SEC does
not consider such privately stripped obligations to be U.S. Government
securities, as defined by the 1940 Act. Therefore, the portfolios will
not treat such obligations as U.S. Government securities for purposes of
the 65% portfolio composition ratio.

3) ZERO COUPON BONDS can be issued directly by Federal agencies and
instrumentalities, or by corporations. Such issues of zero coupon bonds
are originated in the form of a zero coupon bond and are not created by
stripping an outstanding bond.

Zero coupon bonds do not make regular interest payments. Instead they are
sold at a deep discount from their face value. Because a zero coupon bond does
not pay current income, its price can be very volatile when interest rates
change. In calculating its dividends, the Fund takes into account as income a
portion of the difference between zero coupon bond's purchase price and its
face value.

21. BOND WARRANTS. A warrant is a type of security that entitles the
holder to buy a proportionate amount of a bond at a specified price, usually
higher than the market price at the time of issuance, for a period of years or
to perpetuity. Warrants generally trade in the open market and may be sold
rather than exercised.

22. OBLIGATIONS OF SUPRANATIONAL ENTITIES. Obligations of supranational
entities include those of international organizations designated or supported
by governmental entities to promote economic reconstruction or development and
of international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the World
Bank), the European Coal and Steel Community, the Asian Development Bank and
the Inter-American Development Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the supranational
entity and in many cases are committed to make additional capital contributions
if the supranational entity is unable to repay its borrowings. Each
supranational entity's lending activities are limited to a percentage of its
total capital (including "callable capital" contributed by members at the
entity's call), reserves and net income. There is no assurance that foreign
governments will be able or willing to honor their commitments.

23. EQUIPMENT LEASE AND TRUST CERTIFICATES. A portfolio may invest in
equipment lease and trust certificates, which are debt securities that are
secured by direct or indirect interest in specified equipment or equipment
leases (including, but not limited to, railroad rolling stock, planes, trucking
or shipping fleets, or other personal property).

24. TRADE CLAIMS. Trade claims are interests in amounts owed to suppliers
of goods or services and are purchased from creditors of companies in financial
difficulty.

A-3
<PAGE>

APPENDIX B

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 capac-
ity to pay principal and interest then for higher rated bonds.
BB, B, and Predominantly speculative with respect to the issuer's capacity to
CC, CC, C meet 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 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 qualty, 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 Medum-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 unceratin, 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 assur-
ance 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 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.

B-1