As filed electronically with the Securities and
Exchange Commission on April 27, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Registration No. 33-507
Pre-Effective Amendment No.
Post-Effective Amendment No. 36
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
1940 Act File No. 811-4419
Amendment No. 37
(Check appropriate box or boxes.)
WRL SERIES FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
570 CARILLON PARKWAY, ST. PETERSBURG, FLORIDA 33716
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (727) 299-1800
THOMAS E. PIERPAN 570 CARILLON PARKWAY ST. PETERSBURG, FLORIDA 33716
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(Name and Address of Agent for Service)
Approximate date of proposed public offering:
It is proposed that this filing will become effective:
[ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a) (2) of Rule 485.
[ ] On (date) pursuant to paragraph (a) (1) of Rule 485.
[ ] On pursuant to paragraph (a) (2) of Rule 485.
-----------
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[X] On May 1, 1999 pursuant to paragraph (b) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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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, 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 and WRL J.P. Morgan Money Market.
<PAGE>
WRL SERIES FUND, INC.
AGGRESSIVE EQUITY PORTFOLIOS
o WRL VKAM EMERGING GROWTH
o WRL T. ROWE PRICE SMALL CAP
o WRL GOLDMAN SACHS SMALL CAP
o WRL PILGRIM BAXTER MID CAP GROWTH
o WRL ALGER AGGRESSIVE GROWTH
o WRL THIRD AVENUE VALUE
FOREIGN EQUITY PORTFOLIOS
o WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
o WRL JANUS GLOBAL
GROWTH EQUITY PORTFOLIOS
o WRL SALOMON ALL CAP
o WRL JANUS GROWTH
o WRL GOLDMAN SACHS GROWTH
o WRL C.A.S.E. GROWTH
o WRL GE U.S. EQUITY
o WRL DREYFUS MID CAP
o WRL NWQ VALUE EQUITY
o WRL T. ROWE PRICE DIVIDEND GROWTH
BALANCED PORTFOLIOS
o WRL DEAN ASSET ALLOCATION
o WRL LKCM STRATEGIC TOTAL RETURN
o WRL J.P. MORGAN REAL ESTATE SECURITIES
o WRL FEDERATED GROWTH & INCOME
o WRL AEGON BALANCED
FIXED-INCOME PORTFOLIOS
o WRL AEGON BOND
CAPITAL PRESERVATION PORTFOLIOS
o WRL J.P. MORGAN MONEY MARKET
Prospectus
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon
the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
May 1, 1999
<PAGE>
TABLE OF CONTENTS
INVESTOR INFORMATION ...................................... 1
ALL ABOUT THE FUND
AGGRESSIVE EQUITY PORTFOLIOS
WRL VKAM Emerging Growth ............................... 2
WRL T. Rowe Price Small Cap ............................ 3
WRL Goldman Sachs Small Cap ............................ 4
WRL Pilgrim Baxter Mid Cap Growth ...................... 4
WRL Alger Aggressive Growth ............................ 5
WRL Third Avenue Value ................................ 5
FOREIGN EQUITY PORTFOLIOS
WRL GE/Scottish Equitable International Equity ......... 11
WRL Janus Global ....................................... 12
GROWTH EQUITY PORTFOLIOS
WRL Salomon All Cap .................................... 15
WRL Janus Growth ....................................... 16
WRL Goldman Sachs Growth ............................... 16
WRL C.A.S.E. Growth .................................... 17
WRL GE U.S. Equity ..................................... 18
WRL Dreyfus Mid Cap .................................... 18
WRL NWQ Value Equity ................................... 18
WRL T. Rowe Price Dividend Growth ...................... 19
BALANCED PORTFOLIOS
WRL Dean Asset Allocation .............................. 25
WRL LKCM Strategic Total Return ........................ 26
WRL J.P. Morgan Real Estate Securities ................ 26
WRL Federated Growth & Income .......................... 27
WRL AEGON Balanced ..................................... 28
FIXED-INCOME PORTFOLIOS
WRL AEGON Bond ......................................... 32
CAPITAL PRESERVATION PORTFOLIOS
WRL J.P. Morgan Money Market .......................... 35
RISK/REWARD INFORMATION ................................... 38
EXPLANATION OF STRATEGIES AND RISKS ....................... 39
HOW THE FUND IS MANAGED AND ORGANIZED ..................... 43
PERFORMANCE INFORMATION ................................... 47
OTHER INFORMATION ......................................... 50
FINANCIAL HIGHLIGHTS ...................................... 53
WRL Series Fund, Inc. (Fund) consists of twenty-four separate series or
investment portfolios. The Fund is an open-end management investment company,
more commonly known as a mutual fund.
This prospectus describes twenty-three of the Fund's portfolios. Shares of these
portfolios are currently only sold to separate accounts of Western Reserve Life
Assurance Co. of Ohio, PFL Life Insurance Company, AUSA Life Insurance Company
and Peoples Benefit Life Insurance Company to fund the benefits under certain
individual flexible premium variable life insurance policies and individual and
group variable annuity contracts.
A particular portfolio of the Fund may not be available under the policy or
annuity contract you have chosen. The prospectus or disclosure document for your
policy or annuity contract shows the portfolios available to you.
Please read this prospectus carefully before selecting a portfolio. It provides
information to assist you in your decision. If you would like additional
information about a portfolio, please request a copy of the Statement of
Additional Information (SAI) (see back cover). The SAI is incorporated by
reference into this prospectus.
Prospectus
<PAGE>
INVESTOR INFORMATION
TO HELP YOU UNDERSTAND . . .
In this prospectus, you will see the symbols below.
These are "icons" which serve as tools to direct you to the type of information
that is included in the accompanying paragraphs.
The icons are for your convenience and to assist you as you read this
prospectus.
[GRAPHIC OMITTED] The target directs you to a portfolio's goal or
objective.
[GRAPHIC OMITTED] The chess piece indicates discussion about a
portfolio's strategies.
[GRAPHIC OMITTED] The warning sign indicates the risks of investing
in a portfolio.
[GRAPHIC OMITTED] The graph indicates investment performance.
[GRAPHIC OMITTED] The question mark provides additional information about the
Fund or may direct you on how to obtain further information.
SHARES OF A PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT.
Prospectus 1
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS
WRL VKAM EMERGING GROWTH (FORMERLY EMERGING GROWTH PORTFOLIO)
WRL T. ROWE PRICE SMALL CAP
WRL GOLDMAN SACHS SMALL CAP
WRL PILGRIM BAXTER MID CAP GROWTH
WRL ALGER AGGRESSIVE GROWTH (FORMERLY AGGRESSIVE GROWTH PORTFOLIO)
WRL THIRD AVENUE VALUE (FORMERLY THIRD AVENUE VALUE PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES EACH AGGRESSIVE EQUITY PORTFOLIO OF
THE FUND AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS. FOR FURTHER
INFORMATION ON THESE PORTFOLIOS, PLEASE READ THE SECTION ENTITLED "EXPLANATION
OF STRATEGIES AND RISKS," BEGINNING ON PAGE 39, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL VKAM EMERGING GROWTH
This portfolio seeks capital appreciation by investing primarily in common
stocks of small and medium-sized companies.
WRL T. ROWE PRICE SMALL CAP
This portfolio seeks long-term growth of capital by investing primarily in
common stocks of small growth companies.
WRL GOLDMAN SACHS SMALL CAP
This portfolio seeks long-term growth of capital.
WRL PILGRIM BAXTER MID CAP GROWTH
This portfolio seeks capital appreciation.
WRL ALGER AGGRESSIVE GROWTH
This portfolio seeks long-term capital appreciation.
WRL THIRD AVENUE VALUE
This portfolio seeks long-term capital appreciation.
WHAT IS AN AGGRESSIVE EQUITY PORTFOLIO?
Aggressive Equity Portfolios are those that seek maximum capital
appreciation (a rise in the share price/value). Current income is not a
significant factor. Some portfolios that are included in this category may
invest in out-of-the main-stream stocks, such as those of fledging or
struggling companies, or those in new or currently out-of-favor industries.
Some portfolios in this category may also use specialized investment
techniques such as options or short-term investing. For these reasons,
these portfolios usually entail greater risk than the overall equity
portfolio category.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL VKAM EMERGING GROWTH
The portfolio's sub-adviser, Van Kampen Asset Management Inc. (VKAM), seeks to
achieve the portfolio's objective by investing principally in:
o Domestic and foreign common stocks of small and medium-sized companies
o Options
o Futures
Prospectus 2
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
VKAM invests at least 65% of the portfolio's assets (under normal market
conditions) in common stocks of companies that are in the early stages of their
life cycle, and are believed by VKAM to have the potential to become major
enterprises. Some securities may have above average price volatility. VKAM
attempts to reduce overall exposure to risk from declines in the security
prices by spreading the portfolio's investments over many different companies
in a variety of industries.
VKAM will utilize options on securities, futures contracts and options thereon
in several different ways, depending upon the status of the portfolio's
investment portfolio and its expectations concerning the securities market.
In times of stable or rising stock prices, the portfolio generally seeks to be
fully invested. Even when the portfolio is fully invested, VKAM believes that
at least a small portfolio of assets will be held as cash or cash equivalents
to honor redemption requests and for other short-term needs.
The amount of portfolio assets invested in cash equivalents does not fluctuate
with stock market prices, so that, in times of rising market prices, the
portfolio may underperform the market in proportion to the amount of cash
equivalents in its portfolio. By purchasing stock index futures contracts,
stock index call options, or call options on stock index futures contracts,
however, the portfolio can seek to "equalize" the cash portion of its assets
and obtain performance that is equivalent to investing 100% in equity
securities.
The portfolio may take a temporary defensive position when the securities
trading markets or the economy are experiencing volatility or a prolonged
general decline, or other adverse conditions exist. This may be inconsistent
with the portfolio's principal investment strategies. Under these conditions,
the portfolio will be unable to achieve its investment objective.
WHAT IS A TOP-DOWN APPROACH?
When using a "top-down" approach, the portfolio manager looks first at
broad market factors, and on the basis of those market factors, chooses
certain sectors, or industries within the overall market. The manager then
looks at individual companies within those sectors or industries.
WRL T. ROWE PRICE SMALL CAP
The portfolio's sub-adviser, T. Rowe Price Associates, Inc. (T. Rowe Price),
seeks to achieve the portfolio's objective by investing principally in:
o Common stocks of small-cap growth companies
To a lesser extent, the portfolio may invest in:
o Stock index futures
This portfolio will invest at least 65% of the fund's total assets in small-cap
growth companies. These companies are defined as companies whose market
capitalization is smaller than 80% of those in the Standard & Poor's 500 Stock
Index (S&P 500), which was approximately $2.8 billion as of December 31, 1998,
but the upper size limit will vary with market fluctuations. The S&P 500
measures the performance of the common stocks of 500 large U.S. companies in the
manufacturing, utilities, transportation, and financial industries. It also
tracks the performance of common stocks issued by foreign and smaller U.S.
companies in similar industries. (A company's market "cap" is found by
multiplying its shares outstanding by its stock price.) Companies whose
capitalization increases above this range after the portfolio's initial purchase
continue to be considered small companies for purposes of this policy.
To help manage cash flows efficiently, T. Rowe Price may also buy and sell
stock index futures. The portfolio will be more diversified than many small-cap
growth funds; once the portfolio achieves sufficient size, the top 25 holdings
will not compose a large portion of assets. This should minimize the effects of
individual security selection on portfolio performance.
Quantitative models are furnished by a sub-adviser to assist the sub-adviser in
evaluating a potential security. Characteristics are included in the model that
the sub-adviser deems advantageous in a security. Based on these models, stocks
are selected in a "top-down" manner so that the portfolio's portfolio as a
whole reflects characteristics T. Rowe Price considers important, such as
valuations (price/earnings or price/
book value ratios, for example) and projected earnings growth.
While the portfolio invests primarily in common stocks, it may also purchase
other securities, including futures and options, in keeping with its objective.
Prospectus 3
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
The portfolio may sell securities for a variety of reasons, such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.
The portfolio may take a temporary defensive position when the securities
trading markets or the economy are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist. This may be
inconsistent with the portfolio's principal investment strategies. Under these
circumstances, the portfolio may be unable to achieve its investment objective.
WHAT IS A QUANTITATIVE MODEL?
A quantitative model is fashioned by a portfolio's sub-adviser to assist
the sub-adviser in evaluating a potential security. The sub-adviser creates
a model that is designed using characteristics that the sub-adviser deems
advantageous in a security. The sub-adviser then compares a potential
security's characteristics against those of the model, and makes a
determination of whether or not to purchase the security based on the
results of that comparison.
WRL GOLDMAN SACHS SMALL CAP
The portfolio's sub-adviser, Goldman Sachs Asset Management (GSAM), seeks to
achieve the portfolio's objective by investing principally in:
o Equity securities of U.S. issuers, and certain foreign issuers
that are traded in the U.S.
The portfolio will invest at least 90% of its assets in equity securities of
companies with public stock market capitalizations within the range of the
market capitalization of companies constituting the Russell 2000 (a widely
recognized unmanaged index of market performance which measures the performance
of the 2000 smallest companies in the Russell 3000 Index) at the time of
investment (currently $3.1 million to $12.3 billion). The equity securities
include those of U.S. issuers, and certain foreign issuers traded in the U.S.
The portfolio's fixed-income securities are limited to securities that are
considered cash equivalents.
The portfolio may also purchase Standard & Poor's Depositary Receipts
("SPDRs"). SPDRs are American Stock Exchange-traded securities that represent
ownership 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. SPDRs are included in the
portfolio's 10% limitation on investments in investment companies.
GSAM uses the CORE investment process. CORE is an acronym for
"Computer-Optimized, Research-Enhanced." GSAM selects the portfolio's
investments using both a variety of quantitative techniques and fundamental
research while seeking to maximize the portfolio's expected return, while
maintaining risk, style, capitalization and industry characteristics similar to
the Russell 2000 Index.
GSAM may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist. This may be inconsistent
with the portfolio's principal investment strategies. Under these
circumstances, the portfolio may be unable to pursue its investment objective.
WRL PILGRIM BAXTER MID CAP GROWTH
The portfolio's sub-adviser, Pilgrim Baxter & Associates, Ltd. (Pilgrim
Baxter), seeks to achieve the portfolio's objective by investing principally
in:
o Common stocks
o Convertible securities
In seeking capital appreciation, Pilgrim Baxter normally invests at least 65%
of the portfolio's total assets in growth securities, such as common stocks,
issued by companies with market capitalizations or annual revenues between $500
million and $10 billion. The portfolio invests primarily in companies that
Pilgrim Baxter believes have strong earnings growth and capital-appreciation
potential. The portfolio may also invest in foreign securities, warrants and
rights.
Prospectus 4
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
Pilgrim Baxter may take a temporary defensive position when the securities
trading markets or the economy are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist. Under these
circumstances, the portfolio may be unable to achieve its investment objective.
WRL ALGER AGGRESSIVE GROWTH
The portfolio's sub-adviser, Fred Alger Management, Inc. (Alger), seeks to
achieve the portfolio's objective by investing principally in:
o Equity securities such as common or preferred stocks
o Convertible securities (convertible securities are securities which can be
exchanged or converted into common stock of such companies)
To a lesser extent, the sub-adviser may invest portfolio assets in:
o U.S. dollar denominated securities of foreign issuers (American Depositary
Receipts (ADRs))
o Money market instruments
o Repurchase agreements
Under normal market conditions, the portfolio invests at least 85% of its
assets in common stocks, which may include stocks of developing companies, of
older companies that are entering a new stage of growth, and of companies whose
products or services have a high unit volume growth rate.
The portfolio may also use leveraging, a technique that involves borrowing
money to invest in an effort to enhance shareholder returns.
The portfolio's manager may take a temporary defensive position when the
securities trading markets or the economy are experiencing excessive volatility
or a prolonged general decline, or other adverse conditions exist. This may be
inconsistent with the portfolio's principal investment strategies. During this
time, the portfolio may invest up to 100% of its assets in money market
instruments and cash equivalents. Under these circumstances, the portfolio will
be unable to pursue its investment objective.
WRL THIRD AVENUE VALUE
The portfolio's sub-adviser, EQSF Advisers, Inc. (EQSF), seeks to achieve the
portfolio's investment objective by investing principally in:
o Common stocks
o Debt securities
o High-yield/high-risk fixed-income securities
o Foreign securities
The portfolio invests to a lesser extent, in trade claims and engages in
foreign currency transactions for hedging purposes. (Trade claims are interests
in amounts owed to suppliers or services and are purchased from creditors of
companies in financial difficulty.)
EQSF seeks to achieve the portfolio's objective by seeking to acquire common
stocks of well-financed companies at a substantial discount for what EQSF
believes is their value as a private business or as a take over candidate. It
also seeks to acquire senior securities, such as preferred stock and debt
instruments, that have strong covenant protections and above-average yields.
EQSF seeks portfolio securities whose prices are low enough at the time of
acquisition so both the risk is lowered and appreciation potential is enhanced.
EQSF believes that value is created more by past corporate prosperity than by
bear markets.
To choose such securities, EQSF uses a "bottom-up" approach. EQSF believes the
knowledge it obtains through extensive research of individual companies reduces
risk more than does diversification so the portfolio is non-diversified.
The portolio's classification as "non-diversified" under the Investment Company
Act of 1940 (1940 Act) means that the portfolio has the ability to take larger
positions in a smaller number of issuers.
However, to meet federal tax requirements, at the close of each quarter the
portfolio may not have more than 25% of its total assets invested in any one
issuer and, with respect to 50% of its total assets, not more than 5% of its
total assets invested in any one issuer.
Prospectus 5
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
The portfolio may take a temporary defensive position when the securities
trading markets or the economy are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist. This may be
inconsistent with the portfolio's principal investment strategies. Under these
conditions, the portfolio may be unable to achieve its investment objective.
[GRAPHIC OMITTED] RISKS OF INVESTING IN
AGGRESSIVE EQUITY PORTFOLIOS
The principal risks of investing in Aggressive Equity Portfolios that may
adversely affect your investment are described below. (Not all of these risks
apply to each Aggressive Equity Portfolio. See the chart below for the
principal risks of your portfolio.) Please note that there are many other
circumstances which could adversely affect your investment and prevent a
portfolio from achieving its objective, which are not described here. Please
refer to the section entitled "Explanation of Strategies and Risks" beginning
on page 39 and the Fund's SAI for more information about the risks of investing
in the Aggressive Equity Portfolios.
PRINCIPAL RISKS
AGGRESSIVE EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
PORTFOLIO
---------
WRL WRL WRL WRL WRL WRL
VKAM EMERGING T. ROWE PRICE GOLDMAN PILGRIM BAXTER ALGER AGGRESSIVE THIRD AVENUE
RISKS GROWTH SMALL CAP SACHS SMALL CAP MID CAP GROWTH GROWTH VALUE
- -----
<S> <C> <C> <C> <C> <C> <C>
STOCKS X X X X X X
INVESTING AGGRESSIVELY X X X X X X
SMALL-CAP AND GROWTH
COMPANIES X X
QUANTITATIVE MODELS X X
NON-DIVERSIFICATION X
FUTURES & OPTIONS X X
FOREIGN SECURITIES X X X
DEPOSITARY RECEIPTS X X
CONVERTIBLES X X
LEVERAGING X
VALUE INVESTING X X
</TABLE>
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the short term. These
price movements may result from factors affecting individual companies, certain
industries or the securities market as a whole.
Because the stocks a portfolio holds fluctuate in price, the value of your
investment in the portfolio will go up and down.
o INVESTING AGGRESSIVELY
o The value of developing-company stocks may be very volatile, and can drop
significantly in a short period of time
o Rights, options and futures contracts may not be exercised and may expire
worthless
o Warrants and rights may be less liquid than stocks
o Use of futures and other derivatives may make the portfolio more volatile
o SMALL-CAP AND GROWTH COMPANIES
Investing in small companies involves greater risk than is customarily
associated with more established companies. Stocks of small companies may be
subject to more abrupt or erratic price movements than larger company
securities. Small companies often have limited product lines, markets, or
financial resources, and their management may lack depth and experience.
Prospectus 6
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
Also, growth stocks can experience steep price declines if the company's
earnings disappoint investors. Since many of the Aggressive Equity Portfolios
will typically be fully invested in this market sector, investors are fully
exposed to its volatility.
o QUANTITATIVE MODELS
Stocks selected using quantitative models may not perform as well as these
models might otherwise suggest effective and may cause overall returns to be
lower than if other methods are used.
o NON-DIVERSIFICATION
To the extent a portfolio invests a greater proportion of its assets in the
securities of a smaller number of issuers, it may be more susceptible to any
single economic, political or regulatory occurrence than a more widely
diversified portfolio and may be subject to greater risk of loss with respect
to its portfolio securities.
o FUTURES AND OPTIONS
Futures and options involve additional investment risks and transactional
costs, and draw upon skills and experience which are different than those
needed to pick other securities. Special risks include:
o Inaccurate market predictions
o Imperfect correlation
o Illiquidity
o Tax considerations
The portfolios are not required to hedge their investments.
o FOREIGN SECURITIES
Investments in foreign securities involve risks relating to political, social
and economic developments abroad as well as risks resulting from differences in
regulations to which U.S. and foreign issuers and markets are subject. To the
extent a portfolio invests in emerging markets, these risks would be greater.
These risks include:
o Changes in currency values
o Currency speculation
o Currency trading costs
o Different accounting and reporting practices
o Less information available to the public
o Less (or different) regulation of securities markets
o More complex business negotiations
o Less liquidity
o More fluctuations in market prices
o Delays in settling foreign securities transactions
o Higher transaction costs
o Higher costs for holding foreign securities (custodial fees)
o Vulnerability to seizure and taxes
o Political instability and small markets
o Different market trading days
o ADRS
Many securities of foreign issuers are represented by American Depositary
Receipts (ADRs). While ADRs principally are traded on domestic securities
exchanges, investing in ADRs involves many of the same risks associated with
foreign securities in general. These risks include:
o Changes in currency value
o Currency speculation
o Currency trading costs
o More fluctuations in market prices
o Less information available
o CONVERTIBLES
As with all debt securities, the market value of convertibles tends to decline
as interest rates increase and, conversely, to increase as interest rates
decline.
o VALUE INVESTING RISK
Undervalued stocks may not realize their perceived value for extended periods
of time. Value stocks may respond differently to market and other developments
than other types of stocks. Value oriented funds will typically underperform
when growth investing is in favor.
o LEVERAGING
Leveraging by a portfolio involves special risks:
o Leveraging practices may make a portfolio more volatile
o Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the portfolio's securities
Prospectus 7
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
o Money borrowed for leveraging is subject to interest costs
o Minimum average balances may need to be maintained or a line of
credit in connection with borrowing may be necessary resulting in an
increase in the cost of borrowing over the stated interest rate.
YOU MAY LOSE MONEY IF YOU INVEST IN ANY OF THE AGGRESSIVE EQUITY PORTFOLIOS.
[GRAPHIC OMITTED] INVESTOR PROFILES
WRL VKAM EMERGING GROWTH
For the investor who seeks greater opportunities for growth of capital but who
is willing to accept special risks.
WRL T. ROWE PRICE SMALL CAP
For the investor who wants an aggressive, long-term approach to building
capital and who is comfortable with significant fluctuations inherent to
small-cap stock investing.
WRL GOLDMAN SACHS SMALL CAP
For the investor who seeks long-term growth of capital, who can tolerate the
fluctuations inherent in small-cap investing and is willing to accept the
special risks involved in quantitative stock selection techniques.
WRL PILGRIM BAXTER MID CAP GROWTH
For the investor who wants long-term growth of capital and who can tolerate the
fluctuations inherent in stock investing.
WRL ALGER AGGRESSIVE GROWTH
For the investor who seeks capital growth aggressively, and can tolerate wide
swings in the value of their investment.
WRL THIRD AVENUE VALUE
For the investor who is willing to hold shares through periods of market
fluctuations and the accompanying changes in share prices.
Prospectus 8
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar charts and tables below give an indication of the portfolios' risks and
performance. The charts show changes in a portfolio's performance from year to
year. The performance calculations do not reflect charges or deductions under
the policies or the annuity contracts. These fees and expenses would lower
investment performance. The tables show how a portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
Because the WRL T. Rowe Price Small Cap, WRL Goldman Sachs Small Cap and WRL
Pilgrim Baxter Mid Cap Growth portfolios commenced operations in 1999, their
performance history is not included.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL VKAM EMERGING GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
(7.36)% 46.79% 18.88% 21.45% 37.33%
HIGHEST AND LOWEST RETURN
(Quarterly 1993-1998)
- -------------------------------------------
QUARTER ENDED
Highest 28.19 % 12/31/98
Lowest (12.53)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (MARCH 1, 1993)
WRL VKAM
Emerging Growth 37.33% 21.95% 23.09%
S&P 500 Index 28.58% 24.06% 21.81%
- --------------------------------------------------------------------------------
WRL ALGER AGGRESSIVE GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1995 1996 1997 1998
- ---- ---- ---- ----
38.02% 10.45% 24.25% 48.69%
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- ------------------------------------------
QUARTER ENDED
Highest 29.30 % 12/31/98
Lowest (9.72)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
SINCE
INCEPTION
1 YEAR (MARCH 1, 1994)
WRL Alger
Aggressive Growth 48.69% 23.54%
S&P 500 Index 28.58% 24.80%
- --------------------------------------------------------------------------------
Prospectus 9
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
WRL THIRD AVENUE VALUE
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1998
- ----
- -6.84%
HIGHEST AND LOWEST RETURN
(Quarterly 1998)
- -------------------------------------------
QUARTER ENDED
Highest 17.85 % 12/31/98
Lowest (17.57)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ---------------------------------------------
Since
Inception
(January 2, 1998)
WRL Third Avenue Value (6.84)%
S&P 500 Index 28.58 %
- --------------------------------------------------------------------------------
Prospectus 10
<PAGE>
FOREIGN EQUITY PORTFOLIOS
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY (FORMERLY INTERNATIONAL EQUITY
PORTFOLIO)
WRL JANUS GLOBAL (FORMERLY GLOBAL PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES EACH FOREIGN EQUITY PORTFOLIO OF THE
FUND AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS. FOR FURTHER
INFORMATION ON THESE PORTFOLIOS, PLEASE READ THE SECTION ENTITLED "EXPLANATION
OF STRATEGIES AND RISKS," BEGINNING ON PAGE 39, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
This Portfolio seeks long-term growth of capital.
WRL JANUS GLOBAL
This Portfolio seeks long-term growth of capital in a manner consistent with
the preservation of capital.
WHAT IS A FOREIGN EQUITY PORTFOLIO?
This type of portfolio principally invests in equity securities of
companies located outside the U.S.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
The portfolio's sub-advisers, GE Investment Management Incorporated (GEIM) and
Scottish Equitable Investment Management Limited (SEIM), seek to achieve the
portfolio's investment objective by investing principally in:
o Common stocks and other equity securities of companies located in
developed and developing countries other than the U.S. Equity securities
are defined to include common stocks, preferred stocks, convertible
preferred stocks and convertible bonds, debentures and notes, depositary
receipts, and rights and warrants.
Each day, the cash that flows into the portfolio for investment is divided
equally by SEIM and GEIM, and they manage each portion separately from then on.
Normally, 65% of the portfolio's assets are invested in at least 50 equity
securities of companies located in 15 to 25 different countries. Under certain
circumstances, the portfolio may invest in securities of companies located in
the U.S. The portfolio is never invested in companies of fewer than 12
countries other than the U.S. The portfolio may invest to a lesser extent in
debt securities.
The portfolio managers consider the following factors in determining where an
issuer is located: country of organization, primary securities trading market,
location of assets or where the issuer derives at least half of its revenues
and profits.
The portfolio invests, not only in the larger markets of Europe and Japan, but
also, to a lesser extent, in the smaller markets of Asia, Emerging Europe,
Latin America, and other emerging markets.
Overseas economies usually don't move in the same direction and operate
differently. This creates situations the portfolio aims to take advantage of
through asset allocation among international markets.
The portfolio may use various investment techniques to adjust the portfolio's
investment exposure, but there is no guarantee that these techniques will work.
SEIM looks for countries where economic growth conditions are favorable and
where stock market valuations don't reflect that potential. It then looks for
companies in those countries whose earnings potential is not reflected in the
share price.
GEIM looks for companies expected to grow faster than relevant markets, and
whose security price doesn't fully reflect that. Attributes of such companies
are low prices relative to their long-term cash earnings potential, potential
for significant improvement in the company's business, financial strength and
sufficient liquidity. Stock selection is key to the performance of the
portfolio.
Prospectus 11
<PAGE>
FOREIGN EQUITY PORTFOLIOS (CONTINUED)
WRL JANUS GLOBAL
The portfolio's sub-adviser, Janus Capital Corporation (Janus) seeks to achieve
the portfolio's investment objective by investing principally in:
o Common stocks of foreign and domestic issuers
o Depositary receipts including ADRs, GDRs and EDRs
The portfolio may also use forward foreign currency contracts for hedging.
Janus' main strategy is to use a "bottom up" approach to build the portfolio's
portfolio. They seek to identify individual companies with earnings growth
potential that may not be recognized by the market at large.
Foreign securities are generally selected on a stock-by-stock basis without
regard to defined allocation among countries or geographic regions.
When evaluating foreign investments, Janus (in addition to looking at
individual companies) considers such factors as:
o Expected levels of inflation in various countries
o Government policies that might affect business conditions
o The outlook for currency relationships
o Prospects for economic growth among countries, regions or
geographic areas
WHAT IS A "BOTTOM-UP" APPROACH?
When portfolio managers use a "bottom-up" approach, they look primarily at
individual companies against the context of broader market factors.
[GRAPHIC OMITTED] RISKS OF INVESTING IN FOREIGN EQUITY PORTFOLIOS
The principal risks of investing in Foreign Equity Portfolios that may
adversely affect your investment are described below. (Not all of these risks
apply to each Foreign Equity Portfolio. See the chart below for the principal
risks of your portfolio.) Please note that there are many other circumstances
which could adversely affect your investment and prevent a portfolio from
achieving its objective, which are not described here. Please refer to the
section entitled "Explanation of Strategies and Risks" beginning on page 39,
and the Fund's SAI for more information about the risks associated with
investing in the Foreign Equity Portfolios.
PRINCIPAL RISKS
FOREIGN EQUITY PORTFOLIOS
PORTFOLIO
---------
WRL
GE/SCOTTISH
EQUITABLE WRL
INTERNATIONAL JANUS
RISKS EQUITY GLOBAL
- -----
STOCKS X X
FOREIGN SECURITIES X X
EMERGING MARKETS RISK X X
FORWARD FOREIGN CURRENCY
CONTRACTS X X
DEPOSITARY RECEIPTS X X
WARRANTS & RIGHTS X X
VALUE INVESTING RISK X
CONVERTIBLES X
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
certain industries or the securities market as a whole.
Because the stocks the portfolio holds fluctuate in price, the value of your
investment in the portfolio will go up and down.
o FOREIGN SECURITIES
Investments in foreign securities involve risks relating to political, social
and economic developments abroad as well as risks resulting from differences in
regulations to which U.S. and foreign issuers and markets are subject. To the
extent a portfolio invests in emerging markets, these risks would be greater.
These risks include:
o Changes in currency values
o Currency speculation
o Currency trading costs
o Different accounting and reporting practices
o Less information available to the public
o Less (or different) regulation of securities markets
o Greater complex business negotiations
o Less liquidity
o More fluctuations in prices
o Delays in settling foreign securities transactions
o Higher costs for holding shares (custodial fees)
o Higher transaction costs
Prospectus 12
<PAGE>
FOREIGN EQUITY PORTFOLIOS (CONTINUED)
o Vulnerability to seizure and taxes
o Political instability and small markets
o Different market trading days
o Forward foreign currency contracts for hedging
o EMERGING MARKETS RISK
Investing in the securities of issuers located in or principally doing business
in emerging markets bear foreign risks as discussed above. In addition, the
risks associated with investing in emerging markets are often greater than
investing in developed foreign markets. Specifically, the economic structures
in emerging markets countries are less diverse and mature than those in
developed countries, and their political systems are less stable. Investments
in emerging markets countries may be affected by national policies that
restrict foreign investments. Emerging market countries may have less developed
legal structures, and the small size of their securities markets and low
trading volumes can make investments illiquid and more volatile than
investments in developed countries. As a result, a portfolio investing in
emerging market countries may be required to establish special custody or other
arrangements before investing.
o FORWARD FOREIGN CURRENCY CONTRACTS
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of portfolio securities decline.
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 the portfolio's
limitation on investing in illiquid securities.
If the portfolio manager's judgment of markets proves incorrect or the strategy
does not correlate well with a portfolio's investment, the use of such hedging
transactions could result in a loss regardless of whether the intent was to
reduce risk or increase return and may increase a portfolio's volatility. In
addition, in the event that non-exchange traded forward currency contracts are
used, such transactions could result in a loss if the counterparty to the
transaction does not perform as promised.
o CONVERTIBLES
As with all debt securities, the market value of convertibles tends to decline
as interest rates increase and, conversely, to increase as the interest rates
decline.
o WARRANTS AND RIGHTS
Warrants and rights may be considered more speculative than certain other types
of investments because they do not entitle a holder to the dividends or voting
rights for the securities that may be purchased. They do not represent any
rights in the assets of the issuing company.
Also, the value of a warrant or right does not necessarily change with the
value of the underlying securities. A warrant or right ceases to have value if
it is not exercised prior to the expiration date.
o DEPOSITARY RECEIPTS
Depositary receipts represent interests in an account at a bank or trust
company which holds equity securities. They are subject to some of the same
risks as direct investments in foreign securities, including currency risk. The
regulatory requirements with respect to depositary receipts that are issued in
sponsored and unsponsored programs are generally similar, but the issuers of
unsponsored depositary receipts 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 depositary receipts.
o VALUE INVESTING RISK
Undervalued stocks may not realize their perceived value for extended periods
of time. Value stocks may respond differently to market and other developments
than other types of stocks. Value oriented funds will typically underperform
when growth investing is in favor.
YOU MAY LOSE MONEY IF YOU INVEST IN ANY OF THE FOREIGN EQUITY PORTFOLIOS.
[GRAPHIC OMITTED] INVESTOR PROFILES
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
For the investor who seeks long-term capital growth through foreign
investments, and who is able to tolerate the significant risks in such
investments.
WRL JANUS GLOBAL
For the investor who seeks capital growth without being limited to investments
in U.S. securities, and who can tolerate the significant risks associated with
foreign investing.
Prospectus 13
<PAGE>
FOREIGN EQUITY PORTFOLIOS (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar charts and tables below give an indication of the portfolios' risks and
performance. The charts show changes in a portfolio's performance from year to
year. The performance calculations do not reflect charges or deductions under
the policies or the annuity contracts. These fees and expenses would lower
investment performance. The tables show how a portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
- --------------------------------------------------------------------
[GRAPH OMITTED]
1997 1998
- ---- ----
7.50% 12.85%
HIGHEST AND LOWEST RETURN
(Quarterly 1997-1998)
- --------------------------------------------
QUARTER ENDED
Highest 16.39 % 12/31/98
Lowest (17.69)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (JANUARY 2, 1997)
WRL GE/Scottish Equitable
International Equity 12.85% 10.17%
Morgan Stanley Capital
International-Europe,
Asia & Far East
(MSCI-EAFE) 13.13% 6.36%
- --------------------------------------------------------------------------------
WRL JANUS GLOBAL
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ----
35.05% 0.25% 23.06% 27.74% 18.75% 30.01%
HIGHEST AND LOWEST RETURN
(Quarterly 1992-1998)
- --------------------------------------------
QUARTER ENDED
Highest 20.82 % 12/31/98
Lowest (16.52)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ---------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (DECEMBER 3, 1992)
WRL Janus Global 30.01% 19.46% 21.94%
Morgan Stanley
Capital
International
World Index 24.34% 16.11% 17.16%
- --------------------------------------------------------------------------------
Prospectus 14
<PAGE>
GROWTH EQUITY PORTFOLIOS
WRL SALOMON ALL CAP
WRL JANUS GROWTH (FORMERLY GROWTH PORTFOLIO)
WRL GOLDMAN SACHS GROWTH
WRL C.A.S.E. GROWTH (FORMERLY C.A.S.E. GROWTH PORTFOLIO)
WRL GE U.S. EQUITY (FORMERLY U.S. EQUITY PORTFOLIO)
WRL DREYFUS MID CAP
WRL NWQ VALUE EQUITY (FORMERLY VALUE EQUITY PORTFOLIO)
WRL T. ROWE PRICE DIVIDEND GROWTH
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES EACH GROWTH EQUITY PORTFOLIO OF THE
FUND AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS. FOR FURTHER
INFORMATION ON THESE PORTFOLIOS, PLEASE READ THE SECTION ENTITLED "EXPLANATION
OF STRATEGIES AND RISKS," BEGINNING ON PAGE 39, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL SALOMON ALL CAP
This portfolio seeks capital appreciation.
WRL JANUS GROWTH
This portfolio seeks growth of capital.
WRL GOLDMAN SACHS GROWTH
This portfolio seeks long-term growth of capital.
WRL C.A.S.E. GROWTH
This portfolio seeks annual growth of capital through investment in companies
whose management, financial resources and fundamentals appear attractive on a
scale measured against each company's present value.
WRL GE U.S. EQUITY
This portfolio seeks long-term growth of capital.
WRL DREYFUS MID CAP
This portfolio seeks total investment returns (including capital appreciation
and income) which consistently outperform the S&P 400 Mid Cap Index.
WRL NWQ VALUE EQUITY
This portfolio seeks to achieve maximum, consistent total return with minimum
risk to principal.
WRL T. ROWE PRICE DIVIDEND GROWTH
This portfolio seeks to provide an increasing level of dividend income,
long-term capital appreciation, and reasonable current income through
investments primarily in dividend paying stocks.
WHAT IS A GROWTH EQUITY PORTFOLIO?
Each growth equity portfolio invests in the common stock of companies that
offer potentially rising share prices. These portfolios primarily aim to
provide capital appreciation (a rise in share price) rather than steady
income.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL SALOMON ALL CAP
The portfolio's sub-adviser, Salomon Brothers Asset Management Inc. (SBAM),
seeks to achieve the portfolio's investment objective by investing principally
in:
o Common stocks
o Convertible securities
Prospectus 15
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
To a lesser extent, the portfolio may invest in:
o Cash and cash equivalents
This portfolio is non-diversified. The portfolio will primarily invest in
common stocks, or securities convertible into or exchangeable for common
stocks, such as convertible preferred stocks or convertible debentures.
The portfolio's classification as "non-diversified" under the 1940 Act means
that the portfolio has the ability to take larger positions in a smaller number
of issuers. However, to meet federal tax requirements, at the close of each
quarter the portfolio may not have more than 25% of its total assets invested
in any one issuer and, with respect to 50% of its total assets, not more than
5% of its total assets invested in any one issuer.
In seeking capital appreciation, the portfolio may purchase securities of:
seasoned issuers; small companies; newer companies; and new issues. The
portfolio may be subject to wide fluctuations in market value. Portfolio
securities may have limited marketability or may be widely and publicly traded.
SBAM anticipates that the portfolio's investments generally will be in
securities of companies which it considers to reflect the following
characteristics:
o Undervalued share prices
o Special situations such as existing or possible changes in
management or management policies, corporate structure or control,
capitalization, regulatory environment, or other circumstances which
could be expected to favor earnings or market price of such company's
shares
o Growth potential due to technological advances, new methods in
marketing or production, new or unique products or services, changes in
demands for products or services or other significant new developments
SBAM uses a "bottom-up," fundamental research process to select the portfolio's
securities. They seek to identify individual companies with earnings growth
potential that may not be recognized by the market.
SBAM may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist. This may be inconsistent
with the portfolio's principal investment strategies. Under these
circumstances, the portfolio may be unable to pursue its investment objective.
WRL JANUS GROWTH
The Portfolio's sub-adviser, Janus Capital Corporation (Janus), seeks to
achieve the portfolio's objective by investing principally in:
o Common stocks
The portfolio's strategy is to invest almost all of its assets in common stock
at times when Janus believes the market environment favors such investing.
Janus generally takes a "bottom-up" approach to building the stock portfolio.
In other words, Janus seeks to identify individual companies with earnings
growth potential that may not be recognized by the stock market at large.
Although themes may emerge in the portfolio, securities are generally selected
without regard to any defined industry sector or other similarly defined
selection procedure. Realization of income is not a significant investment
consideration for the portfolio and any income realized on the portfolio's
investments is incidental to its objective.
Janus may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse market conditions exist. This may be
inconsistent with the portfolio's principal investment strategies. Under these
circumstances, the portfolio may be unable to achieve its investment objective.
WRL GOLDMAN SACHS GROWTH
The portfolio's sub-adviser, Goldman Sachs Asset Management (GSAM), seeks to
achieve the portfolio's objective by investing principally in:
o Equity securities
The portfolio will invest at least 90% of total assets in a diversified
portfolio of equity securities that are considered by GSAM to have long-term
capital appreciation potential. Although the portfolio will invest primarily in
publicly traded U.S. securities, it may invest up to 10% of its total assets in
foreign securities,
Prospectus 16
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
including securities of issuers in emerging (developing) countries and
securities quoted in foreign currencies.
Equity securities for this portfolio are selected based on their prospects for
above-average growth. GSAM will select securities of growth companies trading,
in GSAM's opinion, at a reasonable price relative to other industries,
competitors and historical price/earnings multiples.
In order to determine whether a security has favorable growth prospects, GSAM
ordinarily looks for one or more of the following characteristics in relation
to the security's prevailing price:
o prospects for above average sales and earnings growth per share
o high return on invested capital
o free cash flow generation
o sound balance sheet, financial and accounting policies, and
overall financial strength
o strong competitive advantages
o effective research, product development, and marketing
o pricing flexibility
o strength of management
o general operating characteristics that will enable the company to
compete successfully in its marketplace
The portfolio generally will invest in companies whose earnings are believed to
be in a relatively strong growth trend, or, to a lesser extent, in companies in
which significant further growth is not anticipated, but whose market value per
share is thought to be undervalued.
GSAM may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist. This may be inconsistent
with the portfolio's principal investment strategies. Under these
circumstances, the portfolio may be unable to achieve its investment objective.
WRL C.A.S.E. GROWTH
The portfolio's sub-adviser, C.A.S.E. Management, Inc. (C.A.S.E.), seeks to
achieve the portfolio's investment objective by investing principally in:
o Common stocks
o Preferred stocks
o Convertible stocks
Using proprietary forms of research, C.A.S.E. selects companies after
evaluating the current economic cycle, and identifying potentially attractive
sectors, industries and company-specific circumstances.
C.A.S.E. invests in common, preferred and convertible stocks of companies that
it believes show below-market risk, supported by below-market multiples, along
with above-average fundamentals. These fundamentals include return on equity,
price-to-earnings ratio and other balance sheet factors that contribute to
long-term capital growth.
The portfolio's assets are invested in companies whose stocks are traded on
national exchanges or over-the-counter markets. C.A.S.E. focuses on companies
that are fundamentally strong compared to other companies in the same industry,
the same sector and the broad market.
C.A.S.E. applies its proprietary forms of research to companies that exhibit
superior products and above-average growth rates along with sound management
and financials.
Each company selected for the portfolio is monitored against more than two
dozen measures of financial strength, including:
o insiders' activity
o market style leadership
o earnings surprise
o analysts' change in earnings projections
o return on equity
o 5-year earnings-per-share growth rate
Prospectus 17
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
o price-earnings ratio
o price-to-book ratio
o price-to-cash flow
o institutional activity and holdings
o relative strength price change
o price-to-200-day moving average
o price-to-historical rising inflation
o price-to-declining U.S. dollar
o earnings projected change
o quarterly earnings per-share growth rate
Stocks are sold when C.A.S.E. views them as overvalued, or when C.A.S.E. feels
the stocks have lost their strong fundamentals.
In seeking to achieve the investment objective of the portfolio, C.A.S.E. will
make investment decisions without giving consideration to the turnover rate of
the portfolio. As a result, the turnover rate of the portfolio may be higher
than other comparable portfolios. Consequently, the portfolio may incur higher
transaction related expenses than portfolios that do not engage in frequent
trading.
WRL GE U.S. EQUITY
The portfolio's sub-adviser, GE Investment Management Incorporated (GEIM),
seeks to meet the portfolio's investment objective by investing primarily in:
o Common and preferred stock
o Convertible securities (convertible preferred stock, convertible
bonds, convertible debentures, convertible notes)
o Depositary receipts (ADRs, EDRs and GDRs)
o Warrants and rights
GEIM, under normal conditions, invests at least 65% of its assets in equity
securities of U.S. companies. GEIM combines "value" and "growth" investment
management styles. As a result, the portfolio has characteristics similar to
the S&P 500, including capital appreciation and income. Stock selection is key
to the portfolio.
Through fundamental company research, the portfolio managers seek to identify
securities of large companies with characteristics such as: attractive
valuations, financial strength and high quality management focused on
generating shareholder value.
The portfolio may also invest to a lesser extent in foreign securities and debt
securities.
WRL DREYFUS MID CAP
The portfolio's sub-adviser, The Dreyfus Corporation (Dreyfus), seeks to
achieve the portfolio's investment objective by investing principally in:
o Common stocks of medium capitalization companies
To a lesser extent, Dreyfus may invest portfolio assets in:
o Common stocks of large and small capitalization companies,
including emerging (developing) and cyclical growth companies
Dreyfus seeks to have a diversified portfolio of the common stocks of
mid-capitalization companies which offer above-average potential for
appreciation based on its multi-factor evaluation approach. The multi-factor
evaluation approach centers around the ability to identify and dynamically
weigh the fundamental characteristics driving current market returns, and to
construct portfolios by actively selecting stocks possessing positive exposure
to these preferred characteristics.
Generally, the factors which drive the investment process can be classified
into three categories:
o Earnings momentum indicators
o Company financial attributes
o Relative Value Measures
WRL NWQ VALUE EQUITY
The portfolio's sub-adviser, NWQ Investment Management Company, Inc. (NWQ),
seeks to achieve its objective by investing principally in:
o Common stocks
To a lesser extent, NWQ may invest portfolio assets in:
o Money market and short-term instruments (Treasury Bills)
o ADRs and exchange listed foreign stocks
Prospectus 18
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
NWQ employs a value-oriented approach to investing, combining top-down and
bottom-up disciplines.
NWQ will use statistical measures to look for above-average stock valuations,
screening for below-average price-to-earnings and price-to-book ratios,
above-average dividend yields and strong financial stability.
NWQ also identifies those market sectors believed to benefit from long-term
positive fundamentals, and focuses on the companies within these sectors which
represent above-average statistical value and are undervalued when purchased.
The portfolio consists primarily of mid-capitalization to large capitalization
companies. NWQ considers the following when making a security selection:
o below-average price-to-earnings ratios
o below-average price-to-book
o strong financial stability
o industries/sectors with strong long-term fundamentals
o leading/strong market positions
o uses earnings averaged over both strong and weak periods in
evaluating cyclical companies
WRL T. ROWE PRICE DIVIDEND GROWTH
The portfolio's sub-adviser, T. Rowe Price Associates, Inc. (T. Rowe Price),
seeks to achieve the portfolio's objective by investing principally in:
o Dividend-paying common stocks with favorable prospects for
increasing dividends and long-term appreciation
To a lesser extent, T. Rowe Price may invest in:
o Foreign securities
o Futures
T. Rowe Price typically invests at least 65% of total assets in common stocks
of dividend-paying companies that it expects to increase their dividends over
time and also provide long-term appreciation.
T. Rowe Price believes that a track record of dividend increases is an
excellent indicator of financial health and growth prospects, and over the
long-term, income can contribute significantly to total return. Dividends can
also help reduce the portfolio's volatility during periods of market turbulence
and help offset losses when stock prices are falling.
T. Rowe Price looks for stocks with sustainable, above-average growth in
earnings and dividends, and attempts to buy them when they are temporarily out
of favor or undervalued by the market. In selecting investments,
T. Rowe Price favors companies with one or more of the following:
o Either a track record of, or the potential for, above-average
earnings and dividend growth
o A competitive current dividend yield
o A sound balance sheet and solid cash flow to support future
dividend increases
o A sustainable competitive advantage and leading market position
o Attractive valuations such as a relatively high dividend yield
While the portfolio invests primarily in common stocks, T. Rowe Price may also
purchase other securities including foreign securities, convertible securities,
warrants, preferred stocks, and corporate and government debt when considered
consistent with the portfolio's objective. Futures and options may be used for
any number of reasons, including: managing the portfolio's exposure to
securities prices and foreign currencies; to enhance income; to manage cash
flows efficiently; or to protect the value of portfolio securities.
The portfolio may sell securities for a variety of reasons such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.
[GRAPHIC OMITTED] RISKS
The principal risks of investing in Growth Equity Portfolios that may adversely
affect your investment are described below. (Not all of these risks apply to
each Growth Equity Portfolio. See the chart below for the principal risks of
your portfolio.) Please note that there are many other circumstances which
could adversely affect your investment and prevent a portfolio from achieving
its objective, which are not described here.
Prospectus 19
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
Please refer to the section entitled "Explanation of Strategies and Risks,"
beginning on page 39, and the Fund's SAI for more information about the risks
associated with investing in the Growth Equity Portfolios.
PRINCIPAL RISKS
GROWTH EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
PORTFOLIO
---------
WRL
WRL WRL T. ROWE
WRL WRL GOLDMAN WRL WRL WRL NWQ PRICE
SALOMON JANUS SACHS C.A.S.E. GE U.S. DREYFUS VALUE DIVIDEND
RISKS ALL CAP GROWTH GROWTH GROWTH EQUITY MID CAP EQUITY GROWTH
- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NON-DIVERSIFICATION X
STOCKS X X X X X X X X
MEDIUM SIZED COMPANIES X X
FOREIGN SECURITIES X X X X X
EMERGING MARKETS RISK X X X
CONVERTIBLES X X X X
PROPRIETARY RESEARCH X
STYLE RISK X X X X X X X X
FUTURES AND OPTIONS X X X
DEPOSITARY RECEIPTS X X X
WARRANTS & RIGHTS X X
DIVIDEND-PAYING COMPANIES X
</TABLE>
o NON-DIVERSIFICATION
To the extent a portfolio invests a greater proportion of its assets in the
securities of a smaller number of issuers, it may be more susceptible to any
single economic, political or regulatory occurrence than a more widely
diversified portfolio and may be subject to greater risk of loss with respect
to its portfolio securities.
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries, or the securities market as a whole.
Because the stocks the portfolio holds fluctuate in price, the value of your
investment in the portfolio go up and down.
o MEDIUM-SIZED COMPANIES
These companies present additional risks because their earnings may be less
predictable, their share price more volatile, and their securities less liquid
than larger more established companies.
o FOREIGN SECURITIES
Investments in foreign securities involve risks relating to political, social
and economic developments abroad as well as risks resulting from differences in
regulations to which U.S. and foreign issuers and markets are subject. These
risks include:
o Changes in currency values
o Currency speculation
o Currency trading costs
o Different accounting and reporting practices
o Less information available to the public
o Less (or different) regulation of securities markets
Prospectus 20
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
o More complex business negotiations
o Less liquidity
o More fluctuations in market prices
o Delays in settling foreign securities transactions
o Higher costs for holding foreign securities (custodial fees)
o Higher transaction costs
o Vulnerability to seizure and taxes
o Political instability and small markets
o Different market trading days
o EMERGING MARKETS RISK
Investing in the securities of issuers located in or principally doing business
in emerging markets bear foreign risks as discussed above. In addition, the
risks associated with investing in emerging markets are often greater than
investing in developed foreign markets. Specifically, the economic structures
in emerging markets countries are less diverse and mature than those in
developed countries, and their political systems are less stable. Investments
in emerging markets countries may be affected by national policies that
restrict foreign investments. Emerging market countries may have less developed
legal structures, and the small size of their securities markets and low
trading volumes can make investments illiquid and more volatile than
investments in developed countries. As a result, a portfolio investing in
emerging market countries may be required to establish special custody or other
arrangements before investing.
o CONVERTIBLES
As with all debt securities, the market value of convertibles tends to decline
as interest rates increase and, conversely, increase as interest rates decline.
o PROPRIETARY RESEARCH
Proprietary forms of research may not be effective and may cause overall
returns to be lower than if other forms of research are used.
o DIVIDEND-PAYING COMPANIES (WRL T. ROWE PRICE DIVIDEND GROWTH)
T. Rowe Price's emphasis on dividend-paying companies could result in a
concentration in large-capitalization stocks. At times, stocks such as these
may lag shares of smaller, faster-growing companies. The portfolio's efforts to
buy stocks that appear temporarily out of favor also carries the risk that a
stock or group of stocks may remain out of favor for a long time and may
continue to decline.
o STYLE RISK
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
portfolio may underperform other portfolios that employ a different style. A
portfolio also may employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing, as well as those focusing on large, medium, or small company
securities.
o GROWTH INVESTING RISK
Growth stocks may be more volatile than other stocks because they are
more sensitive to investor perceptions of the issuing company's growth
potential. Growth oriented funds will typically underperform when value
investing is in favor.
o FUTURES AND OPTIONS
Futures and options involve additional investment risks and transactional
costs, and draw upon skills and experience which are different than those
needed to pick other securities. Special risks include:
o Inaccurate market predictions
o Imperfect correlation
o Illiquidity
o Tax considerations
The portfolios are not required to hedge their investments.
o WARRANTS AND RIGHTS
Warrants and rights may be considered more speculative than certain other types
of investments because they do not entitle a holder to the dividends or voting
rights for the securities that may be purchased. They do not represent any
rights in the assets of the issuing company.
Also, the value of a warrant or right does not necessarily change with the
value of the underlying securities. A warrant or right ceases to have value if
it is not exercised prior to the expiration date.
Prospectus 21
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
o DEPOSITARY RECEIPTS
Depositary receipts represent interests in an account at a bank or trust
company which holds equity securities. They are subject to some of the same
risks as direct investments in foreign securities, including currency risk. The
regulatory requirements with respect to depositary receipts that are issued in
sponsored and unsponsored programs are generally similar, but the issuers of
unsponsored depositary receipts 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 depositary receipts.
YOU MAY LOSE MONEY IF YOU INVEST IN ANY OF THE GROWTH EQUITY PORTFOLIOS.
[GRAPHIC OMITTED] INVESTOR PROFILES
WRL SALOMON ALL CAP
For the investor who wants long-term growth of capital and who can tolerate the
risks of a non-diversified portfolio and fluctuations in their investment.
WRL JANUS GROWTH
For the investor who wants capital growth in a broadly diversified stock
portfolio, and who can tolerate significant fluctuations in value.
WRL GOLDMAN SACHS GROWTH
For the investor who seeks long-term growth of capital and who can tolerate
fluctuations inherent in stock investing.
WRL C.A.S.E. GROWTH
For the investor who seeks growth on a quarterly basis, but wants a diversified
portfolio that seeks to have investments in companies that have below market
risk characteristics. The investor should be comfortable with the price
fluctuations of a stock portfolio.
WRL GE U.S. EQUITY
For the investor who seeks long-term growth from a diversified portfolio that
combines "value" and "growth" investment management styles. As a result, the
portfolio will have characteristics similar to the S&P 500. The investor should
be comfortable with the price fluctuations of a stock portfolio and be willing
to accept higher short-term risk for potential long-term returns.
WRL DREYFUS MID CAP
For the investor who seeks total returns exceeding the S&P 400 Mid Cap Index
and who can tolerate fluctuations inherent to mid-cap stock investing.
WRL NWQ VALUE EQUITY
For the investor who seeks both capital preservation and long-term capital
appreciation and who can tolerate fluctuations inherent in stock investing.
WRL T. ROWE PRICE DIVIDEND GROWTH
For the investor who wants a reasonable level of current income from equity
investments that has the potential to rise faster than inflation, along with
capital appreciation and who can tolerate significant fluctuations in the value
of their investment.
Prospectus 22
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar charts and tables below give an indication of the portfolios' risks and
performance. The charts show changes in a portfolio's performance from year to
year. The performance calculations do not reflect charges or deductions under
the policies or the annuity contracts. These fees and expenses would lower
investment performance. The tables show how a portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
Because the WRL Salomon All Cap, WRL Goldman Sachs Growth, WRL Dreyfus Mid Cap,
and WRL T. Rowe Price Dividend Growth portfolios commenced operations in 1999,
their performance history is not included.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL JANUS GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
47.04% (0.22)% 59.79% 2.35% 3.97% (8.31)% 47.12% 17.96% 17.54% 64.47%
HIGHEST AND LOWEST RETURN
(Quarterly 1988-1998)
- -------------------------------------------
QUARTER ENDED
Highest 28.73 % 12/31/98
Lowest (16.60)% 9/30/90
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -----------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
WRL Janus Growth 64.47% 25.20% 22.61%
S&P 500 Index 28.58% 24.06% 19.21%
- --------------------------------------------------------------------------------
WRL C.A.S.E. GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1996 1997 1998
- ---- ---- ----
17.50% 15.03% 2.47%
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- -------------------------------------------
QUARTER ENDED
Highest 26.60 % 12/31/98
Lowest (22.50)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ---------------------------------------------------
SINCE
INCEPTION
1 YEAR (MAY 1, 1995)
WRL C.A.S.E. Growth 2.47% 15.01%
Wilshire 5000 Index 21.72% 24.69%
- --------------------------------------------------------------------------------
Prospectus 23
<PAGE>
GROWTH EQUITY PORTFOLIOS (CONTINUED)
WRL GE U.S. EQUITY
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1997 1998
- ---- ----
27.01% 22.87%
HIGHEST AND LOWEST RETURN
(Quarterly 1997-1998)
- --------------------------------------------
QUARTER ENDED
Highest 19.59 % 12/31/98
Lowest (10.14)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
SINCE
INCEPTION
1 YEAR (JANUARY 2, 1997)
WRL GE U.S. Equity 22.87% 25.00%
S&P 500 Index 28.58% 31.13%
- --------------------------------------------------------------------------------
WRL NWQ VALUE EQUITY
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1997 1998
- ---- ----
25.04% -4.78%
HIGHEST AND LOWEST RETURN
(Quarterly 1996-1998)
- --------------------------------------------
QUARTER ENDED
Highest 13.44 % 6/30/97
Lowest (17.95)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------
SINCE
INCEPTION
1 YEAR (MAY 1, 1996)
WRL NWQ Value
Equity (4.78)% 11.83%
S&P 500 Index 28.58 % 28.96%
- --------------------------------------------------------------------------------
Prospectus 24
<PAGE>
BALANCED PORTFOLIOS
WRL DEAN ASSET ALLOCATION (FORMERLY TACTICAL ASSET ALLOCATION PORTFOLIO)
WRL LKCM STRATEGIC TOTAL RETURN (FORMERLY STRATEGIC TOTAL RETURN PORTFOLIO)
WRL J.P. MORGAN REAL ESTATE SECURITIES (FORMERLY REAL ESTATE SECURITIES
PORTFOLIO)
WRL FEDERATED GROWTH & INCOME (FORMERLY GROWTH & INCOME PORTFOLIO)
WRL AEGON BALANCED (FORMERLY BALANCED PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES EACH BALANCED PORTFOLIO OF THE FUND
AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS. FOR FURTHER INFORMATION
ON THESE PORTFOLIOS, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF
STRATEGIES AND RISKS," BEGINNING ON PAGE 39, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL DEAN ASSET ALLOCATION
The objective of this portfolio is to seek preservation of capital and
competitive investment returns.
WRL LKCM STRATEGIC TOTAL RETURN
The objective of this portfolio is to provide current income, long-term growth
of income and capital appreciation.
WRL J.P. MORGAN REAL ESTATE SECURITIES
This portfolio seeks long-term total return from investments primarily in
equity securities of real estate companies. Total return will consist of
realized and unrealized capital gains and losses plus income.
WRL FEDERATED GROWTH & INCOME
This portfolio seeks total return by investing in securities that have
defensive characteristics. (These are securities that appear to have a low
probability of significant price decline relative to the overall equity market.
They also will, in the sub-adviser's view, generally have a comparatively low
volatility in share price relative to the overall equity market.)
WRL AEGON BALANCED
This portfolio seeks preservation of capital, reduced volatility, and superior
long-term risk-adjusted returns.
WHAT IS A BALANCED PORTFOLIO?
A balanced portfolio generally tries to balance three different objectives:
moderate long-term growth of capital, moderate income, and moderate
stability in an investor's principal. To reach these goals, balanced
portfolios invest in a mixture of stocks, bonds and money market
instruments.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL DEAN ASSET ALLOCATION
The portfolio's sub-adviser, Dean Investment Associates (Dean), seeks to
achieve the portfolio's investment objective by investing principally in:
o Income-producing common and preferred stocks
o Debt obligations of U.S. issuers, some of which will be
convertible into common stocks
o U.S. Treasury bonds, notes and bills
o Money market funds
In selecting stocks, Dean focuses on high-quality, liquid, large capitalization
stocks, using a bottom-up screening process to identify stocks that are
statistically undervalued. Dean's ultimate goal is to choose stocks whose price
has been driven down by a market that has over-reacted to perceived risks. With
this approach, the
Prospectus 25
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
portfolio seeks to achieve a dividend income yield higher than that of the
Russell 1000 Index, a widely recognized unmanaged index of market performance
which measures the performance of the 1,000 largest companies in the Russell
3000 Index, which represents approximately 89% of the total market
capitalization of the Russell 3000 Index. As of the latest reconstitution, the
average market capitalization was approximately $9.9 billion; the median market
capitalization was approximately $3.7 billion. The smallest company in the
index had an approximate market capitalization of $1,404.7 million.
Dean employs an investment technique called "asset allocation," which shifts
assets from one class of investment to another (such as from equity to debt)
when it anticipates changes in market direction.
Dean will seek to enhance returns in rising stock markets by increasing its
allocation to equity, then protect itself in falling stock markets by reducing
equity exposure and shifting into fixed-income investments, as well as into
money market funds (up to 10% of total assets).
Dean has developed forecasting models to predict movements in the stock market
for both short (12 to 18-month) and long (3 to 5-year) time periods. These
models help compare the risks and rewards Dean anticipates in holding stocks
versus debt instruments and money market funds. Such techniques may result in
increased portfolio expenses such as brokerage fees.
Thus, the models determine when Dean is to "tactically" adjust the portfolio's
asset allocation among stocks, bonds, U.S. debt obligations and money market
funds.
WRL LKCM STRATEGIC TOTAL RETURN
The portfolio's sub-adviser, Luther King Capital Management Corporation (LKCM),
seeks to achieve the portfolio's investment objective by investing primarily
in:
o Common stocks
o Corporate bonds
o Convertible preferred stocks
o Corporate convertible bonds
o U.S. Treasury Notes
The portfolio seeks to invest in a blend of equity and fixed-income securities
to achieve a balance of capital appreciation and investment income while
limiting volatility. The portfolio will also invest in convertible securities,
which have both equity and fixed-income characteristics. In choosing such
securities, LKCM looks for companies with strong fundamental characteristics.
It considers factors such as:
o balance sheet quality
o cash flow generation
o earnings and dividend growth record and outlook
o profitability levels
In some cases, LKCM bases its selections on other factors. For example, some
securities may be bought at an apparent discount to their appropriate value,
with the anticipation that they'll increase in value over time.
The portfolio seeks to achieve an income yield greater than the average yield
of the stocks in the S&P 500.
The portfolio invests mainly in the stocks and bonds of companies with
established operating histories and strong fundamental characteristics. The
majority of the stocks the portfolio buys will be listed on a national exchange
or traded on NASDAQ or domestic over-the-counter markets.
LKCM closely analyzes a company's financial status and a security's valuation
in an effort to control risk at the individual level. In addition, the growth
elements of the portfolio's equity investments drive capital appreciation.
As part of its income-oriented strategy, LKCM expects to invest about 25% of
the portfolio's assets in fixed-income securities, some of which will be
convertible into common stocks, and no more than 20% of its assets in stocks
that don't pay a dividend.
WRL J.P. MORGAN REAL ESTATE SECURITIES
This portfolio's sub-adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan), seeks to achieve the portfolio's objective by investing principally in
equity securities of real estate companies which include:
o Common stocks
o Convertible securities
Prospectus 26
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
Under normal conditions, J.P. Morgan invests at least 65% of portfolio assets
in real estate company securities. A company is considered to be a real estate
company if at least 50% of its revenues or at least 50% of the market value of
its assets is attributable to the ownership, construction, management or sale
of residential, commercial or industrial real estate.
Companies chosen are generally contained in the National Association of Real
Estate Investment Trusts (NAREIT) Equity without Healthcare Index. Based on
internal fundamental equity and real estate research, and using a dividend
discount model, J.P. Morgan ranks these companies within four broad sectors of
the real estate industry from undervalued to overvalued. From this target
universe, J.P. Morgan selects stocks for the portfolio based on a variety of
criteria including managerial strength, geographic diversification, prospects
for growth and the company's competitive position.
The portfolio may also invest in debt securities of real estate and non-real
estate companies, mortgage-backed securities such as pass through certificates,
real estate mortgage investment conduit (REMIC) certificates, and
collateralized mortgage obligations (CMOs), or short-term debt obligations.
However, the portfolio does not directly invest in real estate.
The portfolio is non-diversified under federal securities laws.
The portfolio's classification as "non-diversified" under the 1940 Act means
that the portfolio has the ability to take larger positions in a smaller number
of issuers. However, to meet federal tax requirements, at the close of each
quarter the portfolio may not have more than 25% of its total assets invested
in any one issuer and, with respect to 50% of its total assets, not more than
5% of its total assets invested in any one issuer.
WRL FEDERATED GROWTH & INCOME
The portfolio's sub-adviser, Federated Investment Counseling (Federated), seeks
to achieve the portfolio's objective by investing principally in:
o Common stocks
o Convertible securities
o REITs
o Fixed income securities
o Foreign securities
Federated seeks total return by investing primarily in common stocks that
provide the opportunity for capital appreciation or high dividend income.
Federated seeks capital appreciation by investing primarily in undervalued,
overlooked common stocks. These securities are generally trading at low
historical valuations, relative to the market and to industry peers, which do
not reflect positive changes in the companies' outlook. To achieve high current
income, Federated seeks to invest in securities that offer higher dividends
than the overall market. Convertible stocks and bonds, real estate investment
trusts and securities issued by utility companies are generally the types of
securities that Federated may emphasize in order to enhance the portfolio's
dividend income. Federated may also invest a portion of the portfolio's assets
in securities of companies based outside the U.S. to diversify the portfolio's
holdings and to gain exposure to the foreign market.
Federated attempts to invest in securities that have defensive characteristics
by selecting securities that appear to have a low probability of significant
price decline relative to the overall equity market. In Federated's opinion,
these securities generally will have a comparatively low volatility in share
price relative to the overall equity market. Federated also may emphasize
investments in securities that provide high dividend income to seek to invest
in less volatile equity securities. Federated also may allocate a portion of
the assets in cash or government securities when the markets appear to be
overpriced.
To identify companies for portfolio investment, Federated uses a model which
looks at a company's financial and earnings strength, management skill and
business prospects, and at the prospect of comparatively low volatility in
share price. In addition, Federated performs traditional fundamental and credit
analyses to select the most promising companies for the portfolio. Federated
may emphasize investments in certain industry sectors that offer securities
that have these attributes. To determine the timing of purchases and sales of
portfolio securities, Federated looks at recent stock price performance.
Prospectus 27
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
WRL AEGON BALANCED
This portfolio's sub-adviser, AEGON USA Investment Management, Inc. (AIMI),
seeks to achieve the portfolio's objective by investing principally in:
o Common stocks (primarily of domestic large cap companies)
o U.S. Treasuries
o Convertible securities
AIMI uses a top-down investment strategy to find stocks of medium to large
capitalization companies that fit a value criteria. The process for selecting
companies is based on fundamental analysis.
More specifically, AIMI looks at the industry structure, organizational
structure, financial structure, and business prospects of each portfolio
company. It then applies the analysis of these factors to financial forecasts
which, in turn, drives the valuation of a company's stock. AIMI uses a two
stage dividend discount model to value a company. Once AIMI initiates a
position it monitors and continually reassesses its prior analysis. When AIMI
believes the price fully reflects its independent valuation or there is a
significant change in the fundamentals of the company, the portfolio sells the
security.
[GRAPHIC OMITTED] RISKS
The principal risks of investing in Balanced Portfolios that may adversely
affect your investment are described below. (Not all of these risks apply to
each Balanced Portfolio. See the chart below for the principal risks of your
portfolio.) Please note that there are many other circumstances that could
adversely affect your investment and prevent a portfolio from achieving its
objective, which are not described here. Please refer to the section entitled
"Explanation of Strategies and Risks," beginning on page 39 and the Fund's SAI
for more information about the risks associated with investing in Balanced
Portfolios.
PRINCIPAL RISKS
BALANCED PORTFOLIOS
<TABLE>
<CAPTION>
PORTFOLIO
---------
WRL
WRL LKCM WRL WRL
DEAN STRATEGIC J.P. MORGAN FEDERATED WRL
ASSET TOTAL REAL ESTATE GROWTH & AEGON
RISKS ALLOCATION RETURN SECURITIES INCOME BALANCED
- -----
<S> <C> <C> <C> <C> <C>
STOCKS X X X X X
FIXED-INCOME SECURITIES X X X
CONVERTIBLES X X X
REAL ESTATE SECURITIES X X
QUANTITATIVE MODELS X
NON-DIVERSIFIED X
FOREIGN SECURITIES X
DEPOSITARY RECEIPTS X
</TABLE>
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the short term. These
price movements may result from factors affecting individual companies,
industries or the securities market as a whole.
Because the stocks a portfolio holds fluctuate in price, the value of your
investment in a portfolio will go up and down.
o FIXED-INCOME SECURITIES
The value of these securities may change daily based on changes in the interest
rate, and other market conditions and factors. The risks include:
o Changes in interest rates
o Length of time to maturity
o Issuers defaulting on their obligations to pay interest or return
principal
Prospectus 28
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
o HIGH-YIELD/HIGH-RISK FIXED-INCOME SECURITIES
o Credit risk
o Greater sensitivity to interest rate movements
o More speculative than higher rated securities
o Greater vulnerability to economic changes
o Decline in market value in event of default
o Less liquidity
o CONVERTIBLES
As with all debt securities, the market value of convertibles tends to decline
as interest rates increase and, conversely, to increase as interest rates
decline.
o REAL ESTATE SECURITIES
Investments in the real estate industry are subject to risks associated with
direct investment in real estate. These risks may include:
o Declining real estate value
o Risks relating to general and local economic conditions
o Over-building
o Increased competition for assets in local and regional markets
o Increases in property taxes
o Increases in operating expenses or interest rates
o Change in neighborhood value or the appeal of properties to
tenants
o Insufficient levels of occupancy
o 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 government regulations (including taxes) and social and
economic trends.
o QUANTITATIVE MODELS
Securities selected using statistical models may result in incorrect asset
allocations causing overall returns to be lower than if other methods of
selection were used.
o NON-DIVERSIFIED
To the extent a portfolio invests a greater proportion of its assets in the
securities of a smaller number of issuers, it may be more susceptible to any
single economic, political or regulatory occurrence than a more widely
diversified portfolio and may be subject to greater risks of loss with respect
to its portfolio securities.
YOU MAY LOSE MONEY IF YOU INVEST IN ANY OF THE BALANCED PORTFOLIOS
[GRAPHIC OMITTED] INVESTOR PROFILES
WRL DEAN ASSET ALLOCATION
For the investor who wants a combination of capital growth and income, and who
is comfortable with the risks associated with an actively traded portfolio
which shifts assets between equity and debt.
WRL LKCM STRATEGIC
TOTAL RETURN
For the investor who wants current income with the prospect of income growth,
plus the prospect of capital growth. The investor should be comfortable with
the price fluctuations of a portfolio that invests in both equity and
fixed-income securities.
WRL J.P. MORGAN REAL
ESTATE SECURITIES
For the investor who seeks long-term total return consisting of current income
and, potentially, capital appreciation. The investor should be comfortable with
the risk of a non-diversified portfolio invested primarily in securities of
real estate companies and their exposure to real estate markets.
WRL FEDERATED GROWTH & INCOME
For the investor who seeks high current income and moderate capital
appreciation and is willing to accept certain special risks associated with
sector investing. (A sector is a broad grouping of specific industries.)
WRL AEGON BALANCED
For the investor who wants capital growth and income from the same investment,
but who also wants an investment which has the prospect of sustaining its
interim principal value through maintaining a balance between equity and debt.
This portfolio is not designed for investors who desire a consistent level of
income.
Prospectus 29
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar charts and tables below give an indication of the portfolios' risks and
performance. The charts show changes in a portfolio's performance from year to
year. The performance calculations do not reflect charges or deductions under
the policies or the annuity contracts. These fees and expenses would lower
investment performance. The tables show how a portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
Because the WRL J.P. Morgan Real Estate Securities portfolio commenced
operations in mid-1998, its performance history is not included.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL DEAN ASSET ALLOCATION
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1995 1996 1997 1998 1999
- ---- ---- ---- ----
20.09% 14.42% 16.59% 8.33%
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- ------------------------------------------
QUARTER ENDED
Highest 9.03 % 6/30/97
Lowest (6.01)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------
SINCE
INCEPTION
1 YEAR (JANUARY 3, 1995)
WRL Dean Asset
Allocation 8.33% 14.80%
S&P 500 Index 28.58% 30.59%
- --------------------------------------------------------------------------------
WRL LKCM STRATEGIC TOTAL RETURN
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
(0.53)% 24.66% 15.00% 21.85% 9.64%
HIGHEST AND LOWEST RETURN
(Quarterly 1993-1998)
- -------------------------------------------
QUARTER ENDED
Highest 13.06 % 6/30/97
Lowest (8.05)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ---------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (MARCH 1, 1993)
WRL LKCM Strategic
Total Return 9.64% 13.76% 14.12%
S&P 500 Index 28.58% 24.06% 21.81%
- --------------------------------------------------------------------------------
Prospectus 30
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
WRL FEDERATED GROWTH & INCOME
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1995 1996 1997 1998
- ---- ---- ---- ----
25.25% 11.64% 24.65% 3.05%
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- ------------------------------------------
QUARTER ENDED
Highest 9.72 % 12/31/96
Lowest (2.61)% 9/30/96
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
SINCE
INCEPTION
1 YEAR (MARCH 1, 1994)
WRL Federated
Growth & Income 3.05% 1.78%
Russell 3000 Index 22.32% 20.51%
- --------------------------------------------------------------------------------
WRL AEGON BALANCED
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1995 1996 1997 1998
- ---- ---- ---- ----
19.80% 10.72% 17.10% 6.93%
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- ------------------------------------------
QUARTER ENDED
Highest 9.84 % 12/31/98
Lowest (6.56)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -----------------------------------------------
SINCE
INCEPTION
1 YEAR (MARCH 1, 1994)
WRL AEGON
Balanced 6.93% 9.71%
S&P 500 Index 28.58% 24.80%
- --------------------------------------------------------------------------------
Prospectus 31
<PAGE>
FIXED-INCOME PORTFOLIO(S)
WRL AEGON BOND (FORMERLY BOND PORTFOLIO)
THIS RISK/REWARD SUMMARY BRIEFLY DESCRIBES EACH FIXED-INCOME PORTFOLIO OF THE
FUND AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO(S). FOR FURTHER
INFORMATION ON THE PORTFOLIO(S), PLEASE READ THE SECTION ENTITLED "EXPLANATION
OF STRATEGIES AND RISKS," BEGINNING ON PAGE 39, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL AEGON BOND
This Portfolio seeks the highest possible current income within the confines of
the primary goal of ensuring the protection of capital.
WHAT IS A FIXED-INCOME PORTFOLIO?
Fixed-income portfolios primarily invest in debt securities that pay
interest. When the debt security is purchased, the portfolio owns "debt"
and becomes an indirect creditor to the company or government that issued
the bond.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL AEGON BOND
The portfolio's sub-adviser, AEGON USA Investment Management, Inc. (AIMI) seeks
to achieve the portfolio's objective by investing principally in:
o U.S. government securities obligations, including Treasury and
Agency Securities
o Medium to high-quality corporate bonds
To a lesser extent AIMI may invest in:
o Mortgage-backed securities, including pass-through and
Collateralized Mortgage Obligations (CMOs)
o Asset-backed securities
o U.S. dollar-denominated foreign bonds
o Short-term securities, including agency discount notes and
commercial paper
AIMI takes an approach in the daily management of the portfolio that it
considers to be conservative, striving to participate in the bond market's
advances while preserving capital on the downside.
AIMI uses its Core Fixed-Income Strategy through which it draws from all of its
organizational resources. AIMI utilizes a disciplined process to gather
information on key factors for evaluation of the market environment.
The Fixed-Income Strategy Committee then sets policy directives that reflect
AIMI's interest rate outlook and expectations for the relative performance of
the major bond market sectors.
AIMI then selects securities that are considered by it to be most appropriate
based on AIMI's findings.
[GRAPHIC OMITTED] RISKS
The principal risks of investing in the Fixed-Income Portfolio that may
adversely affect your investment are described below. Please note that there
are many other circumstances that could adversely affect your investment and
prevent a portfolio from achieving its objective, which are not described here.
Please refer to the section entitled "Explanation of Strategies and Risks"
beginning on page 39 and the Fund's SAI for more information about the risks
associated with investing in the Fixed-Income Portfolio.
o FIXED-INCOME SECURITIES
The value of these securities may change daily based on changes in interest
rates, and other market conditions and factors. The risks include:
o Changes in interest rates
o Length of time to maturity
o Issuers defaulting on their obligations to pay interest or return
principal (Credit Risk)
Prospectus 32
<PAGE>
FIXED-INCOME PORTFOLIO(S) (CONTINUED)
o HIGH-YIELD/HIGH-RISK FIXED-INCOME SECURITIES
o Credit risk
o Greater sensitivity to interest rate movements than higher rated
securities
o More speculative than higher rated securities
o Greater vulnerability to economic changes
o Decline in market value in event of default
o Less liquidity
o CREDIT RISK
The price of a bond is affected by the issuer's or counterparty's credit
quality. Changes in financial condition and general economic conditions can
affect the ability to honor financial obligations and therefore credit quality.
Lower quality bonds are generally more sensitive to these changes than higher
quality bonds. Even within securities considered investment grade, differences
exist in credit quality and some investment grade debt securities may have
speculative characteristics. A security's price may be adversely affected by
the market's opinion of the security's credit quality level even if the issuer
or counterparty has suffered no degradation in ability to honor the obligation.
o INTEREST RATE RISK
Bond prices rise when interest rates decline and decline when interest rates
rise. The longer the duration of a bond, the more a change in interest rates
affects the bond's price. Short-term and long-term interest rates may not move
the same amount and may not move in the same direction, which may affect the
sub-adviser's ability to predict interest rate movements and select portfolio
investments.
o MORTGAGE- AND OTHER ASSET-BACKED SECURITIES
o Repayment sooner than stated maturity dates resulting in greater
price and yield volatility than with traditional fixed-income securities
o Prepayments resulting in lower return
o Values may change based on creditworthiness of issuers
o Interest rate risks
o PROPRIETARY RESEARCH
AIMI's proprietary forms of research may not be effective and may cause overall
returns to be lower than if other forms of research are used.
YOU MAY LOSE MONEY IF YOU INVEST IN THIS PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILE
WRL AEGON BOND
For the investor seeking current income with preservation of capital, and who
can tolerate the fluctuation in principal associated with changes in interest
rates.
Prospectus 33
<PAGE>
FIXED-INCOME PORTFOLIO(S) (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below gives an indication of the portfolio's risks and
performance. The chart shows changes in the portfolio's performance from year
to year. The performance calculations do not reflect charges or deductions
under the policies or the annuity contracts. These fees and expenses would
lower investment performance. The table shows how the portfolio's average
annual returns for the periods indicated compare to those of a broad measure of
market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL AEGON BOND
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
14.65% 6.21% 18.85% 6.79% 13.38% -6.94% 22.99% 0.14% 9.16% 9.32%
HIGHEST AND LOWEST RETURN
(Quarterly 1988-1998)
- ------------------------------------------
QUARTER ENDED
Highest 10.39 % 6/30/89
Lowest (4.90)% 3/31/94
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -----------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
WRL AEGON Bond 9.32% 6.46% 9.14%
Lehman Brothers
Government/Corporate
Bond
(LBGC) Index 9.47% 7.31% 9.34%
- --------------------------------------------------------------------------------
Prospectus 34
<PAGE>
CAPITAL PRESERVATION PORTFOLIO(S)
WRL J.P. MORGAN MONEY MARKET (FORMERLY MONEY MARKET PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES THE CAPITAL PRESERVATION
PORTFOLIO(S) AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO. FOR FURTHER
INFORMATION ON THE PORTFOLIOS(S), PLEASE READ THE SECTION ENTITLED "EXPLANATION
OF STRATEGIES AND RISKS," BEGINNING ON PAGE 39, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL J.P. MORGAN MONEY MARKET
This portfolio seeks to obtain maximum current income consistent with
preservation of principal and maintenance of liquidity.
WHAT IS A MONEY MARKET PORTFOLIO?
A money market portfolio tries to maintain a share price of $1.00 while
paying income to its shareholders. A stable share price protects your
investment from loss ("preservation of principal"). If you need to sell
your shares at any time, you should receive your initial investment plus
any income that you have earned (thereby providing "liquidity"). However, a
money market portfolio does not guarantee that you will receive your money
back.
A money market portfolio must follow SEC rules as to the investment
quality, maturity, diversification and other features of the securities it
purchases and the average remaining maturity of the securities cannot be
greater than 90 days. The remaining maturity of a security is the period of
time until the principal amount must be repaid.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL J.P. MORGAN MONEY MARKET
The portfolio's sub-adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan) seeks to achieve the portfolio's objective by investing in:
o U.S. government obligations
o Domestic and certain foreign bank obligations including time
deposits, certificates of deposit, bankers' acceptances and other bank
obligations
o Asset-backed securities
o Repurchase and reverse repurchase agreements
J.P. Morgan will limit its investments to securities that present minimum
credit risks, as determined by guidelines adopted by the Fund's Board. The
portfolio may invest up to 25% of its total assets in securities of a single
issuer if the securities will not be held for more than three business days.
The Fund's Board must approve or ratify any purchase of an unrated security or
a security rated by only one nationally recognized statistical rating
organization (NRSRO).
[GRAPHIC OMITTED] RISKS
The principal risks of investing in the WRL J.P. Morgan Money Market portfolio
that may adversely affect your investment are described below. Please note that
there are circumstances which could adversely affect your investment and
prevent a portfolio from achieving its objective, which are not described here.
Please refer to the section entitled "Explanation of Strategies and Risks,"
beginning on page 39 and the Fund's SAI for more information about the risks
associated with investing in the Capital Preservation Portfolio(s).
o U.S. GOVERNMENT OBLIGATIONS
The value of the U.S. government securities will fluctuate with changing
interest rates. A decrease in interest rates generally results in an increase
in the value of the securities and an increase in interest rates have the
opposite effect.
o BANK OBLIGATIONS
Banks are subject to extensive governmental regulations that may affect an
investment. The profitability of this industry is dependent on the availability
and cost of capital funds for lending under prevailing money market conditions.
Economic conditions and credit losses also affect this type of investment.
Prospectus 35
<PAGE>
CAPITAL PRESERVATION PORTFOLIO(S) (CONTINUED)
o ASSET-BACKED SECURITIES
o Repayment sooner than stated maturity dates resulting in greater
price and yield volatility than with traditional fixed-income securities
o Prepayments resulting in lower return
o Values may change based on creditworthiness of issuers
o Interest rate risks
o REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
A repurchase agreement involves the purchase of a security by a portfolio and a
simultaneous agreement (generally from a bank or broker-dealer) to repurchase
that security back from the portfolio at a specified price and date upon
demand. Repurchase agreements not terminable within seven days are considered
illiquid securities.
Repurchase agreements involve the risk that the seller will fail to repurchase
the security, as agreed. In that case, the 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.
A portfolio invests in a reverse repurchase agreement when it sells a portfolio
security to another party, such as a bank or broker-dealer, in return for cash,
and agrees to buy the security back at a future date and price. While a reverse
repurchase agreement is outstanding, a portfolio will segregate with its
custodian cash and other liquid assets to cover its obligation under the
agreement. Reverse repurchase agreements are considered a form of borrowing by
the portfolio for purposes of the 1940 Act.
Reverse repurchase agreements may expose a portfolio to greater fluctuations in
the value of its assets.
Portfolio shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE THERE IS NO GUARANTEE THAT IT WILL BE ABLE TO DO
SO. YOU MAY LOSE MONEY IF YOU INVEST IN THIS PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILES
WRL J.P. MORGAN MONEY MARKET
For the investor who seeks current income, preservation of capital and
maintenance of liquidity.
Prospectus 36
<PAGE>
CAPITAL PRESERVATION PORTFOLIO(S) (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below gives an indication of the portfolio's risks and
performance. The chart shows changes in the portfolio's performance from year
to year. The performance calculations do not reflect charges or deductions
under the policies or the annuity contracts. These fees and expenses would
lower investment performance. The table shows how the portfolio's average
annual return for the periods indicated compare to those of a broad measure of
market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL J.P. MORGAN MONEY MARKET
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
8.09% 7.09% 5.25% 3.03% 2.45% 3.44% 5.40% 5.03% 5.24% 5.26%
HIGHEST AND LOWEST RETURN
(Quarterly 1988-1998)
- -------------------------------------
QUARTER ENDED
Highest 2.19% July 31, 1989
Lowest 0.56% April 30, 1993
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
WRL J.P. Morgan
Money Market 5.26% 4.87% 5.01%
- --------------------------------------------------------------------------------
7 DAY YIELD
- --------------------------------------------------------------------------------
As of December 31, 1998 4.96%
- --------------------------------------------------------------------------------
Prospectus 37
<PAGE>
RISK/REWARD INFORMATION
BEFORE YOU CHOOSE AN INVESTMENT PORTFOLIO,
PLEASE CONSIDER . . .
All of the investment portfolios involve risk, but there is also the potential
for reward. You can lose money -- and you can make money. The Fund portfolios
are structured so that each offers a slightly different degree of risk and
reward than others.
In this prospectus, we've arranged the portfolios in order of risk/
reward from highest to lowest. Notice the scale at the right. It covers the
full spectrum of risk/reward of the portfolios described in this prospectus.
WHAT RISK/REWARD LEVEL IS FOR YOU? ASK YOURSELF THE FOLLOWING:
(1) HOW WELL DO I HANDLE FLUCTUATIONS IN MY ACCOUNT VALUE?
The higher a portfolio is on the risk/reward spectrum, the more its
price is likely to move up and down on a day to day basis. If this makes
you uncomfortable, you may prefer an investment at the lower end of the
scale that may not fluctuate in price as much.
(2) AM I LOOKING FOR A HIGHER RATE OF RETURN?
Generally, the higher the potential return, the higher the risk. If you
find the potential to make money is worth the possibility of losing
more, then a portfolio at the higher end of the spectrum may be right
for you.
A final note: These portfolios are designed for long-term investment.
Each portfolio has an investment objective that it tries to achieve by
following certain investment strategies and techniques. The objective can be
changed without shareholder vote.
[GRAPHIC OMITTED]
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
Prospectus 38
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS
HOW TO USE THIS SECTION
In the discussions of the individual portfolios on pages 2 through 37, you
found descriptions of the strategies and risks associated with each. In those
pages, you were referred to this section for a more complete description of the
risks. For best understanding, first read the description of the portfolio
you're interested in. Then refer to this section and read about the risks
particular to that portfolio. For even more discussions of strategies and
risks, see the SAI, which is available upon request. See the back cover of this
prospectus for information on how to order the SAI.
[GRAPHIC OMITTED]
DIVERSIFICATION AND CONCENTRATION. The 1940 Act classifies investment companies
as either diversified or non-diversified.
Diversification is the practice of spreading a portfolio's assets over a number
of investments, investment types, industries or countries to reduce risk. A
non-diversified portfolio has the ability to take larger positions in fewer
issuers. Because the appreciation or depreciation of a single security may have
a greater impact on the net asset value of a non-diversified portfolio, its
share price can be expected to fluctuate more than a comparable portfolio.
All of the portfolios (except WRL Salomon All Cap, WRL Third Avenue Value, and
WRL J.P. Morgan Real Estate Securities) qualify as diversified funds under the
1940 Act. The diversified portfolios are subject to the following
diversification requirements (which are set forth in full in the SAI):
o As a fundamental policy, with respect to 75% of the total assets
of a portfolio, the portfolio may not own more than 10% of the outstanding
voting shares of any issuer (other than U.S. government securities) as
defined in the 1940 Act and, with respect to some portfolios, in other
types of cash items.
o As a fundamental policy, with respect to 75% of the total assets
of a portfolio, the portfolio will not purchase a security of any issuer
if such would cause the portfolio's holdings of that issuer to amount to
more than 5% of the portfolio's total assets.
o As a fundamental policy governing concentration, no portfolio
will invest more than 25% of its assets in any one particular industry,
other than U.S. government securities.
WRL Salomon All Cap, WRL Third Avenue Value and WRL J.P. Morgan Real Estate
Securities each reserves the right to become a diversified investment company
(as defined by the 1940 Act).
[GRAPHIC OMITTED]
INVESTING IN COMMON STOCKS. Many factors cause common stocks to go up and down
in price. A major one is the financial performance of the company that issues
the stock. Other factors include the overall economy, conditions in a
particular industry, and monetary factors like interest rates. When your
portfolio holds stocks, there's a risk that some or all of them may be down in
price when you choose to sell, causing you to lose money. This is called MARKET
RISK.
[GRAPHIC OMITTED]
INVESTING IN PREFERRED STOCKS. Because these stocks come with a promise to pay
a stated dividend, their price depends more on the size of the dividend than on
the company's performance. But if a company fails to pay the dividend, its
preferred stock is likely to drop in price. Changes in interest rates can also
affect their price. (See "Investing in Bonds," below.)
[GRAPHIC OMITTED]
INVESTING IN CONVERTIBLE SECURITIES, PREFERRED STOCKS, AND BONDS. Since
preferred stocks and corporate bonds pay a stated return, their prices usually
don't depend on the price of the company's common stock. But some companies
issue preferred stocks and bonds that are CONVERTIBLE into their common stocks.
Linked to the common stock in this way, convertible securities go up and down
in price as the common stock does, adding to their market risk.
[GRAPHIC OMITTED]
VOLATILITY. The more an investment goes up and down in price, the more VOLATILE
it is. Volatility increases the market risk because even though your portfolio
may go UP more than the market in good times, it may also go
Prospectus 39
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
DOWN more than the market in bad times. If you decide to sell when a volatile
portfolio is down, you could lose more.
[GRAPHIC OMITTED]
INVESTING IN BONDS. Like common stocks, bonds fluctuate in value, though the
factors causing this fluctuation are different, including:
o CHANGES IN INTEREST RATES. Bond prices tend to move the opposite
of interest rates. Why? Because when interest rates on new bond issues go
up, rates on existing bonds stay the same and they become less desirable.
When rates go down, the reverse happens. This is also true for most
preferred stocks and some convertible securities.
o LENGTH OF TIME TO MATURITY. When a bond matures, the issuer must
pay the owner its face value. If the maturity date is a long way off, many
things can affect its value, so a bond is more volatile the farther it is
from maturity. As that date approaches, fluctuations usually become
smaller and the price gets closer to face value.
o DEFAULTS. All bond issuers make at least two promises: (1) to
pay interest during the bond's term and (2) to return principal when it
matures. If an issuer fails to keep one or both of these promises, the
bond will probably drop in price dramatically, and may even become
worthless. Changes in financial condition and general economic conditions
can affect the ability to honor financial obligations and therefore credit
quality. A security's price may be adversely affected by the market's
opinion of the security's credit quality level even if the issuer or
counterparty has suffered no degradation in ability to honor the
obligation.
o DECLINES IN RATINGS. At the time of issue, most bonds are rated
by professional rating services, such as Moody's Investors Service, Inc.
(Moody's) and Standard & Poor's Corporation (S&P). The stronger the
financial backing behind the bond, the higher the rating. If this backing
is weakened or lost, the rating service may downgrade the bond's rating.
This is virtually certain to cause the bond to drop in price. Bonds that
are rated below BBB by S&P, and below Ba by Moody's, are considered to be
below investment grade. Moody's rates bonds in nine categories, from Aaa
to C, with Aaa being the highest with least risk. S&P rates bonds in six
categories, from AAA to D, with AAA being the highest.
o LOW RATING. High-yield/high-risk fixed-income securities
(commonly known as "junk bonds") have greater credit risk, are more
sensitive to interest rate movements, are considered more speculative than
higher rated bonds, have a greater vulnerability to economic changes and
are less liquid. The market for such securities may be less active than
for higher rated securities, which can adversely affect the price at which
these securities may be sold and may diminish a portfolio's ability to
obtain accurate market quotations when valuing the portfolio securities
and calculating the portfolio's net asset value.
o LACK OF RATING. Some bonds are considered speculative, or for
other reasons are not rated. Such bonds must pay a higher interest rate in
order to attract investors. They're considered riskier because of the
higher possibility of default or loss of liquidity.
o LOSS OF LIQUIDITY. If a bond is downgraded, or for other reasons
drops in price, the market demand for it may "dry up". In that case, the
bond may be hard to sell or "liquidate" (convert to cash).
[GRAPHIC OMITTED]
INVESTING IN FOREIGN SECURITIES. These are investments offered by foreign
companies, governments and government agencies. They involve risks not usually
associated with U.S. securities, including:
o CHANGES IN CURRENCY VALUES. Foreign securities are sold in
currencies other than U.S. dollars. If a currency's value drops, the value
of the securities held by a portfolio could drop too, even if the
securities are strong. In turn, the value of the shares of the portfolio
could also drop. Dividend and interest payments may be lower. Factors
affecting exchange rates are: differing interest rates among countries;
balances of trade; amount of a country's overseas investments; and any
currency manipulation by banks.
o CURRENCY SPECULATION. The foreign currency market is largely
unregulated and subject to speculation.
o ADRS/ADSS. Some portfolios also invest in American Depositary
Receipts (ADRs) and American Depositary Shares (ADSs). They represent
securities
Prospectus 40
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
of foreign companies traded on U.S. exchanges, and their values are expressed
in U.S. dollars. Changes in the value of the underlying foreign currency will
change the value of the ADR or ADS. A portfolio incurs costs when it converts
other currencies into dollars, and vice-versa.
o EURO CONVERSION. On January 1, 1999, certain participating countries in the
European Economic Monetary Union adopted the "Euro" as their official
currency. Other EU member countries may convert to the Euro at a later date.
As of January 1, 1999, governments in participating countries issued new debt
and redenominated existing debt in Euros; corporations chose to issue stocks
or bonds in Euros or national currency. The new European Central Bank (the
"ECB") will assume responsibility for a uniform monetary policy in
participating countries. Euro conversion risks that could affect a
portfolio's foreign investments include: (1) the readiness of Euro payment,
clearing, and other operational systems; (2) the legal treatment of debt
instruments and financial contracts in existing national currencies rather
than the Euro; (3) exchange-rate fluctuations between the Euro and non-Euro
currencies during the transition period of January 1, 1999 through December
31, 2002 and beyond; (4) potential U.S. tax issues with respect to portfolio
securities; and (5) the ECB's abilities to manage monetary policies among the
participating countries; and (6) the ability of financial institution systems
to process Euro transactions.
o DIFFERENT ACCOUNTING AND REPORTING PRACTICES. Foreign tax laws are different,
as are laws, practices and standards for accounting, auditing and reporting
data to investors.
o LESS INFORMATION AVAILABLE TO THE PUBLIC. Foreign companies usually make less
information available to the public.
o LESS REGULATION. Securities regulations in many foreign countries are more
lax than in the U.S.
o MORE COMPLEX NEGOTIATIONS. Because of differing business and legal
procedures, a portfolio may find it hard to enforce obligations or negotiate
favorable brokerage commission rates.
o LESS LIQUIDITY/MORE VOLATILITY. Some foreign securities are harder to convert
to cash than U.S. securities, and their prices may fluctuate more
dramatically.
o SETTLEMENT DELAYS. "Settlement" is the process of completing a securities
transaction. In many countries, this process takes longer than it does in the
U.S.
o HIGHER CUSTODIAL CHARGES. Fees charged by the Fund's custodian for holding
shares are higher for foreign securities than that of domestic securities.
o HIGHER TRANSACTION COSTS. Fees charged by securities brokers are often higher
for transactions involving foreign securities than domestic securities.
Higher expenses, such as brokerage fees, may reduce the return a portfolio
might otherwise achieve.
o VULNERABILITY TO SEIZURE AND TAXES. Some governments can seize assets. They
may also limit movement of assets from the country. A portfolio's interest,
dividends and capital gains may be subject to foreign withholding taxes.
o POLITICAL INSTABILITY AND SMALL EMERGING MARKETS. Developing countries can be
politically unstable. Economies can be dominated by a few industries, and
markets may trade a small number of securities. Regulations of banks and
capital markets can be weak.
o DIFFERENT MARKET TRADING DAYS. Foreign markets may not be open for trading
when U.S. markets are and asset values can change before your transaction
occurs.
o HEDGING. A portfolio may, but will not necessarily, enter into forward
currency contracts to hedge against declines in the value of securities
denominated in, or whose value is tied to, a currency other than the U.S.
dollar or to reduce the impact of currency fluctuation on purchases, and
sales of such securities.
[GRAPHIC OMITTED]
INVESTING IN FUTURES, OPTIONS AND DERIVATIVES. Besides conventional securities,
your portfolio may seek to increase returns by investing in financial contracts
related to its primary investments. Such contracts involve additional risks and
costs. Risks include:
o INACCURATE MARKET PREDICTIONS. If the sub-adviser is wrong in its
expectation, for example, with respect to interest rates, securities prices
or currency markets, the contracts could produce losses instead of gains.
Prospectus 41
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
o PRICES MAY NOT MATCH. Movements in the price of the financial contracts may
be used to offset movements in the price of other securities you own. If
those prices don't correlate or match closely, the benefits of the
transaction might be diminished.
o ILLIQUID MARKETS. If there's no market for the contracts, the portfolio may
not be able to control losses.
o TAX CONSEQUENCES. Sometimes the possibility of incurring high taxes on a
transaction may delay closing out a position and limit the gains it would
have produced.
[GRAPHIC OMITTED]
INVESTING IN SPECIAL SITUATIONS. Each portfolio may invest in "special
situations" from time to time. Special situations arise when, in the opinion of
a portfolio manager, a company's securities may be undervalued, then increase
considerably in price, due to:
o A NEW PRODUCT OR PROCESS
o A MANAGEMENT CHANGE
o A TECHNOLOGICAL BREAKTHROUGH
o AN EXTRAORDINARY CORPORATE EVENT
o A TEMPORARY IMBALANCE IN THE SUPPLY OF, AND DEMAND FOR, THE
SECURITIES OF AN ISSUER
Investing in a special situation carries an additional risk of loss if the
expected development does not happen or does not attract the expected
attention. The impact of special situation investing to a portfolio will depend
on the size of a portfolio's investment in a situation.
[GRAPHIC OMITTED]
CASH POSITION
A portfolio may, at times, choose to hold some portion of its net assets in
cash, or to invest that cash in a variety of short-term debt securities that
are considered cash equivalents. This may be done as a temporary 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.
[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 short-term
securities) for a year and dividing it by the monthly average of the market
value of such securities during the year.
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 unforeseen developments.
The rate of portfolio turnover will not be a limiting factor when short-term
investing is considered appropriate. Increased turnover rates result in higher
brokerage costs and other transaction based expenses for a portfolio. These
charges are ultimately borne by the policyholders.
[GRAPHIC OMITTED]
SHORT SALES
A 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 convertible into, or exchangeable without
further consideration for, securities of the same issue as the securities sold
short.
[GRAPHIC OMITTED] INVESTMENT STRATEGIES
A portfolio is permitted to use other securities and investment strategies in
pursuit of its investment objective, subject to limits established by the
Fund's Board of Director. No portfolio is under any obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. Certain instruments and investment strategies may expose the
portfolios to other risks and considerations, which are discussed in the Fund's
SAI.
Prospectus 42
<PAGE>
HOW THE FUND IS MANAGED AND ORGANIZED
[GRAPHIC OMITTED]
HOW THE FUND IS MANAGED AND ORGANIZED
The Fund's Board is responsible for managing the business affairs of the Fund.
It oversees the operation of the Fund by its officers. It also reviews the
management of the portfolios' assets by the investment adviser and
sub-advisers. Information about the Directors and executive officers of the
Fund is contained in the SAI.
WRL Investment Management, Inc. (WRL Management) located at 570 Carillon
Parkway, St. Petersburg, Florida 33716, has served as the Fund's investment
adviser since 1997. (Prior to this date, Western Reserve served as investment
adviser to the Fund). The investment adviser is a direct, wholly-owned
subsidiary of Western Reserve Life Assurance Co. of Ohio (Western Reserve),
which is wholly-owned by First AUSA Life Insurance Company, a stock life
insurance company, which is wholly-owned by AEGON USA, Inc. AEGON USA, Inc. is
a financial services holding company whose primary emphasis is on life and
health insurance and annuity and investment products. AEGON USA, Inc. is a
wholly-owned indirect subsidiary of AEGON N.V., a Netherlands corporation which
is a publicly traded international insurance group. The investment adviser had
no prior experience as an adviser.
Subject to the supervision of the Fund's Board, the investment adviser is
responsible for furnishing continuous advice and recommendations to the Fund as
to the acquisition, holding or disposition of any or all of the securities or
other assets which the portfolios may own or contemplate acquiring from time to
time; to cause its officers to attend meetings and furnish oral or written
reports, as the Fund may reasonably require, in order to keep the Fund's Board
and appropriate officers of the Fund fully informed as to the conditions of the
investment portfolio of each portfolio, the investment recommendations of the
investment adviser, and the investment considerations which have given rise to
those recommendations; to supervise the purchase and sale of securities of the
portfolios as directed by the appropriate officers of the Fund; and to maintain
all books and records required to be maintained by the investment adviser.
As compensation for its services to the portfolios, the investment adviser
receives monthly compensation at an annual rate of a percentage of the average
daily net assets of each portfolio. The advisory fees for each portfolio are:
ADVISORY
PORTFOLIO FEE
WRL Janus Growth* 0.80%
WRL AEGON Bond 0.45%
WRL Janus Global** 0.80%
WRL J.P. Morgan Money
Market 0.40%
WRL AEGON Balanced 0.80%
WRL GE/Scottish
Equitable International
Equity 1.00%
WRL Third Avenue Value 0.80%
WRL VKAM Emerging
Growth 0.80%
WRL LKCM Strategic
Total Return 0.80%
WRL Alger Aggressive
Growth 0.80%
WRL Federated Growth
& Income 0.75%
WRL Dean Asset
Allocation 0.80%
WRL C.A.S.E. Growth 0.80%
WRL NWQ Value Equity 0.80%
WRL GE U.S. Equity 0.80%
WRL J.P. Morgan Real
Estate Securities 0.80%
WRL Salomon All Cap 0.90% up to $100 million
0.80% over $100 million
WRL T. Rowe Price 0.90% up to $100 million
Dividend Growth 0.80% over $100 million
WRL T. Rowe Price
Small Cap 0.75%
WRL Dreyfus Mid Cap 0.85% up to $100 million
0.80% over $100 million
WRL Pilgrim Baxter 0.90% up to $100 million
Mid Cap Growth 0.80% over $100 million
WRL Goldman Sachs
Small Cap 0.90%
WRL Goldman Sachs 0.90% up to $100 million
Growth 0.80% over $100 million
* WRL Management currently waives 0.025% of its advisory fee for the first $3
billion of the portfolio's average daily net assets (net fee -- 0.775%); and
0.05% of assets above $3 billion (net fee -- 0.75%). This waiver is voluntary
and may be terminated at any time.
** WRL Management currently waives 0.025% of its advisory fee for the
portfolio's average daily net assets above $2 billion (net fee -- 0.775%.) This
waiver is voluntary and may be terminated at any time.
Prospectus 43
<PAGE>
HOW THE FUND IS MANAGED AND ORGANIZED (CONTINUED)
Here is a listing of the sub-advisers and the portfolios they manage:
SUB-ADVISER PORTFOLIO
Alger WRL Alger Aggressive Growth
SEIM WRL GE/Scottish Equitable
International Equity
GEIM WRL GE/Scottish Equitable
International Equity
WRL GE U.S. Equity
Janus WRL Janus Global
WRL Janus Growth
C.A.S.E. WRL C.A.S.E. Growth
NWQ WRL NWQ Value Equity
Dean WRL Dean Asset Allocation
AIMI WRL AEGON Bond
WRL AEGON Balanced
T. Rowe Price WRL T. Rowe Price
Dividend Growth
WRL T. Rowe Price Small Cap
SBAM WRL Salomon All Cap
GSAM WRL Goldman Sachs Growth
WRL Goldman Sachs Small Cap
Pilgrim Baxter WRL Pilgrim Baxter
Mid Cap Growth
VKAM WRL VKAM Emerging Growth
EQSF WRL Third Avenue Value
LKCM WRL LKCM Strategic
Total Return
J.P. Morgan WRL J.P. Morgan Real
Estate Securities
WRL J.P. Morgan
Money Market
Federated WRL Federated Growth
& Income
Dreyfus WRL Dreyfus Mid Cap
DAY-TO-DAY MANAGEMENT OF THE INVESTMENTS IN EACH PORTFOLIO IS THE
RESPONSIBILITY OF THE PORTFOLIO MANAGER. THE PORTFOLIO MANAGERS OF THE FUND
ARE:
WRL VKAM EMERGING GROWTH
GARY M. LEWIS is primarily responsible for the day to day management of this
portfolio. Mr. Lewis has been senior vice president of VKAM since October,
1995. Previously, he has served as vice president/portfolio manager of VKAM
from 1989 to October 1995.
WRL T. ROWE PRICE SMALL CAP
RICHARD T. WHITNEY, CFA has managed this portfolio since inception and heads
the Investment Team for this portfolio. He joined T. Rowe Price in 1985.
WRL GOLDMAN SACHS SMALL CAP
ROBERT C. JONES, MANAGING DIRECTOR, has served as the head of an investment
team that has managed the portfolio since its inception. Mr. Jones joined GSAM
as a portfolio manager in 1989.
WRL PILGRIM BAXTER MID CAP GROWTH
JEFFREY A. WRONA, CFA has managed this portfolio since inception. Prior to
joining Pilgrim Baxter, he was a senior portfolio manager at Munder Capital
Management.
WRL ALGER AGGRESSIVE GROWTH
DAVID D. ALGER has been employed by Alger since 1971 and has served as
president since 1995. He has managed this portfolio since inception.
DAVID HYUN has served as co-manager of this portfolio since February 1998. He
has been employed by Alger as a senior research analyst since 1991 and a
portfolio manager since 1997.
WRL THIRD AVENUE VALUE
MARTIN J. WHITMAN has served as portfolio manager of this portfolio since its
inception. He is Chairman, President and Chief Executive Officer of the sub-
Prospectus 44
<PAGE>
HOW THE FUND IS MANAGED AND ORGANIZED (CONTINUED)
WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
At SEIM, investment strategy is formulated by the Investment Strategy Group.
RUSSELL HOGAN leads the investment strategy team. Mr. Hogan is the Investment
Director of Scottish Equitable PLC, parent company of SEIM. He oversees all
aspects of asset management. He has been with SEIM for 14 years and has been
the team leader since the portfolio's inception.
At GEIM, RALPH R. LAYMAN leads a team of portfolio managers. He has served in
that capacity since the portfolio's inception. Mr. Layman joined GEIM in 1991
as an executive vice president for international investments.
WRL JANUS GLOBAL
HELEN YOUNG HAYES has been employed by Janus since 1987 and has managed this
portfolio since its inception.
WRL SALOMON ALL CAP
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.
WRL JANUS GROWTH
SCOTT W. SCHOELZEL and EDWARD KEELY serve as co-managers of this portfolio. Mr.
Schoelzel has managed this portfolio since January 1996. Before that, he was
co-manager of this portfolio since 1995. He has been employed by Janus since
1994.
Mr. Keely has managed the portfolio since January 1999. He has been employed by
Janus since 1998. Prior to joining Janus, he was a senior vice president of
investments at Founders.
WRL GOLDMAN SACHS GROWTH
HERBERT E. EHLERS has served as head of a six person investment team that has
managed the portfolio since inception. Prior to joining GSAM in 1997, he was
chief investment officer at Liberty Investment Management, Inc. from 1994-1997.
WRL C.A.S.E GROWTH
This portfolio is managed by a team of professionals, called the Portfolio
Management Committee. WILLIAM E. LANGE is the head manager of this Committee.
He has been president of C.A.S.E. since 1984.
WRL GE U.S. EQUITY
EUGENE K. BOLTON leads a team of portfolio managers for this portfolio. He has
served in that capacity since the portfolio's inception. Mr. Bolton joined GEIM
in 1984 as Chief Financial Officer and has been a portfolio manager since 1986.
WRL DREYFUS MID CAP
JOHN O'TOOLE has served as portfolio manager since inception and has been
employed by Dreyfus as portfolio manager since 1994. Mr. O'Toole is a senior
vice president and portfolio manager for Mellon Equity Associates. He has been
employed by Mellon Bank since 1979.
WRL NWQ VALUE EQUITY
EDWARD C. FRIEDEL has been the senior manager of this portfolio since
inception. He has been a managing director and investment strategist with NWQ
since 1983.
WRL T. ROWE PRICE
DIVIDEND GROWTH
WILLIAM J. STROMBERG, CFA has managed this portfolio since inception and heads
the Investment Team for this Portfolio. He joined T. Rowe Price in 1986.
WRL DEAN ASSET ALLOCATION
JOHN C. RIAZZI, CFA and ARVIND SACHDEVA, CFA have served as co-portfolio
managers since the portfolio's inception.
Mr. Riazzi is the senior manager of this portfolio. He joined Dean in 1989.
Mr. Arvind Sachdeva is the senior equity strategist of this portfolio. He
joined Dean in 1993.
Prospectus 45
<PAGE>
HOW THE FUND IS MANAGED AND ORGANIZED (CONTINUED)
WRL LKCM STRATEGIC TOTAL RETURN
LUTHER KING, JR., CFA and SCOT C. HOLLMANN, CFA have co-managed this portfolio
since inception.
Mr. King has been the president of Luther King since 1979.
Mr. Hollmann has been a vice president of Luther King since 1983.
WRL J.P. MORGAN REAL ESTATE SECURITIES
DANIEL P. O'CONNOR serves as portfolio manager of this portfolio. Mr. O'Conner
has been a portfolio manager since the porfolio's inception. Prior to joining
J.P. Morgan in 1996, Mr. O'Conner served two years as Director of Real Estate
Securities at INVESCO.
WRL FEDERATED GROWTH & INCOME
STEVEN J. LEHMAN, CFA and LINDA A. DUESSEL, CFA serve as co-portfolio managers
of this portfolio.
Mr. Lehman has served as co-portfolio manager since 1997. He joined Federated
in 1997. From 1985 to 1997, he served as portfolio manager, vice president and
senior portfolio manager at First Chicago NBD.
Ms. Duessel has been employed by Federated since 1991 and has been a portfolio
manager of this portfolio since 1996.
WRL AEGON BALANCED
MICHAEL VAN METER has served as the senior portfolio manager of this portfolio
since inception. Mr. Van Meter has been employed by VMF Capital, LLC (VMF)
since July, 1998. Prior to joining VMF, Mr. Van Meter was employed by AIMI.
WRL AEGON BOND
CLIFFORD A. SHEETS, CFA and JARRELL D. FREY, CFA serve as co-portfolio managers
of this portfolio. Mr. Sheets and Mr. Frey has served as co-portfolio managers
since 1998. Mr. Sheets joined AIMI in 1990 and Mr. Frey joined in 1994.
WRL J.P. MORGAN MONEY MARKET
ROBERT R. JOHNSON serves as portfolio manager of this portfolio. He has been
employed by J.P. Morgan since 1988.
Prospectus 46
<PAGE>
PERFORMANCE INFORMATION
The Fund may include quotations of a portfolio's total return or yield in
connection with the total return for the appropriate separate account, in
advertisements, sales literature or reports to policyowners or to prospective
investors. Total return and yield quotations for a portfolio reflect only the
performance of a hypothetical investment in the portfolio during the particular
time period shown as calculated based on the historical performance of the
portfolio during that period. SUCH QUOTATIONS DO NOT IN ANY WAY INDICATE OR
PROJECT FUTURE PERFORMANCE. Quotations of total return and yield will not
reflect charges or deductions against the separate accounts or charges and
deductions against the policies or the annuity contracts. Where relevant, the
prospectuses for the policies and the annuity contracts contain performance
information which show total return and yield information for the separate
accounts, policies or annuity contracts.
YIELD
Yield quotations for the WRL AEGON Bond portfolio refer to the income generated
by a hypothetical investment in the portfolio over a specified thirty-day
period expressed as a percentage rate of return for that period. The yield is
calculated by dividing the net investment income per share for the period by
the price per share on the last day of that period.
TOTAL RETURN
Total return refers to the average annual percentage change in value of an
investment in a portfolio held for a stated period of time as of a stated
ending date. When a portfolio has been in operation for the stated period, the
total return for such period will be provided if performance information is
quoted. Total return quotations are expressed as average annual compound rates
of return for each of the periods quoted. They also reflect the deduction of a
proportionate share of a portfolio's investment advisory fees and direct
portfolio expenses, and assume that all dividends and capital gains
distributions during the period are reinvested in the portfolio when made.
SIMILAR SUB-ADVISER PERFORMANCE
A portfolio may disclose in advertisements, supplemental sales literature, and
reports to policyowners or to prospective investors total returns of an
EXISTING SEC-REGISTERED fund that is managed by the portfolio's sub-adviser and
that has investment objectives, policies, and strategies substantially similar
to those of such portfolio (a "Similar Sub-Adviser Fund"). ALTHOUGH THE SIMILAR
SUB-ADVISER FUNDS HAVE SUBSTANTIALLY SIMILAR INVESTMENT OBJECTIVES, POLICIES,
AND STRATEGIES AS THE DESIGNATED PORTFOLIO, AND ARE MANAGED BY THE SAME
SUB-ADVISER AS THE DESIGNATED PORTFOLIO, YOU SHOULD NOT ASSUME THAT ANY
PORTFOLIO WILL HAVE THE SAME FUTURE PERFORMANCE AS SIMILAR SUB-ADVISER FUNDS
WHOSE TOTAL RETURNS ARE SHOWN. Each portfolio's future performance may be
greater or less than the historical performance of the corresponding Similar
Sub-Adviser Fund. There can be no assurance, and no representation is made,
that the investment results of any portfolio will be comparable to the results
of any of the Similar Sub-Adviser Funds or any other fund managed by WRL
Management or any sub-adviser.
The table below sets forth certain portfolios of the Fund and, for each
portfolio's respective Similar Sub-Adviser Fund, the fund's inception date,
asset size, and the average annual total returns for the one, five and ten year
periods (or life of the Similar Sub-Adviser Fund, if shorter) ended December
31, 1998. These figures are based on the actual investment performance of the
Similar Sub-Adviser Funds. Each Similar
Sub-Adviser Fund has higher total expenses than its corresponding portfolio of
the Fund. The average annual total returns for the Similar Sub-Adviser Funds
are shown with and without the deductions of any applicable sales load. YOU
SHOULD NOTE THAT THE PERFORMANCE OF THE SIMILAR SUB-ADVISER FUNDS DOES NOT
REFLECT THE HISTORICAL PERFORMANCE OF ANY PORTFOLIOS.
Prospectus 47
<PAGE>
PERFORMANCE INFORMATION (CONTINUED)
SIMILAR SUB-ADVISER FUND PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(WITH SALES LOADS)
-------------------------------
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
WRL PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ----------------------------- ----------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
WRL Janus Global Janus Worldwide(1) 5/15/91 $18.5 15.44% 21.13% 21.29%
billion
WRL Alger Aggressive Growth The Alger Fund Class A $349.3 31.85% N/A 26.38%
Capital Appreciation 12/31/96 million
Class A Shares(2) (Net) (all classes)
WRL VKAM Emerging Growth Van Kampen Class A $5,196.5 26.98% 19.53% 17.85%
Emerging Growth(3) 10/2/70 million
WRL Third Avenue Value Third Avenue 11/1/90 $1.6 3.92% 13.93% 20.08%
Value Fund(4) billion
WRL Dreyfus Mid Cap Dreyfus Premier Midcap Class A $186.6 2.40% N/A 18.92%
Stock Fund(9) 4/6/94 million
(all classes)
WRL Goldman Sachs Growth Goldman Sachs Capital Class A $2,187.8 26.53% 20.89% 18.99%
Growth Fund(6) 4/20/90 million
(all classes)
WRL Goldman Sachs Small Cap Goldman Sachs CORE Class A $145.6 -11.17% N/A -2.93%
Small Cap Equity Fund(7) 8/15/97 million
(all classes)
WRL T. Rowe Price T. Rowe Price Dividend 12/30/92 $1.3 15.04% 20.48% 20.29%
Dividend Growth Growth Fund(1) billion
WRL T. Rowe Price Small Cap T. Rowe Price Diversified 6/30/97 $7.9 3.58% N/A 7.14%
Small-Cap Growth Fund(1) million
WRL Pilgrim Baxter PBHG Growth II Portfolio(5) 5/1/97 $19 million 8.19% N/A 9.46%
Mid Cap Growth
WRL Salomon All Cap Salomon Brothers Class O $240.9 23.83% 19.37% 17.56%
Capital Fund(8) 11/1/96 million
(all classes)
</TABLE>
(1) The Janus Worldwide Fund and T. Rowe Price Dividend Growth and T. Rowe
Price Diversified Small Cap Growth Funds do not have sales loads.
(2) Total returns are for Class A shares of The Alger Fund Capital Appreciation
Portfolio and reflect a deduction of a 4.75% front-end sales load. The
Portfolio also offers Class B and Class C shares with different sales
loads. Calculating total return with those sales loads may have resulted
in lower total returns. The inception dates for Class A, B and C shares
are 12/31/96, 10/29/93 and 8/1/97, respectively.
(3) Total returns are for Class A shares of the Van Kampen Emerging Growth Fund
and reflect a deduction of a 5.75% front end sales load. The fund also has
Class B and Class C shares with different sales loads. Calculating total
return with those sales loads may have resulted in lower total returns.
(4) 5 year total return for the Third Avenue Value Fund reflects a sales load
of 5.75% in effect during the fifth year.
(5) The PBHG Growth II Portfolio does not have a sales load. The Portfolio
commenced operations on May 1, 1997.
(6) Total returns are for Class A shares of the Goldman Sachs Capital Growth
Fund and reflects a deduction of a 5.5% front-end sales load. The Fund also
offers Class B and Class C shares with different sales loads. Calculating
total return with those sales loads may have resulted in lower total
returns.
(7) Total returns are for Class A shares of the Goldman Sachs CORE Small Cap
Equity Fund and reflects a deduction of a 5.5% front-end sales load. The
fund also offers Class B and Class C shares with different sales loads.
Calculating total returns with those sales loads may have resulted in lower
total returns.
(8) Total returns are for Class O shares of the Salomon Brothers Capital Fund.
Class O shares are sold without any sales charge to the fund. The fund
also offers Class A, Class B and Class 2 shares.
(9) Total returns are for Class A of the Dreyfus Premier Mid Cap Stock Fund and
respect the deduction of a 5.75% front-end sales load. The Fund also
offers Class B and Class C shares with different sales loads. Calculating
total returns with those sales loads may have resulted in lower total
returns.
Prospectus 48
<PAGE>
PERFORMANCE INFORMATION (CONTINUED)
SIMILAR SUB-ADVISER FUND PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(WITHOUT SALES LOADS)
-------------------------------
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
WRL PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- --------------------------- ----------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
WRL Janus Global Janus Worldwide(1) 5/15/91 $18.5 15.44% 21.13% 21.29%
billion
WRL Alger Aggressive Growth The Alger Fund(1) Class A $349.3 38.42% N/A 29.49%
Capital Appreciation 12/31/96 million
WRL VKAM Emerging Growth Van Kampen Class A $5,196.5 34.73% 20.96% 18.08%
Emerging Growth 10/2/70 million
WRL Third Avenue Value Third Avenue 11/1/90 $1.6 3.92% 15.28% 20.08%
Value Fund billion
WRL Dreyfus Mid Cap Dreyfus Premier Midcap Class R $186.6 8.63% N/A 20.41%
Stock Fund 11/12/93 million
(all classes)
WRL Goldman Sachs Growth Goldman Sachs Capital Class A $2,187.8 33.88% 22.27% 19.76%
Growth Fund(1) 4/20/90 million
(all classes)
WRL Goldman Sachs Small Cap Goldman Sachs CORE Class A $145.6 -5.96% N/A 1.11%
Small Cap Equity Fund(1) 8/15/97 million
(all classes)
WRL T. Rowe Price Dividend T. Rowe Price Dividend 12/30/92 $1.3 15.04% 20.48% 20.29%
Growth Growth Fund(2) billion
WRL T. Rowe Price Small Cap T. Rowe Price Diversified 6/30/97 $7.9 3.58% N/A 7.14%
Small-Cap Growth Fund(2) million
WRL Pilgrim Baxter Mid Cap PBHG Growth II Portfolio 5/1/97 $18 million 8.19% N/A 9.46%
Growth
WRL Salomon All Cap Salomon Brothers Class O $240.9 23.83% 19.37% 17.56%
Capital Fund(3) 11/1/96 million
(all classes)
</TABLE>
(1) The fund offers Class B and Class C shares as well. Returns for those
classes may differ from those of Class A shares due to differing fee
structures.
(2) The T. Rowe Price Dividend Growth and T. Rowe Price Diversified Small-Cap
Growth Funds do not have a sales loads.
(3) The Salomon Brothers Capital Fund Class O shares does not have a sales
load.
THE PERFORMANCE OF SIMILAR SUB-ADVISER FUNDS DOES NOT REFLECT ANY OF THE
CHARGES, FEES, AND EXPENSES IMPOSED UNDER THE POLICIES OR ANNUITY CONTRACTS.
SUCH PERFORMANCE WOULD IN EACH CASE BE LOWER IF IT REFLECTED THESE CHARGES,
FEES AND EXPENSES. SEE THE CONTRACT FORM OR DISCLOSURE DOCUMENT FOR THE POLICY
OR ANNUITY CONTRACT. (THE DISCLOSURE DOCUMENTS FOR THE POLICY OR ANNUITY
CONTRACT DESCRIBE SIMILAR SUB-ADVISERS FUNDS AS "SIMILAR SUB-ADVISED FUNDS.")
(See the SAI for more information about the portfolios' performance.)
Prospectus 49
<PAGE>
OTHER INFORMATION
[GRAPHIC OMITTED] PURCHASE AND REDEMPTION OF SHARES
As described earlier in the prospectus, shares of the portfolios are sold
exclusively to certain separate accounts of Western Reserve Life Assurance Co.
of Ohio, PFL Life Insurance Company, AUSA Life Insurance Company, Inc. and
Peoples Benefit Life Insurance Company and are not offered to the public.
Shares are sold and redeemed at their net asset value without the imposition of
any sales commission or redemption charge. (However, certain sales or other
charges may apply to the policies or annuity contracts, as described in the
product prospectus.)
[GRAPHIC OMITTED] VALUATION OF SHARES
Each portfolio's net asset value per share is ordinarily determined once daily,
as of the close of the regular session of business on the New York Stock
Exchange (NYSE) (usually 4:00 p.m., Eastern Time), on each day the exchange is
open.
Net asset value (NAV) of a portfolio share is computed by dividing the value of
the net assets of the portfolio by the total number of shares outstanding in
the portfolio. Share prices for any transaction are those next calculated after
receipt of an order.
WHAT IS NET ASSET VALUE?
The net asset value of a portfolio share is computed by dividing the value
of the net assets of the portfolio by the total number of shares
outstanding in the portfolio.
Except for money market instruments maturing in 60 days or less, securities
held by portfolios (other than the WRL J.P. Morgan Money Market) are valued at
market value. If market values are not readily available, securities are valued
at fair value as determined by the Fund's Valuation Committee under the
supervision of the Fund's Board.
Money market instruments maturing in 60 days or less, and all securities held
in the WRL J.P. Morgan Money Market, are valued on the amortized cost basis.
Under this method, the NAV of the money market portfolio shares is expected to
remain at a constant $1.00 per share, although there can be no assurance that
the portfolio will be able to maintain a stable NAV. (See the SAI for details.)
[GRAPHIC OMITTED] DIVIDENDS AND DISTRIBUTIONS
Each portfolio intends to distribute substantially all of its net investment
income, if any. Dividends from investment income of a portfolio normally are
declared daily and reinvested monthly in additional shares of the portfolio at
net asset value. Distributions of net realized capital gains from security
transactions normally are declared and paid in additional shares of the
portfolio at the end of the fiscal year.
[GRAPHIC OMITTED] TAXES
Each portfolio has either qualified and expects to continue to qualify or will
qualify in its initial year as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended ("Code"). As qualified, a
portfolio is not subject to federal income tax on that part of its taxable
income that it distributes to you. Taxable income consists generally of net
investment income, and any capital gains. It is each portfolio's intention to
distribute all such income and gains.
Shares of each portfolio are offered only to the separate accounts of Western
Reserve and its affiliates. Separate accounts are insurance company separate
accounts that fund the policies and the annuity contracts. Under the Code, an
insurance company pays no tax with respect to income of a qualifying separate
account when the income is properly allocable to the value of eligible variable
annuity or variable life insurance contracts. For a discussion of the taxation
of life insurance companies and the separate accounts, as well as the tax
treatment of the policies and annuity contracts and the holders thereof, see
"Federal Income Tax Considerations" included in the respective prospectuses for
the policies and the annuity contracts.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on each portfolio. Each portfolio intends to
comply with the diversification requirements. These requirements are in
addition to the diversification requirements imposed on each portfolio by
Subchapter M and the
Prospectus 50
<PAGE>
OTHER INFORMATION (CONTINUED)
1940 Act. The 817(h) requirements place certain limitations on the assets of
each separate account that may be invested in securities of a single issuer.
Specifically, the regulations provide that, except as permitted by "safe
harbor," rules described below, as of the end of each calendar quarter or
within 30 days thereafter, no more than 55% of the portfolio's total assets may
be represented by any one investment, no more than 70% by any two investments,
no more than 80% by any three investments, and no more than 90% by any four
investments.
Section 817(h) also provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of section
817(h), all securities of the same issuer, all interests in the same real
property, and all interests in the same commodity are treated as a single
investment. In addition, each U.S. government agency or instrumentality is
treated as a separate issuer, while the securities of a particular foreign
government and its agencies, instrumentalities, and political subdivisions all
will be considered securities issued by the same issuer. If a portfolio does
not satisfy the section 817(h) requirements, the separate accounts, the
insurance companies, the policies and the annuity contracts may be taxable. See
the prospectuses for the policies and annuity contracts.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting a portfolio and you; see the SAI for a more
detailed discussion. You are urged to consult your tax advisors.
[GRAPHIC OMITTED] REPORT TO POLICYHOLDERS
The fiscal year of each portfolio ends on December 31 of each year. The Fund
will send to you, at least semi-annually, reports which show the portfolios'
composition and other information. An annual report, with audited financial
information, will be sent to you each year.
[GRAPHIC OMITTED] DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan") and pursuant to the Plan, entered into a Distribution Agreement with
AFSG Securities Corporation (AFSG) located at 4333 Edgewood Road NE, Cedar
Rapids, Iowa 52499. AFSG is an affiliate of the investment adviser, and serves
as principal underwriter for the Fund. (Prior to May 1, 1999, InterSecurities,
Inc., an affiliate of the investment adviser, served as underwriter of the
Fund.) The Plan permits the use of Fund assets to help finance the distribution
of the shares of the portfolios. Under the Plan, the Fund, on behalf of the
portfolios, is permitted to pay to various service providers up to 0.15% of the
average daily net assets of each portfolio as payment for actual expenses
incurred in connection with the distribution of the shares of the portfolios.
Because these fees are paid out of Fund assets on an on-going basis, over time
these costs will increase the cost of your investment and may cost you more
than other types of sales charges.
As of the date of this prospectus, the Fund has not paid any distribution fees
under the Plan and does not intend to do so before April 30, 2000. You will
receive written notice prior to the payment of any fees under the Plan.
[GRAPHIC OMITTED] YEAR 2000 READINESS
In May 1996, the Fund and the investment adviser adopted and presently have in
place a Year 2000 Project Plan (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compliant. As of March 1, 1999,
substantially all of the Fund's and investment adviser's mission-critical
systems are Year 2000 compliant. The Plan remains on track as we continue with
the validation of our mission-critical and non-mission-critical systems,
including revalidation testing in 1999. In addition, we have undertaken
aggressive initiatives to test all systems that interface with any third
parties and other business partners. All of these steps are aimed at allowing
current operations to remain unaffected by the Year 2000 date change.
Prospectus 51
<PAGE>
OTHER INFORMATION (CONTINUED)
As of the date of this prospectus, the Fund and the investment adviser have
identified and made available what they believe are the appropriate resources
of hardware, people, and dollars, including the engagement of outside third
parties, to ensure that the Plan will be completed.
The actions taken by management under the Plan are intended to reduce
significantly the Fund's and the investment adviser's risk of a material
business interruption based on the Year 2000 issues. It should be noted that
the Year 2000 computer problem, and its resolution, is complex and
multifaceted, and any company's success cannot be conclusively known until the
Year 2000 is reached. In spite of its efforts or results, our ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions, or failure to act, of third parties beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C. Section 1
(1998).
Prospectus 52
<PAGE>
FINANCIAL HIGHLIGHTS*
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND A PORTFOLIO'S
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS (OR, IF SHORTER, THE PERIOD OF THE
PORTFOLIO'S OPERATIONS). CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A
SINGLE PORTFOLIO SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE AN
INVESTOR WOULD HAVE EARNED (OR LOST) ON AN INVESTMENT IN EACH PORTFOLIO
(ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED
BY PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS, WHOSE REPORT, ALONG
WITH THE FUND'S FINANCIAL STATEMENTS, ARE INCLUDED IN THE FUND'S ANNUAL REPORT,
WHICH IS AVAILABLE UPON REQUEST BY CALLING THE FUND AT 1-800-851-9777.
(INFORMATION IS NOT INCLUDED FOR WRL GOLDMAN SACHS SMALL CAP, WRL GOLDMAN SACHS
GROWTH, WRL PILGRIM BAXTER MID CAP GROWTH, WRL T. ROWE PRICE SMALL CAP, WRL T.
ROWE PRICE DIVIDEND GROWTH, WRL SALOMON ALL CAP OR WRL DREYFUS MID CAP AS THESE
PORTFOLIOS COMMENCED OPERATIONS MAY 1, 1999.)
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL J.P. MORGAN MONEY MARKET
-----------------------------
DECEMBER 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 1.00 $ 1.00
Income from operations:
Net investment income (loss) ........................................ 0.05 0.05
Net realized and unrealized gain (loss) on investments .............. 0.00 0.00
-------- --------
Net income (loss) from operations .................................. 0.05 0.05
-------- --------
Distributions:
Dividends from net investment income ................................ (0.05) (0.05)
Dividends in excess of net investment income ........................ 0.00 0.00
Distributions from net realized gains on investments ................ 0.00 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00
-------- --------
Total distributions ................................................ (0.05) (0.05)
-------- --------
Net asset value, end of year .......................................... $ 1.00 $ 1.00
======== ========
Total return (a) ...................................................... 5.26 % 5.24 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 169,731 $ 119,708
Ratio of expenses to average net assets (b) ......................... 0.46 % 0.48 %
Ratio of net investment income (loss) to average net assets (b) ..... 5.24 % 5.32 %
Portfolio turnover rate (a) ......................................... n/a n/a
<CAPTION>
WRL J.P. MORGAN MONEY MARKET
------------------------------------------
DECEMBER 31,
------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 1.00 $ 1.00 $ 1.00
Income from operations:
Net investment income (loss) ........................................ 0.05 0.05 0.04
Net realized and unrealized gain (loss) on investments .............. 0.00 0.00 0.00
-------- ------- -------
Net income (loss) from operations .................................. 0.05 0.05 0.04
-------- ------- -------
Distributions:
Dividends from net investment income ................................ (0.05) (0.05) (0.04)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ 0.00 0.00 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
-------- ------- -------
Total distributions ................................................ (0.05) (0.05) (0.04)
-------- ------- -------
Net asset value, end of year .......................................... $ 1.00 $ 1.00 $ 1.00
======== ======= =======
Total return (a) ...................................................... 5.03 % 5.40 % 3.44 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 122,114 $ 80,544 $ 93,081
Ratio of expenses to average net assets (b) ......................... 0.52 % 0.56 % 0.60 %
Ratio of net investment income (loss) to average net assets (b) ..... 5.03 % 5.30 % 3.59 %
Portfolio turnover rate (a) ......................................... n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BOND
-----------------------------
DECEMBER 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 11.14 $ 10.71
Income from operations:
Net investment income (loss) ........................................ 0.64 0.65
Net realized and unrealized gain (loss) on investments .............. 0.40 0.32
-------- --------
Net income (loss) from operations .................................. 1.04 0.97
-------- --------
Distributions:
Dividends from net investment income ................................ (0.59) (0.54)
Dividends in excess of net investment income ........................ 0.00 0.00
Distributions from net realized gains on investments ................ 0.00 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00
-------- --------
Total distributions ................................................ (0.59) (0.54)
-------- --------
Net asset value, end of year .......................................... $ 11.59 $ 11.14
======== ========
Total return (a) ...................................................... 9.32 % 9.16 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 170,744 $ 129,654
Ratio of expenses to average net assets (b) ......................... 0.54 % 0.64 %
Ratio of net investment income (loss) to average net assets (b) ..... 5.54 % 5.90 %
Portfolio turnover rate (a) ......................................... 51.60 % 213.03 %
<CAPTION>
WRL AEGON BOND
----------------------------------------
DECEMBER 31,
----------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 11.35 $ 9.80 $ 11.24
Income from operations:
Net investment income (loss) ........................................ 0.64 0.69 0.63
Net realized and unrealized gain (loss) on investments .............. (0.64) 1.55 (1.44)
-------- -------- --------
Net income (loss) from operations .................................. 0.00 2.24 (0.81)
-------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.64) (0.69) (0.63)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ 0.00 0.00 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
-------- -------- --------
Total distributions ................................................ (0.64) (0.69) (0.63)
-------- -------- --------
Net asset value, end of year .......................................... $ 10.71 $ 11.35 $ 9.80
======== ======== ========
Total return (a) ...................................................... 0.14 % 22.99 % (6.94)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 95,759 $ 96,972 $ 71,064
Ratio of expenses to average net assets (b) ......................... 0.64 % 0.61 % 0.59 %
Ratio of net investment income (loss) to average net assets (b) ..... 5.96 % 6.45 % 5.94 %
Portfolio turnover rate (a) ......................................... 187.72 % 120.54 % 131.73 %
</TABLE>
Prospectus 53
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL JANUS GROWTH
---------------------------------
DECEMBER 31,
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 36.84 $ 35.00
Income from operations:
Net investment income (loss) ........................................ 0.12 0.31
Net realized and unrealized gain (loss) on investments .............. 23.49 5.88
---------- ----------
Net income (loss) from operations .................................. 23.61 6.19
---------- ----------
Distributions:
Dividends from net investment income ................................ (0.09) (0.26)
Dividends in excess of net investment income ........................ 0.00 0.00
Distributions from net realized gains on investments ................ (0.42) (4.09)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
---------- ----------
Total distributions ................................................ (0.51) (4.35)
---------- ----------
Net asset value, end of year .......................................... $ 59.94 $ 36.84
========== ==========
Total return (a) ...................................................... 64.47 % 17.54 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 3,086,057 $ 1,839,453
Ratio of expenses to average net assets (b) ......................... 0.83 % 0.87 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.25 % 0.80 %
Portfolio turnover rate (a) ......................................... 35.29 % 85.88 %
<CAPTION>
WRL JANUS GROWTH
--------------------------------------------------
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 31.66 $ 23.81 $ 26.25
Income from operations:
Net investment income (loss) ........................................ 0.34 0.26 0.22
Net realized and unrealized gain (loss) on investments .............. 5.35 10.97 (2.41)
---------- ---------- -----------
Net income (loss) from operations .................................. 5.69 11.23 (2.19)
---------- ---------- -----------
Distributions:
Dividends from net investment income ................................ (0.35) (0.24) (0.22)
Dividends in excess of net investment income ........................ (0.01) 0.00 0.00
Distributions from net realized gains on investments ................ (1.99) (3.14) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 (0.03)
---------- ---------- -----------
Total distributions ................................................ (2.35) (3.38) (0.25)
---------- ---------- -----------
Net asset value, end of year .......................................... $ 35.00 $ 31.66 $ 23.81
========== ========== ===========
Total return (a) ...................................................... 17.96 % 47.12 % (8.31)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 1,527,409 $ 1,195,174 $ 814,383
Ratio of expenses to average net assets (b) ......................... 0.88 % 0.86 % 0.84 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.98 % 0.90 % 0.88 %
Portfolio turnover rate (a) ......................................... 45.21 % 130.48 % 107.33 %
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL
-------------------------------
DECEMBER 31,
-------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 19.04 $ 18.12
Income from operations:
Net investment income (loss) ........................................ 0.05 0.08
Net realized and unrealized gain (loss) on investments .............. 5.61 3.32
---------- --------
Net income (loss) from operations .................................. 5.66 3.40
---------- --------
Distributions:
Dividends from net investment income ................................ (0.13) (0.13)
Dividends in excess of net investment income ........................ 0.00 (1.01)
Distributions from net realized gains on investments ................ (0.80) (1.34)
Distributions in excess of net realized gains on investments ........ (0.06) 0.00
---------- --------
Total distributions ................................................ (0.99) (2.48)
---------- --------
Net asset value, end of year .......................................... $ 23.71 $ 19.04
========== ========
Total return (a) ...................................................... 30.01 % 18.75 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 1,069,765 $ 785,966
Ratio of expenses to average net assets (b) ......................... 0.95 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.23 % 0.41 %
Portfolio turnover rate (a) ......................................... 87.36 % 97.54 %
<CAPTION>
WRL JANUS GLOBAL
--------------------------------------------
DECEMBER 31,
--------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 15.52 $ 13.12 $ 13.62
Income from operations:
Net investment income (loss) ........................................ 0.08 0.10 0.10
Net realized and unrealized gain (loss) on investments .............. 4.20 2.91 0.10
-------- -------- --------
Net income (loss) from operations .................................. 4.28 3.01 0.20
-------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.04) 0.00 (0.10)
Dividends in excess of net investment income ........................ (0.17) 0.00 (0.01)
Distributions from net realized gains on investments ................ (1.47) (0.61) (0.56)
Distributions in excess of net realized gains on investments ........ 0.00 0.00 (0.03)
-------- -------- --------
Total distributions ................................................ (1.68) (0.61) (0.70)
-------- -------- --------
Net asset value, end of year .......................................... $ 18.12 $ 15.52 $ 13.12
======== ======== ========
Total return (a) ...................................................... 27.74 % 23.06 % 0.25 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 534,820 $ 289,506 $ 261,778
Ratio of expenses to average net assets (b) ......................... 0.99 % 0.99 % 1.01 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.46 % 0.75 % 0.73 %
Portfolio turnover rate (a) ......................................... 88.31 % 130.60 % 192.06 %
</TABLE>
Prospectus 54
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL LKCM STRATEGIC TOTAL
RETURN
-----------------------------
DECEMBER 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 15.62 $ 13.97
Income from operations:
Net investment income (loss) ........................................ 0.39 0.37
Net realized and unrealized gain (loss) on investments .............. 1.09 2.68
-------- --------
Net income (loss) from operations .................................. 1.48 3.05
-------- --------
Distributions:
Dividends from net investment income ................................ (0.38) (0.35)
Dividends in excess of net investment income ........................ 0.00 (0.03)
Distributions from net realized gains on investments ................ (0.32) (1.02)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
-------- --------
Total distributions ................................................ (0.70) (1.40)
-------- --------
Net asset value, end of year .......................................... $ 16.40 $ 15.62
======== ========
Total return (a) ...................................................... 9.64 % 21.85 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 592,312 $ 526,577
Ratio of expenses to average net assets (b) ......................... 0.86 % 0.88 %
Ratio of net investment income (loss) to average net assets (b) ..... 2.43 % 2.43 %
Portfolio turnover rate (a) ......................................... 49.20 % 48.20 %
<CAPTION>
WRL LKCM STRATEGIC TOTAL RETURN
-------------------------------------------
DECEMBER 31,
-------------------------------------------
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 12.86 $ 10.90 $ 11.23
Income from operations:
Net investment income (loss) ........................................ 0.37 0.37 0.31
Net realized and unrealized gain (loss) on investments .............. 1.56 2.33 (0.33)
-------- -------- --------
Net income (loss) from operations .................................. 1.93 2.70 (0.02)
-------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.32) (0.37) (0.31)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ (0.50) (0.37) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
-------- -------- --------
Total distributions ................................................ (0.82) (0.74) (0.31)
-------- -------- --------
Net asset value, end of year .......................................... $ 13.97 $ 12.86 $ 10.90
======== ======== ========
Total return (a) ...................................................... 15.00 % 24.66 % (0.53)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 390,141 $ 256,806 $ 183,867
Ratio of expenses to average net assets (b) ......................... 0.91 % 0.87 % 0.89 %
Ratio of net investment income (loss) to average net assets (b) ..... 2.72 % 3.07 % 2.78 %
Portfolio turnover rate (a) ......................................... 49.32 % 52.59 % 53.50 %
</TABLE>
<TABLE>
<CAPTION>
WRL VKAM EMERGING GROWTH
-----------------------------
DECEMBER 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 20.37 $ 18.46
Income from operations:
Net investment income (loss) ........................................ (0.08) (0.05)
Net realized and unrealized gain (loss) on investments .............. 7.56 4.03
-------- --------
Net income (loss) from operations .................................. 7.48 3.98
-------- --------
Distributions:
Dividends from net investment income ................................ 0.00 0.00
Dividends in excess of net investment income ........................ 0.00 0.00
Distributions from net realized gains on investments ................ (0.93) (2.07)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
-------- --------
Total distributions ................................................ (0.93) (2.07)
-------- --------
Net asset value, end of year .......................................... $ 26.92 $ 20.37
======== ========
Total return (a) ...................................................... 37.33 % 21.45 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 853,440 $ 592,003
Ratio of expenses to average net assets (b) ......................... 0.89 % 0.93 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.36)% (0.27)%
Portfolio turnover rate (a) ......................................... 99.50 % 99.78 %
<CAPTION>
WRL VKAM EMERGING GROWTH
-------------------------------------------
DECEMBER 31,
-------------------------------------------
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 16.25 $ 11.55 $ 12.47
Income from operations:
Net investment income (loss) ........................................ (0.04) 0.01 0.01
Net realized and unrealized gain (loss) on investments .............. 3.10 5.42 (0.92)
-------- -------- --------
Net income (loss) from operations .................................. 3.06 5.43 (0.91)
-------- -------- --------
Distributions:
Dividends from net investment income ................................ 0.00 0.00 (0.01)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ (0.85) (0.73) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
-------- -------- --------
Total distributions ................................................ (0.85) (0.73) (0.01)
-------- -------- --------
Net asset value, end of year .......................................... $ 18.46 $ 16.25 $ 11.55
======== ======== ========
Total return (a) ...................................................... 18.88 % 46.79 % (7.36)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 431,454 $ 288,519 $ 182,650
Ratio of expenses to average net assets (b) ......................... 0.94 % 0.91 % 0.92 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.24)% 0.03 % 0.06 %
Portfolio turnover rate (a) ......................................... 80.02 % 124.13 % 72.62 %
</TABLE>
Prospectus 55
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH
---------------------------
DECEMBER 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 16.04 $ 14.18
Income from operations:
Net investment income (loss) ........................................ (0.04) (0.01)
Net realized and unrealized gain (loss) on investments .............. 7.68 3.44
---------- ----------
Net income (loss) from operations .................................. 7.64 3.43
---------- ----------
Distributions:
Dividends from net investment income ................................ 0.00 0.00
Dividends in excess of net investment income ........................ (0.05) (0.42)
Distributions from net realized gains on investments ................ (1.19) (1.15)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
---------- ----------
Total distributions ................................................ (1.24) (1.57)
---------- ----------
Net asset value, end of year .......................................... $ 22.44 $ 16.04
========== ==========
Total return (a) ...................................................... 48.69 % 24.25 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 574,164 $ 336,166
Ratio of expenses to average net assets (b) ......................... 0.91 % 0.96 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.21)% (0.06)%
Portfolio turnover rate (a) ......................................... 117.44 % 136.18 %
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH
----------------------------------------
DECEMBER 31,
----------------------------------------
1996 1995 1994 (c)
------------- ------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 13.25 $ 9.86 $ 10.00
Income from operations:
Net investment income (loss) ........................................ (0.01) (0.06) 0.02
Net realized and unrealized gain (loss) on investments .............. 1.38 3.96 (0.14)
---------- ---------- ---------
Net income (loss) from operations .................................. 1.37 3.90 (0.12)
---------- ---------- ---------
Distributions:
Dividends from net investment income ................................ 0.00 0.00 (0.02)
Dividends in excess of net investment income ........................ (0.19) 0.00 0.00
Distributions from net realized gains on investments ................ (0.25) (0.51) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
---------- ---------- ---------
Total distributions ................................................ (0.44) (0.51) (0.02)
---------- ---------- ---------
Net asset value, end of year .......................................... $ 14.18 $ 13.25 $ 9.86
========== ========== =========
Total return (a) ...................................................... 10.45 % 38.02 % (1.26)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 220,552 $ 158,534 $ 38,826
Ratio of expenses to average net assets (b) ......................... 0.98 % 1.07 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.10)% (0.48)% (0.20)%
Portfolio turnover rate (a) ......................................... 101.28 % 108.04 % 89.73 %
</TABLE>
<TABLE>
<CAPTION>
WRL AEGON BALANCED
---------------------------
DECEMBER 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 12.01 $ 11.39
Income from operations:
Net investment income (loss) ........................................ 0.35 0.38
Net realized and unrealized gain (loss) on investments .............. 0.47 1.56
------- -------
Net income (loss) from operations .................................. 0.82 1.94
------- -------
Distributions:
Dividends from net investment income ................................ (0.28) (0.36)
Dividends in excess of net investment income ........................ 0.00 (0.30)
Distributions from net realized gains on investments ................ 0.00 (0.66)
Distributions in excess of net realized gains on investments ........ (0.01) 0.00
------- -------
Total distributions ................................................ (0.29) (1.32)
------- -------
Net asset value, end of year .......................................... $ 12.54 $ 12.01
======= =======
Total return (a) ...................................................... 6.93 % 17.10 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 95,000 $ 73,451
Ratio of expenses to average net assets (b) ......................... 0.91 % 0.94 %
Ratio of net investment income (loss) to average net assets (b) ..... 2.89 % 3.13 %
Portfolio turnover rate (a) ......................................... 83.94 % 77.06 %
<CAPTION>
WRL AEGON BALANCED
---------------------------------------
DECEMBER 31,
---------------------------------------
1996 1995 1994 (c)
------------ ------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 10.63 $ 9.24 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.34 0.44 0.34
Net realized and unrealized gain (loss) on investments .............. 0.80 1.38 (0.76)
------- ------- ---------
Net income (loss) from operations .................................. 1.14 1.82 (0.42)
------- ------- ---------
Distributions:
Dividends from net investment income ................................ (0.28) (0.43) (0.34)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ (0.10) 0.00 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
------- ------- ---------
Total distributions ................................................ (0.38) (0.43) (0.34)
------- ------- ---------
Net asset value, end of year .......................................... $ 11.39 $ 10.63 $ 9.24
======= ======= =========
Total return (a) ...................................................... 10.72 % 19.80 % (5.73)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $49,331 $ 31,114 $ 19,422
Ratio of expenses to average net assets (b) ......................... 0.97 % 0.97 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 3.14 % 4.38 % 4.27 %
Portfolio turnover rate (a) ......................................... 76.90 % 98.55 % 57.73 %
</TABLE>
Prospectus 56
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL FEDERATED GROWTH &
INCOME
---------------------------
DECEMBER 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 12.56 $ 11.76
Income from operations:
Net investment income (loss) ........................................ 0.53 0.49
Net realized and unrealized gain (loss) on investments .............. (0.16) 2.35
------- --------
Net income (loss) from operations .................................. 0.37 2.84
------- --------
Distributions:
Dividends from net investment income ................................ (0.55) (0.43)
Dividends in excess of net investment income ........................ 0.00 (0.59)
Distributions from net realized gains on investments ................ (0.10) (1.02)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
------- --------
Total distributions ................................................ (0.65) (2.04)
------- --------
Net asset value, end of year .......................................... $ 12.28 $ 12.56
======= ========
Total return (a) ...................................................... 3.05 % 24.65 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 87,616 $ 60,492
Ratio of expenses to average net assets (b) ......................... 0.90 % 0.96 %
Ratio of net investment income (loss) to average net assets (b) ..... 4.35 % 3.84 %
Portfolio turnover rate (a) ......................................... 97.17 % 155.77 %
<CAPTION>
WRL FEDERATED GROWTH & INCOME
----------------------------------------
DECEMBER 31,
----------------------------------------
1996 1995 1994 (c)
------------- ------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 11.12 $ 9.30 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.42 0.46 0.43
Net realized and unrealized gain (loss) on investments .............. 0.87 1.93 (0.70)
------- ------- ---------
Net income (loss) from operations .................................. 1.29 2.39 (0.27)
------- ------- ---------
Distributions:
Dividends from net investment income ................................ (0.33) (0.46) (0.43)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ (0.32) (0.11) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
------- ------- ---------
Total distributions ................................................ (0.65) (0.57) (0.43)
------- ------- ---------
Net asset value, end of year .......................................... $ 11.76 $ 11.12 $ 9.30
======= ======= =========
Total return (a) ...................................................... 11.64 % 25.25 % (4.58)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 38,115 $ 24,607 $ 10,482
Ratio of expenses to average net assets (b) ......................... 1.00 % 1.00 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 3.73 % 4.56 % 5.36 %
Portfolio turnover rate (a) ......................................... 68.53 % 78.34 % 36.13 %
</TABLE>
<TABLE>
<CAPTION>
WRL DEAN ASSET
ALLOCATION
--------------
DECEMBER 31,
--------------
1998
--------------
<S> <C>
Net asset value, beginning of year .................................... $ 13.61
Income from operations:
Net investment income (loss) ........................................ 0.41
Net realized and unrealized gain (loss) on investments .............. 0.71
--------
Net income (loss) from operations .................................. 1.12
--------
Distributions:
Dividends from net investment income ................................ (0.39)
Dividends in excess of net investment income ........................ 0.00
Distributions from net realized gains on investments ................ (0.99)
Distributions in excess of net realized gains on investments ........ 0.00
--------
Total distributions ................................................ (1.38)
--------
Net asset value, end of year .......................................... $ 13.35
========
Total return (a) ...................................................... 8.33 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 365,738
Ratio of expenses to average net assets (b) ......................... 0.86 %
Ratio of net investment income (loss) to average net assets (b) ..... 2.93 %
Portfolio turnover rate (a) ......................................... 76.62 %
<CAPTION>
WRL DEAN ASSET ALLOCATION
--------------------------------------------
DECEMBER 31,
--------------------------------------------
1997 1996 1995 (d)
-------------- -------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 12.61 $ 11.49 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.36 0.33 0.41
Net realized and unrealized gain (loss) on investments .............. 1.72 1.33 1.93
-------- -------- --------
Net income (loss) from operations .................................. 2.08 1.66 2.34
-------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.33) (0.30) (0.41)
Dividends in excess of net investment income ........................ (0.19) 0.00 0.00
Distributions from net realized gains on investments ................ (0.56) (0.24) (0.44)
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
-------- -------- --------
Total distributions ................................................ (1.08) (0.54) (0.85)
-------- -------- --------
Net asset value, end of year .......................................... $ 13.61 $ 12.61 $ 11.49
======== ======== ========
Total return (a) ...................................................... 16.59 % 14.42 % 20.09 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 302,745 $ 206,172 $ 120,531
Ratio of expenses to average net assets (b) ......................... 0.87 % 0.90 % 0.93 %
Ratio of net investment income (loss) to average net assets (b) ..... 2.65 % 2.78 % 3.76 %
Portfolio turnover rate (a) ......................................... 63.76 % 98.97 % 38.68 %
</TABLE>
Prospectus 57
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL C.A.S.E. GROWTH
---------------------------------------------------
DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 (e)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year .................................... $ 14.01 $ 13.42 $ 11.66 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.02 0.04 0.12 0.12
Net realized and unrealized gain (loss) on investments .............. 0.31 1.95 1.92 2.49
-------- -------- -------- --------
Net income (loss) from operations .................................. 0.33 1.99 2.04 2.61
-------- -------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.36) (0.03) (0.05) (0.12)
Dividends in excess of net investment income ........................ (0.90) (1.23) 0.00 0.00
Distributions from net realized gains on investments ................ (0.09) (0.14) (0.23) (0.83)
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Total distributions ................................................ (1.35) (1.40) (0.28) (0.95)
-------- -------- -------- --------
Net asset value, end of year .......................................... $ 12.99 $ 14.01 $ 13.42 $ 11.66
======== ======== ======== ========
Total return (a) ...................................................... 2.47 % 15.03 % 17.50 % 20.65 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 69,401 $ 60,596 $ 26,559 $ 2,578
Ratio of expenses to average net assets (b) ......................... 1.00 % 1.00 % 1.00 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.14 % 0.25 % 0.94 % 1.02 %
Portfolio turnover rate (a) ......................................... 205.28 % 196.50 % 160.27 % 121.62 %
</TABLE>
<TABLE>
<CAPTION>
WRL NWQ VALUE EQUITY
----------------------------------------------
DECEMBER 31,
----------------------------------------------
1998 1997 1996 (f)
-------------- -------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 13.90 $ 11.27 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.12 0.12 0.10
Net realized and unrealized gain (loss) on investments .............. (0.78) 2.69 1.23
-------- -------- -------
Net income (loss) from operations .................................. (0.66) 2.81 1.33
-------- -------- -------
Distributions:
Dividends from net investment income ................................ (0.13) (0.09) (0.04)
Dividends in excess of net investment income ........................ (0.12) (0.07) 0.00
Distributions from net realized gains on investments ................ (0.62) (0.02) (0.02)
Distributions in excess of net realized gains on investments ........ (0.25) 0.00 0.00
-------- -------- -------
Total distributions ................................................ (1.12) (0.18) (0.06)
-------- -------- -------
Net asset value, end of year .......................................... $ 12.12 $ 13.90 $ 11.27
======== ======== =======
Total return (a) ...................................................... (4.78)% 25.04 % 13.19 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 157,157 $ 173,435 $ 49,394
Ratio of expenses to average net assets (b) ......................... 0.89 % 0.89 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.89 % 0.90 % 0.89 %
Portfolio turnover rate (a) ......................................... 43.60 % 17.28 % 7.93 %
</TABLE>
Prospectus 58
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL GE/SCOTTISH EQUITABLE
INTERNATIONAL EQUITY
--------------------------
DECEMBER 31,
--------------------------
1998 1997 (g)
------------ -----------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 10.70 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.03 0.02
Net realized and unrealized gain (loss) on investments .............. 1.35 0.73
------- -------
Net income (loss) from operations .................................. 1.38 0.75
------- -------
Distributions:
Dividends from net investment income ................................ (0.01) (0.01)
Dividends in excess of net investment income ........................ 0.00 (0.04)
Distributions from net realized gains on investments ................ 0.00 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00
------- -------
Total distributions ................................................ (0.01) (0.05)
------- -------
Net asset value, end of year .......................................... $ 12.07 $ 10.70
======= =======
Total return (a) ...................................................... 12.85 % 7.50 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $32,149 $19,795
Ratio of expenses to average net assets (b) ......................... 1.50 % 1.50 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.30 % 0.18 %
Portfolio turnover rate (a) ......................................... 71.74 % 54.33 %
</TABLE>
<TABLE>
<CAPTION>
WRL
WRL J.P. MORGAN
WRL THIRD AVENUE REAL ESTATE
GE U.S. EQUITY VALUE SECURITIES
---------------------------- -------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- -------------- -------------
1998 1997 (g) 1998 (h) 1998 (i)
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year .................................... $ 12.23 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.09 0.09 0.06 0.36
Net realized and unrealized gain (loss) on investments .............. 2.69 2.60 (0.74) (1.85)
-------- ------- ------- ---------
Net income (loss) from operations .................................. 2.78 2.69 (0.68) (1.49)
-------- ------- ------- ---------
Distributions:
Dividends from net investment income ................................ (0.15) (0.04) (0.03) 0.00
Dividends in excess of net investment income ........................ (0.33) (0.38) 0.00 0.00
Distributions from net realized gains on investments ................ (0.11) (0.04) 0.00 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00 0.00
-------- ------- ------- ---------
Total distributions ................................................ (0.59) (0.46) (0.03) 0.00
-------- ------- ------- ---------
Net asset value, end of year .......................................... $ 14.42 $ 12.23 $ 9.29 $ 8.51
======== ======= ======= =========
Total return (a) ...................................................... 22.87 % 27.01 % (6.84)% (14.93)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 110,803 $ 42,951 $ 18,206 $ 2,414
Ratio of expenses to average net assets (b) ......................... 1.05 % 1.30 % 1.00 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.67 % 0.75 % 0.63 % 6.03 %
Portfolio turnover rate (a) ......................................... 63.08 % 92.35 % 4.35 % 100.80 %
</TABLE>
Prospectus 59
<PAGE>
FINANCIAL HIGHLIGHTS*
NOTES TO FINANCIAL HIGHLIGHTS:
* Per share information has been computed using average shares outstanding
throughout each year.
See Note 6.
(a) Not annualized for periods of less than one full year.
(b) Annualized for periods of less than one full year.
(c) The inception of this Portfolio was March 1, 1994.
(d) The inception of this Portfolio was January 3, 1995.
(e) The inception of this Portfolio was May 1, 1995.
(f) The inception of this Portfolio was May 1, 1996.
(g) The inception of this Portfolio was January 2, 1997.
(h) The inception of this Portfolio was January 2, 1998.
(i) The inception of this Portfolio was May 1, 1998.
NOTE 6 -- FINANCIAL HIGHLIGHTS
The total return set forth in "Financial Highlights" reflects the advisory fee
and all other portfolio expenses and includes reinvestment of dividends and
capital gains; if does not reflect the charges against the corresponding sub-
accounts or the charges and deductions under the applicable policies or annuity
contracts. Where a portfolio's period from inception is less than one year, the
total return shown is not annualized.
The ratio of expenses to average net assets in the Financial Highlights is net
of the advisory fee waiver. Where a portfolio's period from inception is less
than one year, the ratio of expenses to average net assets is annualized.
Without the advisory fee waived by WRL the ratio for each period presented
would be as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
PORTFOLIO 1998 1997 1996 1995 1994
- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
WRL J.P. Morgan Money Market ............................... * * * * *
WRL AEGON Bond ............................................. * * * * *
WRL Janus Growth ........................................... * * * * *
WRL Janus Global ........................................... * * * * *
WRL LKCM Strategic Total Return ............................ * * * * *
WRL VKAM Emerging Growth ................................... * * * * *
WRL ALGER Aggressive Growth (a) ............................ * * * * 1.18%
WRL AEGON Balanced (a) ..................................... * * * * 1.34%
WRL Federated Growth & Income (a) .......................... * * * 1.08% 1.90%
WRL DEAN Asset Allocation (b) .............................. * * * * **
WRL C.A.S.E. Growth (c) .................................... * 1.13% 1.64% 4.15% **
WRL NWQ Value Equity (d).................................... * * 1.03% ** **
WRL GE/Scottish Equitable International Equity (e) ......... 1.96% 3.12% ** ** **
WRL GE U.S. Equity (e) ..................................... * 1.49% ** ** **
WRL Third Avenue Value (f) ................................. 1.13% ** ** ** **
WRL J.P. Morgan Real Estate Securities (g) ................. 3.34% ** ** ** **
</TABLE>
Prospectus 60
<PAGE>
FINANCIAL HIGHLIGHTS*
Without the advisory fee waived by WRL and the fees paid indirectly, the ratio
for each period presented would be as follows:
DECEMBER 31,
-----------------------
PORTFOLIO 1998 1997
- --------- ---------- ----------
WRL J.P. Morgan Money Market ........................ * *
WRL AEGON Bond ...................................... * *
WRL Janus Growth .................................... * *
WRL Janus Global .................................... * *
WRL LKCM Strategic Total Return ..................... * *
WRL VKAM Emerging Growth ............................ * *
WRL ALGER Aggressive Growth ......................... * *
WRL AEGON Balanced .................................. * *
WRL FEDERATED Growth & Income ....................... * *
WRL DEAN Asset Allocation ........................... * *
WRL C.A.S.E. Growth ................................. * 1.14%
WRL NWQ Value Equity ................................ * *
WRL GE/U.S. EQUITY International Equity (e) ......... 1.96% 3.14%
WRL G.E. U.S. Equity (e) ............................ * 1.54%
WRL Third Avenue Value (f) .......................... 1.13% **
WRL J.P. Morgan Real Estate Securities (g) .......... 3.34% **
* No waiver since the portfolio did not exceed expense limitations.
** Portfolio was not in existence during this period.
(a) The inception date of this portfolio was March 1, 1994.
(b) The inception date of this portfolio was January 3, 1995.
(c) The inception date of this portfolio was May 1, 1995.
(d) The inception date of this portfolio was May 1, 1996.
(e) The inception date of this portfolio was Janaury 2, 1997.
(f) The inception date of this portfolio was January 2, 1998.
(g) The inception date of this portfolio was May 1, 1998.
Prospectus 61
<PAGE>
ADDITIONAL INFORMATION ABOUT THESE PORTFOLIOS IS CONTAINED IN THE
STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1999, AND IN THE
FUND'S ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS, WHICH ARE
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. IN THE FUND'S
ANNUAL REPORT, YOU WILL FIND A DISCUSSION OF THE MARKET CONDITIONS
AND INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED THE FUND'S
PERFORMANCE DURING THE LAST FISCAL YEAR.
YOU MAY ALSO CALL 1-800-851-9777 TO REQUEST THIS ADDITIONAL
INFORMATION ABOUT THE FUND WITHOUT CHARGE OR TO MAKE SHAREHOLDER
INQUIRIES.
OTHER INFORMATION ABOUT THESE PORTFOLIOS HAS BEEN FILED WITH AND
IS AVAILABLE FROM THE U.S. SECURITIES AND EXCHANGE COMMISSION.
INFORMATION ABOUT THE FUND (INCLUDING THE SAI) CAN BE REVIEWED AND
COPIED AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. INFORMATION ON THE OPERATION OF
THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE
COMMISSION AT 1-800-SEC-0330. INFORMATION MAY BE OBTAINED, UPON
PAYMENT OF A DUPLICATING FEE BY WRITING THE PUBLIC REFERENCE
SECTION OF THE COMMISSION, WASHINGTON, D.C. 20549-6009.
REPORTS AND OTHER INFORMATION ABOUT THE FUND ARE ALSO AVAILABLE ON
THE COMMISSION'S INTERNET SITE AT HTTP://WWW.SEC.GOV.
(WRL SERIES FUND FILE NO. 811-4419.)
FOR MORE INFORMATION ABOUT THESE PORTFOLIOS, YOU MAY OBTAIN A COPY
OF THE SAI OR THE ANNUAL OR SEMI-ANNUAL REPORTS WITHOUT CHARGE, OR
TO MAKE OTHER INQUIRIES ABOUT THIS FUND, CALL THE NUMBER LISTED
ABOVE.
(WRL SERIES FUND FILE NO. 811-4419.)
<PAGE>
WRL SERIES FUND, INC.
AGGRESSIVE EQUITY PORTFOLIO
o WRL ALGER AGGRESSIVE GROWTH
FOREIGN EQUITY PORTFOLIO
o WRL JANUS GLOBAL
GROWTH EQUITY PORTFOLIO
o WRL JANUS GROWTH
BALANCED PORTFOLIOS
o WRL LKCM STRATEGIC TOTAL RETURN
o WRL J.P. MORGAN REAL ESTATE SECURITIES
Prospectus
[LOGO]
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the adequacy
of this prospectus.
Any representation to the contrary is a criminal offense.
May 1, 1999
<PAGE>
TABLE OF CONTENTS
INVESTOR INFORMATION .............................. 1
ALL ABOUT THE FUND
AGGRESSIVE EQUITY PORTFOLIO
WRL ALGER AGGRESSIVE GROWTH .................... 2
FOREIGN EQUITY PORTFOLIO
WRL JANUS GLOBAL ............................... 5
GROWTH EQUITY PORTFOLIO
WRL JANUS GROWTH ............................... 8
BALANCED PORTFOLIOS
WRL LKCM STRATEGIC TOTAL RETURN ................ 11
WRL J.P. MORGAN REAL ESTATE SECURITIES ......... 11
RISK/REWARD INFORMATION ........................... 15
EXPLANATION OF STRATEGIES AND RISKS ............... 16
HOW THE FUND IS MANAGED AND ORGANIZED ............. 20
PERFORMANCE INFORMATION ........................... 22
OTHER INFORMATION ................................. 24
FINANCIAL HIGHLIGHTS .............................. 27
WRL Series Fund, Inc. (Fund) consists of twenty-four separate series or
investment portfolios. The Fund is an open-end management investment
company, more commonly known as a mutual fund.
This prospectus describes five of the Fund's portfolios. Shares of these
portfolios are currently only sold to separate accounts of Western Reserve
Life Assurance Co. of Ohio, PFL Life Insurance Company, AUSA Life
Insurance Company, and Peoples Benefit Life Insurance Company to fund the
benefits under certain individual flexible premium variable life insurance
policies and individual and group variable annuity contracts.
A particular portfolio of the Fund may not be available under the policy
or annuity contract you have chosen. The prospectus or disclosure document
for your policy or annuity contract shows the portfolios available to you.
Please read this prospectus carefully before selecting a portfolio. It
provides information to assist you in your decision. If you would like
additional information about a portfolio, please request a copy of the
Statement of Additional Information (SAI) (see back cover). The SAI is
incorporated by reference into this prospectus.
Prospectus
<PAGE>
INVESTOR INFORMATION
TO HELP YOU UNDERSTAND . . .
In this prospectus, you will see the symbols below.
These are "icons" which serve as tools to direct you to the type of information
that is included in the accompanying paragraphs.
The icons are for your convenience and to assist you as you read this
prospectus.
[GRAPHIC OMITTED] The target directs you to a portfolio's goals or objective.
[GRAPHIC OMITTED] The chess piece indicates discussion about a portfolio's
strategies.
[GRAPHIC OMITTED] The warning sign indicates the risks of investing in a
portfolio.
[GRAPHIC OMITTED] The graph indicates investment performance.
[GRAPHIC OMITTED] The question mark provides additional information about the
Fund or may direct you on how to obtain further information.
SHARES OF A PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT.
Prospectus 1
<PAGE>
AGGRESSIVE EQUITY PORTFOLIO
WRL ALGER AGGRESSIVE GROWTH (FORMERLY AGGRESSIVE GROWTH PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES YOUR AGGRESSIVE EQUITY PORTFOLIO OF
THE FUND AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO. FOR FURTHER
INFORMATION ON THIS PORTFOLIO, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF
STRATEGIES AND RISKS," BEGINNING ON PAGE 16 AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL ALGER AGGRESSIVE GROWTH
This portfolio seeks long-term capital appreciation.
WHAT IS AN AGGRESSIVE EQUITY PORTFOLIO?
Aggressive Equity Portfolio seeks maximum capital appreciation (a rise in
the share price/value). Current income is not a significant factor. Some
portfolios that are included in this category may invest in out-of-the
main-stream stocks, such as those of fledging or struggling companies, or
those in new or currently out-of-favor industries. Some portfolios in this
category may also use specialized investment techniques such as options or
short-term investing. For these reasons, these portfolios usually entail
greater risk than the overall equity portfolio category.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL ALGER AGGRESSIVE GROWTH
The portfolio's sub-adviser, Fred Alger Management, Inc. (Alger), seeks to
achieve the portfolio's objective by investing principally in:
o Equity securities such as common or preferred stocks
o Convertible securities (convertible securities are securities
which can be exchanged or converted into common stock of such companies)
To a lesser extent, the sub-adviser may invest portfolio assets in:
o U.S. dollar denominated securities of foreign issuers (American
Depositary Receipts (ADRs))
o Money market instruments
o Repurchase agreements
Under normal market conditions, the portfolio invests at least 85% of its
assets in common stocks, which may include stocks of developing companies, of
older companies that are entering a new stage of growth, and of companies whose
products or services have a high unit volume growth rate.
The portfolio may also use leveraging, a technique that involves borrowing
money to invest in an effort to enhance shareholder returns.
The portfolio's manager may take a temporary defensive position when the
securities trading markets or the economy are experiencing excessive volatility
or a prolonged general decline, or other adverse conditions exist. This may be
inconsistent with the portfolio's principal investment strategies. During this
time, the portfolio may invest up to 100% of its assets in money market
instruments and cash equivalents. Under these circumstances, the portfolio will
be unable to pursue its investment objective.
[GRAPHIC OMITTED] RISKS OF INVESTING IN AN AGGRESSIVE EQUITY PORTFOLIO
The principal risks of investing in an Aggressive Equity Portfolio are
described below. Please note that there are many other circumstances which
could adversely affect your investment and prevent your portfolio from
achieving its objective, which are not described here. Please refer to the
section entitled "Explanation of Strategies and Risks" beginning on page 16 and
the Fund's SAI for more information about the risks of investing in an
Aggressive Equity Portfolio.
Prospectus 2
<PAGE>
AGGRESSIVE EQUITY PORTFOLIO (CONTINUED)
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the short term. These
price movements may result from factors affecting individual companies, certain
industries or the securities market as a whole.
Because the stocks a portfolio holds fluctuate in price, the value of your
investment in the portfolio will go up and down.
o INVESTING AGGRESSIVELY
o The value of developing-company stocks may be very volatile, and can drop
significantly in a short period of time
o Rights, options and futures contracts may not be exercised and may expire
worthless
o Warrants and rights may be less liquid than stocks
o Use of futures and other derivatives may make the portfolio more volatile
o ADRS
Many securities of foreign issuers are represented by American Depositary
Receipts (ADRs). While ADRs principally are traded on domestic securities
exchanges, investing in ADRs involves many of the same risks associated with
foreign securities in general. These risks include:
o Changes in currency value
o Currency speculation
o Currency trading costs
o More fluctuations in market prices
o Less information available
o LEVERAGING
Leveraging by a portfolio involves special risks:
o Leveraging practices may make a portfolio more volatile
o Leveraging may exaggerate the effect on net asset value of any
increase or decrease in the market value of the portfolio's securities
o Money borrowed for leveraging is subject to interest costs
o Minimum average balances may need to be maintained or a line of
credit in connection with borrowing may be necessary resulting in an
increase in the cost of borrowing over the stated interest rate
o CONVERTIBLES
As with all debt securities, the market value of convertibles tends to decline
as interest rates increase and, conversely, to increase as interest rates
decline.
YOU MAY LOSE MONEY IF YOU INVEST IN AN AGGRESSIVE EQUITY PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILE
WRL ALGER AGGRESSIVE GROWTH
For the investor who seeks capital growth aggressively, and can tolerate wide
swings in the value of their investment.
Prospectus 3
<PAGE>
AGGRESSIVE EQUITY PORTFOLIO (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below give an indication of the portfolio's risks and
performance. The charts show changes in the portfolio's performance from year
to year. The performance calculations do not reflect charges or deductions
under the policies or the annuity contracts. These fees would lower investment
performance. The tables show how a portfolio's average annual returns for the
periods indicated compare to those of a broad measure of market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL ALGER AGGRESSIVE GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1995 1996 1997 1998
- ---- ---- ---- ----
38.02% 10.45% 24.25% 48.69%
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------
QUARTER ENDED
Highest 29.30 % 12/31/98
Lowest (9.72)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ----------------------------------------------------
SINCE
INCEPTION
1 YEAR (MARCH 1, 1994)
WRL Alger
Aggressive Growth 48.69% 23.54%
S&P 500 Index 28.58% 24.80%
- --------------------------------------------------------------------------------
Prospectus 4
<PAGE>
FOREIGN EQUITY PORTFOLIO
WRL JANUS GLOBAL (FORMERLY GLOBAL PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES YOUR FOREIGN EQUITY PORTFOLIO AND
THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO. FOR FURTHER INFORMATION ON
THIS PORTFOLIO, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF STRATEGIES AND
RISKS," BEGINNING ON PAGE 16 AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL JANUS GLOBAL
This Portfolio seeks long-term growth of capital in a manner consistent with
the preservation of capital.
WHAT IS A FOREIGN EQUITY PORTFOLIO?
This type of portfolio principally invests in equity securities of
companies located outside the U.S.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL JANUS GLOBAL
The portfolio's sub-adviser, Janus Capital Corporation (Janus), seeks to
achieve the portfolio's investment objective by investing principally in:
o Common stocks of foreign and domestic issuers
o Depositary receipts including ADRs, Global Depositary Receipts
(GDRs) and European Depositary Receipts (EDRs)
The portfolio may also use forward foreign currency contracts for hedging.
Janus' main strategy is to use a "bottom up" approach to build the portfolio's
portfolio. They seek to identify individual companies with earnings growth
potential that may not be recognized by the market at large.
Foreign securities are generally selected on a stock-by-stock basis without
regard to defined allocation among countries or geographic regions.
When evaluating foreign investments, Janus (in addition to looking at
individual companies) considers such factors as:
o Expected levels of inflation in various countries
o Government policies that might affect business conditions
o The outlook for currency relationships
o Prospects for economic growth among countries, regions or
geographic areas
WHAT IS A "BOTTOM-UP" APPROACH?
When portfolio managers use a "bottom-up" approach, they look primarily at
individual companies against the context of broader market factors.
[GRAPHIC OMITTED] RISKS OF INVESTING IN A FOREIGN EQUITY PORTFOLIO
The principal risks of investing in a Foreign Equity Portfolio that may
adversely affect your investment are described below. Please note that there
are many other circumstances which could adversely affect your investment and
prevent your portfolio from achieving its objective, which are not described
here. Please refer to the section entitled "Explanation of Strategies and
Risks" beginning on page 16, and the Fund's SAI for more information about the
risks associated with investing in a Foreign Equity Portfolio.
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
certain industries or the securities market as a whole.
Because the stocks the portfolio holds fluctuate in price, the value of your
investment in the portfolio will go up and down.
o FOREIGN SECURITIES
Investments in foreign securities involve risks relating to political, social
and economic developments abroad as well as risks resulting from differences in
regulations to which U.S. and foreign issuers and markets are subject. To the
extent a portfolio invests in emerging markets, these risks would be greater.
These risks include:
o Changes in currency values
o Currency speculation
o Currency trading costs
Prospectus 5
<PAGE>
FOREIGN EQUITY PORTFOLIO (CONTINUED)
o Different accounting and reporting practices
o Less information available to the public
o Less (or different) regulation of securities markets
o Greater complex business negotiations
o Less liquidity
o More fluctuations in prices
o Delays in settling foreign securities transactions
o Higher costs for holding shares (custodial fees)
o Higher transaction costs
o Vulnerability to seizure and taxes
o Political instability and small markets
o Different market trading days
o Forward foreign currency contracts for hedging
o FORWARD FOREIGN CURRENCY CONTRACTS
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of portfolio securities decline.
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 the portfolio's
limitation on investing in illiquid securities.
If the portfolio manager's judgment of markets proves incorrect or the strategy
does not correlate well with a portfolio's investment, the use of such hedging
transactions could result in a loss regardless of whether the intent was to
reduce risk or increase return and may increase a portfolio's volatility. In
addition, in the event that non-exchange traded forward currency contracts are
used, such transactions could result in a loss if the counterparty to the
transaction does not perform as promised.
o EMERGING MARKETS RISK
Investing in the securities of issuers located in or principally doing business
in emerging markets bear foreign risks as discussed above. In addition, the
risks associated with investing in emerging markets are often greater than
investing in developed foreign markets. Specifically, the economic structures
in emerging markets countries are less diverse and mature than those in
developed countries, and their political systems are less stable. Investments
in emerging markets countries may be affected by national policies that
restrict foreign investments. Emerging market countries may have less developed
legal structures, and the small size of their securities markets and low
trading volumes can make investments illiquid and more volatile than
investments in developed countries. As a result, a portfolio investing in
emerging market countries may be required to establish special custody or other
arrangements before investing.
o WARRANTS AND RIGHTS
Warrants and rights may be considered more speculative than certain other types
of investments because they do not entitle a holder to the dividends or voting
rights for the securities that may be purchased. They do not represent any
rights in the assets of the issuing company.
Also, the value of a warrant or right does not necessarily change with the
value of the underlying securities. A warrant or right ceases to have value if
it is not exercised prior to the expiration date.
o DEPOSITARY RECEIPTS
Depositary receipts represent interests in an account at a bank or trust
company which holds equity securities. They are subject to some of the same
risks as direct investments in foreign securities, including currency risk. The
regulatory requirements with respect to depositary receipts that are issued in
sponsored and unsponsored programs are generally similar, but the issuers of
unsponsored depositary receipts 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 depositary receipts.
YOU MAY LOSE MONEY IF YOU INVEST IN A FOREIGN EQUITY PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILE
WRL JANUS GLOBAL
For the investor who seeks capital growth without being limited to investments
in U.S. securities, and who can tolerate the significant risks associated with
foreign investing.
Prospectus 6
<PAGE>
FOREIGN EQUITY PORTFOLIO (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below give an indication of the portfolio's risks and
performance. The charts show changes in the portfolio's performance from year
to year. The performance calculations do not reflect charges or deductions
under the policies on the annuity contracts. These fees and expenses would
lower investment performance. The tables show how the portfolio's average
annual returns for the periods indicated compare to those of a broad measure of
market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL JANUS GLOBAL
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ----
35.05% 0.25% 23.06% 27.74% 18.75% 30.01%
HIGHEST AND LOWEST RETURN
(Quarterly 1992-1998)
- --------------------------------------------
QUARTER ENDED
Highest 20.82 % 12/31/98
Lowest (16.52)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ---------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (DECEMBER 3, 1992)
WRL Janus Global 30.01% 19.46% 21.94%
Morgan Stanley
Capital
International
World Index 24.34% 16.11% 17.16%
- --------------------------------------------------------------------------------
Prospectus 7
<PAGE>
GROWTH EQUITY PORTFOLIO
WRL JANUS GROWTH (FORMERLY GROWTH PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES YOUR GROWTH EQUITY PORTFOLIO AND THE
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO. FOR FURTHER INFORMATION ON THIS
PORTFOLIO, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF STRATEGIES AND
RISKS," BEGINNING ON PAGE 16, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL JANUS GROWTH
This portfolio seeks growth of capital.
WHAT IS A GROWTH EQUITY PORTFOLIO?
A growth equity portfolio invests in the common stock of companies that
offer potentially rising share prices. These portfolios primarily aim to
provide capital appreciation (a rise in share price) rather than steady
income.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL JANUS GROWTH
The portfolio's sub-adviser, Janus Capital Corporation (Janus), seeks to
achieve the portfolio's objective by investing principally in:
o Common stocks
The portfolio's strategy is to invest almost all of its assets in common stock
at times when Janus believes the market environment favors such investing.
Janus generally takes a "bottom-up" approach to building the stock portfolio.
In other words, Janus seeks to identify individual companies with earnings
growth potential that may not be recognized by the stock market at large.
Although themes may emerge in the portfolio, securities are generally selected
without regard to any defined industry sector or other similarly defined
selection procedure. Realization of income is not a significant investment
consideration for the portfolio and any income realized on the portfolio's
investments is incidental to its objective.
Janus may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse market conditions exist. This may be
inconsistent with the portfolio's principal investment strategies. Under these
circumstances, the portfolio may be unable to achieve its investment objective.
[GRAPHIC OMITTED] RISKS
The principal risks of investing in a Growth Equity Portfolio that may
adversely affect your investment are described below. Please note that there
are many other circumstances which could adversely affect your investment and
prevent a portfolio from achieving its objective, which are not described here.
Please refer to the section entitled "Explanation of Strategies and Risks,"
beginning on page 16, and the Fund's SAI for more information about the risks
associated with investing in a Growth Equity Portfolio.
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries, or the securities market as a whole.
Because the stocks the portfolio holds fluctuate in price, the value of your
investment in the portfolio go up and down.
o STYLE RISK
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
portfolio may underperform other portfolios that employ a different style. A
portfolio also may employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing, as well as those focusing on large, medium, or small company
securities.
o FUTURES AND OPTIONS
Futures and options involve additional investment risks and transactional
costs, and draw upon skills and
Prospectus 8
<PAGE>
GROWTH EQUITY PORTFOLIO
experience which are different than those needed to pick other securities.
Special risks include:
o Inaccurate market predictions
o Imperfect correlation
o Illiquidity
o Tax considerations
The portfolios are not required to hedge their investments.
o WARRANTS AND RIGHTS
Warrants and rights may be considered more speculative than certain other types
of investments because they do not entitle a holder to the dividends or voting
rights for the securities that may be purchased. They do not represent any
rights in the assets of the issuing company.
Also, the value of a warrant or right does not necessarily change with the
value of the underlying securities. A warrant or right ceases to have value if
it is not exercised prior to the expiration date.
o DEPOSITARY RECEIPTS
Depositary receipts represent interests in an account at a bank or trust
company which holds equity securities. They are subject to some of the same
risks as direct investments in foreign securities, including currency risk. The
regulatory requirements with respect to depositary receipts that are issued in
sponsored and unsponsored programs are generally similar, but the issuers of
unsponsored depositary receipts 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 depositary receipts.
YOU MAY LOSE MONEY IF YOU INVEST IN A GROWTH EQUITY PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILE
WRL JANUS GROWTH
For the investor who wants capital growth in a broadly diversified stock
portfolio, and who can tolerate significant fluctuations in value.
Prospectus 9
<PAGE>
GROWTH EQUITY PORTFOLIO (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below gives an indication of the portfolio's risks and
performance. The charts show change in the portfolio's performance from year to
year. The performance calculations do not reflect charges or deductions under
the policies on the annuity contracts. These fees and expenses would lower
investment performance. The tables show how the portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL JANUS GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
47.04% -0.22% 59.79% 2.35% 3.97% -8.31% 47.12% 17.96% 17.54% 64.47%
HIGHEST AND LOWEST RETURN
(Quarterly 1988-1998)
- --------------------------------------------
QUARTER ENDED
Highest 28.73 % 12/31/98
Lowest (16.60)% 9/30/90
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -----------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
WRL Janus Growth 64.47% 25.20% 22.61%
S&P 500 Index 28.58% 24.06% 19.21%
- --------------------------------------------------------------------------------
Prospectus 10
<PAGE>
BALANCED PORTFOLIOS
WRL LKCM STRATEGIC TOTAL RETURN (FORMERLY STRATEGIC TOTAL RETURN PORTFOLIO)
WRL J.P. MORGAN REAL ESTATE SECURITIES (FORMERLY REAL ESTATE SECURITIES
PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES EACH BALANCED PORTFOLIO OF THE FUND
AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS. FOR FURTHER INFORMATION
ON THESE PORTFOLIOS, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF
STRATEGIES AND RISKS," BEGINNING ON PAGE 16 AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL LKCM STRATEGIC TOTAL RETURN
The objective of this portfolio is to provide current income, long-term growth
of income and capital appreciation.
WRL J.P. MORGAN REAL ESTATE SECURITIES
This portfolio seeks long-term total return from investments primarily in
equity securities of real estate companies. Total return will consist of
realized and unrealized capital gains and losses plus income.
WHAT IS A BALANCED PORTFOLIO?
A balanced portfolio generally tries to balance three different objectives:
moderate long-term growth of capital, moderate income, and moderate
stability in an investor's principal. To reach these goals, balanced
portfolios invest in a mixture of stocks, bonds and money market
instruments.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL LKCM STRATEGIC TOTAL RETURN
The portfolio's sub-adviser, Luther King Capital Management Corporation (LKCM),
seeks to achieve the portfolio's investment objective by investing primarily
in:
o Common stocks
o Corporate bonds
o Convertible preferred stocks
o Corporate convertible bonds
o U.S. Treasury Notes
The portfolio seeks to invest in a blend of equity and fixed-income securities
to achieve a balance of capital appreciation and investment income while
limiting volatility. The portfolio will also invest in convertible securities,
which have both equity and fixed-income characteristics. In choosing such
securities, LKCM looks for companies with strong fundamental characteristics.
It considers factors such as:
o balance sheet quality
o cash flow generation
o earnings and dividend growth record and outlook
o profitability levels
In some cases, LKCM bases its selections on other factors. For example, some
securities may be bought at an apparent discount to their appropriate value,
with the anticipation that they'll increase in value over time.
The portfolio seeks to achieve an income yield greater than the average yield
of the stocks in the S&P 500.
The portfolio invests mainly in the stocks and bonds of companies with
established operating histories and strong fundamental characteristics. The
majority of the stocks the portfolio buys will be listed on a national exchange
or traded on NASDAQ or domestic over-the-counter markets.
LKCM closely analyzes a company's financial status and a security's valuation
in an effort to control risk at the individual level. In addition, the growth
elements of the portfolio's equity investments drive capital appreciation.
As part of its income-oriented strategy, LKCM expects to invest about 25% of
the portfolio's assets in fixed-income securities, some of which will be
convertible into common stocks, and no more than 20% of its assets in stocks
that don't pay a dividend.
Prospectus 11
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
WRL J.P. MORGAN REAL ESTATE SECURITIES
This portfolio's sub-adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan), seeks to achieve the portfolio's objective by investing principally in
equity securities of real estate companies which include:
o Common stocks
o Convertible securities
Under normal conditions, J.P. Morgan invests at least 65% of portfolio assets
in real estate company securities. A company is considered to be a real estate
company if at least 50% of its revenues or at least 50% of the market value of
its assets is attributable to the ownership, construction, management or sale
of residential, commercial or industrial real estate.
Companies chosen are generally contained in the National Association of Real
Estate Investment Trusts (NAREIT) Equity without Healthcare Index. Based on
internal fundamental equity and real estate research, and using a dividend
discount model, J.P. Morgan ranks these companies within four broad sectors of
the real estate industry from undervalued to overvalued. From this target
universe, J.P. Morgan selects stocks for the portfolio based on a variety of
criteria including managerial strength, geographic diversification, prospects
for growth and the company's competitive position.
The portfolio may also invest in debt securities of real estate and non-real
estate companies; mortgage-backed securities such as pass through certificates,
real estate mortgage investment conduit (REMIC) certificates, and
collateralized mortgage obligations (CMOs), or short-term debt obligations.
However, the portfolio does not directly invest in real estate.
The portfolio is non-diversified under federal securities laws.
The portfolio's classification as "non-diversified" under the 1940 Act means
that the portfolio has the ability to take larger positions in a smaller number
of issuers. However, to meet federal tax requirements, at the close of each
quarter the portfolio may not have more than 25% of its total assets invested
in any one issuer and, with respect to 50% of its total assets, not more than
5% of its total assets invested in any one issuer.
[GRAPHIC OMITTED] RISKS
The principal risks of investing in Balanced Portfolios that may adversely
affect your investment are described below. (Not all of these risks apply to
each Balanced Portfolio. See the chart below for the principal risks of your
portfolio.) Please note that there many other circumstances that could
adversely affect your investment and prevent a portfolio from achieving its
objective, which are not described here. Please refer to the section entitled
"Explanation of Strategies and Risks," beginning on page 14 and the Fund's SAI
for more information about the risks associated with investing in Balanced
Portfolios.
PRINCIPAL RISKS
BALANCED PORTFOLIOS
PORTFOLIO
---------
WRL WRL
VKCM J.P. MORGAN
STRATEGIC TOTAL REAL ESTATE
RISKS RETURN SECURITIES
- -----
Stocks X X
Fixed-Income Securities X
Convertibles X
Real Estate Securities X
Non-Diversified X
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the short term. These
price movements may result from factors affecting individual companies,
industries or the securities market as a whole.
Because the stocks a portfolio holds fluctuate in price, the value of your
investment in a portfolio will go up and down.
o CONVERTIBLES
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.
o REAL ESTATE SECURITIES
Investments in the real estate industry are subject to risks associated with
direct investment in real estate. These risks may include:
o Declining real estate value
Prospectus 12
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
o Risks relating to general and local economic conditions
o FIXED-INCOME SECURITIES
The value of these securities may change daily based on changes in the interest
rate, and other market conditions and factors. The risks include:
o Changes in interest rates
o Length of time to maturity
o Issuers defaulting on their obligations to pay interest or return
principal
o Over-building
o Increased competition for assets in local and regional markets
o Increases in property taxes
o Increases in operating expenses or interest rates
o Change in neighborhood value or the appeal of properties to
tenants
o Insufficient levels of occupancy
o Inadequate rents to cover operating expenses
o NON-DIVERSIFIED
To the extent a portfolio invests a greater proportion of its assets in the
securities of a smaller number of issuers, it may be more susceptible to any
single economic, political or regulatory occurrence than a more widely
diversified portfolio and may be subject to greater risks of loss with respect
to its portfolio securities.
YOU MAY LOSE MONEY IF YOU INVEST IN ANY OF THE BALANCED PORTFOLIOS
[GRAPHIC OMITTED] INVESTOR PROFILES
WRL LKCM STRATEGIC TOTAL RETURN
For the investor who wants current income with the prospect of income growth,
plus the prospect of capital growth. The investor should be comfortable with
the price fluctuations of a portfolio that invests in both equity and fixed
income securities.
WRL J.P. MORGAN REAL ESTATE SECURITIES
For the investor who seeks long-term total return consisting of current income
and, potentially, capital appreciation. The investor should be comfortable with
the risk of a non-diversified portfolio invested primarily in securities of
real estate companies and their exposure to real estate markets.
Prospectus 13
<PAGE>
BALANCED PORTFOLIOS (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar charts and tables below give an indication of the portfolios' risks and
performance. The charts show changes in a portfolio's performance from year to
year. The performance calculations do not reflect charges or deductions under
the policies or the annuity contracts. These fees and expenses would lower
investment performance. The tables show how a portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
Because the WRL J.P. Morgan Real Estate Securities portfolio commenced
operations in mid-1998, its performance history is not included.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL LKCM STRATEGIC TOTAL RETURN
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
- -0.53% 24.66% 15.00% 21.85% 9.64%
HIGHEST AND LOWEST RETURN
(Quarterly 1993-1998)
- -------------------------------------------
QUARTER ENDED
Highest 13.06 % 6/30/97
Lowest (8.05)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ---------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (MARCH 1, 1993)
WRL LKCM Strategic
Total Return 9.64% 13.76% 14.12%
S&P 500 Index 28.58% 24.06% 21.81%
- --------------------------------------------------------------------------------
Prospectus 14
<PAGE>
BEFORE YOU CHOOSE AN INVESTMENT PORTFOLIO,
PLEASE CONSIDER . . .
RISK/REWARD INFORMATION
All of the investment portfolios involve risk, but there is also the potential
for reward. You can lose money -- and you can make money. The Fund portfolios
are structured so that each offers a slightly different degree of risk and
reward than others.
In this prospectus, we've arranged the portfolios in order of risk/
reward from highest to lowest. Notice the scale at the right. It covers the
full spectrum of risk/reward of the portfolios described in this prospectus.
WHAT RISK/REWARD LEVEL IS FOR YOU? ASK YOURSELF THE FOLLOWING:
(1) HOW WELL DO I HANDLE FLUCTUATIONS IN MY ACCOUNT VALUE? The higher a
portfolio is on the risk/reward spectrum, the more its price is likely
to move up and down on a day to day basis. If this makes you
uncomfortable, you may prefer an investment at the lower end of the
scale that may not fluctuate in price as much.
(2) AM I LOOKING FOR A HIGHER RATE OF RETURN? Generally, the higher the
potential return, the higher the risk. If you find the potential to make
money is worth the possibility of losing more, then a portfolio at the
higher end of the spectrum may be right for you.
A final note: These portfolios are designed for long-term investment.
Each portfolio has an investment objective that it tries to achieve by
following certain investment strategies and techniques. The objective can be
changed without shareholder vote.
[GRAPHIC OMITTED]
WRL ALGER AGGRESSIVE GROWTH
WRL JANUS GLOBAL
WRL JANUS GROWTH
WRL LKCM STRATEGIC TOTAL RETURN
WRL J.P. MORGAN REAL
ESTATE SECURITIES
Prospectus 15
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS
HOW TO USE THIS SECTION
In the discussions of the individual portfolios on pages 2 through 14, you
found descriptions of the strategies and risks associated with each. In those
pages, you were referred to this section for a more complete description of the
risks. For best understanding, first read the description of the portfolio
you're interested in. Then refer to this section and read about the risks
particular to that portfolio. For even more discussions of strategies and
risks, see the SAI, which is available upon request. See the back cover of this
prospectus for information on how to order the SAI.
[GRAPHIC OMITTED]
DIVERSIFICATION AND CONCENTRATION. The 1940 Act classifies investment companies
as either diversified or non-diversified.
Diversification is the practice of spreading a portfolio's assets over a number
of investments, investment types, industries or countries to reduce risk. A
non-diversified portfolio has the ability to take larger positions in fewer
issuers. Because the appreciation or depreciation of a single security may have
a greater impact on the net asset value of a non-diversified portfolio, its
share price can be expected to fluctuate more than a comparable portfolio.
All of the portfolios (except WRL J.P. Morgan Real Estate Securities) qualify
as diversified funds under the 1940 Act. The diversified portfolios are subject
to the following diversification requirements (which are set forth in full in
the SAI):
o As a fundamental policy, with respect to 75% of the total assets of a
portfolio, the portfolio may not own more than 10% of the outstanding voting
shares of any issuer (other than U.S. government securities) as defined in
the 1940 Act and, with respect to some portfolios, in other types of cash
items.
o As a fundamental policy, with respect to 75% of the total assets of a
portfolio, the portfolio will not purchase a security of any issuer if such
would cause the portfolio's holdings of that issuer to amount to more than 5%
of the portfolio's total assets.
o As a fundamental policy governing concentration, no portfolio will invest
more than 25% of its assets in any one particular industry, other than U.S.
government securities.
The WRL J.P. Morgan Real Estate Securities reserves the right to become a
diversified investment company (as defined by the 1940 Act).
[GRAPHIC OMITTED]
INVESTING IN COMMON STOCKS. Many factors cause common stocks to go up and down
in price. A major one is the financial performance of the company that issues
the stock. Other factors include the overall economy, conditions in a
particular industry, and monetary factors like interest rates. When your
portfolio holds stocks, there's a risk that some or all of them may be down in
price when you choose to sell, causing you to lose money. This is called MARKET
RISK.
[GRAPHIC OMITTED]
INVESTING IN PREFERRED STOCKS. Because these stocks come with a promise to pay
a stated dividend, their price depends more on the size of the dividend than on
the company's performance. But if a company fails to pay the dividend, its
preferred stock is likely to drop in price. Changes in interest rates can also
affect their price. (See "Investing in Bonds," below.)
[GRAPHIC OMITTED]
INVESTING IN CONVERTIBLE SECURITIES, PREFERRED STOCKS, AND BONDS. Since
preferred stocks and corporate bonds pay a stated return, their prices usually
don't depend on the price of the company's common stock. But some companies
issue preferred stocks and bonds that are CONVERTIBLE into their common stocks.
Linked to the common stock in this way, convertible securities go up and down
in price as the common stock does, adding to their market risk.
[GRAPHIC OMITTED]
VOLATILITY. The more an investment goes up and down in price, the more VOLATILE
it is. Volatility increases the market risk because even though your portfolio
may go UP more than the market in good times, it may also go
Prospectus 16
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
DOWN more than the market in bad times. If you decide to sell when a volatile
portfolio is down, you could lose more.
[GRAPHIC OMITTED]
INVESTING IN BONDS. Like common stocks, bonds fluctuate in value, though the
factors causing this fluctuation are different, including:
o CHANGES IN INTEREST RATES. Bond prices tend to move the opposite of interest
rates. Why? Because when interest rates on new bond issues go up, rates on
existing bonds stay the same and they become less desirable. When rates go
down, the reverse happens. This is also true for most preferred stocks and
some convertible securities.
o LENGTH OF TIME TO MATURITY. When a bond matures, the issuer must pay the
owner its face value. If the maturity date is a long way off, many things can
affect its value, so a bond is more volatile the farther it is from maturity.
As that date approaches, fluctuations usually become smaller and the price
gets closer to face value.
o DEFAULTS. All bond issuers make at least two promises: (1) to pay interest
during the bond's term and (2) to return principal when it matures. If an
issuer fails to keep one or both of these promises, the bond will probably
drop in price dramatically, and may even become worthless. Changes in
financial condition and general economic conditions can affect the ability to
honor financial obligations and therefore credit quality. A security's price
may be adversely affected by the market's opinion of the security's credit
quality level even if the issuer or counterparty has suffered no degradation
in ability to honor the obligation.
o DECLINES IN RATINGS. At the time of issue, most bonds are rated by
professional rating services, such as Moody's Investors Service, Inc.
(Moody's) and Standard & Poor's Corporation (S&P). The stronger the financial
backing behind the bond, the higher the rating. If this backing is weakened
or lost, the rating service may downgrade the bond's rating. This is
virtually certain to cause the bond to drop in price. Bonds that are rated
below BBB by S&P, and below Ba by Moody's, are considered to be below
investment grade. Moody's rates bonds in nine categories, from Aaa to C, with
Aaa being the highest with least risk. S&P rates bonds in six categories,
from AAA to D, with AAA being the highest.
o LOW RATING. High-yield/high-risk fixed-income securities (commonly known as
"junk bonds") have greater credit risk, are more sensitive to interest rate
movements, are considered more speculative than higher rated bonds, have a
greater vulnerability to economic changes and are less liquid. The market for
such securities may be less active than for higher rated securities, which
can adversely affect the price at which these securities may be sold and may
diminish a portfolio's ability to obtain accurate market quotations when
valuing the portfolio securities and calculating the portfolio's net asset
value.
o LACK OF RATING. Some bonds are considered speculative, or for other reasons
are not rated. Such bonds must pay a higher interest rate in order to attract
investors. They're considered riskier because of the higher possibility of
default or loss of liquidity.
o LOSS OF LIQUIDITY. If a bond is downgraded, or for other reasons drops in
price, the market demand for it may "dry up". In that case, the bond may be
hard to sell or "liquidate" (convert to cash).
[GRAPHIC OMITTED]
INVESTING IN FOREIGN SECURITIES. These are investments offered by foreign
companies, governments and government agencies. They involve risks not usually
associated with U.S. securities, including:
o CHANGES IN CURRENCY VALUES. Foreign securities are sold in currencies other
than U.S. dollars. If a currency's value drops, the value of the securities
held by a portfolio could drop too, even if the securities are strong. In
turn, the value of the shares of the portfolio could also drop. Dividend and
interest payments may be lower. Factors affecting exchange rates are:
differing interest rates among countries; balances of trade; amount of a
country's overseas investments; and any currency manipulation by banks.
o CURRENCY SPECULATION. The foreign currency market is largely unregulated and
subject to speculation.
o ADRS/ADSS. Some portfolios also invest in American Depositary Receipts (ADRs)
and American
Prospectus 17
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
Depositary Shares (ADSs). They represent securities of foreign companies
traded on U.S. exchanges, and their values are expressed in U.S. dollars.
Changes in the value of the underlying foreign currency will change the value
of the ADR or ADS. A portfolio incurs costs when it converts other currencies
into dollars, and vice-versa.
o EURO CONVERSION. On January 1, 1999, certain participating countries in the
European Economic Monetary Union adopted the "Euro" as their official
currency. Other EU member countries may convert to the Euro at a later date.
As of January 1, 1999, governments in participating countries issued new debt
and redenominated existing debt in Euros; corporations chose to issue stocks
or bonds in Euros or national currency. The new European Central Bank (the
"ECB") will assume responsibility for a uniform monetary policy in
participating countries. Euro conversion risks that could affect a
portfolio's foreign investments include: (1) the readiness of Euro payment,
clearing, and other operational systems; (2) the legal treatment of debt
instruments and financial contracts in existing national currencies rather
than the Euro; (3) exchange-rate fluctuations between the Euro and non-Euro
currencies during the transition period of January 1, 1999 through December
31, 2002 and beyond; (4) potential U.S. tax issues with respect to portfolio
securities; and (5) the ECB's abilities to manage monetary policies among the
participating countries; and (6) the ability of financial institution systems
to process Euro transactions.
o DIFFERENT ACCOUNTING AND REPORTING PRACTICES. Foreign tax laws are different,
as are laws, practices and standards for accounting, auditing and reporting
data to investors.
o LESS INFORMATION AVAILABLE TO THE PUBLIC. Foreign companies usually make less
information available to the public.
o LESS REGULATION. Securities regulations in many foreign countries are more
lax than in the U.S.
o MORE COMPLEX NEGOTIATIONS. Because of differing business and legal
procedures, a portfolio may find it hard to enforce obligations or negotiate
favorable brokerage commission rates.
o LESS LIQUIDITY/MORE VOLATILITY. Some foreign securities are harder
to convert to cash than U.S. securities, and their prices may fluctuate more
dramatically.
o SETTLEMENT DELAYS. "Settlement" is the process of completing a securities
transaction. In many countries, this process takes longer than it does in the
U.S.
o HIGHER CUSTODIAL CHARGES. Fees charged by the Fund's custodian for holding
shares are higher for foreign securities than that of domestic securities.
o HIGHER TRANSACTION COSTS. Fees charged by securities brokers are often higher
for transactions involving foreign securities than domestic securities.
Higher expenses, such as brokerage fees, may reduce the return a portfolio
might otherwise achieve.
o VULNERABILITY TO SEIZURE AND TAXES. Some governments can seize assets. They
may also limit movement of assets from the country. A portfolio's interest,
dividends and capital gains may be subject to foreign withholding taxes.
o POLITICAL INSTABILITY AND SMALL EMERGING MARKETS. Developing countries can be
politically unstable. Economies can be dominated by a few industries, and
markets may trade a small number of securities. Regulations of banks and
capital markets can be weak.
o DIFFERENT MARKET TRADING DAYS. Foreign markets may not be open for trading
when U.S. markets are and asset values can change before your transaction
occurs.
o HEDGING. A portfolio may, but will not necessarily, enter into forward
currency contracts to hedge against declines in the value of securities
denominated in, or whose value is tied to, a currency other than the U.S.
dollar or to reduce the impact of currency fluctuation on purchases, and
sales of such securities.
[GRAPHIC OMITTED]
INVESTING IN FUTURES, OPTIONS AND DERIVATIVES. Besides conventional securities,
your portfolio may seek to increase returns by investing in financial contracts
related to its primary investments. Such contracts involve additional risks and
costs. Risks include:
o INACCURATE MARKET PREDICTIONS. If the sub-adviser is wrong in its
expectation, for example, with respect to interest rates, securities
prices or currency markets, the contracts could produce losses instead of
gains.
o PRICES MAY NOT MATCH. Movements in the price of the financial contracts
may be used to offset
Prospectus 18
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
movements in the price of other securities you own. If those prices don't
correlate or match closely, the benefits of the transaction might be
diminished.
o ILLIQUID MARKETS. If there's no market for the contracts, the portfolio may
not be able to control losses.
o TAX CONSEQUENCES. Sometimes the possibility of incurring high taxes on a
transaction may delay closing out a position and limit the gains it would
have produced.
[GRAPHIC OMITTED]
INVESTING IN SPECIAL SITUATIONS. Each portfolio may invest in "special
situations" from time to time. Special situations arise when, in the opinion of
a portfolio manager, a company's securities may be undervalued, then increase
considerably in price, due to:
o A NEW PRODUCT OR PROCESS
o A MANAGEMENT CHANGE
o A TECHNOLOGICAL BREAKTHROUGH
o AN EXTRAORDINARY CORPORATE EVENT
o A TEMPORARY IMBALANCE IN THE SUPPLY OF, AND DEMAND FOR, THE SECURITIES OF AN
ISSUER
Investing in a special situation carries an additional risk of loss if the
expected development does not happen or does not attract the expected
attention. The impact of special situation investing to a portfolio will depend
on the size of a portfolio's investment in a situation.
[GRAPHIC OMITTED]
CASH POSITION
A portfolio may, at times, choose to hold some portion of its net assets in
cash, or to invest that cash in a variety of short-term debt securities that
are considered cash equivalents. This may be done as a temporary defensive
measure at times when desirable risk/reward characteristics are not available
in stocks or to earn income from otherwise uninvested cash. When a portfolio
increases its cash or debt investment position, its income may increase while
its ability to participate in stock market advances or declines decreases.
[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 short-term
securities) for a year and dividing it by the monthly average of the market
value of such securities during the year.
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 unforeseen developments.
The rate of portfolio turnover will not be a limiting factor when short-term
investing is considered appropriate. Increased turnover rates result in higher
brokerage costs and other transaction based expenses for a portfolio. These
charges are ultimately borne by the shareholders.
[GRAPHIC OMITTED]
SHORT SALES
A 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 convertible into, or exchangeable without
further consideration for, securities of the same issue as the securities sold
short.
[GRAPHIC OMITTED]
INVESTMENT STRATEGIES
A portfolio is permitted to use other securities and investment strategies in
pursuit of its investment objective, subject to limits established by the
Fund's Board of Directors. No portfolio is under any obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. Certain instruments and investment strategies may expose the
portfolios to other risks and considerations, which are discussed in the Fund's
SAI.
Prospectus 19
<PAGE>
HOW THE FUND IS MANAGED AND ORGANIZED
[GRAPHIC OMITTED]
HOW THE FUND IS MANAGED AND ORGANIZED
The Fund's Board is responsible for managing the business affairs of the Fund.
It oversees the operation of the Fund by its officers. It also reviews the
management of the portfolios' assets by the investment adviser and
sub-advisers. Information about the Directors and executive officers of the
Fund is contained in the SAI.
WRL Investment Management, Inc. (WRL Management) located at 570 Carillon
Parkway, St. Petersburg, Florida 33716, has served as the Fund's investment
adviser since 1997. Prior to this date, Western Reserve served as investment
adviser to the Fund. The investment adviser had no prior experience as an
adviser. The investment adviser is a direct, wholly-owned subsidiary of Western
Reserve Life Assurance Co. of Ohio (Western Reserve), which is wholly-owned by
First AUSA Life Insurance Company, a stock life insurance company, which is
wholly-owned by AEGON USA, Inc. 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.
Subject to the supervision of the Fund's Board, the investment adviser is
responsible for furnishing continuous advice and recommendations to the Fund as
to the acquisition, holding or disposition of any or all of the securities or
other assets which the portfolios may own or contemplate acquiring from time to
time; to cause its officers to attend meetings and furnish oral or written
reports, as the Fund may reasonably require, in order to keep the Fund's Board
and appropriate officers of the Fund fully informed as to the conditions of the
investment portfolio of each portfolio, the investment recommendations of the
investment adviser, and the investment considerations which have given rise to
those recommendations; to supervise the purchase and sale of securities of the
portfolios as directed by the appropriate officers of the Fund; and to maintain
all books and records required to be maintained by the investment adviser.
As compensation for its services to the portfolios, the investment adviser
receives monthly compensation at an annual rate of a percentage of the average
daily net assets of each portfolio. The advisory fees for each portfolio are:
ADVISORY
PORTFOLIO FEE
WRL Janus Growth* 0.80%
WRL LKCM Strategic Total Return 0.80%
WRL Alger Aggressive Growth 0.80%
WRL J.P. Morgan Real
Estate Securities 0.80%
WRL Janus Global** 0.80%
* WRL Management currently waives 0.025% of its advisory fee for the first $3
billion of the portfolio's average daily net assets (net fee -- 0.775%); and
0.05% of assets above $3 billion (net fee -- 0.75%). This waiver is voluntary
and may be terminated at any time.
** WRL Management currently waives 0.025% of its advisory fee for the
portfolio's average daily net assets above $2 billion (net fee -- 0.775%). This
waiver is voluntary and may be terminated at any time.
Here is a listing of the sub-advisers and the portfolios they manage:
SUB-ADVISER PORTFOLIO
Janus WRL Janus Global
WRL Janus Growth
LKCM WRL LKCM Strategic
Total Return
Alger WRL Alger Aggressive Growth
J.P. Morgan WRL J.P. Morgan Real
Estate Securities
DAY-TO-DAY MANAGEMENT OF THE INVESTMENTS IN EACH PORTFOLIO IS THE
RESPONSIBILITY OF THE PORTFOLIO MANAGER. THE PORTFOLIO MANAGERS OF THE FUND
ARE:
WRL JANUS GLOBAL
HELEN YOUNG HAYES has been employed by Janus since 1987 and has managed this
portfolio since its inception.
WRL JANUS GROWTH
SCOTT W. SCHOELZEL and EDWARD KEELY serve as co-managers of this portfolio. Mr.
Schoelzel has managed this portfolio since January 1996. Before that, he was
co-manager of this portfolio since 1995. He has been employed by Janus since
1994.
Prospectus 20
<PAGE>
HOW THE FUND IS MANAGED AND ORGANIZED (CONTINUED)
Mr. Keely has managed the portfolio since January, 1999. He has been employed
by Janus since 1998. Prior to joining Janus, he was a senior vice president of
investments at Founders.
WRL LKCM STRATEGIC TOTAL RETURN
LUTHER KING, JR., CFA and SCOT C. HOLLMANN, CFA have co-managed this portfolio
since its inception.
Mr. King has been the president of Luther King since 1979.
Mr. Hollmann has been a vice president of Luther King since 1983.
WRL J.P. MORGAN REAL ESTATE SECURITIES
DANIEL P. O'CONNOR serves as portfolio manager of this portfolio. Mr. O'Conner
has managed the portfolio since its inception. Prior to joining J.P. Morgan in
1996, Mr. O'Conner served two years as Director of Real Estate Securities at
INVESCO.
WRL ALGER AGGRESSIVE GROWTH
DAVID D. ALGER has been employed by Alger since 1971 and has served as
president since 1995. He has managed this portfolio since inception.
DAVID HYUN has served as co-manager of this portfolio since February 1998. He
has been employed by Alger as a senior research analyst since 1991 and a
portfolio manager since 1997.
Prospectus 21
<PAGE>
PERFORMANCE INFORMATION
The Fund may include quotations of a portfolio's total return in connection
with the total return for the appropriate separate account, in advertisements,
sales literature or reports to policyowners or to prospective investors. Total
return for a portfolio reflect only the performance of a hypothetical
investment in the portfolio during the particular time period shown as
calculated based on the historical performance of the portfolio during that
period. SUCH QUOTATIONS DO NOT IN ANY WAY INDICATE OR PROJECT FUTURE
PERFORMANCE. Quotations of total return will not reflect charges or deductions
against the separate accounts or charges and deductions against the policies or
the annuity contracts. Where relevant, the prospectuses for the policies and
the annuity contracts contain performance information which show total return
and yield information for the separate accounts, policies or annuity contracts.
TOTAL RETURN
Total return refers to the average annual percentage change in value of an
investment in a portfolio held for a stated period of time as of a stated
ending date. When a portfolio has been in operation for the stated period, the
total return for such period will be provided if performance information is
quoted. Total return quotations are expressed as average annual compound rates
of return for each of the periods quoted. They also reflect the deduction of a
proportionate share of a portfolio's investment advisory fees and direct
portfolio expenses, and assume that all dividends and capital gains
distributions during the period are reinvested in the portfolio when made.
SIMILAR SUB-ADVISER PERFORMANCE
A portfolio may disclose in advertisements, supplemental sales literature, and
reports to policyowners or to prospective investors total returns of an
EXISTING SEC-REGISTERED fund that is managed by the portfolio's sub-adviser and
that has investment objectives, policies, and strategies substantially similar
to those of such portfolio (a "Similar Sub-Adviser Fund"). ALTHOUGH THE SIMILAR
SUB-ADVISER FUNDS HAVE SUBSTANTIALLY SIMILAR INVESTMENT OBJECTIVES, POLICIES,
AND STRATEGIES AS THE DESIGNATED PORTFOLIO, AND ARE MANAGED BY THE SAME
SUB-ADVISER AS THE DESIGNATED PORTFOLIO, YOU SHOULD NOT ASSUME THAT ANY
PORTFOLIO WILL HAVE THE SAME FUTURE PERFORMANCE AS SIMILAR SUB-ADVISER FUNDS
WHOSE TOTAL RETURNS ARE SHOWN. Each portfolio's future performance may be
greater or less than the historical performance of the corresponding Similar
Sub-Adviser Fund. There can be no assurance, and no representation is made,
that the investment results of any portfolio will be comparable to the results
of any of the Similar Sub-Adviser Funds as any other fund managed by WRL
Management or any sub-adviser.
Prospectus 22
<PAGE>
PERFORMANCE INFORMATION (CONTINUED)
The table below sets forth certain portfolios of the Fund and, for each
portfolio's respective Similar Sub-Adviser Fund, the fund's inception date,
asset size, and the average annual total returns for the one, five and ten year
periods (or life of the Similar Sub-Adviser Fund, if shorter) ended December
31, 1998. These figures are based on the actual investment performance of the
Similar Sub-Adviser Funds. Each Similar
Sub-Adviser Fund has higher total expenses than its corresponding portfolio of
the Fund. The average annual total returns for the Similar Sub-Adviser Funds
are shown with and without the deductions of any applicable sales load. YOU
SHOULD NOTE THAT THE PERFORMANCE OF THE SIMILAR SUB-ADVISER FUNDS DOES NOT
REFLECT THE HISTORICAL PERFORMANCE OF ANY PORTFOLIOS.
SIMILAR SUB-ADVISER FUND PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(WITH SALES LOADS)
---------------------------------
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
WRL PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ------------------------- ----------- ---------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
WRL Janus Global Janus Worldwide(1) 5/15/91 $18.5 15.44% 21.13% 21.29%
billion
WRL Alger Aggressive Growth The Alger Fund Class A $349.3 31.85% N/A 26.38%
Capital Appreciation 12/31/96 million
Class A Shares(2) (Net) (all classes)
</TABLE>
(1) The Janus Worldwide Fund does not have a sales load.
(2) Total returns are for Class A shares of The Alger Fund Capital Appreciation
Portfolio and reflect a deduction of a 4.75% front end sales load. The
Portfolio also offers Class B and Class C shares with different sales
loads. Calculating total return with those sales loads may have resulted
in lower total returns. The inception dates for Class A, B and C shares
are 12/31/96, 10/29/93 and 8/1/97, respectively.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(WITHOUT SALES LOADS)
---------------------------------
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
WRL PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
- ----------------------------- ---------------------- ----------- ---------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
WRL Janus Global Janus Worldwide(1) 5/15/91 $18.5 15.44% 21.13% 21.29%
billion
WRL Alger Aggressive Growth The Alger Fund(1) Class A $349.3 38.42% N/A 29.49%
Capital Appreciation 12/31/96 million
(all classes)
</TABLE>
(1) The Janus Worldwide Fund offers Class B and Class C shares as well. Returns
for those classes may differ from those of Class A shares due to differing
fee structures.
THE PERFORMANCE OF SIMILAR SUB-ADVISER FUNDS DOES NOT REFLECT ANY OF THE
CHARGES, FEES, AND EXPENSES IMPOSED UNDER THE POLICIES OR ANNUITY CONTRACTS.
SUCH PERFORMANCE WOULD IN EACH CASE BE LOWER IF IT REFLECTED THESE CHARGES,
FEES AND EXPENSES. SEE THE CONTRACT FORM OR DISCLOSURE DOCUMENT FOR THE POLICY
OR ANNUITY CONTRACT. (THE DISCLOSURE DOCUMENTS FOR THE POLICY OR ANNUITY
CONTRACT DESCRIBE SIMILAR SUB-ADVISERS FUNDS AS "SIMILAR SUB-ADVISED FUNDS.")
(See the SAI for more information about the portfolios' performance.)
Prospectus 23
<PAGE>
OTHER INFORMATION
[GRAPHIC OMITTED] PURCHASE AND REDEMPTION OF SHARES
As described earlier in the prospectus, shares of the portfolios are sold
exclusively to certain separate accounts of Western Reserve Life Assurance Co.
of Ohio, PFL Life Insurance Company, AUSA Life Insurance Company, Inc. and
Peoples Benefit Life Insurance Company, and are not offered to the public.
Shares are sold and redeemed at their net asset value without the imposition of
any sales commission or redemption charge. (However, certain sales or other
charges may apply to the policies or annuity contracts, as described in the
product prospectus.)
[GRAPHIC OMITTED] VALUATION OF SHARES
Each portfolio's net asset value per share is ordinarily determined once daily,
as of the close of the regular session of business on the New York Stock
Exchange (NYSE) (usually 4:00 p.m., Eastern Time), on each day the exchange is
open.
WHAT IS NET ASSET VALUE?
The net asset value of a portfolio share is computed by dividing the value
of the net assets of the portfolio by the total number of shares
outstanding in the portfolio.
Net asset value (NAV) of a portfolio share is computed by dividing the value of
the net assets of the portfolio by the total number of shares outstanding in
the portfolio. Share prices for any transaction are those next calculated after
receipt of an order.
If your order is received by closing time of the NYSE, you will pay, or you
will receive, that day's NAV. Share prices may change when a portfolio holds
shares in companies traded on foreign exchanges that are open on the days the
NYSE is closed.
Except for money market instruments maturing in 60 days or less, securities
held by portfolios are valued at market value. If market values are not readily
available, securities are valued at fair value as determined by the Fund's
Valuation Committee under the supervision of the Fund's Board.
[GRAPHIC OMITTED] DIVIDENDS AND DISTRIBUTIONS
Each portfolio intends to distribute substantially all of its net investment
income, if any. Dividends from investment income of a portfolio normally are
declared daily and reinvested monthly in additional shares of the portfolio at
net asset value. Distributions of net realized capital gains from security
transactions normally are declared and paid in additional shares of the
portfolio at the end of the fiscal year.
[GRAPHIC OMITTED] TAXES
Each portfolio has qualified and expects to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended ("Code"). As qualified, a portfolio is not subject to federal income
tax on that part of its taxable income that it distributes to you. Taxable
income consists generally of net investment income, and any capital gains. It
is each portfolio's intention to distribute all such income and gains.
Shares of each portfolio are offered only to the separate accounts of Western
Reserve and its affiliates. Separate accounts are insurance company separate
accounts that fund the policies and the annuity contracts. Under the Code, an
insurance company pays no tax with respect to income of a qualifying separate
account when the income is properly allocable to the value of eligible variable
annuity or variable life insurance contracts. For a discussion of the taxation
of life insurance companies and the separate accounts, as well as the tax
treatment of the policies and annuity contracts and the holders thereof, see
"Federal Income Tax Considerations" included in the respective prospectuses for
the policies and the annuity contracts.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on each portfolio. Each portfolio intends to
comply with the diversification requirements. These requirements are in
addition to the diversification requirements imposed on each portfolio by
Subchapter M and the 1940 Act. The 817(h) requirements place certain
limitations on the assets of each separate account that may be invested in
securities of a single issuer. Specifically, the regulations provide that,
except as permitted by "safe harbor," rules described below, as of the end of
each calendar quarter
Prospectus 24
<PAGE>
OTHER INFORMATION (CONTINUED)
or within 30 days thereafter, no more than 55% of the portfolio's total assets
may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments, and no more than 90% by
any four investments.
Section 817(h) also provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of section
817(h), all securities of the same issuer, all interests in the same real
property, and all interests in the same comodity 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 does
not satisfy the section 817(h) requirements, the separate accounts, the
insurance companies, the policies and the annuity contracts may be taxable. See
the prospectuses for the policies and annuity contracts.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting a portfolio and you; see the SAI for a more
detailed discussion. You are urged to consult your tax advisors.
[GRAPHIC OMITTED] REPORT TO POLICYHOLDERS
The fiscal year of each portfolio ends on December 31 of each year. The Fund
will send to you, at least semi-annually, reports which show the portfolios'
composition and other information. An annual report, with audited financial
information, will be sent to you each year.
[GRAPHIC OMITTED] DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan") and pursuant to the Plan, entered into a Distribution Agreement with
AFSG Securities Corporation (AFSG) located at 4333 Edgewood Road NE, Cedar
Rapids, Iowa 52499. AFSG is an affiliate of the investment adviser, and serves
as principal underwriter for the Fund. (Prior to May 1, 1999, InterSecurities,
Inc., an affiliate of the investment adviser, served as principal underwriter
for the Fund.) The Plan permits the use of Fund assets to help finance the
distribution of the shares of the portfolios. Under the Plan, the Fund, on
behalf of the portfolios, is permitted to pay to various service providers up
to 0.15% of the average daily net assets of each portfolio as payment for
actual expenses incurred in connection with the distribution of the shares of
the portfolios. Because these fees are paid out of Fund assets on an on-going
basis, over time these costs will increase the cost of your investment and may
cost you more than other types of sales charges.
As of the date of this prospectus, the Fund has not paid any distribution fees
under the Plan and does not intend to do so before April 30, 2000. You will
receive written notice prior to the payment of any fees under the Plan.
[GRAPHIC OMITTED] PREPARING FOR THE YEAR 2000
In May 1996, the Fund and the investment adviser have adopted and presently
have in place a Year 2000 Project Plan (the "Plan") to review and analyze
existing hardware and software systems, as well as voice and data
communications systems, to determine if they are Year 2000 compliant. As of
March 1, 1999, substantially all of the Fund's and the investment adviser's
mission-critical systems are Year 2000 compliant. The Plan remains on track as
we continue with the validation of our mission-critical and
non-mission-critical systems, including revalidation testing in 1999. In
addition, we have undertaken aggressive initiatives to test all systems that
interface with any third parties and other business partners. All of these
steps are aimed at allowing current operations to remain unaffected by the Year
2000 date change.
As of the date of this prospectus, the Fund and the investment adviser have
identified and made available what it believes are the appropriate resources of
hardware, people, and dollars, including the engagement of outside third
parties, to ensure that the Plan will be completed.
The actions taken by management under the Plan are intended to reduce
significantly the Fund's and the
Prospectus 25
<PAGE>
OTHER INFORMATION (CONTINUED)
investment adviser's risk of a material business interruption based on the Year
2000 issues. It should be noted that the Year 2000 computer problem, and its
resolution, is complex and multifaceted, and any company's success cannot be
conclusively known until the Year 2000 is reached. In spite of its efforts or
results, our ability to function unaffected to and through the Year 2000 may be
adversely affected by actions, or failure to act, of third parties beyond our
knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C. Section 1
(1998).
Prospectus 26
<PAGE>
FINANCIAL HIGHLIGHTS*
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND A PORTFOLIO'S
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS (OR, IF SHORTER, THE PERIOD OF THE
PORTFOLIO'S OPERATIONS). CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A
SINGLE PORTFOLIO SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE AN
INVESTOR WOULD HAVE EARNED (OR LOST) ON AN INVESTMENT IN EACH PORTFOLIO
(ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED
BY PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS, WHOSE REPORT, ALONG
WITH THE FUND'S FINANCIAL STATEMENTS, ARE INCLUDED IN THE FUND'S ANNUAL REPORT,
WHICH IS AVAILABLE UPON REQUEST BY CALLING THE FUND AT 1-800-851-9777.
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH
---------------------------
DECEMBER 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 16.04 $ 14.18
Income from operations:
Net investment income (loss) ........................................ (0.04) (0.01)
Net realized and unrealized gain (loss) on investments .............. 7.68 3.44
---------- ----------
Net income (loss) from operations .................................. 7.64 3.43
---------- ----------
Distributions:
Dividends from net investment income ................................ 0.00 0.00
Dividends in excess of net investment income ........................ (0.05) (0.42)
Distributions from net realized gains on investments ................ (1.19) (1.15)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
---------- ----------
Total distributions ................................................ (1.24) (1.57)
---------- ----------
Net asset value, end of year .......................................... $ 22.44 $ 16.04
========== ==========
Total return (a) ...................................................... 48.69 % 24.25 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 574,164 $ 336,166
Ratio of expenses to average net assets (b) ......................... 0.91 % 0.96 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.21)% (0.06)%
Portfolio turnover rate (a) ......................................... 117.44 % 136.18 %
<CAPTION>
WRL ALGER AGGRESSIVE GROWTH
----------------------------------------
DECEMBER 31,
----------------------------------------
1996 1995 1994 (c)
------------- ------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 13.25 $ 9.86 $ 10.00
Income from operations:
Net investment income (loss) ........................................ (0.01) (0.06) 0.02
Net realized and unrealized gain (loss) on investments .............. 1.38 3.96 (0.14)
---------- ---------- ---------
Net income (loss) from operations .................................. 1.37 3.90 (0.12)
---------- ---------- ---------
Distributions:
Dividends from net investment income ................................ 0.00 0.00 (0.02)
Dividends in excess of net investment income ........................ (0.19) 0.00 0.00
Distributions from net realized gains on investments ................ (0.25) (0.51) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
---------- ---------- ---------
Total distributions ................................................ (0.44) (0.51) (0.02)
---------- ---------- ---------
Net asset value, end of year .......................................... $ 14.18 $ 13.25 $ 9.86
========== ========== =========
Total return (a) ...................................................... 10.45 % 38.02 % (1.26)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 220,552 $ 158,534 $ 38,826
Ratio of expenses to average net assets (b) ......................... 0.98 % 1.07 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.10)% (0.48)% (0.20)%
Portfolio turnover rate (a) ......................................... 101.28 % 108.04 % 89.73 %
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL
-------------------------------
DECEMBER 31,
-------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 19.04 $ 18.12
Income from operations:
Net investment income (loss) ........................................ 0.05 0.08
Net realized and unrealized gain (loss) on investments .............. 5.61 3.32
---------- --------
Net income (loss) from operations .................................. 5.66 3.40
---------- --------
Distributions:
Dividends from net investment income ................................ (0.13) (0.13)
Dividends in excess of net investment income ........................ 0.00 (1.01)
Distributions from net realized gains on investments ................ (0.80) (1.34)
Distributions in excess of net realized gains on investments ........ (0.06) 0.00
---------- --------
Total distributions ................................................ (0.99) (2.48)
---------- --------
Net asset value, end of year .......................................... $ 23.71 $ 19.04
========== ========
Total return (a) ...................................................... 30.01 % 18.75 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 1,069,765 $ 785,966
Ratio of expenses to average net assets (b) ......................... 0.95 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.23 % 0.41 %
Portfolio turnover rate (a) ......................................... 87.36 % 97.54 %
<CAPTION>
WRL JANUS GLOBAL
--------------------------------------------
DECEMBER 31,
--------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 15.52 $ 13.12 $ 13.62
Income from operations:
Net investment income (loss) ........................................ 0.08 0.10 0.10
Net realized and unrealized gain (loss) on investments .............. 4.20 2.91 0.10
-------- -------- --------
Net income (loss) from operations .................................. 4.28 3.01 0.20
-------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.04) 0.00 (0.10)
Dividends in excess of net investment income ........................ (0.17) 0.00 (0.01)
Distributions from net realized gains on investments ................ (1.47) (0.61) (0.56)
Distributions in excess of net realized gains on investments ........ 0.00 0.00 (0.03)
-------- -------- --------
Total distributions ................................................ (1.68) (0.61) (0.70)
-------- -------- --------
Net asset value, end of year .......................................... $ 18.12 $ 15.52 $ 13.12
======== ======== ========
Total return (a) ...................................................... 27.74 % 23.06 % 0.25 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 534,820 $ 289,506 $ 261,778
Ratio of expenses to average net assets (b) ......................... 0.99 % 0.99 % 1.01 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.46 % 0.75 % 0.73 %
Portfolio turnover rate (a) ......................................... 88.31 % 130.60 % 192.06 %
</TABLE>
Prospectus 27
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL JANUS GROWTH
---------------------------------
DECEMBER 31,
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 36.84 $ 35.00
Income from operations:
Net investment income (loss) ........................................ 0.12 0.31
Net realized and unrealized gain (loss) on investments .............. 23.49 5.88
---------- ----------
Net income (loss) from operations .................................. 23.61 6.19
---------- ----------
Distributions:
Dividends from net investment income ................................ (0.09) (0.26)
Dividends in excess of net investment income ........................ 0.00 0.00
Distributions from net realized gains on investments ................ (0.42) (4.09)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
---------- ----------
Total distributions ................................................ (0.51) (4.35)
---------- ----------
Net asset value, end of year .......................................... $ 59.94 $ 36.84
========== ==========
Total return (a) ...................................................... 64.47 % 17.54 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 3,086,057 $ 1,839,453
Ratio of expenses to average net assets (b) ......................... 0.83 % 0.87 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.25 % 0.80 %
Portfolio turnover rate (a) ......................................... 35.29 % 85.88 %
<CAPTION>
WRL JANUS GROWTH
--------------------------------------------------
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 31.66 $ 23.81 $ 26.25
Income from operations:
Net investment income (loss) ........................................ 0.34 0.26 0.22
Net realized and unrealized gain (loss) on investments .............. 5.35 10.97 (2.41)
---------- ---------- -----------
Net income (loss) from operations .................................. 5.69 11.23 (2.19)
---------- ---------- -----------
Distributions:
Dividends from net investment income ................................ (0.35) (0.24) (0.22)
Dividends in excess of net investment income ........................ (0.01) 0.00 0.00
Distributions from net realized gains on investments ................ (1.99) (3.14) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 (0.03)
---------- ---------- -----------
Total distributions ................................................ (2.35) (3.38) (0.25)
---------- ---------- -----------
Net asset value, end of year .......................................... $ 35.00 $ 31.66 $ 23.81
========== ========== ===========
Total return (a) ...................................................... 17.96 % 47.12 % (8.31)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 1,527,409 $ 1,195,174 $ 814,383
Ratio of expenses to average net assets (b) ......................... 0.88 % 0.86 % 0.84 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.98 % 0.90 % 0.88 %
Portfolio turnover rate (a) ......................................... 45.21 % 130.48 % 107.33 %
</TABLE>
<TABLE>
<CAPTION>
WRL LKCM STRATEGIC TOTAL
RETURN
-----------------------------
DECEMBER 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 15.62 $ 13.97
Income from operations:
Net investment income (loss) ........................................ 0.39 0.37
Net realized and unrealized gain (loss) on investments .............. 1.09 2.68
-------- --------
Net income (loss) from operations .................................. 1.48 3.05
-------- --------
Distributions:
Dividends from net investment income ................................ (0.38) (0.35)
Dividends in excess of net investment income ........................ 0.00 (0.03)
Distributions from net realized gains on investments ................ (0.32) (1.02)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
-------- --------
Total distributions ................................................ (0.70) (1.40)
-------- --------
Net asset value, end of year .......................................... $ 16.40 $ 15.62
======== ========
Total return (a) ...................................................... 9.64 % 21.85 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 592,312 $ 526,577
Ratio of expenses to average net assets (b) ......................... 0.86 % 0.88 %
Ratio of net investment income (loss) to average net assets (b) ..... 2.43 % 2.43 %
Portfolio turnover rate (a) ......................................... 49.20 % 48.20 %
<CAPTION>
WRL LKCM STRATEGIC TOTAL RETURN
-------------------------------------------
DECEMBER 31,
-------------------------------------------
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 12.86 $ 10.90 $ 11.23
Income from operations:
Net investment income (loss) ........................................ 0.37 0.37 0.31
Net realized and unrealized gain (loss) on investments .............. 1.56 2.33 (0.33)
-------- -------- --------
Net income (loss) from operations .................................. 1.93 2.70 (0.02)
-------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.32) (0.37) (0.31)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ (0.50) (0.37) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
-------- -------- --------
Total distributions ................................................ (0.82) (0.74) (0.31)
-------- -------- --------
Net asset value, end of year .......................................... $ 13.97 $ 12.86 $ 10.90
======== ======== ========
Total return (a) ...................................................... 15.00 % 24.66 % (0.53)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 390,141 $ 256,806 $ 183,867
Ratio of expenses to average net assets (b) ......................... 0.91 % 0.87 % 0.89 %
Ratio of net investment income (loss) to average net assets (b) ..... 2.72 % 3.07 % 2.78 %
Portfolio turnover rate (a) ......................................... 49.32 % 52.59 % 53.50 %
</TABLE>
Prospectus 28
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL
J.P. MORGAN
REAL ESTATE
SECURITIES
-------------
DECEMBER 31,
-------------
1998 (d)
-------------
<S> <C>
Net asset value, beginning of year .................................... $ 10.00
Income from operations:
Net investment income (loss) ........................................ 0.36
Net realized and unrealized gain (loss) on investments .............. (1.85)
---------
Net income (loss) from operations .................................. (1.49)
---------
Distributions:
Dividends from net investment income ................................ 0.00
Dividends in excess of net investment income ........................ 0.00
Distributions from net realized gains on investments ................ 0.00
Distributions in excess of net realized gains on investments ........ 0.00
---------
Total distributions ................................................ 0.00
---------
Net asset value, end of year .......................................... $ 8.51
=========
Total return (a) ...................................................... (14.93)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 2,414
Ratio of expenses to average net assets (b) ......................... 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 6.03 %
Portfolio turnover rate (a) ......................................... 100.80 %
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
* Per share information has been computed using average shares outstanding
throughout each year.
See Note 6.
(a) Not annualized for periods of less than one full year.
(b) Annualized for periods of less than one full year.
(c) The inception of this Portfolio was March 1, 1994.
(d) The inception of this Portfolio was May 1, 1998.
Prospectus 29
<PAGE>
FINANCIAL HIGHLIGHTS*
NOTE 6 -- FINANCIAL HIGHLIGHTS
The total return set forth in "Financial Highlights" reflects the advisory fee
and all other portfolio expenses and includes reinvestment of dividends and
capital gains; if does not reflect the charges against the corresponding sub-
accounts or the charges and deductions under the applicable policies or annuity
contracts. Where a portfolio's period from inception is less than one year, the
total return shown is not annualized.
The ratio of expenses to average net assets in the Financial Highlights is net
of the advisory fee waiver. Where a portfolio's period from inception is less
than one year, the ratio of expenses to average net assets is annualized.
Without the advisory fee waived by WRL the ratio for each period presented
would be as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
PORTFOLIO 1998 1997 1996 1995 1994
- ------------------------------------ ---------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Growth ............................. * * * * *
Global ............................. * * * * *
Strategic Total Return ............. * * * * *
Aggressive Growth (a) .............. * * * * 1.18%
Real Estate Securities (b) ......... 3.34% ** ** ** **
</TABLE>
Without the advisory fee waived by WRL and the fees paid indirectly, the ratio
for each period presented would be as follows:
DECEMBER 31,
--------------------
PORTFOLIO 1998 1997
- --------- ---------- -------
Growth ............................. * *
Global ............................. * *
Strategic Total Return ............. * *
Aggressive Growth .................. * *
Real Estate Securities (b) ......... 3.34% **
* No waiver since the portfolio did not exceed expense limitations.
** Portfolio was not in existence during this period.
(a) The inception date of this portfolio was March 1, 1994.
(b) The inception date of this portfolio was May 1, 1998.
Prospectus 30
<PAGE>
ADDITIONAL INFORMATION ABOUT THESE PORTFOLIOS IS CONTAINED IN THE
STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1999, AND IN THE
FUND'S ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS, WHICH ARE
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. IN THE FUND'S
ANNUAL REPORT, YOU WILL FIND A DISCUSSION OF THE MARKET CONDITIONS
AND INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED THE FUND'S
PERFORMANCE DURING THE LAST FISCAL YEAR.
YOU MAY ALSO CALL 1-800-851-9777 TO REQUEST THIS ADDITIONAL
INFORMATION ABOUT THE FUND WITHOUT CHARGE OR TO MAKE SHAREHOLDER
INQUIRIES.
OTHER INFORMATION ABOUT THESE PORTFOLIOS HAS BEEN FILED WITH AND
IS AVAILABLE FROM THE U.S. SECURITIES AND EXCHANGE COMMISSION.
INFORMATION ABOUT THE FUND (INCLUDING THE SAI) CAN BE REVIEWED AND
COPIED AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. INFORMATION ON THE OPERATION OF
THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE
COMMISSION AT 1-800-SEC-0330. INFORMATION MAY BE OBTAINED, UPON
PAYMENT OF A DUPLICATING FEE BY WRITING THE PUBLIC REFERENCE
SECTION OF THE COMMISSION, WASHINGTON, D.C. 20549-6009.
REPORTS AND OTHER INFORMATION ABOUT THE FUND ARE ALSO AVAILABLE ON
THE COMMISSION'S INTERNET SITE AT HTTP://WWW.SEC.GOV.
(WRL SERIES FUND FILE NO. 811-4419.)
FOR MORE INFORMATION ABOUT THESE PORTFOLIOS, YOU MAY OBTAIN A COPY
OF THE SAI OR THE ANNUAL OR SEMI-ANNUAL REPORTS WITHOUT CHARGE, OR
TO MAKE OTHER INQUIRIES ABOUT THIS FUND, CALL THE NUMBER LISTED
ABOVE.
(WRL SERIES FUND FILE NO. 811-4419.)
<PAGE>
WRL SERIES FUND, INC.
AGGRESSIVE EQUITY PORTFOLIO
o WRL VKAM EMERGING GROWTH
FOREIGN EQUITY PORTFOLIO
o WRL JANUS GLOBAL
GROWTH EQUITY PORTFOLIO
o WRL JANUS GROWTH
PROSPECTUS
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the adequacy
of this prospectus.
Any representation to the contrary is a criminal offense.
May 1, 1999
<PAGE>
TABLE OF CONTENTS
INVESTOR INFORMATION .......................... 1
ALL ABOUT THE FUND
AGGRESSIVE EQUITY PORTFOLIO
WRL VKAM EMERGING GROWTH ................... 2
FOREIGN EQUITY PORTFOLIO
WRL JANUS GLOBAL ........................... 5
GROWTH EQUITY PORTFOLIO
WRL JANUS GROWTH ........................... 8
RISK/REWARD INFORMATION ....................... 11
EXPLANATION OF STRATEGIES AND RISKS ........... 12
HOW THE FUND IS MANAGED AND ORGANIZED ......... 16
PERFORMANCE INFORMATION ....................... 17
OTHER INFORMATION ............................. 19
FINANCIAL HIGHLIGHTS .......................... 22
WRL Series Fund, Inc. (Fund) consists of twenty-four separate series or
investment portfolios. The Fund is an open-end management investment
company, more commonly known as a mutual fund.
This prospectus describes three of the Fund's portfolios. Shares of these
portfolios are currently only sold to separate accounts of Western Reserve
Life Assurance Co. of Ohio, PFL Life Insurance Company, AUSA Life
Insurance Company, and Peoples Benefit Life Insurance Company to fund the
benefits under certain individual flexible premium variable life insurance
policies and individual and group variable annuity contracts.
A particular portfolio of the Fund may not be available under the policy
or annuity contract you have chosen. The prospectus or disclosure document
for your policy or annuity contract shows the portfolios available to you.
Please read this prospectus carefully before selecting a portfolio. It
provides information to assist you in your decision. If you would like
additional information about a portfolio, please request a copy of the
Statement of Additional Information (SAI) (see back cover). The SAI is
incorporated by reference into this prospectus.
Prospectus
<PAGE>
INVESTOR INFORMATION
TO HELP YOU UNDERSTAND . . .
In this prospectus, you will see the symbols below.
These are "icons" which serve as tools to direct you to the type of information
that is included in the accompanying paragraphs.
The icons are for your convenience and to assist you as you read this
prospectus.
[GRAPHIC OMITTED] The target directs you to a portfolio's goals or objective.
[GRAPHIC OMITTED] The chess piece indicates discussion about a portfolio's
strategies.
[GRAPHIC OMITTED] The warning sign indicates the risks of investing in a
portfolio.
[GRAPHIC OMITTED] The graph indicates investment performance.
[GRAPHIC OMITTED] The question mark provides additional information about the
Fund or may direct you on how to obtain further information.
SHARES OF A PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT.
Prospectus 1
<PAGE>
AGGRESSIVE EQUITY PORTFOLIO
WRL VKAM EMERGING GROWTH (FORMERLY EMERGING GROWTH PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES YOUR AGGRESSIVE EQUITY PORTFOLIO OF
THE FUND AND THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO. FOR FURTHER
INFORMATION ON THIS PORTFOLIO, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF
STRATEGIES AND RISKS," BEGINNING ON PAGE 12 AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL VKAM EMERGING GROWTH
This portfolio seeks capital appreciation by investing primarily in common
stocks of small and medium-sized companies.
WHAT IS AN AGGRESSIVE EQUITY PORTFOLIO?
Aggressive Equity Portfolio seeks maximum capital appreciation (a rise in
the share price/value). Current income is not a significant factor. Some
portfolios that are included in this category may invest in out-of-the
main-stream stocks, such as those of fledging or struggling companies, or
those in new or currently out-of-favor industries. Some portfolios in this
category may also use specialized investment techniques such as options or
short-term investing. For these reasons, these portfolios usually entail
greater risk than the overall equity portfolio category.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL VKAM EMERGING GROWTH
The portfolio's sub-adviser, Van Kampen Asset Management Inc. (VKAM), seeks to
achieve the portfolio's objective by investing principally in:
o Domestic and foreign common stocks of small and medium-sized companies
o Options
o Futures
VKAM invests at least 65% of the portfolio's assets (under normal market
conditions) in common stocks of companies that are in the early stages of their
life cycle, and are believed by VKAM to have the potential to become major
enterprises. Some securities may have above average price volatility. VKAM
attempts to reduce overall exposure to risk from declines in the security prices
by spreading the portfolio's investments over many different companies in a
variety of industries.
VKAM will utilize options on securities, futures contracts and options thereon
in several different ways, depending upon the status of the portfolio's
investment portfolio and its expectations concerning the securities market.
In times of stable or rising stock prices, the portfolio generally seeks to be
fully invested. Even when the portfolio is fully invested, VKAM believes that
at least a small portfolio of assets will be held as cash or cash equivalents
to honor redemption requests and for other short-term needs.
The amount of portfolio assets invested in cash equivalents does not fluctuate
with stock market prices, so that, in times of rising market prices, the
portfolio may underperform the market in proportion to the amount of cash
equivalents in its portfolio. By purchasing stock index futures contracts,
stock index call options, or call options on stock index futures contracts,
however, the portfolio can seek to "equalize" the cash portion of its assets
and obtain performance that is equivalent to investing 100% in equity
securities.
The portfolio may take a temporary defensive position when the securities
trading markets or the economy are experiencing volatility or a prolonged
general decline, or other adverse conditions exist. This may be inconsistent
with the portfolio's principal investment strategies. Under these conditions,
the portfolio will be unable to achieve its investment objective.
[GRAPHIC OMITTED] RISKS OF INVESTING IN AN AGGRESSIVE EQUITY PORTFOLIO
The principal risks of investing in an Aggressive Equity Portfolio that may
adversely affect your investment are described below. Please note that there
are many other circumstances which could adversely affect your investment and
prevent your portfolio from achieving its objective, which are not described
here. Please refer to the section entitled "Explanation of Strategies and
Prospectus 2
<PAGE>
AGGRESSIVE EQUITY PORTFOLIO (CONTINUED)
Risks" beginning on page 12 and the Fund's SAI for more information about the
risks of investing in an Aggressive Equity Portfolio.
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the short term. These
price movements may result from factors affecting individual companies, certain
industries or the securities market as a whole.
Because the stocks a portfolio holds fluctuate in price, the value of your
investment in the portfolio will go up and down.
o FOREIGN SECURITIES
Investments in foreign securities involve risks relating to political, social
and economic developments abroad as well as risks resulting from differences in
regulations to which U.S. and foreign issuers and markets are subject. To the
extent a portfolio invests in emerging markets, these risks would be greater.
These risks include:
o Changes in currency values
o Currency speculation
o Currency trading costs
o Different accounting and reporting practices
o Less information available to the public
o Less (or different) regulation of securities markets
o Greater complex business negotiations
o Less liquidity
o More fluctuations in prices
o Delays in settling foreign securities transactions
o Higher costs for holding shares (custodial fees)
o Higher transaction costs
o Vulnerability to seizure and taxes
o Political instability and small markets
o Different market trading days
o Forward foreign currency contracts for hedging
o INVESTING AGGRESSIVELY
o The value of developing-company stocks may be very volatile, and can drop
significantly in a short period of time
o Rights, options and futures contracts may not be exercised and may expire
worthless
o Warrants and rights may be less liquid than stocks
o Use of futures and other derivatives may make the portfolio more volatile
o FUTURES AND OPTIONS
Futures and options involve additional investment risks and transactional
costs, and draw upon skills and experience which are different than those
needed to pick other securities. Special risks include:
o Inaccurate market predictions
o Imperfect correlation
o Illiquidity
o Tax considerations
The portfolios are not required to hedge their investments.
YOU MAY LOSE MONEY IF YOU INVEST IN AN AGGRESSIVE EQUITY PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILE
WRL VKAM EMERGING GROWTH
For the investor who seeks greater opportunities for growth of capital but who
is willing to accept special risks.
Prospectus 3
<PAGE>
AGGRESSIVE EQUITY PORTFOLIO (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below give an indication of the portfolio's risks and
performance. The charts show changes in the portfolio's performance from year
to year. The performance calculations do not reflect charges or deductions
under the policies or the annuity contracts. These fees and expenses would
lower investment performance. The tables show how a portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL VKAM EMERGING GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
- -7.36% 46.79% 18.88% 21.45% 37.33%
HIGHEST AND LOWEST RETURN
(Quarterly 1993-1998)
- --------------------------------------------
QUARTER ENDED
Highest 28.19 % 12/31/98
Lowest (12.53)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (MARCH 1, 1993)
WRL VKAM
Emerging Growth 37.33% 21.95% 23.09%
S&P 500 Index 28.58% 24.06% 21.81%
- --------------------------------------------------------------------------------
Prospectus 4
<PAGE>
FOREIGN EQUITY PORTFOLIO
WRL JANUS GLOBAL (FORMERLY GLOBAL PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES YOUR FOREIGN EQUITY PORTFOLIO AND
THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO. FOR FURTHER INFORMATION ON
THIS PORTFOLIO, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF STRATEGIES AND
RISKS," BEGINNING ON PAGE 12 AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL JANUS GLOBAL
This Portfolio seeks long-term growth of capital in a manner consistent with
the preservation of capital.
WHAT IS A FOREIGN EQUITY PORTFOLIO?
This type of portfolio principally invests in equity securities of
companies located outside the U.S.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL JANUS GLOBAL
The portfolio's sub-adviser, Janus Capital Corporation (Janus), seeks to
achieve the portfolio's investment objective by investing principally in:
o Common stocks of foreign and domestic issuers
o Depositary receipts including ADRs, Global Depositary Receipts
(GDRs) and European Depositary Receipts (EDRs)
The portfolio may also use forward foreign currency contracts for hedging.
Janus' main strategy is to use a "bottom up" approach to build the portfolio's
portfolio. They seek to identify individual companies with earnings growth
potential that may not be recognized by the market at large.
Foreign securities are generally selected on a stock-by-stock basis without
regard to defined allocation among countries or geographic regions.
When evaluating foreign investments, Janus (in addition to looking at
individual companies) considers such factors as:
o Expected levels of inflation in various countries
o Government policies that might affect business conditions
o The outlook for currency relationships
o Prospects for economic growth among countries, regions or
geographic areas
WHAT IS A "BOTTOM-UP" APPROACH?
When portfolio managers use a "bottom-up" approach, they look primarily at
individual companies against the context of broader market factors.
[GRAPHIC OMITTED] RISKS OF INVESTING IN A FOREIGN EQUITY PORTFOLIO
The principal risks of investing in a Foreign Equity Portfolio that may
adversely affect your investment are described below. Please note that there
are many other circumstances which could adversely affect your investment and
prevent your portfolio from achieving its objective, which are not described
here. Please refer to the section entitled "Explanation of Strategies and
Risks" beginning on page 12, and the Fund's SAI for more information about the
risks associated with investing in a Foreign Equity Portfolio.
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
certain industries or the securities market as a whole.
Because the stocks the portfolio holds fluctuate in price, the value of your
investment in the portfolio will go up and down.
o FOREIGN SECURITIES
Investments in foreign securities involve risks relating to political, social
and economic developments abroad as well as risks resulting from differences in
regulations to which U.S. and foreign issuers and markets are subject.
Prospectus 5
<PAGE>
FOREIGN EQUITY PORTFOLIO (CONTINUED)
To the extent a portfolio invests in emerging markets, these risks would be
greater. These risks include:
o Changes in currency values
o Currency speculation
o Currency trading costs
o Different accounting and reporting practices
o Less information available to the public
o Less (or different) regulation of securities markets
o Greater complex business negotiations
o Less liquidity
o More fluctuations in prices
o Delays in settling foreign securities transactions
o Higher costs for holding shares (custodial fees)
o Higher transaction costs
o Vulnerability to seizure and taxes
o Political instability and small markets
o Different market trading days
o Forward foreign currency contracts for hedging
o EMERGING MARKETS RISK
Investing in the securities of issuers located in or principally doing business
in emerging markets bear foreign risks as discussed above. In addition, the
risks associated with investing in emerging markets are often greater than
investing in developed foreign markets. Specifically, the economic structures
in emerging markets countries are less diverse and mature than those in
developed countries, and their political systems are less stable. Investments
in emerging markets countries may be affected by national policies that
restrict foreign investments. Emerging market countries may have less developed
legal structures, and the small size of their securities markets and low
trading volumes can make investments illiquid and more volatile than
investments in developed countries. As a result, a portfolio investing in
emerging market countries may be required to establish special custody or other
arrangements before investing.
o FORWARD FOREIGN CURRENCY CONTRACTS
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of portfolio securities decline.
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 the portfolio's
limitation on investing in illiquid securities.
If the portfolio managers' judgment of markets proves incorrect or the strategy
does not correlate well with a portfolio's investment, the use of such hedging
transactions could result in a loss regardless of whether the intent was to
reduce risk or increase return and may increase a portfolio's volatility. In
addition, in the event that non-exchange traded forward currency contracts are
used, such transactions could result in a loss if the counterparty to the
transaction does not perform as promised.
o DEPOSITARY RECEIPTS
Depositary receipts represent interests in an account at a bank or trust
company which holds equity securities. They are subject to some of the same
risks as direct investments in foreign securities, including currency risk. The
regulatory requirements with respect to depositary receipts that are issued in
sponsored and unsponsored programs are generally similar, but the issuers of
unsponsored depositary receipts are not obligated to disclose material
information in the U.S., and, therefore, such information may not be reflected
in the market value of depositary receipts.
YOU MAY LOSE MONEY IF YOU INVEST IN A FOREIGN EQUITY PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILE
WRL JANUS GLOBAL
For the investor who seeks capital growth without being limited to investments
in U.S. securities, and who can tolerate the significant risks associated with
foreign investing.
Prospectus 6
<PAGE>
FOREIGN EQUITY PORTFOLIO (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below give an indication of the portfolio's risks and
performance. The charts show changes in the portfolio's performance from year
to year. The performance calculations do not reflect charges or deductions
under the policies or the annuity contracts. These fees and expenses would
lower investment performance. The tables show how the portfolio's average
annual returns for the periods indicated compare to those of a broad measure of
market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL JANUS GLOBAL
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ----
35.05% 0.25% 23.06% 27.74% 18.75% 30.01%
HIGHEST AND LOWEST RETURN
(Quarterly 1992-1998)
- --------------------------------------------
QUARTER ENDED
Highest 20.82 % 12/31/98
Lowest (16.52)% 9/30/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ---------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (DECEMBER 3, 1992)
WRL Janus Global 30.01% 19.46% 21.94%
Morgan Stanley
Capital
International
World Index 24.34% 16.11% 17.16%
- --------------------------------------------------------------------------------
Prospectus 7
<PAGE>
GROWTH EQUITY PORTFOLIO
WRL JANUS GROWTH (FORMERLY GROWTH PORTFOLIO)
THIS RISK/RETURN SUMMARY BRIEFLY DESCRIBES YOUR GROWTH EQUITY PORTFOLIO AND THE
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO. FOR FURTHER INFORMATION ON THIS
PORTFOLIO, PLEASE READ THE SECTION ENTITLED "EXPLANATION OF STRATEGIES AND
RISKS," BEGINNING ON PAGE 12, AND THE FUND'S SAI.
[GRAPHIC OMITTED] OBJECTIVES
WRL JANUS GROWTH
This portfolio seeks growth of capital.
WHAT IS A GROWTH EQUITY PORTFOLIO?
A growth equity portfolio invests in the common stock of companies that
offer potentially rising share prices. These portfolios primarily aim to
provide capital appreciation (a rise in share price) rather than steady
income.
[GRAPHIC OMITTED] POLICIES AND STRATEGIES
WRL JANUS GROWTH
The portfolio's sub-adviser, Janus Capital Corporation (Janus), seeks to
achieve the portfolio's objective by investing principally in:
o Common stocks
The portfolio's strategy is to invest almost all of its assets in common stock
at times when Janus believes the market environment favors such investing.
Janus generally takes a "bottom-up" approach to building the stock portfolio.
In other words, Janus seeks to identify individual companies with earnings
growth potential that may not be recognized by the stock market at large.
Although themes may emerge in the portfolio, securities are generally selected
without regard to any defined industry sector or other similarly defined
selection procedure. Realization of income is not a significant investment
consideration for the portfolio and any income realized on the portfolio's
investments is incidental to its objective.
Janus may take a temporary defensive position when the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse market conditions exist. This may be
inconsistent with the portfolio's principal investment strategies. Under these
circumstances, the portfolio may be unable to achieve its investment objective.
[GRAPHIC OMITTED] RISKS
The principal risks of investing in a Growth Equity Portfolio that may
adversely affect your investment are described below. Please note that there
are many other circumstances which could adversely affect your investment and
prevent a portfolio from achieving its objective, which are not described here.
Please refer to the section entitled "Explanation of Strategies and Risks,"
beginning on page 12, and the Fund's SAI for more information about the risks
associated with investing in a Growth Equity Portfolio.
o STOCKS
While stocks have historically outperformed other investments over the long
term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries, or the securities market as a whole.
Because the stocks the portfolio holds fluctuate in price, the value of your
investment in the portfolio go up and down.
o FUTURES AND OPTIONS
Futures and options involve additional investment risks and transactional
costs, and draw upon skills and experience which are different than those
needed to pick other securities. Special risks include:
o Inaccurate market predictions
o Imperfect correlation
o Illiquidity
o Tax considerations
The portfolios are not required to hedge their investments.
Prospectus 8
<PAGE>
GROWTH EQUITY PORTFOLIO
o STYLE RISK
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
portfolio may underperform other portfolios that employ a different style. A
portfolio also may employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing, as well as those focusing on large, medium, or small company
securities.
o GROWTH INVESTING RISK
Growth stocks may be more volatile than other stocks because they are
more sensitive to investor perceptions of the issuing company's growth
potential. Growth oriented funds will typically underperform when value
investing is in favor.
YOU MAY LOSE MONEY IF YOU INVEST IN A GROWTH EQUITY PORTFOLIO.
[GRAPHIC OMITTED] INVESTOR PROFILE
WRL JANUS GROWTH
For the investor who wants capital growth in a broadly diversified stock
portfolio, and who can tolerate significant fluctuations in value.
Prospectus 9
<PAGE>
GROWTH EQUITY PORTFOLIO (CONTINUED)
[GRAPHIC OMITTED] PORTFOLIO PERFORMANCE
The bar chart and table below gives an indication of the portfolio's risks and
performance. The charts show change in the portfolio's performance from year to
year. The performance calculations do not reflect charges or deductions under
the policies of the annuity contracts. These fees and expenses would lower
investment performance. The tables show how the portfolio's average annual
returns for the periods indicated compare to those of a broad measure of market
performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A PORTFOLIO'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A PORTFOLIO
WILL DO IN THE FUTURE.
WRL JANUS GROWTH
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
47.04% -0.22% 59.79% 2.35% 3.97% -8.31% 47.12% 17.96% 17.54% 64.47%
HIGHEST AND LOWEST RETURN
(Quarterly 1988-1998)
- --------------------------------------------
QUARTER ENDED
Highest 28.73 % 12/31/98
Lowest (16.60)% 9/30/90
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -----------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
WRL Janus Growth 64.47% 25.20% 22.61%
S&P 500 Index 28.58% 24.06% 19.21%
- --------------------------------------------------------------------------------
Prospectus 10
<PAGE>
RISK/REWARD INFORMATION
BEFORE YOU CHOOSE AN INVESTMENT PORTFOLIO,
PLEASE CONSIDER . . .
All of the investment portfolios involve risk, but there is also the potential
for reward. You can lose money -- and you can make money. The Fund portfolios
are structured so that each offers a slightly different degree of risk and
reward than others.
In this prospectus, we've arranged the portfolios in order of risk/
reward from highest to lowest. Notice the scale at the right. It covers the
full spectrum of risk/reward of the portfolios described in this prospectus.
WHAT RISK/REWARD LEVEL IS FOR YOU? ASK YOURSELF THE FOLLOWING:
(1) HOW WELL DO I HANDLE FLUCTUATIONS IN MY ACCOUNT VALUE? The higher a
portfolio is on the risk/reward spectrum, the more its price is likely to
move up and down on a day to day basis. If this makes you uncomfortable,
you may prefer an investment at the lower end of the scale that may not
fluctuate in price as much.
(2) AM I LOOKING FOR A HIGHER RATE OF RETURN? Generally, the higher the
potential return, the higher the risk. If you find the potential to make
money is worth the possibility of losing more, then a portfolio at the
higher end of the spectrum may be right for you.
A final note: These portfolios are designed for long-term investment.
Each portfolio has an investment objective that it tries to achieve by
following certain investment strategies and techniques. The objective can be
changed without shareholder vote.
[GRAPHIC OMITTED]
WRL VKAM EMERGING GROWTH
WRL JANUS GLOBAL
WRL JANUS GROWTH
Prospectus 11
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS
HOW TO USE THIS SECTION
In the discussions of the individual portfolios on pages 2 through 10, you
found descriptions of the strategies and risks associated with each. In those
pages, you were referred to this section for a more complete description of the
risks. For best understanding, first read the description of the portfolio
you're interested in. Then refer to this section and read about the risks
particular to that portfolio. For even more discussions of strategies and
risks, see the SAI, which is available upon request. See the back cover of this
prospectus for information on how to order the SAI.
[GRAPHIC OMITTED]
DIVERSIFICATION AND CONCENTRATION. The 1940 Act classifies investment companies
as either diversified or non-diversified.
Diversification is the practice of spreading a portfolio's assets over a number
of investments, investment types, industries or countries to reduce risk. A
non-diversified portfolio has the ability to take larger positions in fewer
issuers. Because the appreciation or depreciation of a single security may have
a greater impact on the net asset value of a non-diversified portfolio, its
share price can be expected to fluctuate more than a comparable portfolio.
All of the portfolios qualify as diversified funds under the 1940 Act. The
diversified portfolios are subject to the following diversification
requirements (which are set forth in full in the SAI):
o As a fundamental policy, with respect to 75% of the total assets of a
portfolio, the portfolio may not own more than 10% of the outstanding voting
shares of any issuer (other than U.S. government securities) as defined in
the 1940 Act and, with respect to some portfolios, in other types of cash
items.
o As a fundamental policy, with respect to 75% of the total assets of a
portfolio, the portfolio will not purchase a security of any issuer if such
would cause the portfolio's holdings of that issuer to amount to more than 5%
of the portfolio's total assets.
o As a fundamental policy governing concentration, no portfolio will invest
more than 25% of its assets in any one particular industry, other than U.S.
government securities.
[GRAPHIC OMITTED]
INVESTING IN COMMON STOCKS. Many factors cause common stocks to go up and down
in price. A major one is the financial performance of the company that issues
the stock. Other factors include the overall economy, conditions in a
particular industry, and monetary factors like interest rates. When your
portfolio holds stocks, there's a risk that some or all of them may be down in
price when you choose to sell, causing you to lose money. This is called MARKET
RISK.
[GRAPHIC OMITTED]
INVESTING IN PREFERRED STOCKS. Because these stocks come with a promise to pay
a stated dividend, their price depends more on the size of the dividend than on
the company's performance. But if a company fails to pay the dividend, its
preferred stock is likely to drop in price. Changes in interest rates can also
affect their price. (See "Investing in Bonds," below.)
[GRAPHIC OMITTED]
INVESTING IN CONVERTIBLE SECURITIES, PREFERRED STOCKS, AND BONDS. Since
preferred stocks and corporate bonds pay a stated return, their prices usually
don't depend on the price of the company's common stock. But some companies
issue preferred stocks and bonds that are CONVERTIBLE into their common stocks.
Linked to the common stock in this way, convertible securities go up and down
in price as the common stock does, adding to their market risk.
[GRAPHIC OMITTED]
VOLATILITY. The more an investment goes up and down in price, the more VOLATILE
it is. Volatility increases the market risk because even though your portfolio
may go UP more than the market in good times, it may also go DOWN more than the
market in bad times. If you decide to sell when a volatile portfolio is down,
you could lose more.
Prospectus 12
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
[GRAPHIC OMITTED]
INVESTING IN BONDS. Like common stocks, bonds fluctuate in value, though the
factors causing this fluctuation are different, including:
o CHANGES IN INTEREST RATES. Bond prices tend to move the opposite of interest
rates. Why? Because when interest rates on new bond issues go up, rates on
existing bonds stay the same and they become less desirable. When rates go
down, the reverse happens. This is also true for most preferred stocks and
some convertible securities.
o LENGTH OF TIME TO MATURITY. When a bond matures, the issuer must pay the
owner its face value. If the maturity date is a long way off, many things can
affect its value, so a bond is more volatile the farther it is from maturity.
As that date approaches, fluctuations usually become smaller and the price
gets closer to face value.
o DEFAULTS. All bond issuers make at least two promises: (1) to pay interest
during the bond's term and (2) to return principal when it matures. If an
issuer fails to keep one or both of these promises, the bond will probably
drop in price dramatically, and may even become worthless. Changes in
financial condition and general economic conditions can affect the ability to
honor financial obligations and therefore credit quality. A security's price
may be adversely affected by the market's opinion of the security's credit
quality level even if the issuer or counterparty has suffered no degradation
in ability to honor the obligation.
o DECLINES IN RATINGS. At the time of issue, most bonds are rated by
professional rating services, such as Moody's Investors Service, Inc.
(Moody's) and Standard & Poor's Corporation (S&P). The stronger the financial
backing behind the bond, the higher the rating. If this backing is weakened
or lost, the rating service may downgrade the bond's rating. This is
virtually certain to cause the bond to drop in price. Bonds that are rated
below BBB by S&P, and below Ba by Moody's, are considered to be below
investment grade. Moody's rates bonds in nine categories, from Aaa to C, with
Aaa being the highest with least risk. S&P rates bonds in six categories,
from AAA to D, with AAA being the highest.
o LOW RATING. High-yield/high-risk fixed-income securities (commonly known as
"junk bonds") have greater credit risk, are more sensitive to interest rate
movements, are considered more speculative than higher rated bonds, have a
greater vulnerability to economic changes and are less liquid. The market for
such securities may be less active than for higher rated securities, which
can adversely affect the price at which these securities may be sold and may
diminish a portfolio's ability to obtain accurate market quotations when
valuing the portfolio securities and calculating the portfolio's net asset
value.
o LACK OF RATING. Some bonds are considered speculative, or for other reasons
are not rated. Such bonds must pay a higher interest rate in order to attract
investors. They're considered riskier because of the higher possibility of
default or loss of liquidity.
o LOSS OF LIQUIDITY. If a bond is downgraded, or for other reasons drops in
price, the market demand for it may "dry up". In that case, the bond may be
hard to sell or "liquidate" (convert to cash).
[GRAPHIC OMITTED]
INVESTING IN FOREIGN SECURITIES. These are investments offered by foreign
companies, governments and government agencies. They involve risks not usually
associated with U.S. securities, including:
o CHANGES IN CURRENCY VALUES. Foreign securities are sold in currencies other
than U.S. dollars. If a currency's value drops, the value of the securities
held by a portfolio could drop too, even if the securities are strong. In
turn, the value of the shares of the portfolio could also drop. Dividend and
interest payments may be lower. Factors affecting exchange rates are:
differing interest rates among countries; balances of trade; amount of a
country's overseas investments; and any currency manipulation by banks.
o CURRENCY SPECULATION. The foreign currency market is largely unregulated and
subject to speculation.
o ADRS/ADSS. Some portfolios also invest in American Depositary Receipts (ADRs)
and American Depositary Shares (ADSs). They represent securities of foreign
companies traded on U.S. exchanges, and their values are expressed in U.S.
dollars. Changes in the value of the underlying foreign currency will change
the value of the ADR or ADS. A portfolio incurs costs when it converts other
currencies into dollars, and vice-versa.
Prospectus 13
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
o EURO CONVERSION. On January 1, 1999, certain participating countries in the
European Economic Monetary Union adopted the "Euro" as their official
currency. Other EU member countries may convert to the Euro at a later date.
As of January 1, 1999, governments in participating countries issued new debt
and redenominated existing debt in Euros; corporations chose to issue stocks
or bonds in Euros or national currency. The new European Central Bank (the
"ECB") will assume responsibility for a uniform monetary policy in
participating countries. Euro conversion risks that could affect a
portfolio's foreign investments include: (1) the readiness of Euro payment,
clearing, and other operational systems; (2) the legal treatment of debt
instruments and financial contracts in existing national currencies rather
than the Euro; (3) exchange-rate fluctuations between the Euro and non-Euro
currencies during the transition period of January 1, 1999 through December
31, 2002 and beyond; (4) potential U.S. tax issues with respect to portfolio
securities; and (5) the ECB's abilities to manage monetary policies among the
participating countries; and (6) the ability of financial institution systems
to process Euro transactions.
o DIFFERENT ACCOUNTING AND REPORTING PRACTICES. Foreign tax laws are different,
as are laws, practices and standards for accounting, auditing and reporting
data to investors.
o LESS INFORMATION AVAILABLE TO THE PUBLIC. Foreign companies usually make less
information available to the public.
o LESS REGULATION. Securities regulations in many foreign countries are more
lax than in the U.S.
o MORE COMPLEX NEGOTIATIONS. Because of differing business and legal
procedures, a portfolio may find it hard to enforce obligations or negotiate
favorable brokerage commission rates.
o LESS LIQUIDITY/MORE VOLATILITY. Some foreign securities are harder to convert
to cash than U.S. securities, and their prices may fluctuate more
dramatically.
o SETTLEMENT DELAYS. "Settlement" is the process of completing a securities
transaction. In many countries, this process takes longer than it does in the
U.S.
o HIGHER CUSTODIAL CHARGES. Fees charged by the Fund's custodian for holding
shares are higher for foreign securities than that of domestic securities.
o HIGHER TRANSACTION COSTS. Fees charged by securities brokers are often higher
for transactions involving foreign securities than domestic securities.
Higher expenses, such as brokerage fees, may reduce the return a portfolio
might otherwise achieve.
o VULNERABILITY TO SEIZURE AND TAXES. Some governments can seize assets. They
may also limit movement of assets from the country. A portfolio's interest,
dividends and capital gains may be subject to foreign withholding taxes.
o POLITICAL INSTABILITY AND SMALL EMERGING MARKETS. Developing countries can be
politically unstable. Economies can be dominated by a few industries, and
markets may trade a small number of securities. Regulations of banks and
capital markets can be weak.
o DIFFERENT MARKET TRADING DAYS. Foreign markets may not be open for trading
when U.S. markets are and asset values can change before your transaction
occurs.
o HEDGING. A portfolio may, but will not necessarily, enter into forward
currency contracts to hedge against declines in the value of securities
denominated in, or whose value is tied to, a currency other than the U.S.
dollar or to reduce the impact of currency fluctuation on purchases, and
sales of such securities.
[GRAPHIC OMITTED]
INVESTING IN FUTURES, OPTIONS AND DERIVATIVES. Besides conventional securities,
your portfolio may seek to increase returns by investing in financial contracts
related to its primary investments. Such contracts involve additional risks and
costs. Risks include:
o INACCURATE MARKET PREDICTIONS. If the sub-adviser is wrong in its
expectation, for example, with respect to interest rates, securities prices
or currency markets, the contracts could produce losses instead of gains.
o PRICES MAY NOT MATCH. Movements in the price of the financial contracts may
be used to offset movements in the price of other securities you own.
Prospectus 14
<PAGE>
EXPLANATION OF STRATEGIES AND RISKS (CONTINUED)
If those prices don't correlate or match closely, the benefits of the
transaction might be diminished.
o ILLIQUID MARKETS. If there's no market for the contracts, the portfolio may
not be able to control losses.
o TAX CONSEQUENCES. Sometimes the possibility of incurring high taxes on a
transaction may delay closing out a position and limit the gains it would
have produced.
[GRAPHIC OMITTED]
INVESTING IN SPECIAL SITUATIONS. Each portfolio may invest in "special
situations" from time to time. Special situations arise when, in the opinion of
a portfolio manager, a company's securities may be undervalued, then increase
considerably in price, due to:
o A NEW PRODUCT OR PROCESS
o A MANAGEMENT CHANGE
o A TECHNOLOGICAL BREAKTHROUGH
o AN EXTRAORDINARY CORPORATE EVENT
o A TEMPORARY IMBALANCE IN THE SUPPLY OF, AND DEMAND FOR, THE
SECURITIES OF AN ISSUER
Investing in a special situation carries an additional risk of loss if the
expected development does not happen or does not attract the expected
attention. The impact of special situation investing to a portfolio will depend
on the size of a portfolio's investment in a situation.
[GRAPHIC OMITTED]
CASH POSITION
A portfolio may, at times, choose to hold some portion of its net assets in
cash, or to invest that cash in a variety of short-term debt securities that
are considered cash equivalents. This may be done as a temporary defensive
measure at times when desirable risk/reward characteristics are not available
in stocks or to earn income from otherwise uninvested cash. When a portfolio
increases its cash or debt investment position, its income may increase while
its ability to participate in stock market advances or declines decreases.
[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 short-term
securities) for a year and dividing it by the monthly average of the market
value of such securities during the year.
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 unforeseen developments.
The rate of portfolio turnover will not be a limiting factor when short-term
investing is considered appropriate. Increased turnover rates result in higher
brokerage costs and other transaction based expenses for a portfolio. These
charges are ultimately borne by the shareholders.
[GRAPHIC OMITTED]
SHORT SALES
A 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 convertible into, or exchangeable without
further consideration for, securities of the same issue as the securities sold
short.
[GRAPHIC OMITTED]
INVESTMENT STRATEGIES
A portfolio is permitted to use other securities and investment strategies in
pursuit of its investment objective, subject to limits established by the
Fund's Board of Directors. No portfolio is under any obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. Certain instruments and investment strategies may expose the
portfolios to other risks and considerations, which are discussed in the Fund's
SAI.
Prospectus 15
<PAGE>
HOW THE FUND IS MANAGED AND ORGANIZED
[GRAPHIC OMITTED]
HOW THE FUND IS MANAGED AND ORGANIZED
The Fund's Board is responsible for managing the business affairs of the Fund.
It oversees the operation of the Fund by its officers. It also reviews the
management of the portfolios' assets by the investment adviser and
sub-advisers. Information about the Directors and executive officers of the
Fund is contained in the SAI.
WRL Investment Management, Inc. (WRL Management) located at 570 Carillon
Parkway, St. Petersburg, Florida 33716, has served as the Fund's investment
adviser since 1997. Prior to this date, Western Reserve served as investment
adviser to the Fund. The investment adviser had no prior experience as an
adviser. The investment adviser is a direct, wholly-owned subsidiary of Western
Reserve Life Assurance Co. of Ohio (Western Reserve), which is wholly-owned by
First AUSA Life Insurance Company, a stock life insurance company, which is
wholly-owned by AEGON USA, Inc. AEGON USA, Inc. is a financial services holding
company whose primary emphasis is on life and health insurance and annuity and
investment products. AEGON USA, Inc. is a wholly-owned indirect subsidiary of
AEGON N.V., a Netherlands corporation which is a publicly traded international
insurance group.
Subject to the supervision of the Fund's Board, the investment adviser is
responsible for furnishing continuous advice and recommendations to the Fund as
to the acquisition, holding or disposition of any or all of the securities or
other assets which the portfolios may own or contemplate acquiring from time to
time; to cause its officers to attend meetings and furnish oral or written
reports, as the Fund may reasonably require, in order to keep the Fund's Board
and appropriate officers of the Fund fully informed as to the conditions of the
investment portfolio of each portfolio, the investment recommendations of the
investment adviser, and the investment considerations which have given rise to
those recommendations; to supervise the purchase and sale of securities of the
portfolios as directed by the appropriate officers of the Fund; and to maintain
all books and records required to be maintained by the investment adviser.
As compensation for its services to the portfolios, the investment adviser
receives monthly compensation at an annual rate of a percentage of the average
daily net assets of each portfolio. The advisory fees for each portfolio are:
ADVISORY
PORTFOLIO FEE
WRL VKAM Emerging Growth 0.80%
WRL Janus Global** 0.80%
WRL Janus Growth* 0.80%
* WRL Management currently waives 0.025% of its advisory fee for the first $3
billion of the portfolio's average daily net assets (net fee -- 0.775%); and
0.05% of assets above $3 billion (net fee -- 0.75%). This waiver is voluntary
and may be terminated at any time.
** WRL Management currently waives 0.025% of its advisory fee for the
portfolio's average daily net assets above $2 billion (net fee -- 0.775%). This
waiver is voluntary and may be terminated at any time.
Here is a listing of the sub-advisers and the portfolios they manage:
SUB-ADVISER PORTFOLIO
VKAM WRL VKAM Emerging Growth
Janus WRL Janus Global
WRL Janus Growth
DAY-TO-DAY MANAGEMENT OF THE INVESTMENTS IN EACH PORTFOLIO IS THE
RESPONSIBILITY OF THE PORTFOLIO MANAGER. THE PORTFOLIO MANAGERS OF THE FUND
ARE:
WRL VKAM EMERGING GROWTH
GARY M. LEWIS is primarily responsible for the day to day management of this
portfolio. Mr. Lewis has been senior vice president of VKAM since October,
1995. Previously, he served as vice president/portfolio manager of VKAM from
1989 to October 1995.
WRL JANUS GLOBAL
HELEN YOUNG HAYES has been employed by Janus since 1987 and has managed this
portfolio since its inception.
WRL JANUS GROWTH
SCOTT W. SCHOELZEL and EDWARD KEELY serve as co-managers of this portfolio. Mr.
Schoelzel has managed this portfolio since January 1996. Before that, he was
co-manager of this portfolio since 1995. He has been employed by Janus since
1994.
Mr. Keely has managed the portfolio since January, 1999. He has been employed
by Janus since 1998. Prior to joining Janus, he was a senior vice president of
investments at Founders.
Prospectus 16
<PAGE>
PERFORMANCE INFORMATION
The Fund may include quotations of a portfolio's total return or yield in
connection with the total return for the appropriate separate account, in
advertisements, sales literature or reports to policyowners or to prospective
investors. Total return and yield quotations for a portfolio reflect only the
performance of a hypothetical investment in the portfolio during the particular
time period shown as calculated based on the historical performance of the
portfolio during that period. SUCH QUOTATIONS DO NOT IN ANY WAY INDICATE OR
PROJECT FUTURE PERFORMANCE. Quotations of total return and yield will not
reflect charges or deductions against the separate accounts or charges and
deductions against the policies or the annuity contracts. Where relevant, the
prospectuses for the policies and the annuity contracts contain performance
information which show total return and yield information for the separate
accounts, policies or annuity contracts.
TOTAL RETURN
Total return refers to the average annual percentage change in value of an
investment in a portfolio held for a stated period of time as of a stated
ending date. When a portfolio has been in operation for the stated period, the
total return for such period will be provided if performance information is
quoted. Total return quotations are expressed as average annual compound rates
of return for each of the periods quoted. They also reflect the deduction of a
proportionate share of a portfolio's investment advisory fees and direct
portfolio expenses, and assume that all dividends and capital gains
distributions during the period are reinvested in the portfolio when made.
SIMILAR SUB-ADVISER PERFORMANCE
A portfolio may disclose in advertisements, supplemental sales literature, and
reports to policyowners or to prospective investors total returns of an
EXISTING SEC-REGISTERED fund that is managed by the portfolio's sub-adviser and
that has investment objectives, policies, and strategies substantially similar
to those of such portfolio (a "Similar Sub-Adviser Fund"). ALTHOUGH THE SIMILAR
SUB-ADVISER FUNDS HAVE SUBSTANTIALLY SIMILAR INVESTMENT OBJECTIVES, POLICIES,
AND STRATEGIES AS THE DESIGNATED PORTFOLIO, AND ARE MANAGED BY THE SAME
SUB-ADVISER AS THE DESIGNATED PORTFOLIO, YOU SHOULD NOT ASSUME THAT ANY
PORTFOLIO WILL HAVE THE SAME FUTURE PERFORMANCE AS SIMILAR SUB-ADVISER FUNDS
WHOSE TOTAL RETURNS ARE SHOWN. Each portfolio's future performance may be
greater or less than the historical performance of the corresponding Similar
Sub-Adviser Fund. There can be no assurance, and no representation is made,
that the investment results of any portfolio will be comparable to the results
of any of the Similar Sub-Adviser Funds as any other fund managed by WRL
Management or any sub-adviser.
The table below sets forth certain portfolios of the Fund and, for each
portfolio's respective Similar Sub-Adviser Fund, the fund's inception date,
asset size, and the average annual total returns for the one, five and ten year
periods (or life of the Similar Sub-Adviser Fund, if shorter) ended December
31, 1998. These figures are based on the actual investment performance of the
Similar Sub-Adviser Funds. Each Similar
Sub-Adviser Fund has higher total expenses than its corresponding portfolio of
the Fund. The average annual total returns for the Similar Sub-Adviser Funds
are shown with and without the deductions of any applicable sales load. YOU
SHOULD NOTE THAT THE PERFORMANCE OF THE SIMILAR SUB-ADVISER FUNDS DOES NOT
REFLECT THE HISTORICAL PERFORMANCE OF ANY PORTFOLIOS.
Prospectus 17
<PAGE>
PERFORMANCE INFORMATION (CONTINUED)
SIMILAR SUB-ADVISER FUND PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(WITH SALES LOADS)
---------------------------------
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
WRL PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
- -------------------------- -------------------- ----------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
WRL Janus Global $18.5
Janus Worldwide(1) 5/15/91 billion 15.44% 21.13% 21.29%
WRL VKAM Emerging Growth Van Kampen Class A $5,196.5 26.98% 19.53% 17.85%
Emerging Growth(2) 10/2/70 million
</TABLE>
(1) The Janus Worldwide Fund does not have a sales load.
(2) Total returns are for Class A shares of the Van Kampen Emerging Growth Fund
and reflect a deduction of a 5.75% front end sales load. The fund also has
Class B and Class C shares with different sales loads. Calculating total
return with those sales loads may have resulted in lower total returns.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(WITHOUT SALES LOADS)
---------------------------------
SIMILAR 10 YEARS
SUB-ADVISER INCEPTION TOTAL OR SINCE
WRL PORTFOLIO FUND DATE ASSETS 1 YEAR 5 YEARS INCEPTION
- -------------------------- -------------------- ----------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
WRL Janus Global Janus Worldwide(1) 5/15/91 $18.5 15.44% 21.13% 21.29%
billion
WRL VKAM Emerging Growth Van Kampen Class A $5,196.5 34.73% 20.96% 18.08%
Emerging Growth 10/2/70 million
</TABLE>
(1) The Janus Worldwide Fund offers Class B and Class C shares as well. Returns
for those classes may differ from those of Class A shares due to differing
fee structures.
THE PERFORMANCE OF SIMILAR SUB-ADVISER FUNDS DOES NOT REFLECT ANY OF THE
CHARGES, FEES, AND EXPENSES IMPOSED UNDER THE POLICIES OR ANNUITY CONTRACTS.
SUCH PERFORMANCE WOULD IN EACH CASE BE LOWER IF IT REFLECTED THESE CHARGES,
FEES AND EXPENSES. SEE THE CONTRACT FORM OR DISCLOSURE DOCUMENT FOR THE POLICY
OR ANNUITY CONTRACT. (THE DISCLOSURE DOCUMENTS FOR THE POLICY OR ANNUITY
CONTRACT DESCRIBE SIMILAR SUB-ADVISERS FUNDS AS "SIMILAR SUB-ADVISED FUNDS.")
(See the SAI for more information about the portfolios' performance.)
Prospectus 18
<PAGE>
OTHER INFORMATION
[GRAPHIC OMITTED] PURCHASE AND REDEMPTION OF SHARES
As described earlier in the prospectus, shares of the portfolios are sold
exclusively to certain separate accounts of Western Reserve Life Assurance Co.
of Ohio, PFL Life Insurance Company, AUSA Life Insurance Company, Inc. and
Peoples Benefit Life Insurance Company, and are not offered to the public.
Shares are sold and redeemed at their net asset value without the imposition of
any sales commission or redemption charge. (However, certain sales or other
charges may apply to the policies or annuity contracts, as described in the
product prospectus.)
[GRAPHIC OMITTED] VALUATION OF SHARES
Each portfolio's net asset value per share is ordinarily determined once daily,
as of the close of the regular session of business on the New York Stock
Exchange (NYSE) (usually 4:00 p.m., Eastern time), on each day the exchange is
open.
WHAT IS NET ASSET VALUE?
The net asset value of a portfolio share is computed by dividing the value
of the net assets of the portfolio by the total number of shares
outstanding in the portfolio.
Net asset value (NAV) of a portfolio share is computed by dividing the value of
the net assets of the portfolio by the total number of shares outstanding in
the portfolio. Share prices for any transaction are those next calculated after
receipt of an order.
If your order is received by closing time of the NYSE, you'll pay, or you will
receive, that day's NAV. If later, it will be priced at the next day's NAV.
Share prices may change when a portfolio holds shares in companies traded on
foreign exchanges that are open on the days the NYSE is closed.
Except for money market instruments maturing in 60 days or less, securities
held by portfolios are valued at market value. If market values are not readily
available, securities are valued at fair value as determined by the Fund's
Valuation Committee under the supervision of the Fund's Board.
[GRAPHIC OMITTED] DIVIDENDS AND DISTRIBUTIONS
Each portfolio intends to distribute substantially all of its net investment
income, if any. Dividends from investment income of a portfolio normally are
declared daily and reinvested monthly in additional shares of the portfolio at
net asset value. Distributions of net realized capital gains from security
transactions normally are declared and paid in additional shares of the
portfolio at the end of the fiscal year.
[GRAPHIC OMITTED] TAXES
Each portfolio has qualified and expects to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended ("Code"). As qualified, a portfolio is not subject to federal income
tax on that part of its taxable income that it distributes to you. Taxable
income consists generally of net investment income, and any capital gains. It
is each portfolio's intention to distribute all such income and gains.
Shares of each portfolio are offered only to the separate accounts of Western
Reserve and its affiliates. Separate accounts are insurance company separate
accounts that fund the policies and the annuity contracts. Under the Code, an
insurance company pays no tax with respect to income of a qualifying separate
account when the income is properly allocable to the value of eligible variable
annuity or variable life insurance contracts. For a discussion of the taxation
of life insurance companies and the separate accounts, as well as the tax
treatment of the policies and annuity contracts and the holders thereof, see
"Federal Income Tax Considerations" included in the respective prospectuses for
the policies and the annuity contracts.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on each portfolio. Each portfolio intends to
comply with the diversification requirements. These requirements are in
addition to the diversification requirements imposed on each portfolio by
Subchapter M and the 1940 Act. The 817(h) requirements place certain
limitations on the assets of each separate account that may be invested in
securities of a single issuer. Specifically, the regulations provide that,
except as permitted by "safe harbor," rules described below, as of the end of
each calendar quarter
Prospectus 19
<PAGE>
OTHER INFORMATION (CONTINUED)
or within 30 days thereafter, no more than 55% of the portfolio's total assets
may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments, and no more than 90% by
any four investments.
Section 817(h) also provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of section
817(h), all securities of the same issuer, all interests in the same real
property, and all interests in the same comodity 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 does
not satisfy the section 817(h) requirements, the separate accounts, the
insurance companies, the policies and the annuity contracts may be taxable. See
the prospectuses for the policies and annuity contracts.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting a portfolio and you; see the SAI for a more
detailed discussion. You are urged to consult your tax advisor.
[GRAPHIC OMITTED] REPORT TO POLICYHOLDERS
The fiscal year of each portfolio ends on December 31 of each year. The Fund
will send to you, at least semi-annually, reports which show the portfolios'
composition and other information. An annual report, with audited financial
information, will be sent to you each year.
[GRAPHIC OMITTED] DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan") and pursuant to the Plan, entered into a Distribution Agreement with
AFSG Securities Corporation (AFSG) located at 4333 Edgewood Road NE, Cedar
Rapids, Iowa 52494. AFSG is an affiliate of the investment adviser, and serves
as principal underwriter for the Fund. (Prior to May 1, 1999, InterSecurities,
Inc., an affiliate of the investment adviser, served as underwriter of the
Fund.) The Plan permits the use of Fund assets to help finance the distribution
of the shares of the portfolios. Under the Plan, the Fund, on behalf of the
portfolios, is permitted to pay to various service providers up to 0.15% of the
average daily net assets of each portfolio as payment for actual expenses
incurred in connection with the distribution of the shares of the portfolios.
Because these fees are paid out of Fund assets on an on-going basis, over time
these costs will increase the cost of your investment and may cost you more
than other types of sales charges.
As of the date of this prospectus, the Fund has not paid any distribution fees
under the Plan and does not intend to do so before April 30, 2000. You will
receive written notice prior to the payment of any fees under the Plan.
[GRAPHIC OMITTED] PREPARING FOR THE YEAR 2000
In May 1996, the Fund and the investment adviser adopted and presently have in
place a Year 2000 Project Plan (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compliant. As of March 1, 1999,
substantially all of the Fund's and the investment adviser's mission-critical
systems are Year 2000 compliant. The Plan remains on track as we continue with
the validation of our mission-critical and non-mission-critical systems,
including revalidation testing in 1999. In addition, we have undertaken
aggressive initiatives to test all systems that interface with any third
parties and other business partners. All of these steps are aimed at allowing
current operations to remain unaffected by the Year 2000 date change.
As of the date of this prospectus, the Fund and the investment adviser have
identified and made available what it believes are the appropriate resources of
hardware, people, and dollars, including the engagement of outside third
parties, to ensure that the Plan will be completed.
Prospectus 20
<PAGE>
OTHER INFORMATION (CONTINUED)
The actions taken by management under the Plan are intended to reduce
significantly the Fund's and the investment adviser's risk of a material
business interruption based on the Year 2000 issues. It should be noted that
the Year 2000 computer problem, and its resolution, is complex and
multifaceted, and any company's success cannot be conclusively known until the
Year 2000 is reached. In spite of its efforts or results, our ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions, or failure to act, of third parties beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT, 15 U.S.C. Section 1
(1998).
Prospectus 21
<PAGE>
FINANCIAL HIGHLIGHTS*
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND A PORTFOLIO'S
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS (OR, IF SHORTER, THE PERIOD OF THE
PORTFOLIO'S OPERATIONS). CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A
SINGLE PORTFOLIO SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE AN
INVESTOR WOULD HAVE EARNED (OR LOST) ON AN INVESTMENT IN EACH PORTFOLIO
(ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED
BY PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS, WHOSE REPORT, ALONG
WITH THE FUND'S FINANCIAL STATEMENTS, ARE INCLUDED IN THE FUND'S ANNUAL REPORT,
WHICH IS AVAILABLE UPON REQUEST BY CALLING THE FUND AT 1-800-851-9777.)
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL JANUS GROWTH
---------------------------------
DECEMBER 31,
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 36.84 $ 35.00
Income from operations:
Net investment income (loss) ........................................ 0.12 0.31
Net realized and unrealized gain (loss) on investments .............. 23.49 5.88
---------- ----------
Net income (loss) from operations .................................. 23.61 6.19
---------- ----------
Distributions:
Dividends from net investment income ................................ (0.09) (0.26)
Dividends in excess of net investment income ........................ 0.00 0.00
Distributions from net realized gains on investments ................ (0.42) (4.09)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
---------- ----------
Total distributions ................................................ (0.51) (4.35)
---------- ----------
Net asset value, end of year .......................................... $ 59.94 $ 36.84
========== ==========
Total return (a) ...................................................... 64.47 % 17.54 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 3,086,057 $ 1,839,453
Ratio of expenses to average net assets (b) ......................... 0.83 % 0.87 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.25 % 0.80 %
Portfolio turnover rate (a) ......................................... 35.29 % 85.88 %
<CAPTION>
WRL JANUS GROWTH
--------------------------------------------------
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 31.66 $ 23.81 $ 26.25
Income from operations:
Net investment income (loss) ........................................ 0.34 0.26 0.22
Net realized and unrealized gain (loss) on investments .............. 5.35 10.97 (2.41)
---------- ---------- -----------
Net income (loss) from operations .................................. 5.69 11.23 (2.19)
---------- ---------- -----------
Distributions:
Dividends from net investment income ................................ (0.35) (0.24) (0.22)
Dividends in excess of net investment income ........................ (0.01) 0.00 0.00
Distributions from net realized gains on investments ................ (1.99) (3.14) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 (0.03)
---------- ---------- -----------
Total distributions ................................................ (2.35) (3.38) (0.25)
---------- ---------- -----------
Net asset value, end of year .......................................... $ 35.00 $ 31.66 $ 23.81
========== ========== ===========
Total return (a) ...................................................... 17.96 % 47.12 % (8.31)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 1,527,409 $ 1,195,174 $ 814,383
Ratio of expenses to average net assets (b) ......................... 0.88 % 0.86 % 0.84 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.98 % 0.90 % 0.88 %
Portfolio turnover rate (a) ......................................... 45.21 % 130.48 % 107.33 %
</TABLE>
<TABLE>
<CAPTION>
WRL JANUS GLOBAL
-------------------------------
DECEMBER 31,
-------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 19.04 $ 18.12
Income from operations:
Net investment income (loss) ........................................ 0.05 0.08
Net realized and unrealized gain (loss) on investments .............. 5.61 3.32
---------- --------
Net income (loss) from operations .................................. 5.66 3.40
---------- --------
Distributions:
Dividends from net investment income ................................ (0.13) (0.13)
Dividends in excess of net investment income ........................ 0.00 (1.01)
Distributions from net realized gains on investments ................ (0.80) (1.34)
Distributions in excess of net realized gains on investments ........ (0.06) 0.00
---------- --------
Total distributions ................................................ (0.99) (2.48)
---------- --------
Net asset value, end of year .......................................... $ 23.71 $ 19.04
========== ========
Total return (a) ...................................................... 30.01 % 18.75 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 1,069,765 $ 785,966
Ratio of expenses to average net assets (b) ......................... 0.95 % 1.00 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.23 % 0.41 %
Portfolio turnover rate (a) ......................................... 87.36 % 97.54 %
<CAPTION>
WRL JANUS GLOBAL
--------------------------------------------
DECEMBER 31,
--------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 15.52 $ 13.12 $ 13.62
Income from operations:
Net investment income (loss) ........................................ 0.08 0.10 0.10
Net realized and unrealized gain (loss) on investments .............. 4.20 2.91 0.10
-------- -------- --------
Net income (loss) from operations .................................. 4.28 3.01 0.20
-------- -------- --------
Distributions:
Dividends from net investment income ................................ (0.04) 0.00 (0.10)
Dividends in excess of net investment income ........................ (0.17) 0.00 (0.01)
Distributions from net realized gains on investments ................ (1.47) (0.61) (0.56)
Distributions in excess of net realized gains on investments ........ 0.00 0.00 (0.03)
-------- -------- --------
Total distributions ................................................ (1.68) (0.61) (0.70)
-------- -------- --------
Net asset value, end of year .......................................... $ 18.12 $ 15.52 $ 13.12
======== ======== ========
Total return (a) ...................................................... 27.74 % 23.06 % 0.25 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 534,820 $ 289,506 $ 261,778
Ratio of expenses to average net assets (b) ......................... 0.99 % 0.99 % 1.01 %
Ratio of net investment income (loss) to average net assets (b) ..... 0.46 % 0.75 % 0.73 %
Portfolio turnover rate (a) ......................................... 88.31 % 130.60 % 192.06 %
</TABLE>
Prospectus 22
<PAGE>
FINANCIAL HIGHLIGHTS*
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
WRL VKAM EMERGING GROWTH
-----------------------------
DECEMBER 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net asset value, beginning of year .................................... $ 20.37 $ 18.46
Income from operations:
Net investment income (loss) ........................................ (0.08) (0.05)
Net realized and unrealized gain (loss) on investments .............. 7.56 4.03
-------- --------
Net income (loss) from operations .................................. 7.48 3.98
-------- --------
Distributions:
Dividends from net investment income ................................ 0.00 0.00
Dividends in excess of net investment income ........................ 0.00 0.00
Distributions from net realized gains on investments ................ (0.93) (2.07)
Distributions in excess of net realized gains on investments ........ 0.00 0.00
-------- --------
Total distributions ................................................ (0.93) (2.07)
-------- --------
Net asset value, end of year .......................................... $ 26.92 $ 20.37
======== ========
Total return (a) ...................................................... 37.33 % 21.45 %
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 853,440 $ 592,003
Ratio of expenses to average net assets (b) ......................... 0.89 % 0.93 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.36)% (0.27)%
Portfolio turnover rate (a) ......................................... 99.50 % 99.78 %
<CAPTION>
WRL VKAM EMERGING GROWTH
-------------------------------------------
DECEMBER 31,
-------------------------------------------
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of year .................................... $ 16.25 $ 11.55 $ 12.47
Income from operations:
Net investment income (loss) ........................................ (0.04) 0.01 0.01
Net realized and unrealized gain (loss) on investments .............. 3.10 5.42 (0.92)
-------- -------- --------
Net income (loss) from operations .................................. 3.06 5.43 (0.91)
-------- -------- --------
Distributions:
Dividends from net investment income ................................ 0.00 0.00 (0.01)
Dividends in excess of net investment income ........................ 0.00 0.00 0.00
Distributions from net realized gains on investments ................ (0.85) (0.73) 0.00
Distributions in excess of net realized gains on investments ........ 0.00 0.00 0.00
-------- -------- --------
Total distributions ................................................ (0.85) (0.73) (0.01)
-------- -------- --------
Net asset value, end of year .......................................... $ 18.46 $ 16.25 $ 11.55
======== ======== ========
Total return (a) ...................................................... 18.88 % 46.79 % (7.36)%
Ratios and supplemental data:
Net assets at end of year (in thousands) ............................ $ 431,454 $ 288,519 $ 182,650
Ratio of expenses to average net assets (b) ......................... 0.94 % 0.91 % 0.92 %
Ratio of net investment income (loss) to average net assets (b) ..... (0.24)% 0.03 % 0.06 %
Portfolio turnover rate (a) ......................................... 80.02 % 124.13 % 72.62 %
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
* Per share information has been computed using average shares outstanding
throughout each year.
See Note 6.
(a) Not annualized for periods of less than one full year.
(b) Annualized for periods of less than one full year.
Prospectus 23
<PAGE>
FINANCIAL HIGHLIGHTS*
NOTE 6 -- FINANCIAL HIGHLIGHTS
The total return set forth in "Financial Highlights" reflects the advisory fee
and all other portfolio expenses and includes reinvestment of dividends and
capital gains; if does not reflect the charges against the corresponding sub-
accounts or the charges and deductions under the applicable policies or annuity
contracts. Where a portfolio's period from inception is less than one year, the
total return shown is not annualized.
The ratio of expenses to average net assets in the Financial Highlights is net
of the advisory fee waiver. Where a portfolio's period from inception is less
than one year, the ratio of expenses to average net assets is annualized.
Without the advisory fee waived by WRL the ratio for each period presented
would be as follows:
DECEMBER 31,
-----------------------------------------
PORTFOLIO 1998 1997 1996 1995 1994
- --------- ------ ------ ------ ------ -----
Growth .................. * * * * *
Global .................. * * * * *
Emerging Growth ......... * * * * *
Without the advisory fee waived by WRL and the fees paid indirectly, the ratio
for each period presented would be as follows:
DECEMBER 31,
--------------
PORTFOLIO 1998 1997
- --------- ------ -----
Growth .................. * *
Global .................. * *
Emerging Growth ......... * *
* No waiver since the portfolio did not exceed expense limitations.
** Portfolio was not in existence during this period.
Prospectus 24
<PAGE>
ADDITIONAL INFORMATION ABOUT THESE PORTFOLIOS IS CONTAINED IN THE
STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1999, AND IN THE
FUND'S ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS, WHICH ARE
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. IN THE FUND'S
ANNUAL REPORT, YOU WILL FIND A DISCUSSION OF THE MARKET CONDITIONS
AND INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED THE FUND'S
PERFORMANCE DURING THE LAST FISCAL YEAR.
YOU MAY ALSO CALL 1-800-851-9777 TO REQUEST THIS ADDITIONAL
INFORMATION ABOUT THE FUND WITHOUT CHARGE OR TO MAKE SHAREHOLDER
INQUIRIES.
OTHER INFORMATION ABOUT THESE PORTFOLIOS HAS BEEN FILED WITH AND
IS AVAILABLE FROM THE U.S. SECURITIES AND EXCHANGE COMMISSION.
INFORMATION ABOUT THE FUND (INCLUDING THE SAI) CAN BE REVIEWED AND
COPIED AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. INFORMATION ON THE OPERATION OF
THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE
COMMISSION AT 1-800-SEC-0330. INFORMATION MAY BE OBTAINED, UPON
PAYMENT OF A DUPLICATING FEE BY WRITING THE PUBLIC REFERENCE
SECTION OF THE COMMISSION, WASHINGTON, D.C. 20549-6009.
REPORTS AND OTHER INFORMATION ABOUT THE FUND ARE ALSO AVAILABLE ON
THE COMMISSION'S INTERNET SITE AT HTTP://WWW.SEC.GOV. (WRL SERIES
FUND FILE NO. 811-4419.)
FOR MORE INFORMATION ABOUT THESE PORTFOLIOS, YOU MAY OBTAIN A COPY
OF THE SAI OR THE ANNUAL OR SEMI-ANNUAL REPORTS WITHOUT CHARGE, OR
TO MAKE OTHER INQUIRIES ABOUT THIS FUND, CALL THE NUMBER LISTED
ABOVE.
(WRL SERIES FUND FILE NO. 811-4419.)
<PAGE>
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).
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<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:
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 (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.
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).
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.
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.
(C) A portfolio may not purchase additional securities when money
borrowed exceeds 5% of its total assets.
(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:
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 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:
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. All securities of a foreign government and its agencies will be
treated as a single issuer for purposes of this restriction.
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.
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 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
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).
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>
(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.
(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 (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.
(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 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.
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. 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:
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. All securities of a foreign government and its agencies will be
treated as a single issuer for purposes of this restriction.
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).
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 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 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.
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 DREYFUS MID CAP
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 such issuer.
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:
1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other than Government securities as defined in
the 1940 Act) if immediately after and as a result of such purchase (a) the
value of the holdings of the portfolio in the securities of such issuer exceeds
5% of the value of the portfolio's total assets, or (b) the portfolio owns more
than 10% of the outstanding voting securities of such issuer.
2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.
3. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives and policies or by entering into repurchase
agreements or (ii) by lending the portfolio securities to banks, brokers,
dealers and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or interpretations
of the 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.
(C) The portfolio may not invest in companies for the purpose of
exercising control or management.
(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>
than Government securities as defined in the 1940 Act) if immediately after and
as a result of such purchase (a) the value of the holdings of the portfolio in
the securities of such issuer exceeds 5% of the value of the portfolio's total
assets, or (b) the portfolio owns more than 10% of the outstanding voting
securities of such issuer.
2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services; for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.
3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.
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 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.
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.
(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.
(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:
1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other than Government securities as defined in
the 1940 Act) if immediately after and as a result of such purchase (a) the
value of the holdings of the portfolio in the securities of such issuer exceeds
5% of the value of the portfolio's total assets, or (b) the portfolio owns more
than 10% of the outstanding voting securities of such issuer.
2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services, for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.
3. 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
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.
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.
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.
(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 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:
(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, 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.
(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.
(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:
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 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
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<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:
1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other than Government securities as defined in
the 1940 Act) if immediately after and as a result of such purchase (a) the
value of the holdings of the portfolio in the securities of such issuer exceeds
5% of the value of the portfolio's total assets, or (b) the portfolio owns more
than 10% of the outstanding voting securities of such issuer.
2. Invest more than 25% of the portfolio's assets in the securities of
issuers primarily engaged in the same industry. Utilities will be divided
according to their services, for example, gas, gas transmission, electric and
telephone, and each will be considered a separate industry for purposes of this
restriction. In addition, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or of certificates of deposit and bankers' acceptances.
3. 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).
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.
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<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.
(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.
(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 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:
1. With respect to 75% of the portfolio's total assets, purchase the
securities of any one issuer (other than cash items and "Government securities"
as defined in the 1940 Act) if immediately after and as a result of such
purchase (a) the value of the holdings of the portfolio in the securities of
such issuer exceeds 5% of the value of the portfolio's total assets, or (b) the
portfolio owns more than 10% of the outstanding voting securities of any one
class of securities of such issuer.
2. Invest more than 25% of the value of the portfolio's assets in any
particular industry (other than Government securities or obligations of U.S.
branches of U.S. banks).
3. Purchase or sell physical commodities unless acquired as a result of
ownership of securities.
4. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate (including real estate limited partnerships), commodities,
or commodity contracts or 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.
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
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.
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<PAGE>
(B) The portfolio may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short.
(C) The portfolio may not purchase securities on margin, except that the
portfolio may obtain such short-term credits as are necessary for the clearance
of transactions.
(D) The portfolio may 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.
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<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
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/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.
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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
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<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
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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
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<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
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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
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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
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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.)
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[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
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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.
/diamond//diamond//diamond//diamond//diamond/
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.
/diamond//diamond//diamond//diamond//diamond/
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>
/diamond//diamond//diamond//diamond//diamond/
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.
/diamond//diamond//diamond//diamond//diamond/
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.
/diamond//diamond//diamond//diamond//diamond/
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.
/diamond//diamond//diamond//diamond//diamond/
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.
/diamond//diamond//diamond//diamond//diamond/
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>
/diamond//diamond//diamond//diamond//diamond/
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)
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
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
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)
WRL Goldman Sachs Small Cap 0.50%
WRL Dreyfus Mid Cap 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.
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
<PAGE>
WRL SERIES FUND, INC.
WRL ALGER AGGRESSIVE GROWTH
WRL JANUS GLOBAL
WRL JANUS GROWTH
WRL LKCM STRATEGIC TOTAL RETURN
WRL J.P. MORGAN REAL ESTATE SECURITIES
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:
FRED ALGER MANAGEMENT, INC.
JANUS CAPITAL CORPORATION
LUTHER KING CAPITAL MANAGEMENT CORPORATION
FEDERATED INVESTMENT COUNSELING
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 Alger Aggressive Growth 2
WRL Janus Global 3
WRL Janus Growth 4
WRL LKCM Strategic Total Return 5
WRL J.P. Morgan Real Estate Securities 6
INVESTMENT POLICIES 7
Lending 7
Borrowing 7
Short Sales 8
Foreign Securities 8
Foreign Bank Obligations 9
Forward Foreign Currency Contracts 9
When-Issued, Delayed Settlement and Forward Delivery Securities 9
Repurchase and Reverse Repurchase
Agreements 10
Temporary Defensive Position 10
U.S. Government Securities 10
Non-Investment Grade Debt Securities 11
Convertible Securities 11
Investments in Futures, Options and Other Derivative Instruments 11
Zero Coupon, Pay-In-Kind and Step Coupon Securities 20
Warrants and Rights 21
Mortgage-Backed Securities 21
Asset-Backed Securities 21
Pass-Through Securities 22
Other Income Producing Securities 22
Illiquid and Restricted/144A Securities 22
Other Investment Companies 23
Bank and Thrift Obligations 23
Investments in the Real Estate Industry and Real Estate Investment
Trusts ("REITs") 24
Variable Rate Master Demand Notes 24
Debt Securities and Fixed-Income Investing 25
High Yield/High-Risk Securities 25
Trade Claims 25
MANAGEMENT OF THE FUND 26
Directors and Officers 26
The Investment Adviser 27
The Sub-Advisers 30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page in this Statement
of
Additional Information
-----------------------
<S> <C>
Joint Trading Accounts 32
Administrative and Transfer Agency Services 32
Personal Securities Transactions 32
PORTFOLIO TRANSACTIONS AND BROKERAGE 33
Portfolio Turnover 33
Placement of Portfolio Brokerage 33
PURCHASE AND REDEMPTION OF SHARES 35
Determination of Offering Price 35
Net Asset Valuation 35
CALCULATION OF PERFORMANCE
RELATED INFORMATION 36
Total Return 36
Yield Quotations 36
TAXES 36
CAPITAL STOCK OF THE FUND 38
REGISTRATION STATEMENT 38
FINANCIAL STATEMENTS 38
OTHER INFORMATION 39
Independent Accountants 39
Custodian 39
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 the
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 People's 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 Fund's' 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.
IVESTMENT RESTRICTIONS
[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 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.
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<PAGE>
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 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.
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 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
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).
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:
(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
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<PAGE>
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.
(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 (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.
(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 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 JANUS GROWTH
(FORMERLY GROWTH 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% 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 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) 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
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<PAGE>
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.
(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 LKCM STRATEGIC TOTAL RETURN
(FORMERLY STRATEGIC TOTAL RETURN 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 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 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.
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.
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
5
<PAGE>
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.
(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 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 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:
(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
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<PAGE>
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, 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.
(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.
(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.
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.
WRL LKCM Strategic Total Return may also lend (or borrow) money to other funds
that are managed by its respective sub-adviser, provided that the 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 Alger Aggressive
Growth, and the WRL J. P. Morgan Real Estate Securities; 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 net assets.
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.
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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.
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.
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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.
/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
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make payment or delivery, and the portfolio is delayed or prevented from
completing the transaction.
[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. 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").
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[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 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
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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 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
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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 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
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respects to the purchase and writing of options on individual securities. See
"Options on Securities" on page 16. 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 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
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(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 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.
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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.
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.
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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 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.
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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., 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
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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.
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 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
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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 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.
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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 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
21
<PAGE>
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.)
[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
22
<PAGE>
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] 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.
[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 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
23
<PAGE>
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 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
24
<PAGE>
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 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.
25
<PAGE>
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) former
Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3.
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., St. Petersburg, 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
and Chairman 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 (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
26
<PAGE>
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
---------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT PAID
- --------- ----------------
<S> <C> <C>
WRL Alger Aggressive Growth 3,000 3,438
WRL Janus Global 5,000 4,646
WRL Janus Growth 7,000 6,714
WRL LKCM Strategic Total Return 2,000 2,194
WRL J.P. Morgan Real Estate Securities 0 2
</TABLE>
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. It is not anticipated that the Plan will have any impact on
the Fund. 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, 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
nv, a Netherlands corporation, which is a publicly traded international
insurance group.
The Investment Advisory Agreement was approved by the Fund's Board of
Directors, including a majority of the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) on 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. 30.
27
<PAGE>
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:
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 Janus Global(1) 7,537,671 5,591,818 3,468,535
WRL Janus Growth(2) 18,111,607 13,716,824 11,137,321
WRL LKCM Strategic Total Return 4,485,018 3,703,670 2,462,304
WRL J.P. Morgan Real Estate Securities(3) 9,338
-----------
TOTAL $33,505,238 $25,262,113 $18,597,839
=========== =========== ===========
</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 0.387%) 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% off its sub-adivsory 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) Portfolio commenced operations May 1, 1998.
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.
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.
28
<PAGE>
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% 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):
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 Janus Global -0- -0- -0-
WRL Janus Growth -0- -0- -0-
WRL LKCM Strategic Total Return -0- -0- -0-
WRL J.P. Morgan Real Estate Securities(1) 28,275 N/A N/A-
</TABLE>
- ------------------------------
(1) Portfolio commenced operations on May 1, 1998.
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:
Administrative Services Fees
----------------------------
<TABLE>
<CAPTION>
Portfolio 1998 1997
- ------------------------------ ---------- ---------------
<S> <C> <C>
WRL Alger Aggressive Growth $ 73,408 $122,776
WRL Janus Global 99,277 165,294
WRL Janus Growth 143,999 260,374
WRL LKCM Strategic Total
Return 47,197 87,766
WRL J.P. Morgan Real Estate
Securities -0- N/A
</TABLE>
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. 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
29
<PAGE>
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 (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
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 and by the
shareholders of each portfolio of the Fund on December 16, 1996. 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. (except WRL J.P. Morgan Real Estate Securities
will continue in effect for an initial term ending April 30, 2000), 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 $10.6 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/
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 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
30
<PAGE>
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/
J.P. MORGAN INVESTMENT MANAGEMENT INC.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan Investment") serves as
Sub-Adviser to WRL J.P. Morgan Money Market and WRL J.P. Morgan Real Estate
Securities.
J.P. Morgan Investment, 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 MANAGER:
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.
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 Janus Global 0.40%(2)
WRL LKCM Strategic Total Return 0.40%
WRL Alger Aggressive Growth 0.40%
WRL J.P. Morgan Real Estate Securities 0.40%
</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.
31
<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:
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
Janus WRL Janus Growth(2) 9,055,804 6,858,412 5,568,661
WRL Janus Global(3) 3,768,835 2,795,909 1,734,268
LKCM WRL LKCM Strategic Total Return 2,242,509 1,851,835 1,231,152
J.P. Morgan WRL J.P. Morgan Real Estate
Securities(1) 4,669 N/A N/A
</TABLE>
- ------------------------------
(1) Portfolio commenced operation May 1, 1998.
(2) 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.
(3) 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, and, provided that it continues to serve
as sub-adviser for the portfolios, compensate Western Reserve Life Assurance
Co. of Ohio 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 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, 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.
32
<PAGE>
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 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.
The following table provides the portfolios' turnover rates for the fiscal
years ended December 31, 1998, 1997 and 1996:
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 Janus Global 87.36% 97.54% 88.31%
WRL Janus Growth 35.29% 85.88% 45.21%
WRL LKCM Strategic Total Return 49.20% 48.20% 49.32%
WRL J.P. Morgan Real Estate Securities(1) 100.80% N/A N/A
</TABLE>
- ------------------------------
(1) Portfolio commenced operations on May 1, 1998.
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, 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 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
33
<PAGE>
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.; 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.
34
<PAGE>
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 Janus Global 2,373,255 2,305,145 1,269,275
WRL Janus Growth 1,023,925 1,367,104 720,978
WRL LKCM Strategic
Total Return 469,460 348,083 398,594
WRL J.P. Morgan Real
Estate Securities(2) 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 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 LKCM Strategic
Total Return N/A N/A N/A N/A N/A N/A
WRL J.P. Morgan Real
Estate Securities(2) 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 Alger, Inc. 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, 1998.
WRL Alger Aggressive Growth paid all its affiliated brokerage commissions to
Fred Alger & Company, Incorporated.
PURCHASE 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, 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.
35
<PAGE>
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
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.
36
<PAGE>
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 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.
A portfolio may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. 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
37
<PAGE>
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'selection 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.
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. Not all of
these portfolios are available in the product you have chosen.
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 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.
38
<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
<PAGE>
WRL SERIES FUND, INC.
WRL VKAM EMERGING GROWTH
WRL JANUS GLOBAL
WRL JANUS GROWTH
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.
JANUS CAPITAL CORPORATION
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 Janus Global 3
WRL Janus Growth 3
INVESTMENT POLICIES 5
Lending 5
Borrowing 6
Short Sales 6
Foreign Securities 6
Foreign Bank Obligations 7
Forward Foreign Currency Contracts 7
When-Issued, Delayed Settlement and Forward Delivery Securities 7
Repurchase and Reverse Repurchase Agreements 8
Temporary Defensive Position 8
U.S. Government Securities 8
Non-Investment Grade Debt Securities 9
Convertible Securities 9
Investments in Futures, Options and Other Derivative Instruments 9
Zero Coupon, Pay-In-Kind and Step Coupon Securities 18
Warrants and Rights 19
Mortgage-Backed Securities 19
Asset-Backed Securities 19
Pass-Through Securities 19
Other Income Producing Securities 20
Illiquid and Restricted/144A Securities 20
Other Investment Companies 21
Bank and Thrift Obligations 21
Investments in the Real Estate Industry and Real Estate Investment Trusts
("REITs") 22
Variable Rate Master Demand Notes 22
Debt Securities and Fixed-Income Investing 22
High Yield/High-Risk Securities 23
Trade Claims 23
MANAGEMENT OF THE FUND 24
Directors and Officers 24
The Investment Adviser 25
The Sub-Advisers 27
Joint Trading Accounts 29
Administrative and Transfer Agency Services 29
Personal Securities Transactions 29
PORTFOLIO TRANSACTIONS AND BROKERAGE 29
Portfolio Turnover 29
Placement of Portfolio Brokerage 30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page in this Statement
of
Additional Information
-----------------------
<S> <C>
PURCHASE AND REDEMPTION OF SHARES 31
Determination of Offering Price 31
Net Asset Valuation 31
CALCULATION OF PERFORMANCE RELATED INFORMATION 32
Total Return 32
Yield Quotations 32
TAXES 32
CAPITAL STOCK OF THE FUND 34
REGISTRATION STATEMENT 34
FINANCIAL STATEMENTS 34
OTHER INFORMATION 35
Independent Accountants 35
Custodian 35
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 the
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 People's 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 Janus Global,
and WRL Janus Growth, (a "portfolio" or collectively, the "portfolios") of the
Fund are described in the Fund's' 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.
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
2
<PAGE>
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 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.
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 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
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).
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:
(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
3
<PAGE>
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.
(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 (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.
(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 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.
(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
(FORMERLY GROWTH 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% 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.
4
<PAGE>
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) 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.
(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.
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.
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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 VKAM Emerging Growth may also lend (or borrow) money to other funds
that are managed by its respective sub-adviser, provided that the 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 25% of total assets.
To secure borrowings, a portfolio may not mortgage or pledge its securities in
amounts that exceed 15% of its net assets.
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.
[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.
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
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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.
/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
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make payment or delivery, and the portfolio is delayed or prevented from
completing the transaction.
[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. 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").
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[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 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
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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 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
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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 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
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respects to the purchase and writing of options on individual securities. See
"Options on Securities" on page 14. 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 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
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(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 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.
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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.
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.
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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 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.
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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., 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
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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.
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 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
17
<PAGE>
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 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.
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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 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
19
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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.)
[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
20
<PAGE>
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] 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.
[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 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
21
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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 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
22
<PAGE>
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 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.
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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) former
Trustee of IDEX Fund, IDEX II Series Fund and IDEX Fund 3.
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., St. Petersburg, 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
and Chairman 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 (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
24
<PAGE>
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
---------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT PAID
- --------- ---------------------
<S> <C> <C>
WRL VKAM Emerging Growth $4,000 $4,473
WRL Janus Global 5,000 4,646
WRL Janus Growth 7,000 6,714
</TABLE>
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. It is not anticipated that the Plan will have any impact on
the Fund. 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, 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
nv, a Netherlands corporation, which is a publicly traded international
insurance group.
The Investment Advisory Agreement was approved by the Fund's Board of
Directors, including a majority of the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) on 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. 27.
25
<PAGE>
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:
Advisory Fees
-------------
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
Portfolio 1998 1997 1996
- --------- ------------- ------------- -------------
<S> <C> <C> <C>
WRL VKAM Emerging Growth $ 5,408,098 $ 4,075,498 $ 2,985,089
WRL Janus Global 7,537,671 5,591,818 3,468,535
WRL Janus Growth 18,111,607 13,716,824 11,137,321
----------- ----------- -----------
TOTAL $31,057,376 $23,384,140 $17,590,945
=========== =========== ===========
</TABLE>
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.
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%. There were no
expenses paid by the investment adviser for these funds in 1998, 1997 or 1996.
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:
Administrative Services Fees
----------------------------
<TABLE>
<CAPTION>
Portfolio 1998 1997
- --------------------------- ---------- -----------
<S> <C> <C>
WRL VKAM Emerging Growth $ 95,721 $166,269
WRL Janus Global 99,277 165,294
WRL Janus Growth 143,999 260,374
</TABLE>
26
<PAGE>
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. 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 between WRL Management and the respective Sub-Adviser, on behalf of
each 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 and by the shareholders of each portfolio of the Fund on December 16,
1996. 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. (except WRL J.P. Morgan Real Estate Securities
will continue in effect for an initial term ending April 30, 2000), 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/
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,
27
<PAGE>
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 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 MANAGER:
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.
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 VKAM Emerging Growth 0.40%, less 50% of amount of excess expenses(3)
Janus Growth 0.40%(1)
WRL Janus Global 0.40%(2)
</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 limit.
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:
SUB-ADVISORY FEES
-----------------
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
Sub-Adviser Portfolio 1998 1997 1996
- ----------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
VKAM WRL VKAM Emerging Growth $2,704,049 $2,037,749 $1,492,545
Janus WRL Janus Growth(1) 9,055,804 6,858,412 5,568,661
WRL Janus Global(2) 3,768,835 2,795,909 1,734,268
</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.
28
<PAGE>
Janus Capital has agreed that it will, and, provided that it continues to serve
as sub-adviser for the portfolios, compensate Western Reserve Life Assurance
Co. of Ohio 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 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, 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.
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.
29
<PAGE>
The following table provides the portfolios' turnover rates for the fiscal
years ended December 31, 1998, 1997 and 1996:
PORTFOLIO TURNOVER RATES
------------------------
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
Portfolio 1998 1997 1996
- --------- -------- -------- -------
<S> <C> <C> <C>
WRL VKAM Emerging Growth 99.50% 99.78% 80.02%
WRL Janus Global 87.36% 97.54% 88.31%
WRL Janus Growth 35.29% 85.88% 45.21%
</TABLE>
The future annual turnover rates cannot be precisely predicted, although an
annual turnover rate in excess of 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 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
30
<PAGE>
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.; 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 Affiliated Brokerage Commissions
Year Ended December 31 Year Ended December 31
------------------------------------------ ------------------------------------------------
Portfolio 1998 1997 1996 1998 % 1997 % 1996 %
- --------- ------------ ------------ ------------ ------- ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WRL VKAM Emerging Growth(1) $ 920,884 $ 627,400 $ 415,717 1,308 <1% N/A N/A N/A N/A
WRL Janus Global 2,373,255 2,305,145 1,269,275 N/A N/A N/A N/A N/A N/A
WRL Janus Growth 1,023,925 1,367,104 720,978 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 Morgan Stanley &
Co., Incorporated for the fiscal year ended December 31, 1998, 1997 and
1996 was <1%, N/A and N/A, respectively.
PURCHASE 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, 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.
31
<PAGE>
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 dur-
ing 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
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.
32
<PAGE>
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 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.
A portfolio may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. 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
33
<PAGE>
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'selection 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.
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. Not all of
these portfolios are available in the product you have chosen.
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 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.
34
<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
<PAGE>
PART C
OTHER INFORMATION
Item 23. EXHIBITS
List all exhibits filed as part of the Registration Statement.
(a) 1. (A) Articles of Incorporation of WRL Series Fund, Inc. (2)
(B) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (2)
(C) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (2)
(D) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (2)
(E) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (2)
(F) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (2)
(G) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (2)
(H) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(I) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (3)
(J) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (4)
(K) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (6)
(L) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc. (7)
(M) Articles Supplementary to Articles of Incorporation of
WRL Series Fund, Inc.
(b) Bylaws of WRL Series Fund, Inc. (2)
(c) Not applicable.
(d) Investment Advisory Agreements
(1) Investment Advisory Agreement on behalf of the Portfolios of
the WRL Series Fund, Inc. with WRL Investment Management, Inc.
(2) Sub-Advisory Agreement on behalf of WRL Janus Growth and
WRL Janus Global of the Fund. (6)
(3) Sub-Advisory Agreement on behalf of WRL J.P. Morgan Money
Market of the Fund.
(4) Sub-Advisory Agreement on behalf of WRL VKAM Emerging Growth of
the Fund.
(5) Sub-Advisory Agreement on behalf of WRL LKCM Strategic Total
Return of the Fund.
(6) Sub-Advisory Agreement on behalf of WRL Federated Growth &
Income of the Fund.
(7) Sub-Advisory Agreement on behalf of WRL Alger Aggressive Growth
of the Fund.
(8) Sub-Advisory Agreement on behalf of WRL Dean Asset Allocation
of the Fund.
(9) Sub-Advisory Agreement on behalf of WRL C.A.S.E. Growth of the
Fund.
(10) Co-Sub-Advisory Agreements on behalf of WRL GE/Scottish
Equitable International Equity of the Fund.
(11) Sub-Advisory Agreement on behalf of WRL NWQ Value Equity of the
Fund.
(12) Sub-Advisory Agreement on behalf of WRL GE U.S. Equity of the
Fund.
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<PAGE>
(13) Sub-Advisory Agreement on behalf of WRL Third Avenue Value of
the Fund.
(14) Sub-Advisory Agreement on behalf of WRL AEGON Balanced of the
Fund.
(15) Sub-Advisory Agreement on behalf of WRL AEGON Bond of the Fund.
(16) Sub-Advisory Agreement on behalf of WRL J. P. Morgan Real
Estate Securities of the Fund.
(17) Form of Sub-Advisory Agreement on behalf of WRL T. Rowe Price
Small Cap and WRL T. Rowe Price Dividend Growth of the Fund.
(18) Form of Sub-Advisory Agreement on behalf of WRL Goldman Sachs
Small Cap and WRL Goldman Sachs Growth of the Fund.
(19) Form of Sub-Advisory Agreement on behalf of WRL Salomon All Cap
of the Fund.
(20) Form of Sub-Advisory Agreement on behalf of WRL Dreyfus Mid Cap
of the Fund.
(21) Form of Sub-Advisory Agreement on behalf of WRL Pilgrim Baxter
Growth of the Fund.
(e) Distribution Agreement.
(f) Director's Deferred Compensation Plan. (1)
(g) Form of Custodian Agreement. (3)
(h) Administrative Services and Transfer Agency Agreement. (3)
(i) Opinion and consent of Thomas E. Pierpan, Esq. as to legality of the
securities being registered.
(j) Consent of PricewaterhouseCoopers LLP.
(k) Not applicable.
(l) Not applicable.
(m) Plan of Distribution. (5)
(n) Financial Data Schedules.
(o) Not applicable.
- ---------------------
(1) Previously filed with Post-Effective Amendment No. 23 to Form N-1A dated
April 19, 1996 and incorporated herein by reference.
(2) Previously filed with Post-Effective Amendment No. 25 to Form N-1A dated
October 17, 1996, and incorporated herein by reference.
(3) Previously filed with Post-Effective Amendment No. 26 to Form N-1A dated
December 26, 1996 and incorporated herein by reference.
(4) Previously filed with Post-Effective Amendment No. 28 to Form N-1A dated
April 24, 1997, and incorporated herein by reference.
(5) Previously filed with Post-Effective Amendment No. 29 to Form N-1A dated
June 30, 1997, and incorporated herein by reference.
(6) Previously filed with Post-Effective Amendment No. 31 to Form N-1A dated
October 16, 1997, and incorporated herein by reference.
(7) Previously filed with Post-Effective Amendment No. 34 to Form N-1A dated
April 22, 1998, and incorporated herein by reference.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Shares of the Registrant are sold and owned by the WRL Series Life
Account and WRL Series Annuity Account established by Western Reserve Life
Assurance Co. of Ohio ("Western Reserve") to fund benefits under certain
flexible
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<PAGE>
premium variable life insurance policies and variable annuity contracts issued
by it. In addition, shares of the Growth Portfolio Common Stock of the
Registrant are also sold to the PFL Endeavor Variable Annuity Account and the
Mutual Fund Account, established by PFL Life Insurance Company, and AUSA
Endeavor Variable Annuity Account, established by AUSA Life Insurance Company,
Inc., both affiliates of Western Reserve. Shares of the Emerging Growth and
Global Portfolios Common Stock are also sold to the Mutual Fund Account,
established by PFL Life Insurance Company. Shares of the Growth, Bond, Money
Market, Global, Strategic Total Return, Balanced, Aggressive Growth, Emerging
Growth, Growth & Income, International Equity, Third Avenue Value, Value Equity,
U.S. Equity and Tactical Asset Allocation Portfolio Common Stock are sold to
Pooled Account No. 27 established by AUSA Life Insurance Company, Inc.
Item 25. INDEMNIFICATION.
Article VI of the By-Laws of WRL Series Fund, Inc. provides in its entirety as
follows:
Each director, officer, or employee (and his heirs, executors and
administrators) shall be indemnified by the Corporation against all
liability and expense incurred by reason of the fact that he is or was a
director, officer or employee of the corporation, to the full extent and
in any manner permitted by Maryland law, as in effect at any time,
provided that nothing herein shall be construed to protect any director,
officer or employee against any liability to the corporation or to its
security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office ("disabling
conduct"). No indemnification of a director, officer or employee shall
be made pursuant to the preceding sentence unless there has been (a) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified ("indemnity")
was not liable by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon a review of the
facts, that the indemnity was not liable by reason of disabling conduct
by (i) the vote of a majority of a quorum of directors who are neither
"interested persons" of the corporation, as defined in Section 2(a)(19)
of the Investment Company Act of 1940, nor parties to the proceeding
("non-interested, non-party directors"), or (ii) an independent legal
counsel in a written opinion. Reasonable expenses incurred by each such
director, officer or employee may be paid by the corporation in advance
of the final disposition of any proceeding to which such person is a
party, to the full extent and under the circumstances permitted by
Maryland law, provided that such person undertakes to repay the advance
unless it is ultimately determined that he is entitled to
indemnification and either (i) he provides security for his undertaking,
(ii) the corporation is insured against losses by reason of any lawful
advances or (iii) a majority of a quorum of the non-interested,
non-party directors, or an independent legal counsel in a written
opinion, determines, based on a review of readily available facts, and
there is reason to believe that such person ultimately will be found
entitled to indemnification. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or
employee of the corporation against any liability asserted against and
incurred by such person in any such capacity or arising out of such
person's position, whether or not the corporation would have the power
to indemnify against such liability under the provisions of this Article
VI.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
C-3
<PAGE>
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
A. WRL INVESTMENT MANAGEMENT, INC.
WRL Investment Management, Inc. ("WRL Management") is principally
engaged in offering investment advisory services.
The only business, professions, vocations or employments of a
substantial nature of Messrs. Kenney, Hurley and Yaeger, directors
of WRL Management, are described in the Statement of Additional
Information under the section entitled "Management of the Fund."
Additionally, the following describes the principal occupations of
other persons who serve as executive officers of WRL Management:
Kim D. Day, Vice President and Treasurer, is Vice President, Fund
Operations and Principal Accounting Officer of the WRL Series
Fund, Inc., Assistant Vice President and Assistant Treasurer of
Western Reserve Life Assurance Co. of Ohio ("Western Reserve") and
Vice President and Treasurer of WRL Investment Services, Inc.;
William H. Geiger, Esq., Secretary, is Assistant Secretary of the
WRL Series Fund, Inc., Senior Vice President, Secretary, General
Counsel and Group Vice President - Compliance of Western Reserve,
and Secretary of WRL Investment Services, Inc.; and Thomas E.
Pierpan, Esq., Vice President, Assistant Secretary and General
Counsel, is Vice President, Secretary and Associate General
Counsel of the WRL Series Fund, Inc. and Vice President, Associate
General Counsel and Assistant Secretary of Western Reserve, and
Vice President, Assistant Secretary and General Counsel of WRL
Investment Services, Inc.
B. WRL JANUS GROWTH AND WRL JANUS GLOBAL: SUB-ADVISER - JANUS CAPITAL
CORPORATION
Janus Capital Corporation, the Sub-Adviser to WRL Janus Growth and
WRL Janus Global of the WRL Series Fund, Inc. is majority-owned by
Kansas City Southern Industries, Inc.
Janus Capital Corporation also serves as sub-adviser to certain of
the mutual funds within the IDEX Group and as investment adviser
or sub-adviser to other mutual funds, and for private and
retirement accounts. Thomas H. Bailey, Trustee, Chairman and
President of Janus Investment Fund and Janus Aspen Series,
Chairman, CEO, Director and President of the Sub-Adviser Director
of Janus Distributors, Inc., and Chairman and Director of Idex
Management, Inc., has no business, profession, vocation or
employment of a substantial nature other than his positions with
Idex Management, Inc. and Janus Capital Corporation. James P.
Craig, Executive Vice President and Trustee of Janus Investment
Fund and Janus Aspen Series, Director, Vice Chairman and Chief
Investment Officer of Janus Capital Corporation, has no
substantial business, profession, vocation or employment other
than his positions with Janus Capital Corporation. Michael N.
Stolper, a Director of Janus Capital Corporation, is President of
Stolper & Company, 525 "B" Street, Suite 1080, San Diego, CA
92101, an investment performance consultant. Michael E. Herman, a
Director of Janus Capital Corporation, is Chairman of the Finance
Committee of Ewing Marion Kauffman Foundation, 4900 Oak, Kansas
City, MO 64112. Thomas A. McDonnell, a Director of Janus Capital
Corporation, is President, Director and CEO of DST Systems, Inc.,
333 West 11th Street, 5th Floor, Kansas City, MO 64105, a provider
of data processing and recordkeeping services for various mutual
funds. Landon H. Rowland, a Director of Janus Capital, President
and Chief Executive Officer of Kansas City Southern Industries,
Inc. Steven R. Goodbarn is Vice President and Chief Financial
Officer of Janus Investment Fund and Janus Aspen Series, Vice
President of Finance, Treasurer and Chief Financial officer of
Janus Capital Corporation, Janus Service Corporation and Janus
Distributors, Inc., Director of Janus Distributors, Inc., Janus
Service Corporation, and Idex Management, Inc. and Vice President
of Finance of Janus Capital International Ltd., Margie G. Hurd,
Vice President and Chief Operations Officer of Janus Capital,
Director and President of Janus Service Corporation. Mark B.
Whiston, Vice President and Chief Marketing Officer of Janus
Capital, Director and President of Janus Capital International,
Ltd. Sandy R. Rufenacht, Executive Vice President of Janus
Investment Fund and
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<PAGE>
Aspen Series, and Assistant Vice President of Janus Capital. Helen
Young Hayes, Scott W. Schoelzel, and Ronald V. Speaker are each a
Vice President of Janus Capital Corporation and an Executive Vice
President of Janus Investment Fund and Janus Aspen Series.
C. WRL J. P. MORGAN MONEY MARKET AND WRL J. P. MORGAN REAL ESTATE
SECURITIES: SUB-ADVISER - J.P. MORGAN INVESTMENT MANAGEMENT INC.
J.P. Morgan Investment Management Inc., the Sub-Adviser to WRL J.
P. Morgan Money Market and WRL J. P. Morgan Real Estate Securities
is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated.
J.P. Morgan Investment Management Inc. provides investment
management and related services for corporate, public and union
employee benefit funds, foundations, endowments, insurance
companies and government agencies.
The directors and principal officers of J.P. Morgan Investment
Management Inc. are listed below. Unless otherwise indicated, each
director and officer has a principal business address of 522 Fifth
Avenue, New York, NY 10036: Kenneth W. Anderson, Director and
Managing Director; Keith M. Schappert, President, Chairman,
Director and Managing Director; Jeff M. Garrity, Director and
Managing Director; Isabel H. Sloane, Director and Managing
Director; Gilbert Van Hassel, Director and Managing Director (J.P.
Morgan Investment Management Inc., Akasaka Park Building, 2-20,
Akasaka 5-chome, Minatoku, Tokyo, Japan); Hendrik Van Riel,
Director and Managing Director (J.P. Morgan Investment Management
Inc., 28 King Street, London, England SW1Y 6XA); John W.
Schmidlin, Director (J.P. Morgan Investment Management Inc., 345
Park Avenue, New York, New York 10154).
D. WRL AEGON BOND AND WRL AEGON BALANCED: SUB-ADVISER - AEGON USA
INVESTMENT MANAGEMENT, INC.
AEGON USA Investment Management, Inc. ("AIMI"), the Sub-Adviser to
the WRL AEGON Bond and WRL AEGON Balanced Portfolios, is an Iowa
corporation which was incorporated on April 12, 1989. AIMI became
a registered investment adviser on March 16, 1992 and has assumed
all of the investment advisory functions of AEGON USA Securities,
Inc. ("AEGON Securities"). AIMI and AEGON Securities are
wholly-owned subsidiaries of First AUSA Holding Company which is a
wholly-owned subsidiary of AEGON USA, Inc.
AIMI also serves as sub-adviser to IDEX Mutual Fund's Income Plus
and Tax Exempt. Douglas C. Kolsrud is Director, Chairman of the
Board and President of AIMI; Director, Senior Vice President,
Chief Investment Officer and Corporate Actuary of Life Investors
Insurance Company of America ("LIICA"), Bankers United Life
Assurance Company ("Bankers United"), PFL Life Insurance Company
("PFL Life"); First AUSA Life Insurance Company ("First AUSA") and
Monumental Life Insurance Company ("Monumental Life"); Director,
Chief Investment Officer and Vice President of Monumental General
Casualty Company ("Monumental General") and Commonwealth General
Corporation; Senior Vice President, Chief Investment Officer and
Corporate Actuary of Western Reserve Life Assurance Co. of Ohio
("Western Reserve"); Director and President of AIMI; Executive
Vice President of AEGON USA, Inc.; Chief Investment Officer of
Diversified Financial Products Inc., and Director of United
Financial Services, Inc., Realty Information Systems, Inc., AEGON
USA Realty Advisors Inc., Southlife, Inc. and Quantra Corporation;
Brenda K. Clancy, Director, Treasurer, Vice President and Chief
Financial Officer of LIICA and Monumental Life; Treasurer, Vice
President and Chief Financial Officer of Bankers United and PFL
Life; Director, Treasurer and Vice President of First AUSA and
Investors Warranty of America, Inc.; Director, Treasurer and
Cashier of Massachusetts Fidelity Trust Company; Director and Vice
President of Peoples Benefit Life Insurance Company, Academy Life
Insurance Company and Pension Life Insurance Company of America;
Director and Vice President of Veterans Life Insurance Company;
Treasurer and Vice President of Money Services, Inc. and
Commonwealth General Corporation; Director and Treasurer of
Zahorik Company, Inc.; Vice President of Western Reserve,
Commonwealth General Assignment Corporation; Monumental Agency
Group, Inc. and AEGON Assignment Corporation of Kentucky; Director
of AEGON USA Securities, Inc., AEGON USA Investment Management,
Inc. and
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<PAGE>
AEGON USA Realty Advisors Inc.; Treasurer of AUSA Life and AUSA
Holding Company; Assistant Secretary of Benefit Plans, Inc.;
Senior Vice President and Treasurer of AEGON USA, Inc.; Assistant
Treasurer of Diversified Financial Products, Inc., Independence
Automobile Association, Inc. and Independence Automobile Club,
Inc. and Senior Vice President, Treasurer and Controller of Cadet
Holding Corp.; Craig D. Vermie, Director of AIMI; Director,
Secretary, Vice President and General Counsel of LIICA, Bankers
United, PFL Life, and First AUSA; Director, Vice President,
General Counsel and Assistant Secretary of Monumental Life; Vice
President, Corporate Counsel and Assistant Secretary of Western
Reserve; Director, Vice President and Assistant Secretary of
Monumental General Casualty Company and Zahorik Company, Inc.;
Director, Secretary and Vice President of Investors Warranty of
America, Inc.; Secretary, Vice President and General Counsel of
AEGON USA, Inc.; Director, Counsel, Assistant Secretary of
Commonwealth General Corporation; Director and Vice President of
The Whitestone Corporation; Director and Secretary of Peoples
Benefit Life Assurance Company, Veterans Life Insurance Company,
Massachusetts Fidelity Trust Company, AUSA Holding Company, Cadet
Holding Corp., AEGON Management Company and AEGON USA Charitable
Foundation, Inc.; Director and Assistant Secretary of Academy Life
Insurance Company, Providian Auto & Home Insurance Company,
Providian Life Insurance Company, Providian Property & Casualty
Insurance Company, Monumental Agency Group, Inc., Creditor
Resources, Inc., Great American Insurance Agency, Inc. and
Monumental General Mass Marketing, Inc.; Director, Pension Life
Insurance Company of America, Monumental General Insurance Group,
Inc, United Financial Services, Inc., AEGON Financial Services
Group, Inc., AIMI, Southlife, Inc., Durco Agency, Inc., Executive
Management & Consultant Services, Inc., Monumental General
Administrators, Inc., AUSA Financial Markets, Inc., Short Hills
Management Company, Corpa Reinsurance Company, AEGON Special
Markets Group and Monumental General Mass Marketing, Inc.;
Secretary, AUSA Life Insurance Company , Inc., Money Services,
Inc., Supplemental Insurance Division, Inc.; Assistant Secretary,
Bankers Financial Life Insurance Company, ZCI, Inc.; Clifford A.
Sheets, Executive Vice President, Director of Securities of AIMI;
Vice President of Life Investors Insurance Company of America,
Bankers United Life Assurance Company, PFL Life Insurance Company,
First AUSA Life Insurance Company, Western Reserve Life Assurance
Co. of Ohio, AUSA Life Insurance Company, Inc., Monumental General
Casualty Company and Monumental Life Insurance Company; Second
Vice President of Peoples Benefit Life Insurance Company, Academy
Life Insurance Company, Veterans Life Insurance Company Providian
Auto & Home Insurance Company, Providian Fire Insurance Company,
Providian Property & Casualty Insurance Company; Eric B. Goodman,
Executive Vice President and Head of Portfolio Management of AIMI,
Vice President of Life Investors Insurance Company of America,
Bankers United Life Assurance Company, PFL Life Insurance Company,
Western Reserve Life Assurance Co. of Ohio, AUSA Life Insurance
Company, Inc. and Monumental Life Insurance Company; Second Vice
President of Peoples Benefit Life Insurance Company, Academy Life
Insurance Company, Pension Life Insurance Company of America,
Veterans Life Insurance Company, Providian Auto & Home Insurance
Company, Providian Fire Insurance Company and Providian Property &
Casualty Insurance Company; William S. Cook, Executive Vice
President and Head of Portfolio Management of AIMI, Vice President
of Life Investors Insurance Company of America, Bankers United
Life Assurance Company, PFL Life Insurance Company, Western
Reserve Life Assurance Co. of Ohio, AUSA Life Insurance Company,
Inc. and Monumental Life Insurance Company; Second Vice President
of Peoples Benefit Life Insurance Company, Academy Life Insurance
Company, Pension Life Insurance Company of America, Veterans Life
Insurance Company, Providian Auto & Home Insurance Company,
Providian Fire Insurance Company and Providian Property & Casualty
Insurance Company; David R. Ludke, Executive Vice President of
AIMI Chief Actuary and Vice President of Diversified Financial
Products Inc., Second Vice President of Academy Life Insurance
Company, Pension Life Insurance Company of America, Veterans Life
Insurance Company, Providian Auto & Home Insurance Company,
Providian Fire Insurance Company and Providian Property & Casualty
insurance Company; David M. Carney, Senior Vice President and
Chief Financial Officer of AIMI, Vice President of Life Investors
Insurance Company of America, Peoples Benefit Life Insurance
Company, Bankers United Life Assurance Company, Academy Life
Insurance Company, Pension Life Insurance Company of America, PFL
Life Insurance Company, Western Reserve Life Insurance Co. of
Ohio, AUSA Life Insurance Company, Inc. Veterans Life Insurance
Company, Monumental General Insurance Group, Inc., Monumental
General Casualty Company, Monumental Life Insurance Company,
Commonwealth General Corporation and
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Investors Warranty of America, Inc.; Ralph M. O'Brian, Senior Vice
President of AIMI, Vice President of Life Investors Insurance
Company of America, Bankers United Life Assurance Company, PFL
Life Insurance Company, First AUSA Life Insurance Company, Western
Reserve Life Assurance Co. of Ohio, AUSA Life Insurance Company,
Inc., Monumental General Casualty Company, Monumental Life
Insurance Company and AEGON USA Managed Portfolios, Inc.; Second
Vice President of Peoples Benefit Life Insurance Company, Academy
Life Insurance Company, Pension Life Insurance Company of America,
Veterans Life Insurance Company, Providian Auto & Home Insurance
Company, Providian Fire Insurance Company and Providian Property &
Casualty Insurance Company; Trust Officer of Massachusetts
Fidelity Trust Company; David R. Halfpap, Senior Vice President of
AIMI, Vice President and Assistant Secretary of AEGON USA Managed
Portfolios, Inc.; Vice President of Life Investors Insurance
Company of America, Bankers United Life Assurance Company, PFL
Life Insurance Company, First AUSA Life Insurance Company, Western
Reserve Life Assurance Co. of Ohio, AUSA Life Insurance Company,
Inc., Monumental General Casualty Company and Monumental Life
Insurance Company, Second Vice President of Peoples Benefit Life
Insurance Company, Academy Life Insurance Company, Pension Life
Insurance Company of America, Veterans Life Insurance Company,
Providian Auto & Home Insurance Company. Providian Fire Insurance
Company and Providian Property & Casualty Insurance Company;
Steven P. Opp, Senior Vice President of AIMI; Kirk W. Buese,
Senior Vice President of AIMI; Vice President of Life Investors
Insurance Company of America, Bankers United Life Assurance
Company, PFL Life Insurance Company, Western Reserve Life
Assurance Co. of Ohio, AUSA Life Insurance Company, Inc.,
Monumental Life Insurance Company, PB Investment Advisors, Inc.;
Second Vice President of Peoples Benefit Life Insurance Company,
Academy Life Insurance Company of America, Veterans Life Insurance
Company, Providian Auto & Home Insurance Company, Providian Fire
Insurance Company, Providian Property & Casualty Insurance
Company; Gregory W. Theobald, Vice President and Assistant
Secretary of AIMI, Life Investors Insurance Company of America,
Bankers United Life Assurance Company, PFL Life Insurance Company,
First AUSA Insurance Company, Western Reserve Life Assurance Co.
of Ohio, AUSA Life Insurance Company, Inc., Monumental General
Casualty Company, Monumental Life Insurance Company, Vice
President of Money Services, Inc., Secretary of AEGON USA Managed
Portfolios, Inc.; Lewis O. Funkhouser, Vice President of AIMI; Jon
D. Kettering, Vice President of AIMI, Life Investors Insurance
Company of America, Bankers United Life Assurance Company, PFL
Life Insurance Company, First AUSA Life Insurance Company, Western
Reserve Life Assurance Co. of Ohio, AUSA Life Insurance Company,
Inc., Monumental General Casualty Company, Monumental Life
Insurance Company; Second Vice President of Peoples Benefit Life
Insurance Company, Academy Life Insurance Company, Pension Life
Insurance Company of America, Veterans Life Insurance Company,
Providian Auto & Home Insurance Company, Providian Fire Insurance
Company and Providian Property & Casualty Insurance Company;
Robert L. Hanson, Vice President of AIMI, Life Investors Insurance
Company of America, Bankers United Life Assurance Company, PFL
Life Insurance Company, First AUSA Life Insurance Company, Western
Reserve Life Assurance Co. of Ohio, AUSA Life Insurance Company,
Inc., Monumental General Casualty Company, Monumental Life
Insurance Company; Second Vice President of Peoples Benefit Life
Insurance Company, Academy Life Insurance Company, Pension Life
Insurance Company of America, Veterans Life Insurance Company,
Providian Auto & Home Insurance Company, Providian Fire Insurance
Company and Providian Property & Casualty Insurance Company;
Bradley Beman, Vice President of AIMI, Michael B. Simpson, Vice
President of AIMI, Life Investors Insurance Company of America,
Bankers United Life Assurance Company, PFL Life Insurance Company,
Western Reserve Life Assurance Co. of Ohio, AUSA Life Insurance
Company, Inc., Monumental Life Insurance Company; Second Vice
President of Peoples Benefit Life Insurance Company, Academy Life
Insurance Company, Pension Life Insurance Company of America,
Veterans Life Insurance Company, Providian Auto & Home Insurance
Company, Providian Fire Insurance Company and Providian Property &
Casualty Insurance Company; Douglas A. Dean, Vice President of
AIMI; Stephanie M. Phelps, Vice President of AIMI; Jon L. Skaags,
Vice President of AIMI, Life Investors Insurance Company of
America, Bankers United Life Assurance Company, PFL Life Insurance
Company, First AUSA Life Insurance Company, Monumental Life
Insurance Company; Second Vice President of Peoples Benefit Life
Insurance Company, Academy Life Insurance Company, Pension Life
Insurance Company of America, Veterans Life Insurance Company,
Providian Auto & Home Insurance Company, Providian Fire Insurance
Company, Providian Property & Casualty Insurance
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Company; Daniel P. Fox, Vice President of AIMI; Robert S. Jett
III, Secretary of AIMI, Assistant Secretary of AUSA Life Insurance
Company, Money Services, Inc. and AUSA Financial Markets, Inc.;
and Counsel and Vice President of Investors Warranty of America,
Inc. and Blaine E. Rolland, Treasurer of AIMI.
E. WRL VKAM EMERGING GROWTH: SUB-ADVISER: - VAN KAMPEN ASSET
MANAGEMENT INC.
Van Kampen Asset Management Inc. (the "Sub-Adviser") serves as
investment adviser to a number of investment companies. The
directors and executive officers of the Sub-Adviser are: Richard
F. Powers, III, Chairman, Chief Executive Officer and Director of
the Sub-Adviser, Van Kampen Investment Advisory Corp. ("VK
Adviser") and Van Kampen; Dennis J. McDonnell, President, Chief
Operating Officer and a Director of the Sub-Adviser and the VK
Adviser and Executive Vice President and a Director of Van Kampen;
A. Thomas Smith, Executive Vice President, General Counsel and a
Director of the Sub-Adviser, the VK Adviser and Van Kampen;
William R. Rybak, Executive Vice President, Chief Financial
Officer and a Director of the Sub-Adviser, the VK Adviser and Van
Kampen; Michael H. Santo, Executive Vice President, Chief
Administrative Officer and Director of the Sub-Adviser and the VK
Adviser and Executive Vice President of Van Kampen; Stephen L.
Boyd, Executive Vice President and Chief Investment Officer -
Equity Investments of the Sub-Adviser and the VK Adviser; and
Peter W. Hegel, Executive Vice President and Chief Investment
Officer - Fixed Income Investments of the Sub-Adviser and the VK
Adviser. All of these executive officers and / or directors have
no substantial business, profession, vocation or employment other
than their positions with the Sub-Adviser, its subsidiaries and
affiliates. The business address of each of the executive officers
and / or directors of the Sub-Adviser is 1 Parkview Plaza, P.O.
Box 5555, Oakbrook Terrace, Illinois 60181 - 5555.
F. WRL LKCM STRATEGIC TOTAL RETURN: SUB-ADVISER - LUTHER KING CAPITAL
MANAGEMENT CORPORATION
Luther King Capital Management Corporation, the Sub-Adviser to the
WRL LKCM Strategic Total Return, is a registered investment
adviser providing investment management services.
Luther King Capital Management Corporation also provides
investment management services to individual and institutional
investors on a private basis. J. Luther King, Jr., President of
the Sub-Adviser, Paul W. Greenwell, Robert M. Holt, Jr., Scot C.
Hollmann, David L. Dowler, Joan M. Maynard, Vincent G. Melashenko,
Steven R. Purvis, Timothy E. Harris, and Barbara S. Garcia,
officers of Luther King Capital Management Corporation, have no
substantial business, profession, vocation or employment other
than their positions with Luther King Capital Management
Corporation.
G. WRL FEDERATED GROWTH & INCOME: SUB-ADVISER - FEDERATED INVESTMENT
COUNSELING
Federated Investment Counseling, the Sub-Adviser to WRL Federated
Growth & Income, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors, Inc.
The Sub-Adviser serves as investment adviser to a number of
investment companies and private accounts. Total assets under
management or administered by the Sub-Adviser and other
subsidiaries of Federated Investors is approximately $140 billion.
The Trustees of the Sub-Adviser, their position with the
Sub-Adviser, and, in parenthesis, their principal occupations are
as follows: John F. Donahue, Trustee (Chairman and Trustee,
Federated Investors, Federated Advisers, Federated Management, and
Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.); J. Christopher Donahue, Trustee (President and
Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd; Trustee, Federated Shareholder
Services Company and Federated Shareholder Services; Director,
Federated Services Company); John W. McGonigle, Trustee (Executive
Vice President, Secretary and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
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Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company
and Federated Shareholder Services; Director, Federated Services
Company; and Director, Federated Securities Corp.); Mark D. Olson,
Trustee (Trustee, Federated Investors, Federated Advisers,
Federated Research, Federated Management, Federated Shareholder
Services, and Federated Shareholder Services Company; Partner,
Wilson, Halbrook & Bayard, 107 W. Market Street, Georgetown,
Delaware 19947). The business address of the Trustees, with the
exception of Mark D. Olson, is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779.
The remaining Officers of the Sub-Adviser are: John B. Fisher,
President; William D. Dawson III, Henry A. Frantzen and J. Thomas
Madden, Executive Vice Presidents; Joseph M. Balestrino, Drew J.
Collins, Jonathan C. Conley, Deborah A. Cunnigham, Mark E.
Durbiano, Sandra L. McInerney, Susan M. Nason, Mary Jo Ochson and
Robert J. Ostrowski ,Senior Vice Presidents; Todd A. Abraham, J.
Scott Albrecht, Randall S. Bauer, David A. Briggs, Micheal W.
Casey, Kenneth J. Cody, Alexandre de Bethmann, Michael P.
Donnelly, Linda A. Duessel, Donald T. Ellenberger, Kathleen M.
Foody-Malus, Thomas M. Franks, Edward C. Gonzales, James E.
Grefenstette, Susan R. Hill, Stephen A. Keen, Robert K. Kinsey,
Robert M. Kowit, Jeff A. Kozemchak, Steven Lehman, Marian R.
Marinack, Frank Semack, Aash M. Shah, Christopher J. Smith, Tracy
P. Stouffer, Edward J. Tiedge, Paige M. Wilhelm, Arthur J. Barry,
Marc Halperin, Richard J. Lazarchic, Keith Sabol and Jolanta M.
Wysocka, Vice Presidents; Robert E. Cauley, Lee R. Cunningham II,
Paul S. Drotch, Salvatore A. Esposito, Donna M. Fabiano, John T.
Gentry, William R. Jamison, Constantine Kartsonas, Natalie F.
Metz, Joseph M. Natoli, Keith J. Sabol, John Sheehy, Michael W.
Sirianni, Leonardo A. Vila, Nancy J. Belz, B. Anthony Delserone,
Gary E. Falwell, John C. Kerber, Grant K. McKay and Lori A. Wolff,
Assistant Vice Presidents; Stephen A. Keen, Secretary, and Thomas
R. Donahue, Treasurer. The business address of each of the
Officers of the Sub-Adviser is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of some of the investment advisers to other mutual funds.
H. WRL ALGER AGGRESSIVE GROWTH: SUB-ADVISER - FRED ALGER MANAGEMENT,
INC.
Fred Alger Management, Inc. ("Alger Management"), the Sub-Adviser
to WRL Alger Aggressive Growth, is a wholly-owned subsidiary of
Fred Alger & Company, Incorporated ("Alger, Inc.") which in turn
is a wholly-owned subsidiary of Alger Associates, Inc., a
financial services holding company. Alger Management is generally
engaged in rendering investment advisory services to mutual funds,
institutions and, to a lesser extent, individuals.
Fred M. Alger III, serves as Chairman of the Board, David D. Alger
serves as President and Director, Gregory S. Duch serves as
Treasurer and Mary Marsden-Cochran serves as Secretary of the
following companies: Alger Associates, Inc.; Alger Management;
Alger, Inc.; Alger Properties, Inc., Alger Shareholder Services,
Inc.; Alger Life Insurance Agency, Inc.; and Castle Convertible
Fund, Inc. Fred M. Alger also serves as Chairman of the Board of
Analysts Resources, Inc. ("ARI") and Chairman of the Board and
Trustee of The Alger Fund, The Alger American Fund, Spectra Fund
and The Alger Retirement Fund. David D. Alger also serves as
Executive Vice President and Director of ARI and as President and
Trustee of The Alger Fund, The Alger American Fund, Spectra Fund
and The Alger Retirement Fund. Gregory S. Duch also serves as
Treasurer of ARI, The Alger Fund, The Alger American Fund, Spectra
Fund and The Alger Retirement Fund. Mary Marsden-Cochran also
serves as Secretary of ARI, The Alger Fund, Spectra Fund, The
Alger American Fund and The Alger Retirement Fund. The principal
business address of each of the companies listed above, other than
Alger, Inc., is 1 World Trade Center, Suite 9333, New York, NY
10048. The principal business address of Alger, Inc. is 30
Montgomery Street, Jersey City, NJ 07302.
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I. WRL DEAN ASSET ALLOCATION: SUB-ADVISER - DEAN INVESTMENT
ASSOCIATES
Dean Investment Associates ("Dean"), the Sub-Adviser to WRL Dean
Asset Allocation, is a division of C.H. Dean and Associates, Inc.
Dean is the money management division of C.H. Dean and Associates,
Inc. Dean became a registered investment adviser in October, 1972
and will assume all of the investment advisory functions. C.H.
Dean and Associates is a Nevada corporation (6/30/95) which was an
Ohio corporation originally incorporated on March 28, 1975.
Chauncey H. Dean is the Chairman and Chief Executive Officer;
Robert D. Dean is President; Frank H. Scott is Senior Vice
President; John C. Riazzi is Vice President and Director of
Consulting Services; Richard M. Luthman is Senior Vice President.
The business address of each of the Officers of the Sub-Adviser is
2480 Kettering Tower, Dayton, Ohio 45423-2480.
J. WRL C.A.S.E. GROWTH: SUB-ADVISER - C.A.S.E. MANAGEMENT, INC.
C.A.S.E. Management, Inc. ("C.A.S.E."), the Sub-Adviser to WRL
C.A.S.E. Growth, is a registered investment advisory firm and a
wholly-owned subsidiary of C.A.S.E. Inc. C.A.S.E. Inc. is
indirectly controlled by William Edward Lange, President and Chief
Executive Officer of C.A.S.E. C.A.S.E. provides investment
management services to financial institutions, high net worth
individuals, and other professional money managers.
William E. Lange is the President, Chief Executive Officer and
Founder; Robert G. Errigo, Investment Committee Board Member; John
Gordon, Investment Committee Board Member; Bruce H. Jordan, Senior
Vice President: and William Fagin, Senior Vice President
Marketing; Richard Wells, Senior Vice President Marketing; and
Robert Hardy, Marketing Director. The business address of each of
the Officers of the Sub-Adviser is 5355 Town Center Road, Suite
702, Boca Raton, Florida 33486.
K. WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY: CO-SUB-ADVISERS -
SCOTTISH EQUITABLE INVESTMENT MANAGEMENT LIMITED AND GE INVESTMENT
MANAGEMENT INCORPORATED AND U.S. EQUITY: SUB-ADVISER - GE
INVESTMENT MANAGEMENT INCORPORATED.
Scottish Equitable Investment Management Limited ("Scottish
Equitable") serves as a Co-Sub-Adviser to WRL GE/Scottish
Equitable International Equity. See "Management of the Fund - The
Co-Sub-Advisers" in the Prospectus and Statement of Additional
Information regarding the business of Scottish Equitable. Scottish
Equitable is a wholly-owned subsidiary of Scottish Equitable Asset
Management plc.
The Directors and Officers of Scottish Equitable are listed below.
Unless otherwise indicated, each Director and Officer has a
principal business address of Edinburgh Park, Edinburgh EH12 9SE:
William W. Stewart, Chairman of the Board and Executive Director,
Strategy; Russell Hogan, Investment Development Director; Roy
Patrick, Director and Company Secretary; Paul N. Ritchie, Director
and Investment Administration Manager; Otto Thoresen, Director,
International Business.
None of these Directors or Officers has any substantial business,
profession, vocation or employment other than their positions with
Scottish Equitable, Scottish Equitable plc and other group
companies.
GE Investment Management Incorporated ("GEIM") also serves as a
Co-Sub-Adviser for WRL GE/Scottish Equitable International Equity
and serves as Sub-Adviser to WRL GE U.S. Equity Portfolio. GEIM is
a wholly-owned subsidiary of General Electric Company ("GE").
GEIM's principal officers and directors serve in similar
capacities with respect to General Electric Investment Corporation
("GEIC," and, together with GEIM, collectively referred to as "GE
Investments"), which like GEIM is a wholly-owned subsidiary of GE.
The directors and executive officers of GEIM are: John H. Myers,
President and Director, Michael J. Cosgrove, Executive Vice
President and Director, Alan M. Lewis, Executive Vice President,
General Counsel, and Director; Robert A. MacDougall, Executive
Vice President; Eugene K. Bolton, Executive Vice President and
Director; Donald W. Torey, Executive Vice President and Director,
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Ralph R. Layman, Executive Vice President and Director, Thomas J.
Szkutak, Executive Vice President, Chief Financial Officer and
Director and Geoffrey R. Norman, Executive Vice President and
Director. All of these officers and/or directors have no
substantial business, profession, vocation or employment other
than their positions with GEIC and its affiliates.
L. WRL NWQ VALUE EQUITY: SUB-ADVISER - NWQ INVESTMENT MANAGEMENT
COMPANY, INC.
NWQ Investment Management Company, Inc. ("NWQ") serves as
Sub-Adviser for WRL NWQ Value Equity. NWQ is a Massachusetts
corporation and is a wholly-owned subsidiary of United Asset
Management Corporation. NWQ provides investment advice to
individuals, pension funds, profit sharing funds, charitable
institutions, educational institutions, trust accounts,
corporations, insurance companies, municipalities and governmental
agencies.
The directors and officers of NWQ are listed below. Unless
otherwise indicated, each director and officer has held the
positions listed for at least the past two years and is located at
NWQ's principal business address of 2049 Century Park East, 4th
Floor, Los Angeles, CA 90067: David A. Polak, President, Chief
Investment Officer; Edward C. Friedel, Jr., Managing Director; Jon
D. Bosse, Executive Managing Director (Feb. 1999)/Director Equity
Research; James H. Galbreath (Denver), Managing Director;
Mary-Gene Slaven, Secretary/Treasurer & Managing Director; James
P. Owen, Managing Director; Michael C. Mendez (Scottsdale, AZ),
Executive Managing Director (Feb. 1999); Phyllis G. Thomas,
Managing Director; Louis T. Chambers (Atlanta), Vice President,
Justin T. Clifford, Managing Director; Jeffrey M. Cohen, Vice
President; Ronald R. Halverson (Minneapolis, MN), Vice President;
Thomas J. Laird, Managing Director, Karen S. McCue, Vice
President; Martin Pollack, Vice President; Ronald R. Sternal
(Minneapolis, MN), Vice President and Michael Wood (San
Fransisco), Vice President.
M. WRL THIRD AVENUE VALUE: SUB-ADVISER - EQSF ADVISERS, INC.
EQSF Advisers, Inc. ("EQSF") serves as Sub-Adviser for WRL Third
Avenue Value. EQSF is a New York corporation and is controlled by
Martin J. Whitman.
The directors and officers of EQSF are listed below. Unless
otherwise indicated, each director and officer has held the
positions listed for at least the past two years and is located at
EQSF's business address of 767 Third Avenue, New York, New York,
10017-2023: Martin J. Whitman, Chairman, Chief Executive Officer
and President, is Chairman, Chief Executive Officer and President
of Third Avenue Trust, Chairman, Chief Investment Officer and
Chief Executive Officer of M.J. Whitman Advisers, Inc., Chairman
and Chief Executive Officer of M.J. Whitman, Inc. and Danielson
Holding Corporation, Director of Nabors Industries, Inc., and
President and Chief Executive Officer of Martin J. Whitman & Co.,
Inc.; David M. Barse, Director and Executive Vice President, is
Executive Vice President of Third Avenue Trust, Director,
President and Chief Operating Officer of M.J. Whitman Holding
Corp., M.J. Whitman, Inc., M.J. Whitman Advisers, Inc. and
Danielson Holding Corporation; Michael Carney, Treasurer and Chief
Financial Officer, is Director, Treasurer and Chief Financial
Officer of M.J. Whitman, Inc., M.J. Whitman Holding Corp. and M.J.
Whitman Advisers, Inc. and Chief Financial Officer of Danielson
Holding Corporation and Third Avenue Trust; Kerri Weltz,
Controller, is Assistant Treasurer and Controller of Third Avenue
Trust, Controller of Danielson Holding Corp., Whitman Heffernan &
Rhein Workout Fund II, L.P., Whitman Heffernan & Rhein Workout
Fund II-A and WHR Management Corporation; Ian M. Kirschner,
General Counsel and Secretary, is General Counsel and Secretary of
Third Avenue Trust, Danielson Holding Corporation, M.J. Whitman
Holding Corp., M.J. Whitman, Inc. and M.J. Whitman Advisers, Inc.;
Barbara Whitman, Director, is a Director of Third Avenue Trust and
a Registered Representative of M.J. Whitman, Inc.
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N. WRL GOLDMAN SACHS SMALL CAP AND WRL GOLDMAN SACH GROWTH:
SUB-ADVISER - GOLDMAN SACHS ASSET MANAGEMENT
Goldman Sachs Asset Management ("GSAM"), located at One New York
Plaza, New York, NY 10004, serves as sub-adviser to the WRL
Goldman Sachs Small Cap and WRL Goldman Sachs Growth. David B.
Ford serves as Co-Head of GSAM and as Managing Director of Goldman
Sachs, & Co.; John P. McNulty serves as Co-Head of GSAM and
Managing Director of Goldman, Sachs & Co.
O. WRL SALOMON ALL CAP: SUB-ADVISER - SALOMON BROTHERS ASSET
MANAGEMENT INC.
Salomon Brothers Asset Management Inc ("SBAM"), 7 World Trade
Center, New York, NY, 10048 serves as sub-adviser to WRL Salomon
Mid Cap. Michael S. Hyland, President and Managing Director, also
serves as Managing Director of Salomon Brothers Inc., New York,
NY, Director and Chairman of Salomon Brothers Asset Management
Limited, London, England; Director of Salomon Brothers Asset
Management Japan Limited, Tokyo, Japan, and Chairman of Salomon
Brothers Asset Management (Ireland) Limited ; Vilas V. Gadkari,
Managing Director, also serves as Managing Director and Chief
Investment Officer of Salomon Brothers Asset Management Limited,
London England, Managing Director of Salomon Brothers Inc., New
York, NY, and Salomon Brothers International Limited, London,
England ; Zacharay Snow, Secretary also serves as Managing
Director of Salomon Brothers Inc, New York, NY; Alan M. Mandel,
Vice President and Chief Operating Officer, serves as Director of
Salomon Brothers Inc., New York, NY; Mutual Funds; Mitchel E.
Schulman, Director and Chief Operating Officer - Mutual Funds also
serves as Director and Chief Operating Officer of Salomon Brothers
Inc., New York, NY; Marcus A. Peckman, Director, Vice President
and Chief Financial Officer also serves as Director of Salomon
Brothers, Inc., New York, NY; Jeffrey S. Scott, Chief Compliance
Officer; Michael F. Rosenbaum, Chief Legal Officer, also serves as
Chief Legal Officer of Salomon Brothers Asset Management Limited,
London, England, Chief Legal officer of Salomon Brothers Asset
Management Asia Pacific Limited, Hong Kong, Corporate Secretary of
The Travelers Investment Management Company, New York, NY, and
General Counsel to Asset Management, Travelers Group Inc., New
York, NY and its predecessors; and Thomas W. Jasper, Treasurer,
also serves as Managing Director of Salomon Brothers Inc, New
York, NY.
P. WRL T. ROWE PRICE SMALL CAP AND WRL T. ROWE PRICE DIVIDEND GROWTH:
SUB-ADVISER - T. ROWE PRICE ASSOCIATES, INC.
T. Rowe Price Associates, Inc., ("T. Rowe") 100 E. Pratt Street,
Baltimore, MD 21202, serves as sub-adviser to WRL T. Rowe Price
Dividend Growth and WRL T. Rowe Price Small Cap. James E. Halbkat,
Jr., Director of T. Rowe. Mr. Halbkat is President of U.S. Monitor
Corporation, a provider of public response systems. Mr. Halbkat's
address is P.O. Box 23109, Hilton Head Island, South Carolina
29925; Richard L. Menschel, Director of T. Rowe. Mr. Menschel is a
limited partner of The Goldman Sachs Group, L.P., an investment
banking firm. Mr. Menschel's address is 85 Broad Street, 2nd
Floor, New York, New York 10004. Robert L. Strickland, Director of
T. Rowe. Mr. Strickland retired as Chairman of Lowe's Companies,
Inc., a retailer of specialty home supplies, as of January 31,
1998 and continues to serve as a Director. He is a Director of
Hannaford Bros., Co., a food retailer. Mr. Stickland's address is:
2000 W. First Street, Suite 604, Winston-Salem, North Carolina
27104. Philip C. Walsh, Director of T. Rowe is a retired mining
industry executive. Mr. Walsh's address is Pleasant Valley,
Peapack, New Jersey 07977. Anne Marie Whittemore, Director of T.
Rowe. Mrs. Whittemore is a partner of the law firm of McGuire,
Woods, Battle & Boothe L.L.P. and a Director of Owens & Minor,
Inc., Fort James Corporation; and Albemarle Corporation. Mrs.
Whittemore's address is: One James Center, Richmond, Virginia
23219. Henry H. Hopkins Director and Managing Director of T. Rowe;
Director of T. Rowe Price Insurance Agency, Inc.; Vice President
and Director of T. Rowe Price (Canada), Inc., T. Rowe Price
Investment Services, Inc., T. Rowe Price Services, Inc., T. Rowe
Price Threshold Fund Associates, Inc., T. Rowe Price Trust
Company, TRP Distribution, Inc., and TRPH Corporation; Director of
T. Rowe Price Insurance Agency, Inc.; Vice President of
Price-Fleming, T. Rowe Price Real Estate Group, Inc.,
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T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Stable
Asset Management, Inc., and T. Rowe Price Strategic Partners
Associates, Inc.; James A.C. Kennedy III, Director and Managing
Director of T. Rowe, President and Director of T. Rowe Price
Strategic Partners Associates, Inc.; Director and Vice President
of T. Rowe Price Threshold Fund Associates, Inc.; John H. LaPorte,
Jr., Director and Managing Director of T. Rowe; William T.
Reynolds, Director and Managing Director of T. Rowe; Chairman of
the Board of T. Rowe Price Stable Asset Management, Inc.; Director
of TRP Finance, Inc.; James S. Riepe, Vice-Chairman of the Board,
Director, and Managing Director of T. Rowe; Chairman of the Board
and President of T. Rowe Price Trust Company; Chairman of the
Board of T. Rowe Price (Canada), Inc., T. Rowe Price Investment
Services, Inc., T. Rowe Price Investment Technologies, Inc. T.
Rowe Price Retirement Plan Services, Inc., and T. Rowe Price
Services, Inc.; Director of Price-Fleming, T. Rowe Price Insurance
Agency, Inc., and TRPH Corporation; Director and President of TRP
Distribution, Inc., TRP Suburban Second, Inc., and TRP Suburban,
Inc.; and Director and Vice President of T. Rowe Price Stable
Asset Management, Inc.; George A. Roche, Chairman of the Board,
President and Managing Director of T. Rowe; Chairman of the Board
of TRP Finance, Inc., Director of Price-Fleming, T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price Strategic
Partners, Inc.; and Director and Vice President of T. Rowe Price
Threshold Fund Associates, Inc., TRP Suburban Second, Inc., and
TRP Suburban, Inc.; Brian C. Rogers, Director and Managing
Director of T. Rowe, Vice President of T. Rowe Price Trust
Company; M. David Testa, Vice-Chairman of the Board, Chief
Investment Officer, and Managing Director of T. Rowe; Chairman of
the Board of Price-Fleming; President and Director of T. Rowe
Price (Canada), Inc.; Director and Vice President of T. Rowe Price
Trust Company; and Director of TRPH Corporation; Edward C.
Bernard, Managing Director of T. Rowe; Director and President of
T. Rowe Price Insurance Agency, Inc., and T. Rowe Price Investment
Services, Inc.; Director of T. Rowe Price Services, Inc.; Vice
President of TRP Distribution, Inc.; Michael A. Goff, Managing
Director of T. Rowe; Director and the President of T. Rowe Price
Investment Technologies, Inc.; Charles E. Vieth, Managing Director
of T. Rowe; Director and President of T. Rowe Price Retirement
Plan Services, Inc.; Director and Vice President of T. Rowe Price
Investment Services, Inc. and T. Rowe Price Services, Inc.; Vice
President of T. Rowe Price (Canada), Inc., T. Rowe Price Trust
Company, and TRP Distribution, Inc.; Alvin M. Younger, Jr., Chief
Financial Officer, Managing Director, Secretary and Treasurer of
T. Rowe; Director, Vice President, Treasurer, and Secretary of TRP
Suburban Second, Inc. and TRP Suburban, Inc.; Director of TRP
Finance, Inc.; Secretary and Treasurer for Price-Fleming, T. Rowe
Price (Canada), Inc., T. Rowe Price Insurance Agency, Inc., T.
Rowe Price Investment Services, Inc., T. Rowe Price Real Estate
Group, Inc., T. Rowe Price Retirement Plan Services, Inc., T. Rowe
Price Services, Inc., T. Rowe Price Stable Asset Management, Inc.,
T. Rowe Price Strategic Partners Associates, Inc., T. Rowe Price
Threshold Fund Associates, Inc., T. Rowe Price Trust Company, TRP
Distribution, Inc., and TRPH Corporation; Treasurer and Clerk of
T. Rowe Price Insurance Agency of Massachusetts, Inc.; Preston G.
Athey, Managing Director of T. Rowe; Brian W.H. Berghuis, Managing
Director of T. Rowe; Stephen W. Boesel, Managing Director of T.
Rowe; Vice President of T. Rowe Price Trust Company; Gregory A.
McCrickard, Managing Director of T. Rowe; Vice President of T.
Rowe Price Trust Company; Mary J. Miller, Managing Director of T.
Rowe; Charles A. Morris, Managing Director of T. Rowe; George A.
Murnaghan, Managing Director of T. Rowe; Executive Vice President
of Price-Fleming; Vice President of T. Rowe Price Investment
Services, Inc., and T. Rowe Price Trust Company; Edmund M. Notzon
III, Managing Director of T. Rowe; Vice President of T. Rowe Price
Trust Company; Wayne D. O'Melia, Managing Director of T. Rowe;
Director and President of T. Rowe Price Services, Inc.; Vice
President of T. Rowe Price Trust Company; Larry J. Puglia,
Managing Director of T. Rowe; Vice President of T. Rowe Price
(Canada), Inc.; John R. Rockwell, Managing Director of T. Rowe;
Director and Senior Vice President of T. Rowe Price Retirement
Plan Services, Inc.; Director and Vice President of T. Rowe Price
Stable Asset Management, Inc. and T. Rowe Price Trust Company;
Vice President of T. Rowe Price Investment Services, Inc.; R. Todd
Ruppert, Managing Director of T. Rowe; President and Director of
TRPH Corporation; Vice President of T. Rowe Price Retirement Pan
Services, Inc., and T. Rowe Price Trust Company; Robert W. Smith,
Managing Director of T. Rowe; Vice President of Price-Fleming;
William J. Stromberg, Managing Director of T. Rowe; Richard T.
Whitney, Managing Director of T. Rowe; Vice President of
Price-Fleming and T. Rowe Price Trust Company.
C-13
<PAGE>
Q. WRL PILGRIM BAXTER MID CAP GROWTH: SUB-ADVISER - PILGRIM BAXTER &
ASSOCIATES, LTD.
Pilgrim Baxter & Associates, Ltd., ("Pilgrim") 825 Duportail Road,
Wayne, PA 19087, serves as sub-adviser to WRL Pilgrim Baxter Mid
Cap Growth. Harold J. Baxter, Chairman, Chief Executive Officer
and Director, also serves as Trustee to PBHG Fund Distributors
(same address), Pilgrim Baxter Value Investors, Inc., Director and
Chairman of PBHG Insurance Series Fund, Inc., Trustee of PBHG Fund
Services, and Chairman and Director of The PBGH Funds, Inc., The ;
Gary L. Pilgrim, Chief Investment Officer and Director, Director
of Pilgrim Baxter Value Investors, Inc., Trustee of PBHG Fund
Services, and President of PBHG Advisor Funds, Inc., PBHG
Insurance Series Fund, Inc., and The PBHG Funds, Inc. (all same
address); Eric C. Schnieder, Chief Financial Officer and
Treasurer, is Chief Financial Officer and Treasurer of Pilgrim
Baxter Value Investors, Inc., and Chief Financial Officer of PBHG
Fund Services; Stephen M. Wellman, Vice President, Operations; Amy
S. Yuter, Chief Compliance Officer, is Chief Compliance Officer of
PBHG Fund Distributors, Pilgrim Baxter Value Investors, Inc., and
is Director of NSCP, an industry association; and John M. Zerr,
General Counsel and Secretary, also serves as General Counsel and
Secretary of Pilgrim Baxter Value Investors, Inc., PBHG Fund
Distributors, PBHG Fund Services, and as Vice President and
Secretary of PBHG Advisor Funds, Inc., and PBHG Insurance Series
Fund, Inc.
R. WRL DREYFUS MID CAP: SUB-ADVISER - THE DREYFUS CORPORATION
The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New York,
New York 10166, serves as sub-adviser to WRL Dreyfus Mid Cap.
Burton Cook Borgelt, Director, also serves as Director of DeVlieg
Bullard, Inc, Mellon Bank Corporation, Pittsburgh, PA, Mellon
Bank, N.A., Pittsburgh, PA and Dentsply International, Inc., York,
PA; Frank V. Cahouet, Director, also serves as Director, Chairman
and CEO of Mellon Bank Corporation and Mellon Bank N.A., One
Mellon Bank Center, Pittsburgh, PA: Stephen E. Canter, Director,
Vice Chairman and Chief Investment Officer, also serves as
Chairman, Director and President of Dreyfus Investment Advisors,
Inc., and as Director of The Dreyfus Trust Company; Christopher M.
Condron, Chief Executive Officer, Chief Operations Officer,
President and Director; Mark N. Jacobs, Vice President and General
Counsel; Lawrence S. Kash, Director and Vice Chairman,
Distribution, also serves as Director of Dreyfus Investment
Advisors, Inc., Chairman and Chief Executive Officer of Dreyfus
Brokerage Services, Inc., Director and President of Dreyfus
Service Corporation and Dreyfus Precious Metals, Inc., and
Director of Dreyfus Service Organization, Inc.; ,William T.
Sandalls, Jr., Senior Vice President and Chief Financial Officer,
also serves as Director and Chairman of Dreyfus Transfer, Inc.,
One American Express Plaza, Providence, RI 02903, Executive Vice
President and Chief Financial Officer of Dreyfus Service
Corporation, and Director and Treasurer of Dreyfus Investment
Advisors, Inc. and Seven Six Seven Agency; William K. Smith,
Chairman and Director, also serves as President and Director of
The Bridgewater Land Co., Inc. and Mellon Preferred Capital
Corporation, Boston, MA, and Director, Chairman, President and CEO
of Shearson Summit Euromanagement, Inc. and Shearson Summit
EuroPartners Inc., Pittsburgh, PA; Richard F. Syron, Director,
also serves as Chairman and Chief Executive Officer of the
American Stock Exchange, 86 Trinity Place, New York, NY; and
Mandell L. Berman, Director, is also self-employed as a Real
Estate Consultant, Residential Builder and Private Investor,
Southfield, MI.
Item 27. PRINCIPAL UNDERWRITER
(a) AFSG Securities Corporation ("AFSG") is the principal
underwriter for the Contracts. AFSG currently serves as
principal underwriter for the PFL Endeavor VA Separate
Account, the PFL Retirement Builder Variable Annuity
Account, the PFL Life Variable Annuity Account A, the PFL
Wright Variable Annuity Account, the AUSA Endeavor Variable
Annuity Account, Separate Account C of First Providian Life
and Health Insurance Company, and the Separate Account I,
Separate Account II, and Separate Account V of Providian
Life and Health Insurance Company, WRL Series Life Account,
C-14
<PAGE>
WRL Series Annuity Account, WRL Series Annuity Account B and
AUSA Series Life Account.
(b) Directors and Officers of AFSG:
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITION AND OFFICES POSITION AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------ -------------------- --------------------
<S> <C> <C> <C>
Larry N. Norman (1) Director and President N/A
Harvey E. Willis (1) Vice President and Secretary N/A
Lisa Wachendorf (1) Compliance Officer N/A
Debra C. Cubero (1) Vice President N/A
Gregory J. Garvin (1) Vice President N/A
Michael F. Lane (1) Vice President N/A
Sara J. Stange (1) Director and Vice President N/A
Brenda K. Clancy (1) Vice President N/A
Michael G. Ayers (1) Treasurer/Controller N/A
Colleen S. Lyons (1) Assistant Secretary N/A
John F. Reesor (1) Assistant Secretary N/A
Anne Spaes (1) Vice President N/A
Priscilla I. Hechler (2) Assistant Vice President and Assistant Vice President
Assistant Secretary and Assistant Secretary
Thomas E. Pierpan (2) Assistant Secretary Secretary, Vice President
And Associate General Counsel
Richard C. Hicks (2) Assistant Vice President N/A
and Assistant Secretary
Nancy C. Hassett (2) Assistant Secretary N/A
Gina A. Babka (2) Assistant Secretary N/A
</TABLE>
- --------------------------------------
(1) 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001
(2) 570 Carillon Parkway, St. Petersburg, FL 33716-1202
C-15
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company
Act of 1940, as amended, and rules promulgated thereunder are in
the possession of WRL Investment Management, Inc. and WRL
Investment Services, Inc. at their offices at 570 Carillon
Parkway, St. Petersburg. Florida 33716, or at the offices of the
Fund's custodian, Investors Bank & Trust Company, 200 Clarendon
Street, 16th Floor, Boston, MA 02111.
Item 29. MANAGEMENT SERVICES.
Not applicable
Item 30. UNDERTAKINGS.
Not applicable
C-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, WRL Series Fund, Inc., certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 36 to its Registration Statement to be
signed on its behalf by the undersigned, thereunder duly authorized, in the City
of Largo, State of Florida, on this 22nd day of April, 1999.
By: /s/ JOHN R. KENNEY
-----------------------------------
John R. Kenney
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 36 to its Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------- ----
<S> <C>
/s/ JOHN R. KENNEY April 22, 1999
- -----------------------------------------
Chairman of the Board and President
John R. Kenney
/s/ G. JOHN HURLEY April 22, 1999
- -----------------------------------------
Executive Vice President and Director
G. John Hurley
/s/ PETER R. BROWN April 22, 1999
- -----------------------------------------
Director - Peter R. Brown *
/s/ CHARLES C. HARRIS April 22, 1999
- -----------------------------------------
Director - Charles C. Harris*
/s/ RUSSELL A. KIMBALL, JR. April 22, 1999
- -----------------------------------------
Director - Russell A. Kimball, Jr. *
/s/ ALLAN J. HAMILTON April 22, 1999
- -----------------------------------------
Treasurer and Principal Financial Officer
Allan J. Hamilton
/s/ KIM D. DAY April 22, 1999
- -----------------------------------------
Vice President and
Principal Accounting Officer
Kim D. Day
/s/ THOMAS E. PIERPAN
- -----------------------------------------
</TABLE>
* Signed by Thomas E. Pierpan
as Attorney-in-fact
C-17
<PAGE>
WASHINGTON, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
EXHIBITS FILED WITH
POST-EFFECTIVE AMENDMENT NO. 36 TO
REGISTRATION STATEMENT ON
FORM N-1A
WRL SERIES FUND, INC.
REGISTRATION NO. 33-507
<PAGE>
Exhibit Index
EXHIBIT DESCRIPTION
NO. OF EXHIBIT
- ------- -----------
(a) 1. (M) Articles Supplementary to Articles of Incorporation of WRL Series
Fund, Inc.
(d) Investment Advisory Agreements
(1) Investment Advisory Agreement on behalf of the Portfolios of the
WRL Series Fund, Inc. with WRL Investment Management, Inc.
(3) Sub-Advisory Agreement on behalf of WRL J.P. Morgan Money Market
of the Fund.
(4) Sub-Advisory Agreement on behalf of WRL VKAM Emerging Growth of
the Fund.
(5) Sub-Advisory Agreement on behalf of WRL LKCM Strategic Total
Return of the Fund.
(6) Sub-Advisory Agreement on behalf of WRL Federated Growth &
Income of the Fund.
(7) Sub-Advisory Agreement on behalf of WRL Alger Aggressive Growth
of the Fund
(8) Sub-Advisory Agreement on behalf of WRL Dean Asset Allocation of
the Fund
(9) Sub-Advisory Agreement on behalf of WRL C.A.S.E. Growth of the
Fund.
(10) Co-Sub-Advisory Agreements on behalf of WRL GE/Scottish
Equitable International Equity of the Fund.
(11) Sub-Advisory Agreement on behalf of WRL NWQ Value Equity of the
Fund.
(12) Sub-Advisory Agreement on behalf of WRL GE U.S. Equity of the
Fund.
(13) Sub-Advisory Agreement on behalf of WRL Third Avenue Value of
the Fund.
(14) Sub-Advisory Agreement on behalf of WRL AEGON Balanced of the
Fund.
(15) Sub-Advisory Agreement on behalf of WRL AEGON Bond of the Fund.
(16) Sub-Advisory Agreement on behalf of WRL J. P. Morgan Real Estate
Securities of the Fund.
(17) Form of Sub-Advisory Agreement on behalf of WRL T. Rowe Price
Small Cap and WRL T. Rowe Price Dividend Growth of the Fund.
(18) Form of Sub-Advisory Agreement on behalf of WRL Goldman Sachs
Small Cap and WRL Goldman Sachs Growth of the Fund.
(19) Form of Sub-Advisory Agreement on behalf of WRL Salomon All Cap
of the Fund.
(20) Form of Sub-Advisory Agreement on behalf of WRL Dreyfus Mid Cap
of the Fund.
(21) Form of Sub-Advisory Agreement on behalf of WRL Pilgrim Baxter
Growth of the Fund.
(e) Distribution Agreement
(i) Opinion and Consent of Thomas E. Pierpan, Esq. as to legality of the
securities being registered
(j) Consent of PricewaterhouseCoopers LLP
(n) Financial Data Schedules
EXHIBIT 99.B1
EXHIBIT (a)1(M)
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
OF WRL SERIES FUND, INC.
<PAGE>
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
WRL SERIES FUND, INC.
WRL SERIES FUND, INC., a Maryland corporation ("Corporation"), on
behalf of its Board of Directors ("Directors"), hereby certifies to the Maryland
Department of Assessments and Taxation as follows:
FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
SECOND: Pursuant to Article V, Paragraph 1 of the Corporation's
Articles of Incorporation, the Corporation is authorized to issue One Billion
(1,000,000,000) shares of Common Stock having a par value of one cent ($0.01)
per share and the aggregate par value of $10,000,000 ("Shares") which are
classified in the Corporation's Articles of Incorporation as follows: Three
Hundred Million (300,000,000) of the Shares are designated as Money Market
Portfolio Common Stock; Twenty-Five Million (25,000,000) of the Shares are
designated as Bond Portfolio Common Stock; and Six Hundred Seventy-five Million
(675,000,000) of the Shares are designated as Growth Portfolio Common Stock.
THIRD: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on November 25, 1992, the Shares were reclassified as
follows: Three Hundred Million (300,000,000) of the Shares are designated as
Money Market Portfolio Common Stock; Twenty-Five Million (25,000,000) of the
Shares are designated as Bond Portfolio Common Stock; and Two Hundred
Seventy-five Million (275,000,000) of the Shares are designated as Growth
Portfolio Common Stock; One Hundred Million (100,000,000) of the Shares are
designated as Global Portfolio Common Stock; One Hundred Million (100,000,000)
of the Shares are designated as Short-to-Intermediate Government Portfolio
Common Stock; One Hundred Million (100,000,000) of the Shares are designated as
Emerging Growth Portfolio Common Stock; and One Hundred Million (100,000,000) of
the Shares are designated as Equity-Income Portfolio Common Stock.
FOURTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on March 1, 1994, Shares were reclassified as
follows: One Hundred Fifty Million (150,000,000) of the authorized but unissued
Shares of the Growth Portfolio Common Stock were reclassified and designated as
follows: Seventy-five Million (75,000,000) were designated as Balanced Portfolio
Common Stock; and Seventy-five Million (75,000,000) were designated as Utility
Portfolio Common Stock. Seventy-five Million (75,000,000) of the authorized but
unissued Shares of the Money Market Portfolio Common Stock were reclassified and
designated as Aggressive Growth Portfolio Common Stock.
FIFTH: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on September 2, 1994, Shares were reclassified as
follows: Seventy-five Million
<PAGE>
(75,000,000) of the authorized but unissued Shares of the Money Market Portfolio
Common Stock were reclassified and designated as follows: Seventy-five Million
(75,000,000) were designated as Tactical Asset Allocation Portfolio Common
Stock.
SIXTH: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on April 6, 1995, the Corporation increased the aggregate
number of shares of capital (common) stock which the Fund has authority to issue
from One Billion (1,000,000,000) Shares of the par value of one cent ($0.01) per
share and the aggregate par value of $10,000,000, to Two Billion (2,000,000,000)
Shares of the par value of one cent ($0.01) per share and the aggregate par
value of $20,000,000. Of the One Billion (1,000,000,000) shares newly authorized
by the Corporation, the Shares were classified as follows: Seventy-five Million
(75,000,000) of the Shares were designated as C.A.S.E. Quality Growth Portfolio
Common Stock; Seventy-five Million (75,000,000) of the Shares were designated as
C.A.S.E. Growth & Income Portfolio Common Stock; and Seventy-five Million
(75,000,000) of the Shares were designated as C.A.S.E. Growth Portfolio Common
Stock.
SEVENTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on July 14, 1995, shares of the authorized
capital (common) stock were classified as follows: Seventy-five Million
(75,000,000) of the Shares were designated as T. Rowe Price-WRL Equity Income
Portfolio Common Stock; Seventy-five Million (75,000,000) of the Shares were
designated as Leisure Portfolio Common Stock; Seventy-five Million (75,000,000)
of the Shares were designated as International Equity Portfolio Common Stock;
and Seventy-five Million (75,000,000) of the Shares were designated as Janus
Balanced Portfolio Common Stock.
EIGHTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on January 4, 1996, shares of the authorized
capital (common) stock were classified as follows: Seventy-five Million
(75,000,000) of the Shares were designated as Value Equity Portfolio Common
Stock; Seventy-five Million (75,000,000) of the Shares were designated as
Meridian/INVESCO Global Sector Portfolio Common Stock; Seventy-five Million
(75,000,000) of the Shares were designated as Meridian/INVESCO US Sector
Portfolio Common Stock; and Seventy-five Million (75,000,000) of the Shares were
designated as Meridian/INVESCO Foreign Sector Portfolio Common Stock.
NINTH: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on October 23, 1996, shares of the authorized capital
(common) stock were classified as follows: Seventy-five Million (75,000,000) of
the Shares were designated as U.S. Equity Portfolio Common Stock.
TENTH: Pursuant to the Corporation's Articles Supplementary to Articles
of Incorporation filed on December 6, 1996, the authorized but unissued shares
of the Meridian/INVESCO Global Sector Portfolio Common Stock were designated as
Global Sector Portfolio Common Stock; the authorized capital (common) stock of
the Meridian/INVESCO US Sector Portfolio were designated as US Sector Portfolio
Common Stock; and the authorized capital (common) stock of the Meridian/INVESCO
Foreign Sector Portfolio Common Stock were designated as Foreign Sector Common
Stock.
ELEVENTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on April 18, 1997, the authorized but unissued
shares of the Equity-Income Portfolio Common Stock were designated as Strategic
Total Return Portfolio Common Stock and the authorized but unissued shares of
the Utility Portfolio were designated as Growth & Income Portfolio Common Stock.
TWELFTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on
<PAGE>
September 19, 1997, shares of the authorized capital (common) stock were
classified as follows: Seventy-five Million (75,000,000) of the Shares were
designated as Third Avenue Value Portfolio Common Stock.
THIRTEENTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on February 27, 1998, shares of the authorized
capital (common) stock were classified as follows: Seventy-five Million
(75,000,000) of the Shares were designated as Real Estate Securities Portfolio
Common Stock.
FOURTEENTH: Pursuant to the Corporation's Articles Supplementary to
Articles of Incorporation filed on November 20, 1998, the Shares were
reclassified as follows: Seventy-five Million (75,000,000) of the authorized but
unissued Shares of the T. Rowe Price-WRL Equity Income Portfolio Common Stock
were reclassified and designated as Money Market Portfolio Common Stock;
Seventy-five Million (75,000,000) of the authorized but unissued Shares of the
Leisure Portfolio Common Stock were reclassified and designated as Money Market
Portfolio Common Stock; and One Hundred Fifty Million (150,000,000) Shares of
the authorized capital (common) stock were classified as Money Market Portfolio
Common Stock.
FIFTEENTH: The Board of Directors of the Corporation, at a meeting duly
convened and held on January 27, 1999, adopted resolutions reclassifying
authorized but unissued shares as follows: Twenty-five Million (25,000,000)
shares of the Growth Portfolio Common Stock were designated as Bond Portfolio
Common Stock; Twenty-five Million (25,000,000) shares of the Strategic Total
Return Portfolio Common Stock and Twenty-five Million (25,000,000) shares of the
Emerging Growth Portfolio Common Stock were designated as WRL Goldman Sachs
Growth Portfolio Common Stock; Twenty-five Million (25,000,000) shares of the
Balanced Portfolio Common Stock and Twenty-five Million (25,000,000) shares of
Growth & Income Portfolio Common Stock were designated as WRL Dreyfus Mid Cap
Portfolio Common Stock; Twenty-five Million (25,000,000) shares the C.A.S.E.
Growth Portfolio Common Stock and Twenty-five Million (25,000,000) shares of the
Global Sector Portfolio Common Stock were designated as WRL Goldman Sachs Small
Cap Portfolio Common Stock; Twenty-five Million (25,000,000) shares of the Value
Equity Portfolio Common Stock and Twenty-five Million (25,000,000) shares of the
International Equity Portfolio were designated as WRL T. Rowe Price Dividend
Growth Portfolio Common Stock; Twenty-five Million (25,000,000) shares of the
U.S. Equity Portfolio Common Stock and Twenty-five Million (25,000,000) shares
of the Third Avenue Value Portfolio Common Stock were designated as WRL T. Rowe
Price Small Cap Portfolio Common Stock; and Twenty-five Million (25,000,000)
shares of the Real Estate Securities Portfolio Common Stock were designated as
WRL Salomon All Cap Portfolio Common Stock. Twenty-five Million (25,000,000)
Shares of the authorized capital (common) stock was classified as WRL Salomon
All Cap Portfolio Common Stock; and Fifty Million (50,000,000) Shares of the
authorized capital (common) stock was classified as WRL Pilgrim Baxter Mid Cap
Growth Portfolio Common Stock. The authorized but unissued shares of the Money
Market Portfolio Common Stock were designated as WRL J. P. Morgan Money Market
Portfolio Common Stock; the authorized but unissued shares of the Bond Portfolio
Common Stock were designated as the WRL AEGON Bond Portfolio Common Stock; the
authorized but unissued shares of the Tactical Asset Allocation Portfolio Common
Stock were designated as the WRL DEAN Asset Allocation Portfolio Common Stock;
the authorized but unissued shares of the Growth Portfolio Common Stock were
designated as the WRL Janus Growth Portfolio Common Stock; the authorized but
unissued shares of the Global Portfolio Common Stock were designated
<PAGE>
as the WRL Janus Global Portfolio Common Stock; the authorized but unissued
shares of the Strategic Total Return Portfolio Common Stock were designated as
the WRL LKCM Strategic Total Return Portfolio Common Stock; the authorized but
unissued shares of the Emerging Growth Portfolio Common Stock were designated as
the WRL VKAC Emerging Growth Portfolio Common Stock; the authorized but unissued
shares of the Aggressive Growth Portfolio Common Stock were designated as the
WRL Alger Aggressive Growth Portfolio Common Stock; the authorized but unissued
shares of the Balanced Portfolio Common Stock were designated as the WRL AEGON
Balanced Portfolio Common Stock; the authorized but unissued shares of the
Growth & Income Portfolio Common Stock were designated as the WRL Federated
Growth & Income Portfolio Common Stock; the authorized but unissued shares of
the Value Equity Portfolio Common Stock were designated as the WRL NWQ Value
Equity Portfolio Common Stock; the authorized but unissued shares of the
International Equity Portfolio Common Stock were designated as the WRL
GE/Scottish Equitable International Equity Portfolio Common Stock; the
authorized but unissued shares of the U.S. Equity Portfolio Common Stock were
designated as the WRL GE U.S. Equity Portfolio Common Stock; the authorized but
unissued shares of the Real Estate Securities Portfolio Common Stock were
designated as the WRL J.P. Morgan Real Estate Securities Portfolio Common Stock,
and the authorized but unissued shares of the Third Avenue Value Portfolio were
designated as the WRL Third Avenue Value Portfolio.
SIXTEENTH: The Shares of Common Stock as so authorized and reclassified
by the Directors of the Corporation shall have the powers, preferences, and
rights, and qualifications, restrictions and limitations, specified in Article
V, Paragraph 4 of the Articles of Incorporation of the Corporation and shall be
subject to all its provisions relating to the stock of the Corporation.
SEVENTEENTH: The aforesaid Shares of Common Stock have been duly
authorized and reclassified by the Directors pursuant to authority and power
contained in the Articles of Incorporation of the Corporation and in accordance
with Section 2-105(c) of the Maryland General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, the undersigned Chairman of the Board of Directors
of WRL Series Fund, Inc., hereby executes these Articles Supplementary on behalf
of the Corporation, acknowledges that these Articles Supplementary are the act
of the Corporation, and certifies that, to the best of his knowledge,
information and belief, all matters and facts set forth herein are true in all
material respects, under the penalties of perjury.
Date: February 17, 1999 WRL SERIES FUND, INC.
/s/ JOHN R. KENNEY
-----------------------------------------
John R. Kenney
Chairman of the Board of Directors
ATTEST: and President
/s/ PRISCILLA I. HECHLER
- ------------------------
Priscilla I. Hechler
Assistant Vice President
and Assistant Secretary
EXHIBIT 99.B5-1
EXHIBIT (d)(1) -INVESTMENT ADVISORY AGREEMENT ON BEHALF OF THE PORTFOLIOS
OF THE WRL SERIES FUND, INC. WITH WRL INVESTMENT MANAGEMENT, INC.
<PAGE>
WRL SERIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT
This Agreement, entered into between WRL Series Fund, Inc., a Maryland
corporation (referred to herein as the "Fund"), and WRL Investment Management,
Inc., a Florida corporation (referred to herein as "WRL Management"), to provide
certain investment advisory services with respect to the series of shares of
common stock of the Fund.
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended, (the "1940 Act") and consists of
more than one series of shares (the "Portfolios"). In managing its Portfolios,
the Fund wishes to have the benefit of the investment advisory services of WRL
Management and its assistance in performing certain management functions. WRL
Management desires to furnish such services to the Fund and to perform the
functions assigned to it under this Agreement for the considerations provided.
Schedule A lists the effective date and termination date of this Agreement for
each Portfolio of the Fund.
Accordingly, the parties have agreed as follows:
1. INVESTMENT ADVISORY SERVICES. In its capacity as investment adviser
to the Fund, WRL Management shall have the following responsibilities:
(a) to furnish continuous advice and recommendations to the Fund
as to the acquisition, holding or disposition of any or all of
the securities or other assets which the Portfolios may own or
contemplate acquiring from time to time;
(b) to cause its officers to attend meetings and furnish oral or
written reports, as the Fund may reasonably require, in order to
keep the Board of Directors and appropriate officers of the Fund
fully informed as to the conditions of each investment portfolio
of the Portfolios, the investment recommendations of WRL
Management, and the investment considerations which have given
rise to those recommendations;
(c) to supervise the purchase and sale of securities of the
Portfolios as directed by the appropriate officers of the Fund;
and
(d) to maintain all books and records required to be maintained
by the Investment Adviser pursuant to the 1940 Act and the rules
and regulations promulgated thereunder with respect to
transactions on behalf of the Fund. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, WRL Management
hereby agrees: (i) that all records that it maintains for the
Fund are the property of the Fund, (ii) to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act any records
that it maintains for the Fund and that are required to be
maintained by Rule 31a-1 under the 1940 Act and (iii) agrees to
surrender promptly to the Fund any records that it maintains for
the Fund upon request by the Fund; provided, however, WRL
Management may retain copies of such records.
WRL Management shall pay all expenses incurred in connection with the
performance of its responsibilities under this Agreement. It is understood and
agreed that WRL Management may, and intends to, enter into Sub-Advisory
Agreements with duly registered investment advisers (the "Sub-Advisers") for
each Portfolio, under which each Sub-Adviser will, under the supervision of WRL
Management, furnish investment information and advice with respect to one or
more Portfolios to assist WRL Management in carrying out its responsibilities
under this Section 1. The compensation to be paid to each Sub-Adviser for such
services and the other terms and conditions under which the services shall be
rendered by the Sub-Adviser shall be set forth in the Sub-Advisory Agreement
between WRL Management and each Sub-Adviser; provided, however, that such
Agreement shall be approved by the Board of
<PAGE>
Directors and by the holders of the outstanding voting securities of each
Portfolio in accordance with the requirements of Section 15 of the 1940 Act, and
shall otherwise be subject to, and contain such provisions as shall be required
by the 1940 Act.
2. OBLIGATIONS OF THE FUND. The Fund shall have the following
obligations under this Agreement:
(a) to keep WRL Management continuously and fully informed as to
the composition of each Portfolio's investment securities and
the nature of all of its assets and liabilities from time to
time;
(b) to furnish WRL Management with a certified copy of any
financial statement or report prepared for each Portfolio by
certified or independent public accountants, and with copies of
any financial statements or reports made to its shareholders or
to any governmental body or securities exchange;
(c) to furnish WRL Management with any further materials or
information which WRL Management may reasonably request to
enable it to perform its functions under this Agreement; and
(d) to compensate WRL Management for its services in accordance
with the provisions of Section 3 hereof.
3. COMPENSATION. For its services under this Agreement, WRL Management
is entitled to receive from each Portfolio a monthly fee, payable on the last
day of each month during which or part of which this Agreement is in effect, as
set forth on Schedule A attached to this Agreement, as it may be amended from
time to time in accordance with Section 11 below. For the month during which
this Agreement becomes effective and the month during which it terminates,
however, there shall be an appropriate pro-ration of the fee payable for such
month based on the number of calendar days of such month during which this
Agreement is effective.
4. EXPENSES PAID BY EACH PORTFOLIO. Nothing in this Agreement shall be
construed to impose upon WRL Management the obligation to incur, pay, or
reimburse a Portfolio for any expenses. A Portfolio shall pay all of its
expenses including, but not limited to:
(a) all costs and expenses, including legal and accounting fees,
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,
and all other matters relating to the formation and organization
of a Portfolio and the preparation for offering its shares. The
organization of a Portfolio for all of the foregoing purposes
will be considered completed upon effectiveness of the
post-effective amendment to the Fund's registration statement to
register the Portfolio under the Securities Act of 1933.
(b) all costs and expenses, including legal and accounting fees,
filing fees and printing costs, in connection with the
preparation and filing of the post-effective amendment to the
Fund's registration statement to register the Portfolio under
the Securities Act of 1933 and the 1940 Act (including all
amendments thereto prior to the effectiveness of the
registration statement under the Securities Act of 1933);
(c) investment advisory fees;
(d) any compensation, fees, or reimbursements which the Fund
pays to its Directors who are not interested persons (as that
phrase is defined in Section 2(a)(19) of the 1940 Act) of the
Fund or WRL Management;
(e) compensation of the Fund's custodian, administrator,
registar and dividend disbursing agent;
(f) legal, accounting and printing expenses;
<PAGE>
(g) other administrative, clerical, recordkeeping and
bookkeeping expenses;
(h) pricing costs, including the daily calculation of net asset
value;
(i) auditing;
(j) insurance premiums, including Fidelity Bond Coverage, Error
& Ommissions Coverage and Directors and Officers Coverage, in
accordance with the provisions of the 1940 Act and the rules
thereunder;
(k) services for shareholders, including allocable telephone and
personnel expenses;
(l) brokerage commissions and all other expenses in connection
with execution of portfolio transactions, including interest:
(m) 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;
(n) costs of certificates and the expenses of delivering such
certificates to the purchasers of shares relating thereto;
(o) expenses of local representation in Maryland;
(p) fees and/or expenses payable pursuant to any plan of
distribution adopted with respect to the Fund in accordance with
Section 12(b) of the 1940 Act and Rule 12b-1 thereunder;
(q) expenses of shareholders' meetings and of preparing,
printing and distributing notices, proxy statements and reports
to shareholders;
(r) expenses of preparing and filing reports with federal and
state regulatory authorities;
(s) 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 Securities Act of 1933
and the securities laws of any states or territories subsequent
to the effectiveness of the initial registration statement under
the Securities Act of 1933;
(t) all costs involved in preparing and printing prospectuses of
the Fund;
(u) extraordinary expenses; and
(v) all other expenses properly payable by the Fund or the
Portfolios.
5. TREATMENT OF INVESTMENT ADVICE. With respect to the Portfolios, the
Fund shall treat the investment advice and recommendations of WRL Management as
being advisory only, and shall retain full control over its own investment
policies. However, the Directors of the Fund may delegate to the appropriate
officers of the Fund, or to a committee of Directors, the power to authorize
purchases, sales or other actions affecting the Portfolios in the interim
between meetings of the Directors, provided such action is consistent with the
established investment policy of the Directors and is reported to the Directors
at their next meeting.
6. BROKERAGE COMMISSIONS. For purposes of this Agreement, brokerage
commissions paid by each Portfolio upon the purchase or sale of its portfolio
securities shall be considered a cost of securities of the Portfolio and shall
be paid by the Portfolio. WRL Management is authorized and directed to place
each Portfolio's securities transactions, or to delegate to the Sub-Adviser of
that Portfolio the authority and direction to place the Portfolio's securities
transactions,
<PAGE>
only with brokers and dealers who render satisfactory service in the execution
of orders at the most favorable price and at reasonable commission rates (best
price and execution); provided, however, that WRL Management or the Sub-Adviser,
may pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if WRL Management or the
Sub-Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer viewed in terms of either that particular
transaction or the overall responsibilities of WRL Management or the
Sub-Adviser. WRL Management and the Sub-Adviser are also authorized to consider
sales of individual and group life insurance policies and/or variable annuity
contract issued by Western Reserve Life Assurance Co. of Ohio by a broker-dealer
as a factor in selecting broker-dealers to execute the Portfolio's securities
transactions, provided that in placing portfolio business with such
broker-dealers, WRL Management and the Sub-Adviser shall seek the best execution
of each transaction and all such brokerage placement shall be consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. Notwithstanding the foregoing, the Fund shall retain the right to direct
the placement of all securities transactions of the Portfolios, and the
Directors may establish policies or guidelines to be followed by WRL Management
and the Sub-Advisers in placing securities transactions for each Portfolio
pursuant to the foregoing provisions. WRL Management shall report on the
placement of portfolio transactions each quarter to the Directors of the Fund.
7. LIMITATION ON EXPENSES OF THE PORTFOLIOS. If the insurance or
securities laws, regulations or policies of any state in which shares of the
Portfolios are qualified for sale limit the operation and management expenses
(collectively referred to as "Normal Operating Expenses" and as described
below), WRL Management will pay on behalf of the Portfolios the amount by which
such expenses exceed the lowest of such state limitations (the "Expense
Limitation"). Normal Operating Expenses include, but are not limited to, the
fees of the Portfolios' investment adviser, the compensation of its custodian,
registrar, auditors and legal counsel, printing expenses, expenses incurred in
complying with all laws applicable to the sale of shares of the Portfolios and
any compensation, fees, or reimbursement which the Portfolios pay to Directors
of the Fund who are not interested persons (as that phrase is defined in Section
2(a)(19) of the 1940 Act) of WRL Management, but excluding all interest and all
federal, state and local taxes (such as stamp, excise, income, franchise and
similar taxes). If Normal Operating Expenses exceed in any year the Expense
Limitation of the Fund, WRL Management shall pay for those excess expenses on
behalf of the Portfolios in the year in which they are incurred. Expenses of the
Portfolios shall be calculated and accrued monthly. If at the end of any month
the accrued expenses of the Portfolios exceed a pro rata portion of the
above-described Expense Limitation, based upon the average daily net asset value
of the Portfolios from the beginning of the fiscal year through the end of the
month for which calculation is made, the amount of such excess shall be paid by
WRL Management on behalf of the Portfolios and such excess amounts shall
continue to be paid until the end of a month when such accrued expenses are less
than the pro rata portion of such Expense Limitation. Any necessary final
adjusting payments, whether from WRL Management to the Portfolios or from the
Portfolios to WRL Management, shall be made as soon as reasonably practicable
after the end of the fiscal year.
8. TERMINATION. This Agreement may be terminated at any time, without
penalty, by the Directors of the Fund or by the shareholders of each Portfolio
acting by vote of at least a majority of its outstanding voting securities (as
that phrase is defined in Section 2(a)(42) of the 1940 Act) provided in either
case that 60 days' written notice of termination be given to WRL Management at
its principal place of business. This Agreement may be terminated by WRL
Management at any time by giving 60 days' written notice of termination to the
Fund, addressed to its principal place of business.
9. ASSIGNMENT. This Agreement shall terminate automatically in the event
of any assignment (as the term is defined in Section 2(a)(4) of the 1940 Act) of
this Agreement.
10. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, as provided for each Portfolio on
Schedule A, and shall continue in effect from year to year thereafter provided
such continuance is specifically approved at least annually by the vote of a
majority of the Directors of the Fund who are not parties hereto or interested
persons (as that term is defined in Section 2(a)(19) of the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on the
approval of the terms of such renewal, and by either the Directors of the Fund
or the affirmative vote of a majority of the outstanding voting securities of
each Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
<PAGE>
11. AMENDMENTS. This Agreement may be amended only with the approval of
the affirmative vote of a majority of the outstanding voting securities of each
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act) and
the approval by the vote of a majority of Directors of the Fund who are not
parties hereto or interested persons (as that phrase is defined in Section
2(a)(19) of the 1940 Act of 1940) of any such party, cast in person at a meeting
called for the purpose of voting on the approval of such amendment, unless
otherwise permitted in accordance with the 1940 Act.
12. PRIOR AGREEMENTS. This Agreement constitutes the entire agreement
between the parties hereto and supersedes in its entirety any and all previous
agreements between the parties relative to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATTEST: WRL SERIES FUND, INC.
PRISCILLA I. HECHLER By:/s/ JOHN R. KENNEY
- ------------------------------ -----------------------------------
Assistant Vice President Chairman of the Board and President
and Assistant Secretary
ATTEST: WRL INVESTMENT MANAGEMENT, INC.
PRISCILLA I. HECHLER By: KENNETH P. BEIL
- ------------------------------ -----------------------------------
Assistant Vice President President
and Assistant Secretary
<PAGE>
Schedule A
<TABLE>
<CAPTION>
SCHEDULE EFFECTIVE: May 1, 1999
PERCENTAGE OF MONTHLY EFFECTIVE DATE/
PORTFOLIO AVERAGE DAILY NET ASSETS TERMINATION DATE
--------- ------------------------ ----------------
<S> <C> <C>
January 1, 1997/
WRL Janus Growth 0.80% April 30, 2000
(formerly Growth Portfolio)
January 1, 1998/
WRL AEGON Bond 0.45% April 30, 2000
(formerly Bond Portfolio)
January 1, 1997/
WRL Janus Global 0.80% April 30, 2000
(formerly Global Portfolio)
January 1, 1997/
WRL J.P. Morgan Money Market 0.40% April 30, 2000
(formerly Money Market Portfolio)
January 1, 1997/
WRL WKAM Emerging Growth 0.80% April 30, 2000
(formerly Emerging Growth Portfolio)
January 1, 1997/
WRL LKCM Strategic Total Return 0.80% April 30, 2000
(formerly Strategic Total Return
Portfolio (Equity-Income))
January 1, 1997/
WRL AEGON Balanced 0.80% April 30, 2000
(formerly Balanced Portfolio)
January 1, 1997/
WRL Alger Aggressive Growth 0.80% April 30, 2000
(formerly Aggressive Growth Portfolio)
January 1, 1997/
WRL Federated Growth & Income 0.75% April 30, 2000
(formerly Growth & Income Portfolio
(Utility))
January 1, 1997/
WRL Dean Asset Allocation 0.80% April 30, 2000
(formerly Tactical Asset Allocation)
January 1, 1997/
WRL NWQ Value Equity 0.80% April 30, 2000
(formerly Value Equity Portfolio)
January 1, 1997/
WRL C.A.S.E. Growth 0.80% April 30, 2000
(formerly C.A.S.E. Growth Portfolio)
January 1, 1997/
WRL GE/Scottish Equitable 1.00% April 30, 2000
International Equity
(formerly International Equity
Portfolio)
<PAGE>
January 1, 1997/
WRL GE U.S. Equity 0.80% April 30, 2000
(formerly U.S. Equity Portfolio)
January 1, 1998/
WRL Third Avenue Value 0.80% April 30, 2000
(formerly Third Avenue Value Portfolio)
WRL J.P. Morgan Real Estate Securities 0.80% May 1, 1998/
(formerly Real Estate April 30, 2000
Securities Portfolio)
WRL Salomon All Cap 0.90% of the first $100 million of May 1, 1999/
average daily net assets; 0.80% of April 30, 2001
assets over $100 million
WRL Goldman Sachs Growth 0.90% of the first $100 million of May 1, 1999/
average daily net assets; 0.80% of April 30, 2001
assets over $100 million
WRL Goldman Sachs Small Cap 0.90% of the portfolio's average May 1, 1999/
daily net assets April 30, 2001
WRL T. Rowe Price Dividend Growth 0.90% of the first $100 million of May 1, 1999/
average daily net assets; 0.80% of April 30, 2001
assets over $100 million
WRL T. Rowe Price Small Cap 0.75% of the portfolio's average May 1, 1999/
daily net assets April 30, 2001
0.90% of the first $100 million of
WRL Pilgrim Baxter Mid Cap Growth average daily net assets; 0.80% of May 1, 1999/
assets over $100 million April 30, 2001
0.90% of the first $100 million of
WRL Dreyfus Mid Cap average daily net assets; 0.80% of May 1, 1999/
assets over $100 million April 30, 2001
</TABLE>
EXHIBIT 99.B5-2
EXHIBIT (d)(3)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL J.P. MORGAN MONEY MARKET
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
J. P. MORGAN INVESTMENT MANAGEMENT INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and J. P. Morgan
Investment Management Inc. ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Delaware.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Money Market
Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. INVESTMENT DESCRIPTION: APPOINTMENT.
The Investment Adviser desires to employ the capital of the Portfolio
by investing and reinvesting in investments of the kind and in accordance with
the limitations specified in the Fund's Articles of Incorporation, as amended to
date (the "Charter Document"), and in the prospectus (the "Prospectus") and the
statement of additional information (the "Statement") for the Fund filed with
the Securities and Exchange Commission as part of the Fund's Registration
Statement on Form N-1A, as amended or supplemented from time to time, and in
such manner and to such extent as from time to time may be approved by the
Fund's Board of Directors. Copies of the Prospectus, the Statement and the
Charter Document, each as currently in effect, have been delivered to the
Sub-Adviser. The Investment Adviser agrees, on an ongoing basis, to provide to
the Sub-Adviser as promptly as practicable, copies of all amendments and
supplements to the Prospectus and Statement and amendments to the Charter
Document. The Advisory Agreement provides that the Investment Adviser may engage
a Sub-Adviser to perform the services contemplated hereunder. The Investment
Adviser desires to engage and hereby appoints the Sub-Adviser to act as
investment sub-adviser to the Portfolio. The Sub-Adviser accepts the appointment
and agrees to furnish the services described herein for the compensation set
forth below.
2. SERVICES AS INVESTMENT SUB-ADVISER, GUIDELINES AND ADVICE.
Subject to the supervision of the Investment Adviser and the Board of
Directors of the Fund, the Sub-Adviser will (a) manage the Portfolio's assets in
accordance with the Portfolio's investment objective(s) and
<PAGE>
policies stated in the Prospectus, the Statement and the Charter Document, but
subject to Guidelines (as such term is defined below); (b) make investment
decisions for the Portfolio; (c) place purchase and sale orders for portfolio
transactions for the Portfolio; and (d) employ professional portfolio managers
and securities analysts to provide research services to the Portfolio; (e)
furnish statistical and analytical information and reports as may reasonably be
required by the Investment Adviser from time to time, and, in providing these
services, conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Portfolio's assets; (f) cause its
officers to attend meetings of the Fund's Board of Directors and furnish oral or
written reports, as the Investment Adviser may reasonably require, in order to
keep the Investment Adviser and its officers and the Directors of the Fund and
appropriate officers of the Fund fully informed as to the condition of the
investment securities of the Portfolio, the investment recommendations of the
Sub-Adviser, and the investment considerations which have given rise to those
recommendations.
The Investment Adviser agrees on an on-going basis to provide or cause
to be provided to the Sub-Adviser guidelines, to be revised as provided below
(the "Guidelines"), setting forth limitations, by dollar amount or percentage of
net assets, on the types of securities in which the Portfolio is permitted to
invest or investment activities in which the Portfolio is permitted to engage.
Among other matters, the Guidelines shall set forth clearly the limitations
imposed upon the Portfolio as a result of relevant diversification requirements
under state and federal law pertaining to insurance products, including, without
limitation, the provisions of Section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"). The Guidelines shall remain in effect until 12:00
p.m. on the third business day following actual receipt by the Sub-Adviser of a
written notice, denominated clearly as such, setting forth revised Guidelines.
The Investment Adviser agrees to cause to be delivered to a person designated in
writing for such purpose by the Sub-Adviser each day, by 1:00 p.m., New York
time, a written report dated the date of its delivery (the "Report") with
respect to the Portfolio's compliance for its current fiscal year with the
short-three test set forth in Section 851(b)(3) of the Code (the "short-three
test"). The Report shall include in chart form the Portfolio's gross income
(within the meaning of Section 851 of the Code) from the beginning of the
current fiscal year to the date of the Report and its cumulative income and
gains described in Section 851(b)(3) of the Code for such period. If the Report
is not timely delivered, the Sub-Adviser shall be permitted to rely on the most
recent Report delivered to it. The Investment Adviser agrees that the
Sub-Adviser may rely on the Guidelines and the Report without independent
verification of their accuracy.
3. BROKERAGE.
In selecting brokers or dealers to execute transactions on behalf of
the Fund, the Sub-Adviser will seek the best overall terms available. In
assessing the best overall terms available for any transaction, the Sub-Adviser
will consider factors it deems relevant, including, without limitation, the
breadth of the market in the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute a particular transaction, and in evaluating the
best overall terms available, the Sub-Adviser is authorized to consider the
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Portfolio and/or
other accounts over which the Sub-Adviser or its affiliates exercise investment
discretion.
4. STANDARD OF CARE.
The Sub-Adviser shall exercise its best judgment in rendering the
services described in paragraph 2 and 3 above. The Sub-Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such act or omission shall be
referred to as "Disqualifying Conduct"). The Sub-Adviser shall not be deemed to
have engaged in Disqualifying Conduct if it complies with the Guidelines and
acts in reliance on the Report, and the Sub-Adviser's failure to act in
accordance therewith shall not constitute evidence that it engaged in
Disqualifying Conduct.
<PAGE>
5. COMPENSATION.
In consideration of the services rendered pursuant to this Agreement,
the Investment Adviser will pay the Sub-Adviser on the first business day of
each month a fee for the previous month at the annual rate of 0.15% of the
Portfolio's average daily net assets. The fee for the period from the date of
its initial public sale of the Portfolio's shares to the end of the month during
which such sale shall have been commenced shall be prorated according to the
proportion that such period bears to the full monthly period. Upon termination
of this Agreement before the end of a month, the fee for such part of that month
shall be prorated according to the proportion that such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purposes of determining fees payable to the Sub-Adviser, the
value of the Portfolio's net assets shall be computed at the times and in the
manner specified in the Prospectus and/or the Statement.
6. EXPENSES.
The Sub-Adviser will bear all of its expenses in connection with the
performance of its services under this Agreement. All other expenses to be
incurred in the operation of the Portfolio will be borne by the Fund or the
Investment Adviser, as appropriate, except to the extent specifically assumed by
the Sub-Adviser. The expenses to be borne by the Fund or the Investment Adviser,
as appropriate, include, without limitation, the following: organizational
costs, taxes, interest, brokerage fees and commissions, Directors' fees,
Securities and Exchange Commission filing fees, if any, advisory fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal expenses, costs
of independent pricing services, costs of maintaining existence, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing stockholders, costs of stockholders' reports and meetings, and
extraordinary expenses.
7. SERVICES TO OTHER COMPANIES OR ACCOUNTS.
The Investment Adviser understands that the Sub-Adviser now acts, will
continue to act and may act in the future as investment adviser to fiduciary and
other managed accounts and as investment adviser to other investment companies,
and the Investment Adviser has no objection to the Sub-Adviser so acting,
provided that, whenever the Portfolio and one or more other accounts or
investment companies advised by the Sub-Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a methodology believed to be equitable to each entity. The
Sub-Adviser agrees to allocate similarly opportunities to sell securities. The
Investment Adviser recognizes that, in some cases, this procedure may limit the
size of the position that may be acquired or sold for the Portfolio. The
Investment Adviser understands that the persons employed by the Sub-Adviser to
assist in the performance of the Sub-Adviser's duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of the Sub-Adviser or any affiliate of the
Sub-Adviser to engage in and devote time and attention to other business or to
render services of whatever kind or nature.
8. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the
Portfolio are the property of the Fund and further agrees to surrender promptly
to the Fund copies of any of such records upon the Fund's or the Investment
Adviser's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records relating to its
activities hereunder required to be maintained by Rule 31a-1 under the 1940 Act
and to preserve the records relating to its activities hereunder required by
Rule 204-2 under the Advisers Act, for the period specified in said Rule.
<PAGE>
9. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purposes of
voting on such approval, and (ii) by vote of a majority of the Portfolio's
outstanding voting securities. Unless sooner terminated as provided herein, this
Agreement shall continue in effect for two years from its effective date.
Thereafter, this Agreement shall continue in effect from year to year, provided
such continuance is specifically approved at least annually by (i) the Fund's
Board or (ii) a vote of a "majority" (as defined in the 1940 Act) of the
Portfolio's outstanding voting securities, provided that in either event the
continuance is approved by a majority of the Fund's Board who are not interested
persons of any party to this Agreement by vote cast in person at a meeting
called for the purpose of voting such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Investment Adviser, by the
Fund's Board, by vote of holders of a majority of the Portfolio's shares or by
the Sub-Adviser, and will terminate five business days after the Sub-Adviser
receives written notice of the termination of the advisory agreement between the
Fund and the Investment Adviser. This Agreement also will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. INDEMNIFICATION.
The Investment Adviser agrees to indemnify and hold harmless the
Sub-Adviser and each person who controls or is associated with the Sub-Adviser
within the meaning of such terms under the federal securities laws and any
officer, trustee, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection
therewith) under any statute or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
(1) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material
fact contained in the variable annuity contracts and
variable life insurance policies (both contracts and
policies, collectively referred to as "Contracts") for
which the Portfolio serves as an underlying investment
option, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the
Prospectuses or Statements for the Contracts, (iii) any
sales literature for the Contracts, (or any amendment or
supplement to any of the foregoing), or (iv) the
statement or omission to state or the alleged statement
or alleged omission to state in the Prospectuses or
Statements for the Contracts a material fact required to
be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in
which they were made; provided, that this provision shall
not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon
and in conformity with information furnished to the
Investment Adviser by the Sub-Adviser for use in the
Contracts, or the Prospectuses or the Statements for the
Contracts, or sales literature (or any amendment or
supplement), or otherwise for use in connection with the
sales of the Contracts or Portfolio shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Sub-Adviser (other
than statements or representations contained in the
Contracts, the Prospectuses or Statements, or sales
literature for the Contracts not supplied by the
Sub-Adviser or persons under its control) or wrongful
conduct of the Investment Adviser or persons under its
control with respect to the sales or distribution of the
Contracts or Portfolio shares; or
(3) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material
fact contained in the Prospectus or Statement for the
Portfolio (or any amendment thereof or supplement
thereto), (ii) any sales literature for the Portfolio or
(iii) the omission or alleged omission to state in the
Prospectus or Statement for the
<PAGE>
Portfolio a material fact required to be stated therein
or necessary to make the statements therein not
misleading in light of the circumstances in which they
were made; provided, that this provision shall not apply
if such statement or omission or such alleged statement
or alleged omission was made in reliance upon and in
conformity with information furnished to the Investment
Adviser by the Sub-Adviser for use with the Prospectus,
Statement or sales literature for the Portfolio and the
Contracts; or
(4) arise out of any third-party claims or proceedings
relating to the performance by or obligations of the
Sub-Adviser in the performance of its duties hereunder,
except to the extent any such claims arise out of any
material breach by the Sub-Adviser of this Agreement.
This indemnification will be in addition to any liability which the Investment
Adviser may otherwise have, but does not supersede the standard of care owed by
the Sub-Adviser to the Investment Adviser as described in Section 4 above.
11. DISCLOSURE.
The Investment Adviser represents and warrants that neither the Fund
nor the Investment Adviser shall, without the prior written consent of the
Sub-Adviser, make representations regarding or reference to the Sub-Adviser or
any affiliates in any disclosure document, advertisement, sales literature or
other promotional materials.
12. MISCELLANEOUS.
All notices provided for by this Agreement shall be in writing and
shall be deemed given when received, against appropriate receipt, by Diane
Minardi at 522 Fifth Avenue, New York NY 10036 in the case of the Sub-Adviser,
General Counsel at P.O. Box 5068, Clearwater, FL 34618 in the case of the
Investment Adviser, or such other person as a party shall designate by notice to
the other parties. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought. This Agreement constitutes the entire agreement among the
parties hereto and supersedes any prior agreement among the parties relating to
the subject matter hereof. The paragraph headings of this Agreement are for
convenience of reference and do not constitute a part hereof. This Agreement
shall be governed in accordance with the internal laws of the State of New York,
without giving effect to principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
<PAGE>
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ JOHN R. KENNEY
- --------------------------- --------------------------------------------
Assistant Secretary Name: John R. Kenney
Title: President
Attest: J. P. MORGAN INVESTMENT MANAGEMENT INC.
/s/ K. DORDAS By: /s/ DIANE J. MINARDI
- --------------------------- --------------------------------------------
Name: Diane J. Minardi
Title: Vice President
EXHIBIT 99.B5-3
EXHIBIT (d)(4)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL VKAM EMERGING GROWTH
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and Van Kampen
American Capital Asset Management, Inc. ("Sub-Adviser"), a corporation organized
and existing under the laws of the State of Delaware.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Emerging Growth
Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the
above, Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets which
the Portfolio may own or contemplate acquiring from time to time;
(2) cause its officers to attend meetings of the Fund and furnish
oral or written reports, as the Fund may reasonably require, in
order to keep the Fund and its officers and Board fully informed
as to the condition of the investment securities of the Portfolio,
the investment recommendations of the Sub-Adviser, and the
investment considerations which have given rise to those
recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to (i) 50% of the fees received by the Investment Adviser
for services rendered under the Advisory Agreement by the Investment Adviser to
the Portfolio, less (ii) 50% of the amount paid by the Investment Adviser on
behalf of the Portfolio pursuant to any expense limitation or the amount of any
other reimbursement made by the Investment Adviser to the Portfolio. The
management fee shall be payable by the Investment Adviser monthly to the
Sub-Adviser upon receipt by the Investment Adviser from the Portfolio of
advisory fees payable to the Investment Adviser. If this Agreement becomes
effective or terminates before the end of any month, the investment management
fee for the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
pro-rated according to the pro-ration which such period bears to the full month
in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
<PAGE>
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus and Statement of Additional
Information (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
<PAGE>
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SUB-ADVISER'S USE OF THE SERVICES OF OTHERS.
The Sub-Adviser may (at its cost except as contemplated by Paragraph 5
of this Agreement) employ, retain, or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of obtaining such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities, or such other information, advice, or assistance as the Sub-Adviser
may deem necessary, appropriate, or convenient for the discharge of its
obligations hereunder or otherwise helpful to the Fund as appropriate, or in the
discharge of Sub-Adviser's overall responsibilities with respect to the other
accounts that it serves as investment manager or counselor, provided that the
Sub-Adviser shall at all times retain responsibility for making investment
recommendations with respect to the Portfolio.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
<PAGE>
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
until January 1, 1999. Thereafter, this Agreement shall continue in effect from
year to year, with respect to the Portfolio, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either the
Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
<PAGE>
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ KENNETH P. BEIL
- ------------------------------- --------------------------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
/s/ JAMES J. BOYNE By: /s/ DENNIS J. MCDONNELL
- ------------------------------- -----------------------------
Assistant Secretary Name: Dennis J. McDonnell
Title: President
EXHIBIT 99.B5-4
EXHIBIT (D)(5)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL LKCM STRATEGIC TOTAL RETURN
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
LUTHER KING CAPITAL MANAGEMENT CORPORATION
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and Luther King
Capital Management Corporation ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of Delaware.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Strategic Total
Return Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of
the Sub-Adviser, and the investment considerations which have
given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to 50% of the fees received by the Investment Adviser for
services rendered under the Advisory Agreement by the Investment Adviser to the
Portfolio. The management fee shall be payable by the Investment Adviser monthly
to the Sub-Adviser upon receipt by the Investment Adviser from the Portfolio of
advisory fees payable to the Investment Adviser. If this Agreement becomes
effective or terminates before the end of any month, the investment management
fee for the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
pro-rated according to the pro-ration which such period bears to the full month
in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
<PAGE>
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient
<PAGE>
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner the Sub-Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
<PAGE>
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
<PAGE>
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ KENNETH P. BEIL
- ------------------------ ---------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: LUTHER KING CAPITAL MANAGEMENT
CORPORATION
/s/ KAREN OECHLAR By /s/ LUTHER KING
- ------------------------- ----------------------
Name: J. Luther King Jr.
Title: President
EXHIBIT 99.B5-5
EXHIBIT (D)(6)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL FEDERATED GROWTH & INCOME
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
FEDERATED INVESTMENT COUNSELING
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and Federated
Investment Counseling ("Sub-Adviser"), a business trust organized and existing
under the laws of the State of Delaware.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Utility
Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations and procedures adopted by the
Board as directed by the appropriate officers of the Investment Adviser or the
Fund by notice in writing to the Sub-Adviser. The parties hereto agree that the
Sub-Adviser is not a pricing agent of the Fund, and that all prices will be
finally determined by the entity acting as pricing agent to the Fund. The
Sub-Adviser shall obtain and evaluate such information relating to the economy,
industries, businesses, securities markets, and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of the Portfolio in a manner consistent with the Portfolio's
investment objective, policies, and restrictions. In furtherance of this duty,
the Sub-Adviser, on behalf of the Portfolio, is authorized, in its discretion
and without prior consultation with the Portfolio or the
<PAGE>
Investment Adviser, to:
(1) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets which
the Portfolio may own or contemplate acquiring from time to time;
(2) cause its officers to attend meetings of the Fund and furnish
oral or written reports, as the Fund may reasonably require, in
order to keep the Fund and its officers and Board fully informed
as to the condition of the investment securities of the Portfolio,
the investment recommendations of the Sub-Adviser, and the
investment considerations which have given rise to those
recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations. Except as may otherwise be required by the 1940 Act or the rules
thereunder or other applicable law, the Fund and WRL Management agree that the
Sub-Adviser, any affiliated person of the Sub-Adviser, and each person, if any,
who, within the meaning of Section 15 of the Securities Act of 1933 controls the
Sub-Adviser, shall not be liable for, or subject to any damages, expenses,
losses in connection with any act or omission connected with or arising out of
any services rendered under this Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of the
Sub-Adviser's duties, or by reason of reckless disregard of the Sub-Adviser's
obligations and duties under this Agreement.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee from the Investment Adviser as a percentage of the Portfolio's
average daily net assets at an annual rate of 0.50% of the first $30 million of
assets, 0.35% of the next $20 million in assets, and 0.25% of assets in excess
of $50 million. The management fee shall be payable by the Investment Adviser
monthly to the Sub-Adviser upon receipt by the Investment Adviser from the
Portfolio of advisory fees payable to the Investment Adviser. If this Agreement
becomes effective or terminates before the end of any month, the investment
management fee for the period from the effective date to the end of such month
or from the beginning of such month to the date of termination, as the case may
be, shall be pro-rated according to the pro-ration which such period bears to
the full month in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's
<PAGE>
performance of its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above);
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange;
(8) A copy of the Advisory Agreement currently in effect, and
all amendments; and
(9) Fund procedures adopted by the Board.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might
<PAGE>
have been charged by another broker-dealer for effecting the same transactions,
if the Sub-Adviser determines in good faith that such commission is reasonable
in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser or its affiliated person with
respect to the accounts as to which it exercises investment discretion (as such
term is defined under Section 3(a)(35) of the 1934 Act). In no instance will
portfolio securities be purchased from or sold to the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser or its affiliated person, the Sub-Adviser, to the
extent permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be purchased or sold to attempt to
obtain a more favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner the Sub-Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the
<PAGE>
1940 Act or the Advisers Act from performing the services contemplated by this
Agreement; (iii) has met, and will continue to meet for so long as this
Agreement remains in effect, any applicable federal or state requirements, or
the applicable requirements of any regulatory or industry self-regulatory
agency, necessary to be met in order to perform the services contemplated by
this Agreement; (iv) has the authority to enter into and perform the services
contemplated by this Agreement; and (v) will immediately notify the Investment
Adviser of the occurrence of any event that would disqualify the Sub-Adviser
from serving as an investment adviser of an investment company pursuant to
Section 9 (a) of the 1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the
<PAGE>
State of Maryland without giving effect to the conflicts of laws principles
thereof, and the 1940 Act. To the extent that the applicable laws of the State
of Maryland conflict with the applicable provisions of the 1940 Act, the latter
shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ KENNETH P. BEIL
- ------------------------ --------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: FEDERATED INVESTMENT COUNSELING
/s/ SANDRA A. KULY By : /s/ MARK L. MALLON
- ------------------------ -------------------
Name: Mark L. Mallon
Title: :President
EXHIBIT 99.B5-6
EXHIBIT (D) (7)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL AGGRESSIVE GROWTH
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
FRED ALGER MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and Fred Alger
Management, Inc. ("Sub-Adviser"), a corporation organized and existing under the
laws of the State of New York.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Aggressive
Growth Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of
the Sub-Adviser, and the investment considerations which have
given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to 50% of the fees received by the Investment Adviser for
services rendered under the Advisory Agreement by the Investment Adviser to the
Portfolio. The management fee shall be payable by the Investment Adviser monthly
to the Sub-Adviser upon receipt by the Investment Adviser from the Portfolio of
advisory fees payable to the Investment Adviser. If this Agreement becomes
effective or terminates before the end of any month, the investment management
fee for the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
pro-rated according to the pro-ration which such period bears to the full month
in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
<PAGE>
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto;
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). The Sub-Adviser may direct orders for purchase or
sale of securities to Fred Alger & Company, Incorporated, a member of the New
York Stock Exchange, Inc. In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient
<PAGE>
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner the Sub-Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
<PAGE>
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
<PAGE>
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
PRISCILLA I. HECHLER By: /s/ KENNETH P. BEIL
- -------------------- -------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: FRED ALGER MANAGEMENT, INC.
FREDERICK A. BLUM By /s/ GREGORY DUCH
- -------------------- ----------------
Name: Gregory Duch
Title:Treasurer
EXHIBIT 99.B5-7
EXHIBIT (D)(8)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL DEAN ASSET ALLOCATION
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
DEAN INVESTMENT ASSOCIATES
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and Dean
Investment Associates ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Ohio.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Tactical Asset
Allocation Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of
the Sub-Adviser, and the investment considerations which have
given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to (i) 50% of the fees received by the Investment Adviser
for services rendered under the Advisory Agreement by the Investment Adviser to
the Portfolio, less (ii) 50% of the amount paid by the Investment Adviser on
behalf of the Portfolio pursuant to any expense limitation or the amount of any
other reimbursement made by the Investment Adviser to the Portfolio. The
management fee shall be payable by the Investment Adviser monthly to the
Sub-Adviser upon receipt by the Investment Adviser from the Portfolio of
advisory fees payable to the Investment Adviser. If this Agreement becomes
effective or terminates before the end of any month, the investment management
fee for the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
pro-rated according to the pro-ration which such period bears to the full month
in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
<PAGE>
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted
<PAGE>
by applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
<PAGE>
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
<PAGE>
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ KENNETH P. BEIL
- ------------------------ -------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: DEAN INVESTMENT ASSOCIATES
/s/ PATRICIA LEWIS By: /s/ JOHN C. RIAZZI
- ------------------------ --------------------
Name: John C. Riazzi
Title: Vice President
EXHIBIT 99.B5-8
EXHIBIT (D)(9)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL C.A.S.E. GROWTH
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
C.A.S.E. MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and C.A.S.E.
Management, Inc. ("Sub-Adviser"), a corporation organized and existing under the
laws of the State of Pennsylvania.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the C.A.S.E. Growth,
C.A.S.E. Growth & Income and C.A.S.E. Quality Growth Portfolios ("Portfolios"),
each a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolios and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolios for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolios in accordance with each
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolios in a manner consistent with each
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of each Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolios or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolios may own or contemplate acquiring from
time to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolios, the investment recommendations
of the Sub-Adviser, and the investment considerations which
have given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to 50% of the fees received by the Investment Adviser for
services rendered under the Advisory Agreement by the Investment Adviser to each
Portfolio. The management fee shall be payable by the Investment Adviser monthly
to the Sub-Adviser upon receipt by the Investment Adviser from each Portfolio of
advisory fees payable to the Investment Adviser. If this Agreement becomes
effective or terminates before the end of any month, the investment management
fee for the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
pro-rated according to the pro-ration which such period bears to the full month
in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolios pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
<PAGE>
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolios and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Portfolios' Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolios to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolios or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient
<PAGE>
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner the Sub-Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolios shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
<PAGE>
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of each Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to each Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of each
Portfolio; and (b) in either event, by the vote, case in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolios on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of each Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
<PAGE>
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: KENNETH P. BEIL
- ------------------------ --------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: C.A.S.E. MANAGEMENT, INC.
ANNA B. BERGER By JAMES M. LABONTE
- ------------------------ --------------------
Name: James M. LaBonte
Title: Chief Operating Officer
EXHIBIT 99.B5-9
EXHIBIT (D)(10)
CO-SUB-ADVISORY AGREEMENTS
ON BEHALF OF WRL GE/SCOTTISH EQUITABLE INTERNATIONAL EQUITY
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
SCOTTISH EQUITABLE INVESTMENT MANAGEMENT LIMITED
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and Scottish
Equitable Investment Management Limited ("Co-Sub-Adviser"), a corporation
organized and existing under the laws of Scotland, United Kingdom.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the International
Equity Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Co-Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Co-Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Co-Sub-Adviser is willing to
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Co-Sub-Adviser as an investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Co-Sub-Adviser accepts such appointment and agrees
to render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE CO-SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Co-Sub-Adviser shall act as an investment sub-adviser and shall
supervise and direct the investments of the Portfolio's assets under its
management in accordance with the Portfolio's investment objective, policies,
and restrictions as provided in the Fund's Prospectus and Statement of
Additional Information, as currently in effect and as amended or supplemented
from time to time (hereinafter referred to as the "Prospectus"), and such other
limitations as directed by the appropriate officers of the Investment Adviser or
the Fund by notice in writing to the Co-Sub-Adviser. The Co-Sub-Adviser shall
obtain and evaluate such information relating to the economy, industries,
businesses, securities markets, and securities as it may deem necessary or
useful in the discharge of its obligations hereunder and shall formulate and
implement a continuing program for the management of the assets and resources of
the Portfolio allocated to it in a manner consistent with the Portfolio's
investment objective, policies, and restrictions. In furtherance of this duty,
the Co-Sub-Adviser, on behalf of the Portfolio, is authorized, in its discretion
and without prior consultation with the Portfolio or the Investment Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Co-Sub-Adviser may select.
B. ADDITIONAL DUTIES OF CO-SUB-ADVISER. In addition to the
above, Co-Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers or other representatives to attend
meetings of the Fund and furnish oral or written reports, as
the Fund may reasonably require, in order to keep the Fund and
its officers and Board fully informed as to the condition of
the investment securities of the Portfolio, the investment
recommendations of the Co-Sub-Adviser, and the investment
considerations which have given rise to those recommendations;
and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF CO-SUB-ADVISER. In all matters relating
to the performance of this Agreement, the Co-Sub-Adviser shall act in conformity
with the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the
Co-Sub-Adviser pursuant to this Agreement, the Co-Sub-Adviser shall receive a
monthly investment management fee equal to (i) 50% of the fees received by the
Investment Adviser for services rendered under the Advisory Agreement by the
Investment Adviser with respect to the amount of the Portfolio's assets managed
by the Co-Sub-Adviser during such period, less (ii) 50% of the amount paid by
the Investment Adviser on behalf of the Portfolio pursuant to any expense
limitation with respect to the amount of the Portfolio's assets managed by the
Co-Sub-Adviser during such period. The management fee shall be payable by the
Investment Adviser monthly to the Co-Sub-Adviser upon receipt by the Investment
Adviser from the Portfolio of advisory fees payable to the Investment Adviser.
If this Agreement becomes effective or terminates before the end of any month,
the investment management fee for the period from the effective date to the end
of such month or from the beginning of such month to the date of termination, as
the case may be, shall be pro-rated according to the pro-ration which such
period bears to the full month in which such effectiveness or termination
occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Co-Sub-Adviser's performance
of its duties under this Agreement.
B. The Investment Adviser has furnished the Co-Sub-Adviser
with copies of each of the following documents and will furnish to the
Co-Sub-Adviser at its principal office all future amendments and supplements to
such documents, if any, as soon as practicable after such documents become
available:
<PAGE>
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the
Co-Sub-Adviser and approving the form of the Advisory
Agreement and this Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above) and any
amendments effected from time to time; and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
(8) Written instructions and directions of the Board and such
other limitations applicable from time to time, including
those specified in Clause 2.A.
The Investment Adviser shall furnish the Co-Sub-Adviser with any
further documents, materials or information that the Co-Sub-Adviser may
reasonably request to enable it to perform its duties pursuant to this
Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Co-Sub-Adviser at its principal office all prospectuses,
proxy statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Co-Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Co-Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Co-Sub-Adviser in any way, prior
to the use thereof, and the Investment Adviser shall not use any such materials
if the Co-Sub-Adviser reasonably objects in writing fifteen business days (or
such other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Co-Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Co-Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Co-Sub-Adviser determines in good faith that such
commission is reasonable in relation to the brokerage and research services
provided by the broker-dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Co-Sub-Adviser with respect
to the accounts as to which it exercises investment discretion (as such term is
defined under Section 3(a)(35) of the 1934 Act). In no instance will portfolio
<PAGE>
securities be purchased from or sold to the Co-Sub-Adviser, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder.
B. On occasions when the Co-Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Co-Sub-Adviser, the Co-Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Co-Sub-Adviser in the
manner the Co-Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Co-Sub-Adviser agrees
that orders with broker-dealers for the purchase or sale of portfolio securities
by the Portfolio shall be placed in accordance with the standards set forth in
the Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Co-Sub-Adviser shall maintain all books and records required to be
maintained by the Co-Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Co-Sub-Adviser hereby agrees: (i) that all records that it maintains for the
Fund are the property of the Fund, (ii) to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Co-Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Co-Sub-Adviser shall furnish to the Board or the Investment
Adviser, or both, as appropriate, such information, reports, evaluations,
analyses and opinions as the Co-Sub-Adviser and the Board or the Investment
Adviser, as appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Co-Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Co-Sub-Adviser,
who may also be a director, officer, or employee of the Fund, to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar nature
or a dissimilar nature.
9. REPRESENTATIONS OF CO-SUB-ADVISER.
The Co-Sub-Adviser represents, warrants, and agrees as follows:
A. The Co-Sub-Adviser: (i) is registered as an investment
adviser under the Advisers Act and will continue to be so registered for so long
as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or
the Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this Agreement remains
in effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Co-Sub-Adviser from serving as
an
<PAGE>
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
B. The Co-Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Co-Sub-Adviser has provided the Investment Adviser and
the Fund with a copy of its Form ADV as most recently filed with the SEC and
will, promptly after filing any amendment to its Form ADV with the SEC, furnish
a copy of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Co-Sub-Adviser shall furnish to the Fund,
promptly upon its request such information as may reasonably be necessary to
evaluate the terms of this Agreement or any extension, renewal, or amendment
hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Co-Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Co-Sub-Adviser, without the payment of any penalty; or (ii) if the
Co-Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Co-Sub-Adviser may terminate this Agreement at any time, or
preclude its renewal without the payment of any penalty, on at least 60 days'
prior notice to the Investment Adviser. This Agreement shall terminate
automatically in the event of its assignment or upon termination of the Advisory
Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
<PAGE>
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Co-Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ KENNETH P. BEIL
- ------------------------ -------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: SCOTTISH EQUITABLE INVESTMENT
MANAGEMENT LIMITED
/s/ IAN YOUNG By: /s/ PAUL NIVEN RITCHIE
- ------------------------ ----------------------
Solicitor Name: Paul Niven Ritchie
Title: Director
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
GE INVESTMENT MANAGEMENT INCORPORATED
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and GE Investment
Management Incorporated ("Co-Sub-Adviser"), a corporation organized and existing
under the laws of the State of Delaware.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the International
Equity Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Co-Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Co-Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Co-Sub-Adviser is willing to
furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Co-Sub-Adviser as an investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Co-Sub-Adviser accepts such appointment and agrees
to render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE CO-SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Co-Sub-Adviser shall act as an investment sub-adviser and shall
supervise and direct the investments of the Portfolio's assets under its
management in accordance with the Portfolio's investment objective, policies,
and restrictions as provided in the Fund's Prospectus and Statement of
Additional Information, as currently in effect and as amended or supplemented
from time to time (hereinafter referred to as the "Prospectus"), and such other
limitations as directed by the appropriate officers of the Investment Adviser or
the Fund by notice in writing to the Co-Sub-Adviser. The Co-Sub-Adviser shall
obtain and evaluate such information relating to the economy, industries,
businesses, securities markets, and securities as it may deem necessary or
useful in the discharge of its obligations hereunder and shall formulate and
implement a continuing program for the management of the assets and resources of
the Portfolio allocated to it in a manner consistent with the Portfolio's
investment objective, policies, and restrictions. In furtherance of this duty,
the Co-Sub-Adviser, on behalf of the Portfolio, is authorized, in its discretion
and without prior consultation with the Portfolio or the Investment Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Co-Sub-Adviser may select.
B. ADDITIONAL DUTIES OF CO-SUB-ADVISER. In addition to the
above, Co-Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend quarterly (or such less
frequent) meetings of the Fund in person, via telephone or
teleconference capabilities and furnish oral or written
reports, as the Fund may reasonably require, in order to keep
the Fund and its officers and Board fully informed as to the
condition of the investment securities of the Portfolio, the
investment recommendations of the Co-Sub-Adviser, and the
investment considerations which have given rise to those
recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF CO-SUB-ADVISER. In all matters relating
to the performance of this Agreement, the Co-Sub-Adviser shall act in conformity
with the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, either as reflected in the Registration Statement (as defined below) or
otherwise provided in writing to the Co-Sub-Adviser by the Investment Adviser,
and shall comply with the requirements of the 1940 Act, the Advisers Act, the
rules thereunder, and all other applicable federal and state laws and
regulations, either as reflected in the Registration Statement (as defined
below), or otherwise provided in writing to the Co-Sub-Adviser by the Investment
Adviser.
3. COMPENSATION.
For the services provided and the expenses assumed by the
Co-Sub-Adviser pursuant to this Agreement, the Co-Sub-Adviser shall receive a
monthly investment management fee equal to (i) 50% of the fees received by the
Investment Adviser for services rendered under the Advisory Agreement by the
Investment Adviser with respect to the amount of the Portfolio's assets managed
by the Co-Sub-Adviser during such period, less (ii) 50% of the amount paid by
the Investment Adviser on behalf of the Portfolio pursuant to any expense
limitation with respect to the amount of the Portfolio's assets managed by the
Co-Sub-Adviser during such period. The management fee shall be payable by the
Investment Adviser monthly to the Co-Sub-Adviser upon receipt by the Investment
Adviser from the Portfolio of advisory fees payable to the Investment Adviser.
If this Agreement becomes effective or terminates before the end of any month,
the investment management fee for the period from the effective date to the end
of such month or from the beginning of such month to the date of termination, as
the case may be, shall be pro-rated according to the pro-ration which such
period bears to the full month in which such effectiveness or termination
occurs. Any amount borne by the Co-Sub-Adviser pursuant to (ii) above in this
paragraph constitutes an agreement between the Investment Adviser and
Co-Sub-Adviser only for the first twelve months following commencement of
operations of the Portfolio. The fee payable to the Co-Sub-Adviser pursuant to
this paragraph will not be waived by the Co-Sub-Adviser or otherwise reduced by
any waiver or expense limitation affecting the fee that is payable to the
Investment Adviser under the Advisory Agreement, except as may be mutually
agreed upon by the Co-Sub-Adviser and the Investment Adviser.
<PAGE>
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Co-Sub-Adviser's performance
of its duties under this Agreement.
B. The Investment Adviser has furnished the Co-Sub-Adviser
with copies of each of the following documents and will furnish to the
Co-Sub-Adviser at its principal office all future amendments and supplements to
such documents, if any, as soon as practicable after such documents become
available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles");
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the
Co-Sub-Adviser and approving the form of the Advisory
Agreement and this Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended ("1933 Act"), on Form
N-1A, as filed with the Securities and Exchange Commission
("SEC") relating to the Portfolio and its shares and all
amendments thereto ("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto;
(6) The Fund's Prospectus and Statement of Additional
Information (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Co-Sub-Adviser with any
further documents, materials or information that the Co-Sub-Adviser may
reasonably request to enable it to perform its duties pursuant to this
Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Co-Sub-Adviser at its principal office all prospectuses,
proxy statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Co-Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Co-Sub-Adviser in any way, prior to the use thereof,
and the Investment Adviser shall not use any such materials if the
Co-Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Co-Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Co-Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e)
<PAGE>
of the Securities Exchange Act of 1934, as amended ("1934 Act"), a higher
commission than that which might have been charged by another broker-dealer for
effecting the same transactions, if the Co-Sub-Adviser determines in good faith
that such commission is reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Co-Sub-Adviser
with respect to the accounts as to which it exercises investment discretion (as
such term is defined under Section 3(a)(35) of the 1934 Act). In no instance
will portfolio securities be purchased from or sold to the Co-Sub-Adviser, or
any affiliated person thereof, except in accordance with the federal securities
laws and the rules and regulations thereunder.
B. On occasions when the Co-Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Co-Sub-Adviser, the Co-Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Co-Sub-Adviser in the
manner the Co-Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Co-Sub-Adviser agrees
that orders with broker-dealers for the purchase or sale of portfolio securities
by the Portfolio shall be placed in accordance with the standards set forth in
the Advisory Agreement, and the Investment Adviser acknowledges in this
Agreement the specific authority given to both the Investment Adviser and the
Co-Sub-Adviser under the Advisory Agreement with respect to the placement of
brokerage.
6. OWNERSHIP OF RECORDS.
The Co-Sub-Adviser shall maintain all books and records required to be
maintained by the Co-Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Co-Sub-Adviser hereby agrees: (i) that all records that it maintains for the
Fund are the property of the Fund, (ii) to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Co-Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Co-Sub-Adviser shall furnish to the Board or the Investment
Adviser, or both, as appropriate, such information, reports, evaluations,
analyses and opinions as the Co-Sub-Adviser and the Board or the Investment
Adviser, as appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Co-Sub-Adviser, or any affiliated person thereof, to render
investment advisory, management and corporate administrative services to any
other investment companies, to act as investment manager or investment counselor
to any other persons, firms, or corporations, or to engage in any other business
activities, or (ii) the right of any director, officer, or employee of the
Co-Sub-Adviser, who may also be a director, officer, or employee of the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
nature or a dissimilar nature.
<PAGE>
9. REPRESENTATIONS OF CO-SUB-ADVISER.
The Co-Sub-Adviser represents, warrants, and agrees as follows:
A. The Co-Sub-Adviser: (i) is registered as an investment
adviser under the Advisers Act and will continue to be so registered for so long
as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or
the Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will seek to continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory agency,
necessary to be met in order to perform the services contemplated by this
Agreement; (iv) has the authority to enter into and perform the services
contemplated by this Agreement; and (v) will promptly notify the Investment
Adviser of the occurrence of any event that would disqualify the Co-Sub-Adviser
from serving as an investment adviser of an investment company pursuant to
Section 9 (a) of the 1940 Act or otherwise.
B. The Co-Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Co-Sub-Adviser has provided the Investment Adviser and
the Fund with a copy of its Form ADV as most recently filed with the SEC and
will, promptly after filing any amendment to its Form ADV with the SEC, furnish
a copy of such amendment to the Investment Adviser.
10. REPRESENTATIONS AND WARRANTIES OF INVESTMENT ADVISER.
The Investment Adviser represents, warrants and agrees as follows:
A. The Investment Adviser (i) is registered as an investment
adviser under the Advisers Act and will continue to be so registered for so long
as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act from
performing the services contemplated by the Advisory Agreement; (iii) has met,
and will seek to continue to meet for so long as this Agreement remains in
effect, any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by the Advisory Agreement;
(iv) has the authority to enter into and perform the services contemplated by
the Advisory Agreement and has the authority to enter into this Agreement; and
(v) will promptly notify the Co-Sub-Adviser of the occurrence of any event that
would disqualify the Investment Adviser from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
B. The Investment Adviser agrees that it will notify the
Co-Sub-Adviser, to the extent possible, within a reasonable period of time prior
to any termination of this Agreement pursuant to Section 14 which arises from a
termination of the Advisory Agreement (including any termination by assignment
resulting from a foreseeable change in control of the Investment Adviser that is
a matter of public information).
11. LIMITATION OF LIABILITY.
The Co-Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Portfolio, the Fund or its
shareholders or by the Investment Adviser in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
<PAGE>
12. INDEMNIFICATION.
A. The Investment Adviser agrees to indemnify the
Co-Sub-Adviser, its officers and directors, and any person who controls the
Co-Sub-Adviser within the meaning of Section 15 of the 1933 Act for any loss or
expense (including attorney's fees) arising out of any claim, demand, action or
suit in the event that the Co-Sub-Adviser has been found to be without fault and
the Investment Adviser or any other investment sub-adviser to the Portfolio, or
any person who controls the Investment Adviser or such other investment
sub-adviser within the meaning of Section 15 of the 1933 Act has been found at
fault (i) by the final judgment of a court of competent jurisdiction or (ii) in
any order of settlement of any claim, demand, action or suit that has been
approved by the Board of Directors of the Investment Adviser, such other
investment sub-adviser or such other controlling person.
B. The Co-Sub-Adviser agrees to indemnify the Investment
Adviser, its officers and directors, and any person who controls the Investment
Adviser within the meaning of Section 15 of the 1933 Act for any loss or expense
(including attorney's fees) arising out of any claim, demand, action or suit in
the event that the Investment Adviser has been found to be without fault and the
Co-Sub-Adviser or any person who controls the Co-Sub-Adviser within the meaning
of Section 15 of the 1933 Act has been found at fault (i) by the final judgment
of a court of competent jurisdiction or (ii) in any order of settlement of any
claim, demand, action or suit that has been approved by the Board of Directors
of the Co-Sub-Adviser or such other controlling person.
13. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Co-Sub-Adviser shall furnish to the Fund,
promptly upon its request such information as may reasonably be necessary to
evaluate the terms of this Agreement or any extension, renewal, or amendment
hereof.
14. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Co-Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Co-Sub-Adviser, without the payment of any penalty; or (ii) if the
Co-Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Co-Sub-Adviser may terminate this Agreement at any time, or
preclude its renewal without the payment of any penalty, on at least 60 days'
prior notice to the Investment Adviser. This Agreement shall terminate
automatically in the event of its assignment or upon termination of the Advisory
Agreement.
15. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a
<PAGE>
majority of the Portfolio's outstanding voting securities, unless otherwise
permitted in accordance with the 1940 Act.
16. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Co-Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: KENNETH P. BEIL
- ------------------------ ---------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: GE INVESTMENT MANAGEMENT INCORPORATED
ILLEGIBLE By /s/ MICHAEL J. COSGROVE
- ------------------------- ------------------------
Assistant Secretary Name: Michael J. Cosgrove
Title: Executive Vice President
EHIBIT 99.B5-10
EXHIBIT (D)(11)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL NWQ VALUE EQUITY
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
NWQ INVESTMENT MANAGEMENT COMPANY, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and NWQ Investment
Management Company, Inc. ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Massachusetts.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Value Equity
Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of
the Sub-Adviser, and the investment considerations which have
given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to (i) 50% of the fees received by the Investment Adviser
for services rendered under the Advisory Agreement by the Investment Adviser to
the Portfolio, less (ii) 50% of the amount paid by the Investment Adviser on
behalf of the Portfolio pursuant to any expense limitation or the amount of any
other reimbursement made by the Investment Adviser to the Portfolio. The
management fee shall be payable by the Investment Adviser monthly to the
Sub-Adviser upon receipt by the Investment Adviser from the Portfolio of
advisory fees payable to the Investment Adviser. If this Agreement becomes
effective or terminates before the end of any month, the investment management
fee for the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
pro-rated according to the pro-ration which such period bears to the full month
in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
<PAGE>
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
<PAGE>
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1(f) under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
<PAGE>
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
<PAGE>
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: KENNETH P. BEIL
- ------------------------ ---------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: NWQ INVESTMENT MANAGEMENT COMPANY, INC.
/s/ MARY-GENE SLAVIN By DAVID A. POLAK
- ------------------------ ---------------
Mary-Gene Slavin Name: David A. Polak
Secretary/Treasurer Title: President
EHIBIT 99.B5-11
EXHIBIT (D)(12)
SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL GE U.S. EQUITY
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
GE INVESTMENT MANAGEMENT INCORPORATED
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of State of Florida and GE Investment
Management Incorporated ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Delaware.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the U.S. Equity
Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services.
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend quarterly (or such less
frequent) meetings of the Fund in person, via telephone or
teleconference capabilities and furnish oral or written
reports, as the Fund may reasonably require, in order to keep
the Fund and its officers and Board fully informed as to the
condition of the investment securities of the Portfolio, the
investment recommendations of the Sub-Adviser, and the
investment considerations which have given rise to those
recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, either as reflected in the Registration Statement (as defined below) or
otherwise provided in writing to the Sub-Adviser by the Investment Adviser, and
shall comply with the requirements of the 1940 Act, the Advisers Act, the rules
thereunder, and all other applicable federal and state laws and regulations,
either as reflected in the Registration Statement (as defined below), or
otherwise provided in writing to the Sub-Adviser by the Investment Adviser.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to (i) 50% of the fees received by the Investment Adviser
for services rendered under the Advisory Agreement by the Investment Adviser
with respect to the Portfolio, less (ii) 50% of the amount paid by the
Investment Adviser on behalf of the Portfolio pursuant to any expense limitation
applicable to the Portfolio. The management fee shall be payable by the
Investment Adviser monthly to the Sub-Adviser upon receipt by the Investment
Adviser from the Portfolio of advisory fees payable to the Investment Adviser.
If this Agreement becomes effective or terminates before the end of any month,
the investment management fee for the period from the effective date to the end
of such month or from the beginning of such month to the date of termination, as
the case may be, shall be pro-rated according to the pro-ration which such
period bears to the full month in which such effectiveness or termination
occurs. Any amount borne by the Sub-Adviser pursuant to (ii) above in this
paragraph constitutes an agreement between the Investment Adviser and
Sub-Adviser only for the first twelve months following commencement of
operations of the Portfolio. The fee payable to the Sub-Adviser pursuant to this
paragraph will not be waived by the Sub-Adviser or otherwise reduced by any
waiver or expense limitation affecting the fee that is payable to the Investment
Adviser under the Advisory Agreement, except as may be mutually agreed to by the
Sub-Adviser and the Investment Adviser.
<PAGE>
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles");
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended ("1933 Act"), on Form
N-1A, as filed with the Securities and Exchange Commission
("SEC") relating to the Portfolio and its shares and all
amendments thereto ("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto;
(6) The Fund's Prospectus and Statement of Additional
Information (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser in any way, prior to the use thereof,
and the Investment Adviser shall not use any such materials if the Sub-Adviser
reasonably objects in writing fifteen business days (or such other time as may
be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might
<PAGE>
have been charged by another broker-dealer for effecting the same transactions,
if the Sub-Adviser determines in good faith that such commission is reasonable
in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement, and the Investment Adviser acknowledges in this Agreement
the specific authority given to both the Investment Adviser and the Sub-Adviser
under the Advisory Agreement with respect to the placement of brokerage.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment advisory, management and corporate administrative services to any
other investment companies, to act as investment manager or investment counselor
to any other persons, firms, or corporations, or to engage in any other business
activities, or (ii) the right of any director, officer, or employee of the
Sub-Adviser, who may also be a director, officer, or employee of the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
nature or a dissimilar nature.
<PAGE>
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will seek to continue to meet for so long as this Agreement remains
in effect, any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will promptly notify the Investment Adviser of the occurrence
of any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9 (a) of the 1940 Act or
otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. REPRESENTATIONS AND WARRANTIES OF INVESTMENT ADVISER.
The Investment Adviser represents, warrants and agrees as follows:
A. The Investment Adviser (i) is registered as an investment
adviser under the Advisers Act and will continue to be so registered for so long
as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act from
performing the services contemplated by the Advisory Agreement; (iii) has met,
and will seek to continue to meet for so long as this Agreement remains in
effect, any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by the Advisory Agreement;
(iv) has the authority to enter into and perform the services contemplated by
the Advisory Agreement and has the authority to enter into this Agreement; and
(v) will promptly notify the Sub-Adviser of the occurrence of any event that
would disqualify the Investment Adviser from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
B. The Investment Adviser agrees that it will notify the
Sub-Adviser, to the extent possible, within a reasonable period of time prior to
any termination of this Agreement pursuant to Section 14 which arises from a
termination of the Advisory Agreement (including any termination by assignment
resulting from a foreseeable change in control of the Investment Adviser that is
a matter of public information).
11. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Portfolio, the Fund or its
shareholders or by the Investment Adviser in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
<PAGE>
12. INDEMNIFICATION.
A. The Investment Adviser agrees to indemnify the Sub-Adviser,
its officers and directors, and any person who controls the Sub-Adviser within
the meaning of Section 15 of the 1933 Act for any loss or expense (including
attorney's fees) arising out of any claim, demand, action or suit in the event
that the Sub-Adviser has been found to be without fault and the Investment
Adviser or any other investment sub-adviser to the Portfolio, or any person who
controls the Investment Adviser or such other investment sub-adviser within the
meaning of Section 15 of the 1933 Act has been found at fault (i) by the final
judgment of a court of competent jurisdiction or (ii) in any order of settlement
of any claim, demand, action or suit that has been approved by the Board of
Directors of the Investment Adviser, such other investment sub-adviser or such
other controlling person.
B. The Sub-Adviser agrees to indemnify the Investment Adviser,
its officers and directors, and any person who controls the Investment Adviser
within the meaning of Section 15 of the 1933 Act for any loss or expense
(including attorney's fees) arising out of any claim, demand, action or suit in
the event that the Investment Adviser has been found to be without fault and the
Sub-Adviser or any person who controls the Sub-Adviser within the meaning of
Section 15 of the 1933 Act has been found at fault (i) by the final judgment of
a court of competent jurisdiction or (ii) in any order of settlement of any
claim, demand, action or suit that has been approved by the Board of Directors
of the Sub-Adviser or such other controlling person.
13. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
14. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement.
15. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
<PAGE>
16. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ KENNETH P. BEIL
- ------------------------ --------------------
Assistant Secretary Name: Kenneth P. Beil
Title: President and Treasurer
Attest: GE INVESTMENT MANAGEMENT INCORPORATED
ILLEGIBLE By /s/ MICHAEL J. COSGROVE
- ------------------------- ------------------------
Assistant Secretary Name: Michael J. Cosgrove
Title: Executive Vice President
EHIBIT 99.B5-12
EXHIBIT (D)(13)
SUB-ADVISORY AGREEMENT ON BEHALF OF WRL THIRD AVENUE VALUE
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
EQSF ADVISERS, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1998,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and EQSF Advisers,
Inc. ("Sub-Adviser"), a corporation organized and existing under the laws of the
State of New York.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Third Avenue
Value Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of
the Sub-Adviser, and the investment considerations which have
given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to (i) 50% of the fees received by, or expense
reimbursement returned to, the Investment Adviser for services rendered under
the Advisory Agreement by the Investment Adviser to the Portfolio, less (ii) 50%
of the amount paid by the Investment Adviser on behalf of the Portfolio pursuant
to any expense limitation or the amount of any other reimbursement made by the
Investment Adviser to the Portfolio. The management fee shall be payable by the
Investment Adviser monthly to the Sub-Adviser upon receipt by the Investment
Adviser from the Portfolio of advisory fees payable to the Investment Adviser.
If this Agreement becomes effective or terminates before the end of any month,
the investment management fee for the period from the effective date to the end
of such month or from the beginning of such month to the date of termination, as
the case may be, shall be pro-rated according to the pro-ration which such
period bears to the full month in which such effectiveness or termination
occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement. Notwithstanding the Investment Advisory
Agreement, the Sub-Adviser has the authority to buy, sell, exchange, convert,
lend, and otherwise trade in any stocks, bonds and other securities or assets on
behalf of the Portfolio.
<PAGE>
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing within fifteen business days (or
such other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). Pursuant to such factors, the Sub-Adviser may utilize
one or more
<PAGE>
of its affiliates as broker for transactions for the Portfolio. In no instance
will portfolio securities be purchased from or sold to the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1(f) under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment
<PAGE>
Adviser of the occurrence of any event that would disqualify the Sub-Adviser
from serving as an investment adviser of an investment company pursuant to
Section 9 (a) of the 1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
The Investment Adviser represents, warrants, and agrees as follows:
The Investment Adviser: (i) is registered as an investment
adviser under the Advisers Act and will continue to be so registered for so long
as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or
the Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this Agreement remains
in effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Sub- Adviser of the occurrence of
any event that would disqualify the Investment Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement. The Sub-Adviser may terminate this Agreement at any time, or preclude
its renewal without the payment of any penalty, on at least 60 days' prior
notice to the Investment Adviser. This Agreement shall terminate automatically
in the event of its assignment or upon termination of the Advisory Agreement. In
the event this Agreement is terminated as described above, the Investment
Adviser agrees to change the name of the Portfolio to delete reference to "Third
Avenue."
<PAGE>
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized signatories as of the date
and year first above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/JOHN R. KENNEY
- ------------------------ -----------------
Assistant Secretary Name: John R. Kenney
Title: President
Attest: EQSF ADVISERS, INC.
/s/ IAN KIRSCHNER By: /s/ DAVID BARSE
- ------------------------ -----------------
Name: David Barse
Title: Executive Vice President
EHIBIT 99.B5-13
EXHIBIT (D)(14)
SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL AEGON BALANCED
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
AEGON USA INVESTMENT MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1997,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and AEGON USA
Investment Management, Inc. ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of Iowa.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Balanced
Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of
the Sub-Adviser, and the investment considerations which have
given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations. Sub-Adviser makes no representation or warranty, express or
implied, that any level of performance or investment results will be achieved by
any Portfolio, or that any Portfolio will perform comparably with any standard
or index, including other clients of Sub-Adviser, whether public or private.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to (i) 50% of the fees received by the Investment Adviser
for services rendered under the Advisory Agreement by the Investment Adviser to
the Portfolio, less (ii) 50% of the amount paid by the Investment Adviser on
behalf of the Portfolio pursuant to any expense limitation or the amount of any
other reimbursement made by the Investment Adviser to the Portfolio. The
management fee shall be payable by the Investment Adviser monthly to the
Sub-Adviser upon receipt by the Investment Adviser from the Portfolio of
advisory fees payable to the Investment Adviser. If this Agreement becomes
effective or terminates before the end of any month, the investment management
fee for the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
pro-rated according to the pro-ration which such period bears to the full month
in which such effectiveness or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available and,
<PAGE>
when possible, before such amendments or supplements become effective:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement and any other resolutions of the Board applicable to
the Sub-Adviser's duties under this Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
<PAGE>
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
<PAGE>
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. CONFIDENTIALITY AND PROPRIETARY RIGHTS.
Sub-Adviser will not, directly or indirectly, and will not permit its
affiliates employees, officers, directors, agents, contractors, or the Portfolio
to use, disclose or furnish to any person or entity, records or information
concerning the business of Sub-Adviser, except as necessary for the performance
of its duties under this Agreement or the Advisory Agreement, or as required by
law upon prior written notice to Sub-Adviser. Sub-Adviser is the sole owner of
the name and mark "AEGON USA Investment Management, Inc." Sub-Adviser shall not,
and shall not permit the Portfolio to, without prior written consent of
Sub-Adviser, use the name or mark "AEGON USA Investment Management, Inc." or
make representations regarding Sub-Adviser or its affiliates. Upon termination
of this Agreement for any reason, Investment Adviser shall immediately cease,
and shall cause the Portfolio to immediately cease, all use of the AEGON USA
Investment Management, Inc. name or any AEGON USA Investment Management, Inc.
mark.
11. LIABILITY.
Except as may otherwise be provided by the 1940 Act, or other federal
securities laws, neither Sub-Adviser nor any of its affiliates, officers,
directors, shareholders, employees, or agents shall be liable for any loss,
liability, cost, damage, or expense (including reasonable attorneys' fees and
costs) (collectively, referred to in this Agreement as "Losses"), except for
Losses resulting from Sub-Adviser's gross negligence, bad faith, or willful
misconduct or reckless disregard of its obligations and duties under this
Agreement. Investment Adviser shall hold harmless and indemnify Sub-Adviser, its
affiliates, directors, officers, shareholders, employees or agents for any Loss
not resulting from Sub-Adviser's gross negligence, bad faith, or willful
misconduct or reckless disregard of its obligations and duties under this
Agreement. The obligations contained in this Section 11 shall survive
termination of this Agreement.
12. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
13. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated
<PAGE>
by the Investment Adviser: (i) on at least 60 days' prior written notice to the
Sub-Adviser, without the payment of any penalty; or (ii) if the Sub-Adviser
becomes unable to discharge its duties and obligations under this Agreement. The
Sub-Adviser may terminate this Agreement at any time, or preclude its renewal
without the payment of any penalty, on at least 60 days' prior notice to the
Investment Adviser. This Agreement shall terminate automatically in the event of
its assignment or upon termination of the Advisory Agreement.
14. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
15. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized signatories as of the date
and year first above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ JOHN R. KENNEY
- ------------------------ ------------------
Assistant Secretary Name: John R. Kenney
Title: President
Attest: AEGON USA INVESTMENT MANAGEMENT, INC.
/s/ GREGORY W. THEOBALD By /s/ CLIFFORD A. SHEETS
- ------------------------ ---------------------
Gregory W. Theobald Name: Clifford A. Sheets
Vice President & Secretary Title: Executive Vice President
EXHIBIT 99.B5-14
EXHIBIT (D)(15)
SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL AEGON BOND
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
AEGON USA INVESTMENT MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of January, 1998,
between WRL Investment Management, Inc. ("Investment Adviser"), a corporation
organized and existing under the laws of the State of Florida and AEGON USA
Investment Management, Inc. ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of Iowa.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Bond Portfolio
("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of the Portfolio in accordance with the
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Portfolio in a manner consistent with the
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of the Portfolio, is authorized, in its
discretion and without prior consultation with the Portfolio or the Investment
Adviser, to:
<PAGE>
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which the Portfolio may own or contemplate acquiring from time
to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of the Portfolio, the investment recommendations of
the Sub-Adviser, and the investment considerations which have
given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations. Sub-Adviser makes no representation or warranty, express or
implied, that any level of performance or investment results will be achieved by
any Portfolio, or that any Portfolio will perform comparably with any standard
or index, including other clients of Sub-Adviser, whether public or private.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive a monthly investment
management fee equal to (i) 0.20% of monthly average daily net assets of the
Portfolio, less (ii) 50% of the amount paid by the Investment Adviser on behalf
of the Portfolio pursuant to any expense limitation or the amount of any other
reimbursement made by the Investment Adviser to the Portfolio. The management
fee shall be payable by the Investment Adviser monthly to the Sub-Adviser upon
receipt by the Investment Adviser from the Portfolio of advisory fees payable to
the Investment Adviser. If this Agreement becomes effective or terminates before
the end of any month, the investment management fee for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be pro-rated according to the
pro-ration which such period bears to the full month in which such effectiveness
or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to the Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available and, when
possible, before such amendments or supplements become effective:
<PAGE>
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles"):
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement and any other resolutions of the Board applicable to
the Sub-Adviser's duties under this Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to the Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto:
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rules and regulations
thereunder.
<PAGE>
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
the Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
<PAGE>
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
10. CONFIDENTIALITY AND PROPRIETARY RIGHTS.
Sub-Adviser will not, directly or indirectly, and will not permit its
affiliates employees, officers, directors, agents, contractors, or the Portfolio
to use, disclose or furnish to any person or entity, records or information
concerning the business of Sub-Adviser, except as necessary for the performance
of its duties under this Agreement or the Advisory Agreement, or as required by
law upon prior written notice to Sub-Adviser. Sub-Adviser is the sole owner of
the name and mark "AEGON USA Investment Management, Inc." Sub-Adviser shall not,
and shall not permit the Portfolio to, without prior written consent of
Sub-Adviser, use the name or mark "AEGON USA Investment Management, Inc." or
make representations regarding Sub-Adviser or its affiliates. Upon termination
of this Agreement for any reason, Investment Adviser shall immediately cease,
and shall cause the Portfolio to immediately cease, all use of the AEGON USA
Investment Management, Inc. name or any AEGON USA Investment Management, Inc.
mark.
11. LIABILITY.
Except as may otherwise be provided by the 1940 Act, or other federal
securities laws, neither Sub-Adviser nor any of its affiliates, officers,
directors, shareholders, employees, or agents shall be liable for any loss,
liability, cost, damage, or expense (including reasonable attorneys' fees and
costs) (collectively, referred to in this Agreement as "Losses"), except for
Losses resulting from Sub-Adviser's gross negligence, bad faith, or willful
misconduct or reckless disregard of its obligations and duties under this
Agreement. Investment Adviser shall hold harmless and indemnify Sub-Adviser, its
affiliates, directors, officers, shareholders, employees or agents for any Loss
not resulting from Sub-Adviser's gross negligence, bad faith, or willful
misconduct or reckless disregard of its obligations and duties under this
Agreement. The obligations contained in this Section 11 shall survive
termination of this Agreement.
12. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to the Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of the
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
13. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated
<PAGE>
by the Investment Adviser: (i) on at least 60 days' prior written notice to the
Sub-Adviser, without the payment of any penalty; or (ii) if the Sub-Adviser
becomes unable to discharge its duties and obligations under this Agreement. The
Sub-Adviser may terminate this Agreement at any time, or preclude its renewal
without the payment of any penalty, on at least 60 days' prior notice to the
Investment Adviser. This Agreement shall terminate automatically in the event of
its assignment or upon termination of the Advisory Agreement.
14. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Portfolio's outstanding voting securities, unless
otherwise permitted in accordance with the 1940 Act.
15. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term of
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA A. HECHLER By: /s/ JOHN R. KENNEY
- ------------------------ ------------------
Assistant Secretary Name: John R. Kenney
Title: President
Attest: AEGON USA INVESTMENT MANAGEMENT, INC.
/s/ GREGORY THEOBALD By /s/ CLIFFORD A. SHEETS
- ------------------------ ---------------------
Gregory Theobald Name: Clifford A. Sheets
Vice President & Title: Executive Vice President
EHIBIT 99.B5-15
EXHIBIT (D)(16)
SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL J.P. MORGAN REAL ESTATE SECURITIES
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
J. P. MORGAN INVESTMENT MANAGEMENT INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of May, 1998, between
WRL Investment Management, Inc. ("Investment Adviser"), a corporation organized
and existing under the laws of the State of Florida and J. P. Morgan Investment
Management Inc. ("Sub-Adviser"), a corporation organized and existing under the
laws of the State of Delaware.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of the Real Estate
Securities Portfolio ("Portfolio"), a separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to the Portfolio and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. INVESTMENT DESCRIPTION: APPOINTMENT.
The Investment Adviser desires to employ the capital of the Portfolio
by investing and reinvesting in investments of the kind and in accordance with
the limitations specified in the Fund's Articles of Incorporation, as amended to
date (the "Charter Document"), and in the prospectus (the "Prospectus") and the
statement of additional information (the "Statement") for the Fund filed with
the Securities and Exchange Commission as part of the Fund's Registration
Statement on Form N-1A, as amended or supplemented from time to time, and in
such manner and to such extent as from time to time may be approved by the
Fund's Board of Directors. Copies of the Prospectus, the Statement and the
Charter Document, each as currently in effect, have been delivered to the
Sub-Adviser. The Investment Adviser agrees, on an ongoing basis, to provide to
the Sub-Adviser as promptly as practicable, copies of all amendments and
supplements to the Prospectus and Statement and amendments to the Charter
Document. The Advisory Agreement provides that the Investment Adviser may engage
a Sub-Adviser to perform the services contemplated hereunder. The Investment
Adviser desires to engage and hereby appoints the Sub-Adviser to act as
investment sub-adviser to the Portfolio. The Sub-Adviser accepts the appointment
and agrees to furnish the services described herein for the compensation set
forth below.
<PAGE>
2. SERVICES AS INVESTMENT SUB-ADVISER, GUIDELINES AND ADVICE.
Subject to the supervision of the Investment Adviser and the Board of
Directors of the Fund, the Sub-Adviser will (a) manage the Portfolio's assets in
accordance with the Portfolio's investment objective(s) and policies stated in
the Prospectus, the Statement and the Charter Document, but subject to
Guidelines (as such term is defined below); (b) make investment decisions for
the Portfolio; (c) place purchase and sale orders for portfolio transactions for
the Portfolio; and (d) employ professional portfolio managers and securities
analysts to provide research services to the Portfolio; (e) furnish statistical
and analytical information and reports as may reasonably be required by the
Investment Adviser from time to time, and, in providing these services, conduct
a continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Portfolio's assets; (f) cause its officers to attend
meetings of the Fund's Board of Directors and furnish oral or written reports,
as the Investment Adviser may reasonably require, in order to keep the
Investment Adviser and its officers and the Directors of the Fund and
appropriate officers of the Fund fully informed as to the condition of the
investment securities of the Portfolio, the investment recommendations of the
Sub-Adviser, and the investment considerations which have given rise to those
recommendations.
The Investment Adviser agrees on an on-going basis to provide or cause
to be provided to the Sub-Adviser guidelines, to be revised as provided below
(the "Guidelines"), setting forth limitations, by dollar amount or percentage of
net assets, on the types of securities in which the Portfolio is permitted to
invest or investment activities in which the Portfolio is permitted to engage.
Among other matters, the Guidelines shall set forth clearly the limitations
imposed upon the Portfolio as a result of relevant diversification requirements
under state and federal law pertaining to insurance products, including, without
limitation, the provisions of Section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"). The Guidelines shall remain in effect until 12:00
p.m. on the third business day following actual receipt by the Sub-Adviser of a
written notice, denominated clearly as such, setting forth revised Guidelines.
The Investment Adviser agrees that the Sub-Adviser may rely on the Guidelines
without independent verification of their accuracy.
3. BROKERAGE.
In selecting brokers or dealers to execute transactions on behalf of
the Portfolio, the Sub-Adviser will seek the best overall terms available. In
assessing the best overall terms available for any transaction, the Sub-Adviser
will consider factors it deems relevant, including, without limitation, the
breadth of the market in the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute a particular transaction, and in evaluating the
best overall terms available, the Sub-Adviser is authorized to consider the
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Portfolio and/or
other accounts over which the Sub-Adviser or its affiliates exercise investment
discretion.
4. STANDARD OF CARE.
The Sub-Adviser shall exercise its best judgment in rendering the
services described in paragraph 2 and 3 above. The Sub-Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such act or omission shall be
referred to as "Disqualifying Conduct"). The Sub-Adviser shall not be deemed to
have engaged in Disqualifying Conduct if it complies with the Guidelines and the
Sub-Adviser's failure to act in accordance therewith shall not constitute
evidence that it engaged in Disqualifying Conduct.
5. COMPENSATION.
In consideration of the services rendered pursuant to this Agreement,
the Investment Adviser will pay the Sub-Adviser on the first business day of
each month a fee for the previous month at the annual rate of
<PAGE>
0.40% of the Portfolio's average daily net assets. The fee for the period from
the date of the initial sale of the Portfolio's shares to the end of the month
during which such sale shall have been commenced shall be prorated according to
the proportion that such period bears to the full monthly period. Upon
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purposes of determining fees payable to
the Sub-Adviser, the value of the Portfolio's net assets shall be computed at
the times and in the manner specified in the Prospectus and/or the Statement.
6. EXPENSES.
The Sub-Adviser will bear all of its expenses in connection with the
performance of its services under this Agreement. All other expenses to be
incurred in the operation of the Portfolio will be borne by the Fund or the
Investment Adviser, as appropriate, except to the extent specifically assumed by
the Sub-Adviser. The expenses to be borne by the Fund or the Investment Adviser,
as appropriate, include, without limitation, the following: organizational
costs, taxes, interest, brokerage fees and commissions, Directors' fees,
Securities and Exchange Commission filing fees, if any, advisory fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, industry association fees, outside auditing and legal expenses, costs
of independent pricing services, costs of maintaining existence, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing stockholders, costs of stockholders' reports and meetings, and
extraordinary expenses.
7. SERVICES TO OTHER COMPANIES OR ACCOUNTS.
The Investment Adviser understands that the Sub-Adviser now acts, will
continue to act and may act in the future as investment adviser to fiduciary and
other managed accounts and as investment adviser to other investment companies,
and the Investment Adviser has no objection to the Sub-Adviser so acting,
provided that, whenever the Portfolio and one or more other accounts or
investment companies advised by the Sub-Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a methodology believed to be equitable to each entity. The
Sub-Adviser agrees to allocate similarly opportunities to sell securities. The
Investment Adviser recognizes that, in some cases, this procedure may limit the
size of the position that may be acquired or sold for the Portfolio. The
Investment Adviser understands that the persons employed by the Sub-Adviser to
assist in the performance of the Sub-Adviser's duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of the Sub-Adviser or any affiliate of the
Sub-Adviser to engage in and devote time and attention to other business or to
render services of whatever kind or nature.
8. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the
Portfolio are the property of the Fund and further agrees to surrender promptly
to the Fund copies of any of such records upon the Fund's or the Investment
Adviser's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records relating to its
activities hereunder required to be maintained by Rule 31a-1 under the 1940 Act
and to preserve the records relating to its activities hereunder required by
Rule 204-2 under the Advisers Act, for the period specified in said Rule.
<PAGE>
9. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purposes of
voting on such approval, and (ii) by vote of a majority of the Portfolio's
outstanding voting securities. Unless sooner terminated as provided herein, this
Agreement shall continue in effect for two years from its effective date.
Thereafter, this Agreement shall continue in effect from year to year, provided
such continuance is specifically approved at least annually by (i) the Fund's
Board or (ii) a vote of a "majority" (as defined in the 1940 Act) of the
Portfolio's outstanding voting securities, provided that in either event the
continuance is approved by a majority of the Fund's Board who are not interested
persons of any party to this Agreement by vote cast in person at a meeting
called for the purpose of voting such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Investment Adviser, by the
Fund's Board, by vote of holders of a majority of the Portfolio's shares or by
the Sub-Adviser, and will terminate five business days after the Sub-Adviser
receives written notice of the termination of the advisory agreement between the
Fund and the Investment Adviser. This Agreement also will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. INDEMNIFICATION.
The Investment Adviser agrees to indemnify and hold harmless the
Sub-Adviser and each person who controls or is associated with the Sub-Adviser
within the meaning of such terms under the federal securities laws and any
officer, trustee, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection
therewith) under any statute or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
(1) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material
fact contained in the variable annuity contracts and
variable life insurance policies (both contracts and
policies, collectively referred to as "Contracts") for
which the Portfolio serves as an underlying investment
option, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the
Prospectuses or Statements for the Contracts, (iii) any
sales literature for the Contracts, (or any amendment or
supplement to any of the foregoing), or (iv) the
statement or omission to state or the alleged statement
or alleged omission to state in the Prospectuses or
Statements for the Contracts a material fact required to
be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in
which they were made; provided, that this provision shall
not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon
and in conformity with information furnished to the
Investment Adviser by the Sub-Adviser for use in the
Contracts, or the Prospectuses or the Statements for the
Contracts, or sales literature (or any amendment or
supplement), or otherwise for use in connection with the
sales of the Contracts or Portfolio shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Sub-Adviser (other
than statements or representations contained in the
Contracts, the Prospectuses or Statements, or sales
literature for the Contracts supplied by the Sub-Adviser
or persons under its control) or wrongful conduct of the
Investment Adviser or persons under its control with
respect to the sales or distribution of the Contracts or
Portfolio shares; or
(3) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material
fact contained in the Prospectus or Statement for the
Portfolio (or any amendment thereof or supplement
thereto), (ii) any sales literature for the Portfolio or
<PAGE>
(iii) the omission or alleged omission to state in the
Prospectus or Statement for the Portfolio a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided, that
this provision shall not apply if such statement or
omission or such alleged statement or alleged omission
was made in reliance upon and in conformity with
information furnished to the Investment Adviser by the
Sub-Adviser for use with the Prospectus, Statement or
sales literature for the Portfolio and the Contracts; or
(4) arise out of any third-party claims or proceedings
relating to the performance by or obligations of the
Sub-Adviser in the performance of its duties hereunder,
except to the extent any such claims arise out of any
material breach by the Sub-Adviser of this Agreement.
This indemnification will be in addition to any liability which the Investment
Adviser may otherwise have, but does not supersede the standard of care owed by
the Sub-Adviser to the Investment Adviser as described in Section 4 above.
11. DISCLOSURE.
The Investment Adviser represents and warrants that neither the Fund
nor the Investment Adviser shall, without the prior written consent of the
Sub-Adviser, make representations regarding or reference to the Sub-Adviser or
any affiliates in any disclosure document, advertisement, sales literature or
other promotional materials.
12. MISCELLANEOUS.
All notices provided for by this Agreement shall be in writing and
shall be deemed given when received, against appropriate receipt, by Diane
Minardi at 522 Fifth Avenue, New York NY 10036 in the case of the Sub-Adviser,
General Counsel at P.O. Box 5068, Clearwater, FL 34618 in the case of the
Investment Adviser, or such other person as a party shall designate by notice to
the other parties. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought. This Agreement constitutes the entire agreement among the
parties hereto and supersedes any prior agreement among the parties relating to
the subject matter hereof. The paragraph headings of this Agreement are for
convenience of reference and do not constitute a part hereof. This Agreement
shall be governed in accordance with the internal laws of the State of New York,
without giving effect to principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
/s/ PRISCILLA I. HECHLER By: /s/ JOHN R. KENNEY
- ------------------------ ------------------
Assistant Secretary Name: John R. Kenney
Title: President
Attest: J. P. MORGAN INVESTMENT MANAGEMENT INC.
ILLEGIBLE By /s/ DIANE MINARDI
- ------------------------ ------------------
Name: Diane Minardi
Title: Vice President
EXHIBIT 99.B5-16
EXHIBIT (D)(17)
FORM OF SUB-ADVISORY AGREEMENT ON BEHALF OF WRL T. ROWE PRICE
SMALL CAP AND WRL T. ROWE PRICE DIVIDEND GROWTH
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
T. ROWE PRICE ASSOCIATES, INC.
SUB-ADVISORY AGREEMENT, made as of the 1st day of May, 1999, between
WRL Investment Management, Inc. ("Investment Adviser"), a corporation organized
and existing under the laws of the State of Florida and T. Rowe Price
Associates, Inc. ("Sub-Adviser"), a corporation organized and existing under the
laws of the State of Maryland.
WHEREAS, the Investment Adviser has entered into an Investment Advisory
Agreement dated as of the 1st day of January, 1997 ("Advisory Agreement") with
the WRL Series Fund, Inc. ("Fund"), a Maryland corporation which is engaged in
business as an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of WRL T. Rowe Price
Dividend Growth and WRL T. Rowe Price Small Cap ( each a "Portfolio,"
collectively, the "Portfolios"), separate series of the Fund;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act");
and
WHEREAS, the Investment Adviser desires to retain the Sub-Adviser as
sub-adviser to furnish certain investment advisory services to the Investment
Adviser with respect to each Portfolio and the Sub-Adviser is willing to furnish
such services.
NOW, THEREFORE, in consideration of the premises and mutual promises
herein set forth, the parties hereto agree as follows:
1. APPOINTMENT.
Investment Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to each Portfolio for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the
supervision of the Fund's Board of Directors ("Board") and the Investment
Adviser, the Sub-Adviser shall act as the investment sub-adviser and shall
supervise and direct the investments of each Portfolio in accordance with each
Portfolio's investment objective, policies, and restrictions as provided in the
Fund's Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter referred to
as the "Prospectus"), and such other limitations as directed by the appropriate
officers of the Investment Adviser or the Fund by notice in writing to the
Sub-Adviser. The Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets, and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of each Portfolio in a manner consistent with each
Portfolio's investment objective, policies, and restrictions. In furtherance of
this duty, the Sub-Adviser, on behalf of each Portfolio, is authorized, in its
discretion and without prior consultation with each Portfolio or the Investment
Adviser, to:
(1) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds and other securities or assets; and
(2) place orders and negotiate the commissions (if any) for
the execution of transactions in securities or other assets
with or through such brokers, dealers, underwriters or issuers
as the Sub-Adviser may select.
B. ADDITIONAL DUTIES OF SUB-ADVISER. In addition to the above,
Sub-Adviser shall:
(1) furnish continuous investment information, advice and
recommendations to the Fund as to the acquisition, holding or
disposition of any or all of the securities or other assets
which each Portfolio may own or contemplate acquiring from
time to time;
(2) cause its officers to attend meetings of the Fund and
furnish oral or written reports, as the Fund may reasonably
require, in order to keep the Fund and its officers and Board
fully informed as to the condition of the investment
securities of each Portfolio, the investment recommendations
of the Sub-Adviser, and the investment considerations which
have given rise to those recommendations; and
(3) furnish such statistical and analytical information and
reports as may reasonably be required by the Fund from time to
time.
C. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to
the performance of this Agreement, the Sub-Adviser shall act in conformity with
the Fund's Articles of Incorporation and By-Laws, as each may be amended or
supplemented, and currently effective Registration Statement (as defined below)
and with the written instructions and directions of the Board and the Investment
Adviser, and shall comply with the requirements of the 1940 Act, the Advisers
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
3. COMPENSATION.
For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, the Sub-Adviser shall receive monthly, an investment
management fee as specified in Schedule A of this Agreement. ((The fees payable
to T. Rowe Price with respect to the WRL T. Rowe Price Dividend Growth portfolio
will be based upon the average daily net assets, on a combined basis, of both
the IDEX T. Rowe Price Dividend Growth fund and the WRL T. Rowe Price Dividend
Growth portfolio.) If this Agreement becomes effective or terminates before the
end of any month, the investment management fee for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be pro-rated according to the
pro-ration which such period bears to the full month in which such effectiveness
or termination occurs.
4. DUTIES OF THE INVESTMENT ADVISER.
A. The Investment Adviser shall continue to have
responsibility for all services to be provided to each Portfolio pursuant to the
Advisory Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement.
B. The Investment Adviser has furnished the Sub-Adviser with
copies of each of the following documents and will furnish to the Sub-Adviser at
its principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available:
(1) The Articles of Incorporation of the Fund, as filed with
the State of Maryland, as in effect on the date hereof and as
amended from time to time ("Articles");
<PAGE>
(2) The By-Laws of the Fund as in effect on the date hereof
and as amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Fund authorizing
the appointment of the Investment Adviser and the Sub-Adviser
and approving the form of the Advisory Agreement and this
Agreement;
(4) The Fund's Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A, as filed
with the Securities and Exchange Commission ("SEC") relating
to each Portfolio and its shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto;
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial
statement or report prepared for the Fund by certified or
independent public accountants, and copies of any financial
statements or reports made by each Portfolio to its
shareholders or to any governmental body or securities
exchange.
The Investment Adviser shall furnish the Sub-Adviser with any further
documents, materials or information that the Sub-Adviser may reasonably request
to enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Investment Adviser
shall furnish to the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of each Portfolio or the public, which
refer to the Sub-Adviser or investment companies or other advisory accounts
advised or sponsored by the Sub-Adviser or investment companies or other
advisory accounts advised or sponsored by the Sub-Adviser in any way, prior to
the use thereof, and the Investment Adviser shall not use any such materials if
the Sub-Adviser reasonably objects in writing fifteen business days (or such
other time as may be mutually agreed) after receipt thereof.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with
broker-dealers for the purchase or sale of portfolio securities, it shall
attempt to obtain quality execution at favorable security prices (best price and
execution); provided that, on behalf of the Fund, the Sub-Adviser may, in its
discretion, agree to pay a broker-dealer that furnishes brokerage or research
services as such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than that
which might have been charged by another broker-dealer for effecting the same
transactions, if the Sub-Adviser determines in good faith that such commission
is reasonable in relation to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Sub-Adviser with respect to the accounts as to
which it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the federal securities laws and the rule and regulations
thereunder.
B. On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient
<PAGE>
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner the Sub-Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its other clients.
C. In addition to the foregoing, the Sub-Adviser agrees that
orders with broker-dealers for the purchase or sale of portfolio securities by
each Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement.
6. OWNERSHIP OF RECORDS.
The Sub-Adviser shall maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees: (i) that all records that it maintains for the Fund
are the property of the Fund, (ii) to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and
that are required to be maintained by Rule 31a-1 under the 1940 Act and (iii)
agrees to surrender promptly to the Fund any records that it maintains for the
Fund upon request by the Fund; provided, however, the Sub-Adviser may retain
copies of such records.
7. REPORTS.
The Sub-Adviser shall furnish to the Board or the Investment Adviser,
or both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Investment Adviser, as
appropriate, may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS.
Nothing contained in this Agreement shall limit or restrict (i) the
freedom of the Sub-Adviser, or any affiliated person thereof, to render
investment management and corporate administrative services to other investment
companies, to act as investment manager or investment counselor to other
persons, firms, or corporations, or to engage in any other business activities,
or (ii) the right of any director, officer, or employee of the Sub-Adviser, who
may also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
9. SUB-ADVISER'S USE OF THE SERVICES OF OTHERS. The Sub-Adviser may (at
its cost except as contemplated by Paragraph 5 of this Agreement) employ,
retain, or otherwise avail itself of the services or facilities of other persons
or organizations for the purpose of obtaining such statistical and other factual
information, such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities, or such other information,
advice, or assistance as the Sub-Adviser may deem necessary, appropriate, or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Company, as appropriate, or in the discharge of Sub-Adviser's overall
responsibilities with respect to the other accounts that it serves as investment
manager or counselor, provided that the Sub-Adviser shall at all times retain
responsibility for making investment recommendations with respect to each
Portfolio.
10. LIMITATION OF LIABILITY OF THE SUB-ADVISER. Neither the Sub-Adviser
nor any of its officers, directors, or employees, nor any person performing
executive, administrative, trading, or other functions for the Company, the Fund
(at the direction or request of the Sub-Adviser) or the Sub-Adviser in
connection with the Sub-Adviser's discharge of its obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by the Company or Fund or
any error of fact or mistake of law contained in any report or date provided by
the Sub-Adviser, except for any error, mistake or loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its or his
duties on behalf of the Company or Fund or from reckless disregard by the
Sub-Adviser or any such person of the duties of the Sub-Adviser pursuant to this
Agreement.
<PAGE>
11. REPRESENTATIONS OF SUB-ADVISER.
The Sub-Adviser represents, warrants, and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Investment Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 (a) of the
1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has
not already done so, will provide the Investment Adviser and the Fund with a
copy of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Investment Adviser and the
Fund with a copy of its Form ADV as most recently filed with the SEC and will,
promptly after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Investment Adviser.
12. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of each Portfolio's outstanding voting securities. Unless
sooner terminated as provided herein, this Agreement shall continue in effect
for two years from its effective date. Thereafter, this Agreement shall continue
in effect from year to year, with respect to each Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of each
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Directors of the Fund who are not parties to this Agreement or interested
persons of any such party. The Sub-Adviser shall furnish to the Fund, promptly
upon its request such information as may reasonably be necessary to evaluate the
terms of this Agreement or any extension, renewal, or amendment hereof.
13. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of each Portfolio on at least 60
days' prior written notice to the Sub-Adviser. This Agreement may also be
terminated by the Investment Adviser: (i) on at least 60 days' prior written
notice to the Sub-Adviser, without the payment of any penalty; or (ii) if the
Sub-Adviser becomes unable to discharge its duties and obligations under this
Agreement, or per the terms of the exemptive order - Release No. 23379 dated
August 5, 1998 - under Section 6(c) of the 1940 Act granting an exemption from
Section 15(a) of the Act and Rule 18f-2 under the Act. The Sub-Adviser may
terminate this Agreement at any time, or preclude its renewal without the
payment of any penalty, on at least 60 days' prior notice to the Investment
Adviser. This Agreement shall terminate automatically in the event of its
assignment or upon termination of the Advisory Agreement.
<PAGE>
14. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of each Portfolio's outstanding voting securities and a vote
of a majority of those Directors of the Fund who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such amendment, unless otherwise permitted
in accordance with the 1940 Act.
15. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable provisions
of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless the
Investment Adviser and the Sub-Adviser agree to the contrary.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
Attest: WRL INVESTMENT MANAGEMENT, INC.
_________________________ By: _________________________________
Assistant Secretary Name: John R. Kenney
Title: Chairman, Director & President
Attest: T. Rowe Price Associates, Inc.
_________________________ By ___________________________________
Name:
Title:
<PAGE>
Sub-Advisory Agreement
SCHEDULE A
SUB-ADVISORY FEE
<TABLE>
<CAPTION>
- ------------------------------------------ --------------------------------------- --------------------------
<S> <C> <C>
FUND ANNUAL PERCENTAGE OF MONTHLY AVERAGE TERMINATION DATE
DAILY NET ASSETS
- ------------------------------------------ --------------------------------------- --------------------------
WRL T. ROWE PRICE DIVIDEND GROWTH 0.50% of the first $100 million of April 30, 2001
the Fund's average daily net assets;
0.40% of assets in excess of $100
million (from first dollar)*
- ------------------------------------------ --------------------------------------- --------------------------
WRL T. ROWE PRICE SMALL CAP 0.35% of the Fund's average daily net April 30, 2001
assets
- ------------------------------------------ --------------------------------------- --------------------------
</TABLE>
*The fees payable for this portfolio will be based upon the average daily net
assets, on a combined basis, for both the WRL T. Rowe Price Dividend Growth
portfolio and the IDEX T. Rowe Price Dividend Growth fund.
EXHIBIT 99.B5-17
EXHIBIT (D)(18)
FORM OF SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL GOLDMAN SACHS SMALL CAP AND WRL GOLDMAN SACHS GROWTH
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
GOLDMAN SACHS ASSET MANAGEMENT, INC.
This Agreement is entered into as of May 1, 1999 between WRL Investment
Management, Inc. a Florida corporation (referred to herein as "WRL Management"),
and Goldman Sachs Asset Management, a separate operating division of Goldman
Sachs & Co., a limited liability partnership organized and existing under the
laws of the State of New York (referred to herein as "Goldman Sachs").
WHEREAS, WRL Management entered into a Management and Investment
Advisory Agreement (referred to herein as the "Advisory Agreement"), dated as of
January 1, 1997 with WRL Series Fund, Inc., a Maryland corporation (herein
referred to as the "Fund") on behalf of WRL Goldman Sachs Growth and WRL Goldman
Sachs Small Cap (each a "Portfolio," collectively, the "Portfolios"), under
which WRL Management has agreed, among other things, to act as investment
adviser to the Portfolios.
WHEREAS, the Advisory Agreement provides that WRL Management may engage
a Sub-Adviser to furnish investment information and advice to assist WRL
Management in carrying out its responsibilities under the Advisory Agreement as
investment adviser to the Portfolios.
WHEREAS, it is the purpose of this Agreement to express the mutual
agreements of the parties hereto with respect to the services to be provided by
Goldman Sachs to WRL Management with respect to the Portfolios and the terms and
conditions under which such services will be rendered.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. SERVICES OF GOLDMAN SACHS. Goldman Sachs shall act as investment
sub-adviser to WRL Management with respect to the Portfolios. In this capacity,
Goldman Sachs shall have the following responsibilities:
(A) (a) provide a continuous investment program for each Portfolio
including advice as to the acquisition, holding or disposition of
any or all of the securities or other assets which the Portfolios
may own or contemplate acquiring from time to time;
(b) to cause its officers to attend meetings of WRL Management or the
Fund and furnish oral or written reports, as WRL Management may
reasonably require, in order to keep WRL Management and its
officers and the Fund's Board and appropriate officers of the Fund
fully informed as to the condition of the investment portfolio of
each Portfolio, the investment recommendations of Goldman Sachs,
and the investment considerations which have given rise to those
recommendations;
(c) to furnish such statistical and analytical information and reports
as may reasonably be required by WRL Management from time to time;
and
(d) to supervise the purchase and sale of securities as directed by
the appropriate officers of the Fund or of WRL Management.
(B) INVESTMENT SUB-ADVISORY SERVICES. Goldman Sachs shall act as the
investment sub-adviser and shall supervise and direct the investments
of the Portfolios in accordance with each Portfolio's investment
objective, policies, and restrictions as provided in the Prospectus and
Statement of Additional
<PAGE>
Information, as currently in effect and as amended or supplemented from
time to time (hereinafter referred to as the "Prospectus"), and such
other limitations as directed by the appropriate officers of WRL
Management or the Fund by notice in writing to Goldman Sachs; provided
that Goldman Sachs shall be entitled to rely on and comply with the
Prospectus most recently furnished to Goldman Sachs by WRL Management.
Goldman Sachs shall obtain and evaluate such information relating to
the economy, industries, businesses, securities markets, and securities
as it may deem necessary or useful in the discharge of its obligations
hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of each Portfolio in a
manner consistent with the each Portfolio's investment objective,
policies, and restrictions. In furtherance of this duty, Goldman Sachs,
on behalf of the Portfolios, is authorized, in its discretion and
without prior consultation with the Fund or WRL Management, to:
(1) Buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds and other securities or assets; and
(2) Place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with
or through such brokers, dealers, underwriters or issuers as
Goldman Sachs may select.
2. OBLIGATIONS OF WRL MANAGEMENT. WRL Management shall have the
following obligations under this Agreement:
(a) to keep Goldman Sachs continuously and fully informed as to the
composition of each Portfolio's investment portfolio and the
nature of each Portfolio's assets and liabilities from time to
time;
(b) to furnish Goldman Sachs with copies of each of the following
documents and furnish to Goldman Sachs at its principal office all
future amendments and supplements to such documents, if any, as
soon as practicable after such documents become available;
(1) The Articles of Incorporation of the Fund, as filed with the
State of Maryland, as in effect on the date hereof and as amended
from time to time ("Articles");
(2) The By-Laws of the Fund as in effect on the date hereof and as
amended from time to time ("By-Laws");
(3) Certified resolutions of the Fund's Board authorizing the
appointment of WRL Management and Goldman Sachs and approving the
form of the Advisory Agreement and this Agreement;
(4) The Fund's Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A, as filed with
the Securities and Exchange Commission ("SEC") relating to the
Portfolios and their shares and all amendments thereto
("Registration Statement");
(5) The Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the SEC and any amendments
thereto;
(6) The Fund's Prospectus (as defined above); and
(7) A certified copy of any publicly available financial statement
or report prepared for the Fund by certified or independent public
accountants, and copies of any financial statements or reports
made by the Fund to its shareholders or to any government body or
securities exchange.
(c) to furnish Goldman Sachs with any further materials or information
which Goldman Sachs may reasonably request to enable it to perform
its functions under this Agreement;
<PAGE>
(d) to compensate Goldman Sachs for its services under this Agreement
by the payment of a monthly fee equal to the amounts specified in
Schedule A of this Agreement. In the event that this Agreement
shall be effective for only part of a period to which any such fee
received by WRL Management is attributable, then an appropriate
pro-ration of the fee that would have been payable hereunder if
this Agreement had remained in effect until the end of such period
shall be made, based on the number of calendar days in such period
and the number of calendar days during the period in which this
Agreement was in effect. The fees payable to Goldman Sachs
hereunder shall be payable upon receipt by WRL Management from the
Portfolios of fees payable to WRL Management under Section 6 of
the Advisory Agreement;
3. BROKERAGE.
A. Goldman Sachs agrees that, in placing orders with broker-dealers for the
purchase or sale of portfolio securities, it shall attempt to obtain quality
execution at favorable security prices (best price and execution); provided
that, on behalf of the Portfolios, Goldman Sachs may, in its discretion, agree
to pay a broker-dealer that furnishes brokerage or research services as such
services are defined under Section 28(e) of the Securities Exchange Act of 1934,
as amended ("1934 Act"), a higher commission than that which might have been
charged by another broker-dealer for effecting the same transactions, if Goldman
Sachs determines in good faith that such commission is reasonable in relation to
the brokerage and research services provided by the broker-dealer, viewed in
terms of either that particular transaction or the overall responsibilities of
Goldman Sachs with respect to the accounts as to which it exercises investment
discretion (as such term is defined under Section 3(a)(35) of the 1934 Act). In
no instance will portfolio securities be purchased from or sold to Goldman
Sachs, or any affiliated person thereof, except in accordance with the federal
securities laws and the rule and regulations thereunder.
B. On occasions when Goldman Sachs deems the purchase or sale of a security to
be in the best interest of a Portfolio as well as other clients of Goldman
Sachs, Goldman Sachs, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by Goldman Sachs in the manner Goldman Sachs considers
to be most equitable and consistent with its fiduciary obligations to each
Portfolio and to its other clients.
C. In addition to the foregoing, Goldman Sachs agrees that orders with
broker-dealers for the purchase or sale of portfolio securities by each
Portfolio shall be placed in accordance with the standards set forth in the
Advisory Agreement, subject to compliance with applicable laws and procedures
adopted by the Directors of the Fund.
D. Subject to procedures adopted by the Board of the Fund, Goldman Sachs is
authorized to place orders on behalf of each Portfolio through the Goldman Sachs
or any affiliate thereof if Goldman Sachs or its affiliate is registered as a
broker or dealer with the SEC or as a FCM with the Commodities Futures Trading
Commission ("CFTC"), or to any of its affiliates that are brokers or dealers or
FCBs or such other entities which provide similar services in foreign countries.
Such allocation shall be in such amounts and proportions as Goldman Sachs shall
determine consistent with the above standards, and, upon, request, Goldman Sachs
will report on said allocation to WRL Management and the Fund's Board,
indicating the brokers, dealers or FCBs to which such allocations have been made
and the basis therefor.
4. TREATMENT OF INVESTMENT ADVICE. WRL Management may direct Goldman
Sachs to furnish its investment information, advice and recommendations directly
to officers of the Fund.
5. PURCHASES BY AFFILIATES. Neither Goldman Sachs nor any of its
officers or Directors shall take a long or short position in the securities
issued by the Portfolios. This prohibition, however, shall not prevent
<PAGE>
the purchase from the Portfolios of shares issued by the Portfolios on behalf of
the Portfolios by the officers and Directors of Goldman Sachs (or deferred
benefit plans established for their benefit) at the current price available to
the public, or at such price with reductions in sales charge as may be permitted
in the Fund's current prospectus in accordance with Section 22(d) of the
Investment Company Act of 1940, as amended (the "1940 Act").
6. SERVICES TO OTHER CLIENTS. Nothing contained in this Agreement shall limit or
restrict (i) the freedom of Goldman Sachs, or any affiliated person thereof, to
render investment management and corporate administrative services to other
investment companies, to act as investment manager or investment counselor to
other persons, firms, or corporations, or to engage in any other business
activities, or (ii) the right of any director, officer, or employee of Goldman
Sachs, who may also be a trustee, officer, or employee of the Fund, to engage in
any other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar nature
or a dissimilar nature.
7. SUB-ADVISER'S USE OF THE SERVICES OF OTHERS. Goldman Sachs may (at its cost
except as contemplated by paragraph __ of this Agreement) employ, retain, or
otherwise avail itself of the services or facilities of other persons or
organizations for the purpose of obtaining such statistical and other factual
information, such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities, or such other information,
advice, or assistance as Goldman Sachs may deem necessary, appropriate, or
convenient for discharge of its obligations hereunder or otherwise helpful to
the Portfolios, as appropriate, or in the discharge of Goldman Sachs overall
responsibilities with respect to the other accounts that it serves as investment
manager or counselor, provided that Goldman Sachs shall at all times retain
responsibility for making investment recommendations with respect to the
Portfolios.
8. LIMITATION OF LIABILITY OF THE SUB-ADVISER. Neither Goldman Sachs nor any of
its officers, directors, or employees, nor any person performing executive,
administrative, trading, or other functions for Goldman Sachs, the Portfolios
(at the direction or request of Goldman Sachs) or the Sub-Adviser in connection
with Goldman Sachs' discharge of its obligations undertaken or reasonably
assumed with respect to this Agreement, shall be liable for any error of
judgment or mistake of law or for any loss suffered by the Company or Portfolios
or any error of facts or mistake of law contained in any report or date provided
by Goldman Sachs, except for any error, mistake or loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties on
behalf of the Portfolios or from reckless disregard by Goldman Sachs or any such
person of the duties of Goldman Sachs pursuant to this Agreement.
9. REPRESENTATIONS.
Each party hereto represents, warrants, and agrees as follows:
A. WRL Management and Goldman Sachs each: (i) is registered as an investment
adviser under the Advisers Act and any applicable state laws and will continue
to be so registered for so long as this Agreement remains in effect; (ii) is not
prohibited by the 1940 Act or the Advisers Act from performing the services
contemplated by this Agreement; (iii) has met, and will continue to meet for so
long as this Agreement remains in effect, any applicable federal or state
requirements, or the applicable requirements of any regulatory or industry
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement; (iv) has the authority to enter into and perform
the services contemplated by this Agreement; and (v) will immediately notify the
other party of the occurrence of any event that would disqualify such other
party from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
B. Goldman Sachs has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not already done
so, will provide the Investment Adviser and the Fund's Board with a copy of such
code of ethics, together with evidence of its adoption.
<PAGE>
C. Goldman Sachs has provided WRL Management and the Fund's Board with a copy of
its Form ADV as most recently filed with the SEC and will, promptly after filing
any amendment to its Form ADV with the SEC, furnish a copy of such amendment to
WRL Management.
10. TERM OF AGREEMENT.
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those Directors who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by vote of a
majority of the a Portfolio's outstanding voting securities. Unless sooner
terminated as provided herein, this Agreement shall continue in effect for an
initial term ending April 30, 2001. Thereafter, this Agreement shall continue in
effect from year to year, with respect to each Portfolio, subject to the
termination provisions and all other terms and conditions hereof, so long as
such continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of each
Portfolio; and (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the Fund's
Directors who are not parties to this Agreement or interested persons of any
such party. Goldman Sachs shall furnish to the Fund's Board, promptly upon its
request such information as may reasonably be necessary to evaluate the terms of
this Agreement or any extension, renewal, or amendment hereof.
11. TERMINATION OF AGREEMENT.
Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of each Portfolio on at least 60
days' prior written notice to Goldman Sachs. This Agreement may also be
terminated by WRL Management: (i) on at least 60 days' prior written notice to
Goldman Sachs, without the payment of any penalty; (ii) if Goldman Sachs becomes
unable to discharge its duties and obligations under this Agreement or (iii) per
the terms of an exemptive order - Release No. 23379 dated August 5, 1998 -
granted under section 6(c ) of the 1940 Act granting an exemption from Section
15(a) of the 1940 Act and Rule 18f-2 under the Act. Goldman Sachs may terminate
this Agreement at any time, or preclude its renewal without the payment of any
penalty, on at least 60 days' prior notice to WRL Management. Subject to the
terms of any exemptive order obtained by the Fund, this Agreement shall
terminate automatically in the event of its assignment or upon termination of
the Advisory Agreement.
12. AMENDMENT OF AGREEMENT.
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote or a majority of each Portfolio's outstanding voting securities and a vote
of a majority of those Directors of the Fund who are no parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such amendment, unless otherwise permitted
in accordance with the 1940 Act, or as modified per exemptive relief granted
from Section 15(a) of the Act and Rule 18f-2 under the Act to the Fund and WRL
Management - Release No. 23379.
13. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New York without giving effect to the conflicts of
laws principles thereof, and the 1940 Act. To the extent that the applicable
laws of the State of New York conflict with the applicable provisions of the
1940 Act, the latter shall control.
<PAGE>
B. CAPTIONS. The captions contained in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof, and all
such prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of its responsibility for
and control of the conduct of the affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretation thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. As used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the SEC by any rule, regulation, or order. Where the effect
of a requirement of the federal securities laws reflected in any provision of
this Agreement is made less restrictive by a rule, regulation, or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation, or order, unless WRL
Management and Goldman Sachs agree to the contrary.
F. GOLDMAN SACHS NAME: WRL Series Fund may use any name including
or derived from the name "Goldman Sachs" in connection with a fund only for so
long as this Agreement, or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall be
succeeded to your business as investment adviser or distributor. Upon
termination of this Agreement, WRL Series Fund (to the extent that it lawfully
can) will cause the portfolio to cease to use such a name or any other name
indicating that it is advised by or otherwise connected with you or any
organization which shall have so succeeded to your business.
14. COMPLIANCE WITH LAWS.
(a) In all matters relating to the performance of this Agreement, Goldman Sachs
will act in conformity with the Fund's Articles, Bylaws, and current Prospectus
and with the instructions and direction of WRL Management and the Fund's Board.
(b) Goldman Sachs shall conform with (1) the 1940 Act and all rules and
regulations thereunder, and releases and interpretations thereto (including any
no-action letters and exemptive orders which have been granted by the SEC to the
Portfolios, WRL Management and/or Goldman Sachs and (2) with all other
applicable federal and state laws and regulations pertaining to management of
investment companies.
(c) WRL Management shall perform quarterly and annual tax compliance tests to
ensure that each Portfolio is in compliance with Subchapter M of the Internal
Revenue Code ("IRC") and Section B17(h) of the Internal Revenue Code and
regulations thereunder. In connection with such compliance tests, WRL Management
shall prepare and provide reports to Goldman Sachs within 10 business days of a
calendar quarter end relating to the diversification of each Portfolio, Goldman
Sachs shall review such reports for purposes of determining compliance with such
diversification requirements. If it is determined that a Portfolio is not in
compliance with the requirements noted above, Goldman Sachs, in consultation
with WRL Management, will take prompt action to bring the Portfolio back into
compliance within the time permitted under the IRC.
<PAGE>
15. ASSIGNMENT. This Agreement shall terminate automatically in the
event of any assignment (as that term is defined in Section 2(a)(4) of the 1940
Act) of this Agreement.
16. REFERENCE TO SUB-ADVISER. Neither WRL Management nor the Fund will
publish or distribute any information, including but not limited to registration
statements, advertising or promotional material, regarding the provision of
investment advisory services by Goldman Sachs pursuant to this Agreement, or use
in advertising, publicity or otherwise the name of Goldman Sachs or any of its
affiliates, or any trade name, trademark, trade device, service mark, symbol or
any abbreviation, contraction or simulation thereof of Goldman Sachs or its
affiliates, without the prior written consent of Goldman Sachs. Notwithstanding
the foregoing, WRL Management may distribute information regarding the provision
of investment advisory services by Goldman Sachs to the Fund's Board of
Directors ("Board Materials") without the prior written consent of Goldman
Sachs. WRL Management will provide copies of the Board Materials to Goldman
Sachs within a reasonable time following distribution to the Fund's Board.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATTEST: GOLDMAN SACHS ASSET MANAGEMENT,
A separate Operating Division of
Goldman, Sachs & Co.
By:______________________________
Secretary Title:
ATTEST: WRL INVESTMENT MANAGEMENT, INC.
By:______________________________
Assistant Secretary John R. Kenney
Chairman, Director & President
<PAGE>
Sub-Advisory Agreement
SCHEDULE A
SUB-ADVISORY FEE
<TABLE>
<CAPTION>
- ------------------------------------------ --------------------------------------- --------------------------
FUND ANNUAL PERCENTAGE OF MONTHLY AVERAGE TERMINATION DATE
DAILY NET ASSETS
- ------------------------------------------ --------------------------------------- --------------------------
<S> <C> <C>
WRL GOLDMAN SACHS GROWTH 0.50% of the first $50 million of the April 30, 2001
Portfolio's average daily net assets;
0.45% of $50-$100 million in assets;
and 0.40% in excess of $100 million
(from first dollar)*
- ------------------------------------------ --------------------------------------- --------------------------
WRL GOLDMAN SACHS SMALL CAP 0.50% of the Fund's average daily net April 30, 2001
assets
- ------------------------------------------ --------------------------------------- --------------------------
</TABLE>
* The fees payable for this portfolio will be based upon the average daily net
assets, on a combined basis, for both the WRL Goldman Sachs Growth portfolio and
the IDEX Goldman Sachs Growth fund.
EXHIBIT 99.B5-18
EXHIBIT (D)(19)
SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL SALOMON ALL CAP
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
SALOMON BROTHERS ASSET MANAGEMENT, INC.
Agreement dated and effective as of May 1, 1999, between WRL Investment
Management, Inc., a Florida corporation (the "Adviser") and Salomon Brothers
Asset Management, Inc., a Delaware corporation (the "Sub-Adviser").
WHEREAS, the Adviser has entered into an Advisory Agreement (the
"Advisory Agreement") dated January 1, 1997, with WRL Series Fund, Inc. (the
"Fund"), a Maryland Corporation registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
on behalf of WRL Salomon All Cap (the "Portfolio") of WRL pursuant to which the
Adviser provides investment advisory services to the Fund;
WHEREAS, the Adviser has the authority to delegate its investment
advisory responsibilities under the Advisory Agreement to one or more
sub-advisers;
WHEREAS, the Adviser desires to retain the Sub-Adviser to provide
investment advisory services to the Portfolio;
NOW THEREFORE, in consideration of the mutual agreements herein made,
the Adviser and the Sub-Adviser agree as follows:
1. (a) The Adviser employs the Sub-Adviser, subject to the direction
and control of the directors of the Fund, including without limitation any
approval of the directors of the Fund required by the 1940 Act, to (a) make, in
consultation with the Adviser and the Fund's Board of Directors, investment
strategy decisions for the Portfolio, (b) manage the investing and reinvesting
of the Portfolio's assets and (c) place purchase and sale orders on behalf of
the Portfolio.
(b) At the Adviser's request, the Sub-Adviser agrees:
(1) to cause its officers to attend meetings of the Fund's
Board and furnish oral or written reports, as the Adviser may reasonably
require, in order to keep the Adviser and its officers and the Directors of the
Fund and appropriate officers of the Fund fully informed as to the condition of
the investments of the Portfolio and the investment considerations which have
given rise to those recommendations; and
(2) to furnish such statistical and analytical information and
reports as may reasonably be required by the Adviser from time to time.
2. (a) The adviser shall provide (or cause the Fund's custodian to
provide) timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Portfolio, cash requirements and cash available for
investment in the Portfolio, and all other information as may be reasonably
necessary for the Sub-Adviser to perform its responsibilities hereunder.
(b) The Adviser agrees to furnish the Sub-Adviser with minutes of
meetings of the Board of Directors of the Fund applicable to the Portfolio to
the extent they may affect the duties of the Sub-Adviser, and with copies of any
financial statements or reports made by the Portfolio to its shareholders, and
any further materials or information which the Sub-Adviser may reasonably
request to enable it to perform its functions under this Agreement.
<PAGE>
3. (a) The Sub-Adviser shall, at its expense, provide office space,
office facilities and personnel reasonably necessary for performance of the
services to be provided by the Sub-Adviser pursuant to this Agreement.
(b) Except as provided in subparagraph 3(a) hereof, the
Sub-Advisor shall not be responsible for the Portfolio's expenses and
liabilities, including organizational and offering expenses (which include
out-of-pocket expenses, but not overhead or employee costs of the Sub-Adviser);
expenses for legal, accounting and auditing services; taxes and governmental
fees; dues and expenses incurred in connection with membership in investment
company organizations; costs of printing and distributing shareholder reports,
proxy materials, prospectuses, stock certificates and distribution of dividends;
charges of the Fund's custodians and sub-custodians, administrators and
sub-administrators, registrars, transfer agents, dividend disbursing agents and
dividend reinvestment plan agents; payment for portfolio pricing services to a
pricing agent, if any; registration and filing fees of the Securities and
Exchange Commission (the "SEC"); expenses of registering or qualifying
securities of the Portfolio for sale in the various states; freight and other
charges in connection with the shipment of the Portfolio's portfolio securities;
fees and expenses of non-interested Directors; salaries of shareholder relations
personnel; costs of shareholders meetings; insurance; interest; brokerage costs;
and litigation and other extraordinary or non-recurring expenses.
4. The Sub-Adviser shall make investments for the Portfolio's account
in accordance with the investment objectives, policies and limitations set forth
in the Fund's Articles of Incorporation as amended from time to time (the
"Articles"), the Registration Statement, as in effect from time to time (the
"Registration Statement"), filed with the SEC by the Fund under the 1940 Act and
the Securities Act of 1933, as amended, the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and supplemented from time to time,
relating to regulated investment companies, Section B17(h) of the Code and
regulations thereunder, and policy decisions adopted by the Fund's Board of
Directors from time to time. Copies of any amendments to the documents referred
to in the preceding sentence shall be promptly furnished to the Sub-Adviser. The
Sub-Adviser shall advise the Fund's officers and Board of Directors, at such
time as the Fund's Board of Directors may specify, of investments made for the
Portfolio's account and shall, when requested by the WRL officers or Board of
Directors, supply the reasons for making such investments.
5. Subject to applicable laws, the Sub-Adviser may contract with or
consult with such banks, other securities firms, brokers or other parties,
without additional expense to the Portfolio, as it may deem appropriate
regarding investment advice, research and statistical data, clerical assistance
or otherwise.
6. Subject to applicable laws and any procedures adopted by the Fund's
Board of Directors, the Sub-Adviser is authorized on behalf of the Portfolio,
from time to time when deemed to be in the best interests of the Portfolio and
to the extent permitted by applicable law, to purchase and/or sell securities in
which the Sub-Adviser or any of their affiliates underwrites, deals in and/or
makes a market and/or may perform or seek to perform investment banking services
for issuers of such securities. The Sub-Adviser is further authorized, to the
extent permitted by applicable law and any procedures adopted by the Fund's
Board of Directors, to select brokers (including Salomon Brothers Inc or any
other brokers affiliated with the Sub-Adviser) for the execution of trades for
the Portfolio.
7. Subect to and in accordance with the Advisory Agreement, and
consistent with the Sub-Adviser's duty to seek to obtain quality execution at
favorable security prices (best price and execution) the Sub-Adviser is
authorized, for the purchase and sale of the Portfolio's portfolio securities,
to employ such dealers and brokers as may, in the judgment of the Sub-Adviser,
implement the policy of the Portfolio to obtain the best results taking into
account such factors as price, including dealer spread, the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities and the firm's risk in positioning the securities
involved. Subject to and in accordance with the Advisory Agreement, and
consistent with this policy, the Sub-Adviser is authorized to direct the
execution of the Portfolio's portfolio transactions to dealers and brokers
furnishing statistical information or research, as such is defined in Section
28(e) of the Securities Exchange Act of 1934, deemed by the Sub-Adviser to be
useful or valuable to the performance of its investment advisory functions for
the Portfolio. Information so received will be in addition to and not in lieu
<PAGE>
of the services required to be performed by the Sub-Adviser. It is understood
that the expenses of the Sub-Adviser will not necessarily be reduced as a result
of the receipt of such information or research. The Sub-Adviser may use for the
benefit of the Sub-Adviser's other clients, or make available to companies
affiliated with the Sub-Adviser or to its directors for the benefit of its
clients, any such information or research services that the Sub-Adviser received
from brokers or dealers.
8. To compensate the Sub-Adviser for its services provided, and the
expenses assumed under this Agreement, by (i) the payment of a monthly fee as
set forth on Schedule A attached to this Agreement, as it may be amended from
time to time in accordance with Section 11 below. (The fees payable to Pilgrim
Baxter with respect to the WRL Pilgrim Baxter Mid Cap Growth portfolio will be
based upon the average daily net assets, on a combined basis, of both the IDEX
Pilgrim Baxter Mid Cap Growth fund and the WRL Pilgrim Baxter Mid Cap Growth
portfolio.) If the fee payable to the Sub-Adviser pursuant to this paragraph 8
begins to accrue before the end of any month or if this Agreement terminates
before the end of any month, the fee for the period from such date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs. For
purposes of calculating each such monthly fee, the value of the Portfolio's net
assets shall be computed at the time and in the manner specified in the
Registration Statement.
9. The Sub-Adviser represents and warrants that it is duly registered
and authorized as an investment adviser under the Investment Adviser Act of
1940, as amended, and any applicable state laws, and the Sub-Adviser agrees to
maintain effective all requisite registations, authorizations and licenses, as
the case may be, until termination of this Agreement.
10. The Sub-Adviser shall exercise its best judgment in rendering the
services in accordance with the terms of this Agreement. The Sub-Adviser shall
not be liable for any error of judgment or mistake of law or for any act or
omission or any loss suffered by the Portfolio in connection with the matters to
which this Agreement relates, provided that nothing herein shall be deemed to
protect or purport to protect the Sub-Adviser against any liability to the
Portfolio or its shareholders, or the Adviser, to which the Sub-Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement ("disabling
conduct"). The adviser will indemnify the Sub-Adviser against, and hold harmless
from, any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses), including any amounts paid in
satisfaction of judgments, in compromise or as fines or penalties, not resulting
from disabling conduct by the Adviser. The Sub-Adviser shall be entitled to
advances from the Adviser for payment of reasonable expenses incurred in
connection with the matter as to which it is seeking indemnification in the
manner and to the fullest extent permissible under law.
11. This Agreement may be amended with respect to the Portfolio only
with the approval by the affirmative vote of a majority of the outstanding
voting securities (as that phrase is defined in Section 2(a)(42) of the 1940
Act) of the Portfolio and the approval by the vote of a majority of the Fund's
Directors, including a majority of Directors who are not parties hereto or
interested persons (as that term is defined in Section 2(a)(19) of the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on the approval of such amendment, unless otherwise permitted in accordance with
the 1940 Act. or per the terms of the exemptive order - Rel. 23379 dated August
5, 1998 - under section 6(c) of the 1940 Act granting an exemption from section
15(a) of the Act and Rule 18f-2 under the Act.
12. This Agreement shall become effective as of the date of its
execution and continue in effect for an initial term ending April 30, 2001, and
thereafter for successive annual periods, provided that such continuance is
specifically approved at least annually (a) by the vote of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act) or by the
Fund's Board of Directors and (b) by the vote, cast in person at a meeting
called for the purpose, of a majority of the Fund's Directors who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of any such party or per the terms of the exemptive relief - Release No. 23379
dated August 5, 1998 - under section 6(c) of the 1940 Act granting an
<PAGE>
exemption from Section 15(a) of the 1940 Act and Rule 18f-2 under the 1940 Act.
This Agreement may be terminated at any time, without the payment of any
penalty, by (i) the Board, or by a vote of the majority of the outstanding
voting securities of the Portfolio on 60 days' written notice to the Sub-Adviser
or (ii) by the Sub-Adviser on 60 days' written notice to the Adviser or (iii) by
the Adviser on 60 days' written notice to the Sub-Adviser. Subject to the terms
of any exemptive obtained by the Fund, this Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
13. Nothing herein shall be deemed to limit or restrict the right of
the Sub-Adviser, or any affiliate of the Sub-Adviser, or any employee of the
Sub-Adviser, to engage in any other business or to devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association. Nothing herein shall be construed as
constituting the Sub-Adviser an agent of the Adviser or the Fund.
14. This Agreement shall be governed by the laws of the State of New
York; provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
15. Any notice hereunder shall be in writing and shall be delivered in
person or by telex or facsimile (followed by delivery in person) to the parties
at the addresses set forth below.
If to the Sub-Adviser:
Salomon Brothers Asset Mangement Inc
Seven World Trade Center
New York, New York 10048
Tel: (212) 783-7000
Fax: (212) 783-4765
Attn: ____________________
If to the Adviser:
WRL Investment Management, Inc.
570 Carillon Parkway
St. Petersburg, Florida 33716
Tel: (727) 299-1800
Fax: (727) 299-1641
Attn: Thomas E. Pierpan, Esq.
Associate General Counsel
or to such other address as to which the recipient shall have informed the other
party in writing.
Unless specifically provided elsewhere, notice given as provided above
shall be deemed to have been given, if by personal delivery, on the day of such
delivery, and, if by facsimile and mail, on the date on which such facsimile is
sent or mail.
15. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused their duly authorized signatories
to execute this Agreement as of the day and year first written above.
WRL Investment Management, Inc.
By Date
Name: JOHN R. KENNEY
Title: CHAIRMAN, DIRECTOR & PRESIDENT
Salomon Brothers Asset Management, Inc.
By Date
Name:
Title:
<PAGE>
Sub-Advisory Agreement
SCHEDULE A
<TABLE>
<CAPTION>
- ----------------------------------------- --------------------------------------- --------------------------
PORTFOLIO ANNUAL PERCENTAGE OF MONTHLY AVERAGE TERMINATION DATE
DAILY NET ASSETS
- ------------------------------------------ --------------------------------------- --------------------------
<S> <C> <C>
WRL SALOMON ALL CAP 0.30% of the first $20 million of the April 30, 2001
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*
- ------------------------------------------ --------------------------------------- --------------------------
</TABLE>
*The fees payable for this portfolio will be based upon the average daily net
assets, on a combined basis, for both the WRL Salomon All Cap portfolio and the
IDEX Salomon All Cap fund.
EXHIBIT 99.B5-19
EXHIBIT (D)(20)
FORM OF SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL DREYFUS MID CAP
<PAGE>
SUB-ADVISORY AGREEMENT BETWEEN
WRL INVESTMENT MANAGEMENT, INC. AND
THE DREYFUS CORPORATION
Agreement dated May 1, 1999 by and between WRL Investment Management, Inc. a
Florida corporation (the "Manager") whose principal office is located at 750
Carillon Parkway, St. Petersburg, Florida 33716, and Dreyfus Corporation, a
corporation organized uner the laws of New York (the "Sub-Adviser") whose
principal office is located at 200 Park Avenue, New York, NY 10166.
WHEREAS, the Manager has entered into an Investment Advisory Agreement dated as
of the 1st day of January, 1997 ("Advisory Agreement") with the WRL Series Fund,
Inc. (the "Company"), a Maryland corporation which is engaged in business as an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company is authorized to issue shares of WRL Dreyfus Mid Cap
("Portfolio"), a separate series of the Company; and
WHEREAS, the Sub-Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended ("Advisers Act"); and
WHEREAS, the Manager desires to retain the Sub-Adviser as sub-adviser to furnish
certain investment advisory services to the Manager with respect to the
Portfolio and the Sub-Adviser is willing to furnish such services.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Manager and the Sub-Adviser agree as follows:
1. APPOINTMENT AND EXPENSES OF THE SUB-ADVISER. The Manager hereby
appoints the Sub-Adviser to serve as sub-adviser with respect to the assets of
the Portfolio and to perform the services hereinafter set forth and the
Sub-Adviser hereby accepts such appointment. The Sub-Adviser agrees, for the
compensation herein provided, to assume all obligations herein provided and bear
all its personnel and other expenses associated with the performance of its
services hereunder. The Company shall be responsible for the Portfolio's
administrative and other direct expenses, including, but not limited to: (a)
fees pursuant to any plan of distribution that the Portfolio may adopt; (b) the
Portfolio's brokerage and commission expenses, including all ordinary and
reasonable transaction costs; (c) fees and expenses of pricing services used by
the Company to determine the value of the Portfolio's holdings; (d) Federal,
state, local and foreign taxes, including issue and transfer taxes incurred by
or levied on the Portfolio; (e) interest charges on any Portfolio borrowings,
(f) the Company's organizational and offering expenses, (g) the cost of the
Company's
<PAGE>
personnel providing services to the Company; (h) fees and expenses of
registering the Company's shares under the appropriate Federal securities laws
and of qualifying the Company's shares under applicable state securities laws
and pursuant to any foreign laws; (i) expenses of printing and distributing
reports to the Company's shareholders, proxy materials, prospectuses and
distribution of dividends; (j) costs of the Company's shareholders' meetings and
proxy solicitation; (k) charges and expenses of the Company's custodian and
registrar, transfer agent and dividend disbursing agent; (1) compensation of the
Company's officers, directors and employees that are not "affiliated persons" or
"interested persons" [as defined in Section 2(a) of the 1940 Act and the rules,
regulations and releases relating thereto] of the Manager or Sub-Adviser; (m)
the Company's legal and auditing expenses; (n) cost of certificates representing
shares of the Portfolio; (o) the Company's costs of stationery and supplies; (p)
the Company's insurance expenses; (q) the Company's association membership dues;
(r) travel expenses of officers and employees of the Sub-Adviser to the extent
such expenses relate to the attendance of such persons at meetings at the
request of the Board of Directors of the Company (EXCEPT that a representative
of the Sub-Adviser will attend one Board meeting per year, at the Sub-Adviser's
own expense); and (s) travel expenses for attendance at Board of Directors
meetings by members of the Board of Directors of the Company who are not
"interested persons" or "affiliated persons" of the Manager or Sub-Adviser. The
Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or on behalf of the Company in any
way or otherwise be deemed an agent of the Company.
2. DUTIES OF THE SUB-ADVISER. The Sub-Adviser will deal in good faith
and with due diligence and will use professional skill, care and judgment in the
performance of its duties under this Agreement. In so doing, the Sub-Adviser
shall formulate and implement a continuing program for the management of the
assets of the Portfolio. The Sub-Adviser shall amend and update such program
from time to time as financial and other economic conditions warrant. The
Sub-Adviser shall make all determinations with respect to the investment of the
assets of the Portfolio and shall take such steps as may be necessary to
implement the same, including the placement of purchase and sale orders on
behalf of the Portfolio. The Manager shall be responsible for the administration
of the investment activities of the Company and the Portfolio, including
compliance with the requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other applicable federal and state laws and
regulations, except for the investment management activities specifically
delegated to the Sub-Adviser pursuant to this Agreement.
3. POWERS OF THE SUB-ADVISER.
3.1 The Sub-Adviser's power to direct the investment and reinvestment
of the assets of the Portfolio shall be exercised in accordance with applicable
law, including Section B17(h) of the Internal Revenue Code and regulations
promulgated thereunder, the Company's Articles of Incorporation, the Advisory
Agreement, and the investment objectives, policies and restrictions set forth in
the then-current Prospectus and Statement of Additional Information
(collectively the "Prospectus") relating to the Portfolio contained in
<PAGE>
the Company's Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended. The Company and/or the Manager may also place addititional
limitations on the Sub-Adviser's investment decisions by written notice to the
Sub-Adviser. The Manager agrees to provide promptly to the Sub-Adviser a copy of
the documents mentioned above and all changes made to such documents. The
Sub-Adviser shall not be bound by any changes to the Company's Articles of
Incorporation or the Prospectus relating to the Portfolio until the Sub-Adviser
has received actual written notice of any such change.
3.2 While the Sub-Adviser will have day-to-day responsibility for the
discretionary investment decisions to be made on behalf of the Portfolio, the
Sub-Adviser will be subject to oversight by the Manager. Such oversight,
however, shall not require prior approval of discretionary investment decisions
made by the Sub-Adviser except as may be required by applicable law, the
Portfolio's investment policies and restrictions and/or any limitations imposed
on the Sub-Adviser by the Company and/or the Manager pursuant to the preceding
paragraph. The Manager shall retain the right to instruct the Sub-Adviser to
effect any transactions necessary to ensure compliance with the Portfolio's
investment polices and restrictions as well as the requirements of Subchapter M
of the Internal Revenue Code and the provisions of Section 817(h) of the
Internal Revenue Code and the regulations promulgated thereunder.
3.3 Further, and except as may be qualified elsewhere in this
Agreement, the Sub-Advisers is hereby authorized, for and on behalf of the
Company, with respect to the Portfolio, in its discretion to:
(a) exercise any conversion and/or subscription rights
available in connection with any securities or other investments
held in the Portfolio;
(b) maintain all or part of the Portfolio's assets uninvested in
short-term income-producing instruments for such periods of time
as shall be deemed reasonable and prudent by the Sub-Adviser;
(c) instruct the Custodian, in accordance with the Custodian
Agreement, to deliver for cash received, securities or other cash
and/or securities instruments sold, exchanged, redeemed or
otherwise disposed of from the Portfolio, and to pay cash for
securities or other cash and/or securities instruments delivered
to the Custodian and/or credited to the Portfolio upon acquisition
of the same for the Portfolio;
(d) determine how to vote all proxies received with respect to
securities held in the Portfolio and direct the Custodian as to
the voting of such proxies; and
(e) generally, perform any other act necessary to enable the
Sub-Adviser to carry out its obligations under this Agreement.
<PAGE>
4. Selection of Broker-Dealers. The Sub-Adviser shall select the
brokers and dealers through whom transactions on behalf of the
Portfolio will be executed and the markets on or in which such
transactions will be executed and shall place, in the name of the
Portfolio or its nominee (or appropriate foreign equivalent), all
such orders. In selecting brokers and dealers to execute such
transactions, and in negotiating brokerage commissions, and in
obtaining research, statistical and other information from brokers
and dealers in connection with Portfolio transactions, the
Sub-Adviser shall comply with the description of such process
contained in the Advisory Agreement and the Registration
Statement.
4. 1 It is understood that certain other clients (including other
funds, portfolios and accounts) of the Sub-Adviser may have
investment objectives and policies similar to those of the
Portfolio and that the Sub-Adviser may, from time to time, make
recommendations that result in the purchase (or sale) of a
particular security by its other clients and the Portfolio during
the same period of time. If transactions on behalf of more than
one client during the same period increase the demand for
securities being purchased or the supply of securities being sold,
there may be an adverse effect on price or quantity. In such
event, the Sub-Adviser shall allocate the securities or
investments to be purchased or sold, as well as the expenses
incurred in the transactions (including price) in a manner the
Sub-Adviser considers equitable and consistent with its
obligations to the Portfolio and the Sub-Adviser's other clients.
4.2 The Sub-Adviser agrees that it will only enter into
transactions that are covered by Section 10(f) or Section 17(e) of
the 1940 Act if it has (i) complied with Rule 10f-3 or Rule 17e-1
thereunder, respectively, or the terms of an appropriate exemptive
order issued to the Company by the SEC, and (ii) has complied with
the procedures adopted thereunder by the Board of Directors of the
Company which may, pursuant to authority granted by the Company,
be supplemented by interpretive guidelines of the Manager, in
either event only to the extent that the Manager has supplied the
Sub-Adviser with a copy of such exemptive order or procedures. The
Manager shall promptly notify the Sub-Adviser of any parties with
whom engaging in a transaction for the Portfolio would result in a
violation of the 1940 Act.
5. REPORTS AND INFORMATION TO BE PROVIDED BY THE SUB-ADVISER. The
Sub-Adviser shall furnish such information and reports relating to
the Portfolio, its holding and transactions involving Portfolio
securities as the Manager, the Company, and/or the Company's
directors may reasonably require to fulfill its or their legal
responsibilities or to meet regulatory requirements or discharge
other duties they may have. Among the subjects of the reports and
information to be provided by the Sub-Adviser are the following:
(a) Information reasonably required by the Manager to determine
the Company's and Portfolio's compliance with the 1940 Act, the
Advisers Act, the Internal
<PAGE>
Revenue Code, applicable federal and state securities and
insurance laws and other applicable laws and regulations or
regulatory and taxing authorities in the United States and other
relevant countries;
(b) Information reasonably required by the Manager to meet the
accounting and operational requirements of the Portfolio. Specific
examples of the types of reports and information that will be
needed by the Manager and the Company are set forth in Exhibit A,
attached hereto;
(c) Information reasonably required by the Manager to satisfy its
reporting obligations to the Company arising from the Investment
Advisory Agreement between the Manager and the Company;
(d) Information reasonably required by the Manager to determine
the Sub-Adviser's compliance with Rule 17j-I under the 1940 Act
with respect to the Sub-Adviser's activities on behalf of the
Portfolio; and
(e) Information reasonably necessary to respond to specific
inquiries from the Company's management and/or Board of Directors.
6. NON-EXCLUSIVE SERVICES, CONFLICTS OF INTEREST, MATERIAL
NONPUBLIC INFORMATION AND USE OF NAME.
6.1 The Manager understands that the Sub-Adviser and its
affiliates may furnish investment management and advisory services
to others, and that the Sub-Adviser and its affiliates shall be at
all times free, in their discretion, to make recommendations to,
and investments for, others which may or may not correspond to
investments made for the Portfolio. The Manager further
understands that the Sub-Adviser, its affiliates, and any officer,
director, stockholder, employee or any member of their families
may or may not have an interest in the securities whose purchase
and sale the Sub-Adviser effects for the Portfolio. Actions taken
by the Sub-Adviser on behalf of the Portfolio may be the same as,
or different from, actions taken by the Sub-Adviser on its own
behalf or for others or from actions taken by the Sub-Adviser's
affiliates, officers, directors, partners, employees of the
Sub-Adviser or its affiliates, or the family members of such
persons or other investors. The Sub-Adviser represents that it has
in effect a code of ethics that complies with Rule 17j-1 under the
1940 Act and has procedures in place that, taken together, provide
reasonable enforcement of the Code's provisions. Similarly, the
Sub-Adviser represents that, with respect to the use of
nonmaterial nonpublic information, it has complied, and will
continue to comply, with Section 204A of the Investment Advisers
Act of 1940, as amended ("Adviser Act") and any rules thereunder.
<PAGE>
6.2 The Manager recognizes that from time to time directors,
officers, and employees of the Sub-Adviser may serve as directors,
trustees, partners, officers and employees of other corporations,
business trusts, partnerships or other entities (including other
investment companies) and that such other entities may include the
name "Dreyfus" as part of their name, and that the Sub-Adviser or
its affiliates may enter into investment advisory, administration
or other agreements with such entities. If the Sub-Adviser ceases
to act as the Portfolio's sub-adviser pursuant to the Investment
Sub-AdvisoryAgreement, the Manager agrees that, at the
Sub-Adviser's request, it will cause the Company to take all
necessary action to change the name of the Portfolio to a name not
including "Dreyfus" in any form or combination of words.
7. DISCLOSURE OF INFORMATION AND CONFIDENTIALITY
7.1 The Sub-Adviser and the Manager, either during or after the
termination of this Agreement, are authorized with respect to
matters arising out of this Agreement to make any disclosures
and/or participate in any conduct required by any applicable law,
rule, regulation, self-regulating organization, investment
exchange or any other body having regulatory or enforcement
responsibility with respect to any investment business conducted
by the Sub-Adviser on behalf of the Portfolio.
7.2 Subject to paragraph 7.1 above, the Sub-Adviser agrees that
all information which has or will come into its possession or
knowledge concerning the Portfolio or its investments in
connection with this Agreement shall be held by the Sub-Adviser in
confidence. The Sub-Adviser shall make no use of such information
other than for the performance of this Agreement, shall disclose
such information only to the directors, officers or employees of
the Sub-Adviser or its affiliated firms or of any third party
appointed pursuant to this Agreement requiring such information
and shall not disclose such information to any other person
without the written consent of the Company; provided, however,
that to the extent the investments for the Portfolio are similar
to investments for other clients of the Sub-Adviser, the
Sub-Adviser may disclose such investments without direct reference
to the Portfolio. The Sub-Adviser may also include the name of the
Portfolio in a representative client list.
7.3 Subject to paragraph 7.1 above, the Manager agrees that all
information which has or will come into its possession or
knowledge concerning the operations and procedures of the
Sub-Adviser shall be held by the Manager in confidence. The
Manager shall make no use of such information other than for the
performance of this Agreement, shall disclose such information
only to its directors, officers or employees or those of its
affiliated firms or the Company and shall not disclose such
information to any other person without the written consent of the
Sub-Adviser.
<PAGE>
7.4 Each party hereto agrees not to refer to the other party or
its affiliates in any advertisement (including those or relating
to the Company or the Portfolio) or other marketing materials
without the prior written consent of such party. However, the
parties hereto agree that they may reference one another as
necessary in regulatory and other legal filings. Further, the
parties agree that they will not unreasonably withhold permission
to use their names or otherwise reference them in materials used
to describe the Portfolio and/or the Company.
8. DEALINGS WITH THE CUSTODIAN. The Manager shall notify the
Sub-Adviser of the appointment of the custodian(s) ("Custodian")
for all or any portion of the Portfolio's assets, shall provide
the Sub-Adviser with a true and complete copy of each agreement
with the Custodian that deals with the Portfolio's assets
("Custodian Agreement"), and shall provide the Sub-Adviser with
the names of persons authorized to act on behalf of the Custodian
and such other information as the Sub-Adviser shall reasonably
require. The Sub-Adviser agrees to give instructions in accordance
with the terms of the applicable Custodian Agreements. The Manager
agrees to provide promptly to the Sub-Adviser a copy of all
relevant Custodian Agreements, and all changes made to such
documents.
9. DELEGATION OF THE SUB-ADVISER'S RESPONSIBILITIES. The
Sub-Adviser may not delegate its investment advisory
responsibilities as Sub-Adviser to the Portfolio. However, the
Sub-Adviser may employ, retain or otherwise avail itself of the
services and facilities of persons and entities within its own
organization or any other organization for the purpose of
providing the Sub-Adviser, the Manager or the Portfolio with such
information, advice or assistance, including but not limited to
advice regarding economic factors and trends and advice as to
transactions in specific securities, as the Sub-Adviser may deem
necessary, appropriate or convenient for the discharge of its
obligations hereunder or as may otherwise be helpful to the
Manager or the Portfolio, or in the discharge of the Sub-Adviser's
overall responsibilities with respect to the other accounts for
which it serves as investment manager or investment adviser. The
Sub-Adviser's acquisition of information, advice or assistant
pursuant to this paragraph shall be at the sub-Adviser's own
expense and shall not relieve the Sub-Adviser of any of its
obligations under this Agreement.
10. COMPENSATION. For the services to be rendered under this
Agreement and the facilities to be furnished, the Manager shall
pay to the Sub-Adviser a monthly management fee as specified in
Schedule A of this Agreement. (If an IDEX Dreyfus Mid Cap fund is
established, the fees payable to Dreyfus with respect to the WRL
Dreyfus Mid Cap portfolio will be based upon the average daily net
assets, on a combined basis, of both the IDEX Dreyfus Mid Cap fund
and WRL Dreyfus Mid Cap portfolio.) The monthly management fee
shall be paid to the Sub-Adviser not later than the tenth business
day of the month following the month in which such services were
rendered and shall be based upon the average net asset values of
all the issued and outstanding shares of the Portfolio as
<PAGE>
determined as of the close of each business day of the month
pursuant to the Articles of Incorporation, Bylaws and currently
effective Prospectus of the Portfolio. Payments of the monthly
management fee will be accompanied by documentation that verifies
the calculation of such fee. If the management of the Portfolio by
the Sub-Adviser commences or terminates at any time other than the
beginning or end of a month, the management fee shall be prorated
for that portion of such month during which this Agreement was in
force. Payment of the monthly management fee shall be transmitted
by wire from the Manager to the Sub-Adviser's account as follows:
The Bank of New York
ABA 02100018
For the Account of The Dreyfus Corporation
Account # 8540021679
11. REPRESENTATIONS OF THE SUB-ADVISER. The Sub-Adviser represents
and agrees that:
(a) The Sub-Adviser is registered as an "investment adviser" under
the Advisers Act and is currently in compliance in all material
respects and shall at all times continue to comply in all material
respects with the requirements imposed upon it by the Advisers
Act, the 1940 Act, the Internal Revenue Code, state securities
laws and all applicable rules and regulations thereunder as they
relate to the services provided under this Agreement. The
Sub-Adviser will immediately notify the Manager if it becomes
aware of the occurrence of any event that would disqualify the
Sub-Adviser from serving as an investment adviser of an investment
company pursuant to Section 9 of the 1940 Act or any other
applicable law or regulation.
(b) The Sub-Adviser will maintain, keep current and accurate, and
preserve all records with respect to the Portfolio as are required
of it under the Adviser Act and the 1940 Act, in the manner
pvodided by such Acts and the rules thereunder. The Sub-Adviser
agrees that such records are the property of the Company, and
following termination of this Agreement will be surrendered to the
Company promptly upon request except to the extent that they are
required to be retained by the Sub-Adviser under applicable law.
Further, such records shall be open to inspection by the Company.
The Sub-Adviser will also assure that the Company will have the
same access as the Sub-Adviser has to records relating to the
Portfolio that are held by relevant third parties. Such
inspections will be at reasonable times during business hours and
only upon reasonable notice of the Company's desire to make an
inspection.
<PAGE>
(c) The Sub-Adviser agrees to advise the Manager of any internal
developments, such as the reassignments of a portfolio manager,
that would require Prospectus disclosure and to provide any
necessary information related to such developments.
(d) The Sub-Adviser has provided the Manager and the Company with
a copy of its most recent and complete Form ADV and will promptly
furnish them with copies of any material amendments to the Form.
(e) The Sub-Adviser shall furnish the Manager with a certificate,
signed by a duly authorized officer of the Sub-Adviser that
designates the officers or employees of the Sub-Adviser having
authority to act for and on behalf of the Sub-Adviser in
connection with this Agreement. The Sub-Adviser agrees that, until
such time as the Manager is otherwise informed in writing by a
duly authorized officer of the Sub-Adviser, the Manager shall be
authorized and entitled to rely on any notice, instruction,
request, order or other communication, given either in writing or
orally, and reasonably believed by the Manager in good faith to be
given by an authorized representative of the Sub-Adviser.
12. REPRESENTATIONS OF THE MANAGER. The Manager represents and agrees
that:
(a) The Manager is registered as an "investment adviser" under the
Adviser Act and has provided to the Sub-Adviser a copy of its most
recent and complete Form ADV, along with a copy of the Advisory
Agreement and the current Company Prospectus regarding the
Portfolio. After any amendment to the documents referenced in this
paragraph, the Manager will promptly furnish a copy of such
amended document to the Sb-Adviser. In addition, the Manager will
provide the Sub-Adviser with notice of proposed changes in the
Prospectus and the opportunity to review and comment upon such
changes before they are finalized, wherever possible.
(b) Subject to the Sub-Advisers performance under this Agreement
in accordance with its terms, the Manager and the Company are
currently in material compliance and shall at all times continue
to be in material compliance with the relevant requirements of the
Adviser Act, the 1940 Act, all applicable state securities and
insurance laws, and the rules thereunder, as they pertain to the
Portfolio.
(c) The Manager shall furnish the Sub-Adviser with a certificate,
signed by a duly authorized officer of the Manager that designates
the officers or employees of the Manager having authority to act
for and on behalf of the Manager in connection with this
Agreement. The Manager agrees that, until such time as the
Sub-Adviser is otherwise informed in writing by a duly authorized
officer of the Manager, the Sub-Adviser shall be authorized and
entitled to rely on any notice, instruction, request, order or
other communication, given either in writing or
<PAGE>
orally, and reasonably believed by the Sub-Adviser in good faith
to be given by an authorized representative of the Manager.
13. LIABILITY, INDEMNIFICATION AND FORCE MAJEURE.
13.1 The Sub-Adviser, its affiliated firms or its or their
employees, officers, or directors will not be liable for any error
of judgment or mistake of law or for any loss suffered by the
Manager, the Company, or the Portfolio or its shareholders, in
connection with the performance of their duties under this
Agreement, except for loss resulting from willful misfeasance, bad
faith or gross negligence on their part in the performance of
their duties or from reckless disregard by them of their duties
under this Agreement.
13.2 The Manager shall indemnify the Sub-Adviser against all
claims which may be made against the Sub-Adviser in connection
with the exercise of the powers and discretions conferred upon it
pursuant to this Agreement, including reasonable attorneys' fees
incurred in connection with any such claim, EXCEPT insofar as such
claims allege or are the result of the willful misfeasance, bad
faith or gross negligence of the Sub-Adviser or any of its
affiliated firms or its or their employees, officers or directors
or its or their violation of applicable law. Conversely, the
Sub-Adviser shall indemnify the Manager and the Company against
all claims alleging or resulting from the willful misfeasance, bad
faith or gross negligence of the Sub-Adviser or any of its
affiliated firms or its or their employees, officers or directors
or its or their violation of applicable law, including reasonable
attorneys' fees incurred in connection with any such claim.
13.3 Neither party shall be held responsible for their
non-performance of any of their obligations under this Agreement
by reason of any cause beyond their control, including any
breakdown or failure of transmission, communication or computer
facilities, postal or other strikes or similar industrial action
and the failure of any relevant exchange, clearing house and/or
broker for any reason to perform its obligations.
14. TERM, RENEWAL AND TERMINATION
14.1 This Agreement shall, with respect to the Portfolio, become
effective as of the date first above written and shall remain in
force for two years thereafter, and for successive annual periods
thereafter but only so long as each such continuance is
specifically approved at least annually by (1) a majority of the
Directors of the Company or (2) a vote of the holders of a
majority of the outstanding voting securities (as defined in the
1940 Act) of the Portfolio, provided that in either event its
continuance is also approved by a majority of the Company's
Directors who are not "interested persons" of any party to the
Agreement by vote cast in person at a meeting calling for the
purpose of voting on such approval. It shall be the duty of the
Directors of the Company to request
<PAGE>
and evaluate, and the duty of the Manager and Sub-Adviser to
furnish, such information as may be reasonably necessary to
evaluate the terms of this Agreement and any renewal hereof.
14.2 This Agreement may be terminated with respect to the
Portfolio at any time without the payment of any penalty by the
Portfolio (1) on sixty (60) days' written notice to the Manager
and the Sub-Adviser, by a vote of a majority of the Board of
Directors of the Company, by vote of the holders of a majority of
the outstanding voting securities (as defined in the 1940 Act) of
the Portfolio or per the terms of the exemptive order - Release
No. 23379 dated August 5, 1998 under Section 6(c) of the 1940 Act
granting an exemption from Section 15(a) of the Act and Rule 18f-2
thereunder; or (2) by the Sub-Adviser on 60 days' written notice
to the Manager and the Company.
14.3 This Agreement shall automatically terminate in the event of
its assignment, as that term is defined in Section 2(a)(4) of the
1940 Act and the rules thereunder.
14.4 Upon the Manager's receipt or service of any notice given by
or to the Company concerning the termination of the Manager's
appointment as the investment adviser to the Company, the Manager
shall immediately forward a copy of such notice to the Sub-Adviser
and the Sub-Adviser's appointment under this Agreement shall
terminate on the same date as the termination of the Manager's
appointment.
15. AMENDMENT. No material amendment to or modification of this
Agreement shall be effective unless and until it is set forth in a
written amendment by the Manager and the Sub-Adviser and, if
required by the 1940 Act and the terms of any exemptive relief
applicable to the Company, approved by the Board of Directors of
the Company and/or by the vote of a majority of the outstanding
shares of the Portfolio, as defined in the 1940 Act.
16. AUTHORITY AND ENFORCEABILITY.
16.1 Each of the parties to this Agreement hereby represents that
it is duly authorized and empowered to execute, deliver, and
peform this Agreement and that such actions do not conflict with
or violate any provision of law, rule, regulation, other legal
requirement, contract or other instrument to which it is a party
or to which it is subject and that this Agreement constitutes a
valid and binding obligation, inuring to the benefit of the
Manager and the Sub-Adviser and their respective successors,
enforceable in accordance with its terms.
16.2 If any provision of this Agreement shall be held or made
invalid or unenforceable by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby and any such invalid or unenforceable
<PAGE>
provision shall be deemed to be replaced with a valid and
enforceable provision that most closely reflects the intention of
the parties.
17. APPLICABLE LAW. To the extent that state law is not preempted
by the provisions of any law of the United States heretofore or
hereafter enacted, as the same may be amended from time to time,
this Agreement shall be administered, construed and enforced
according to the laws of the State of New York.
18. NOTICES. All notices hereunder shall be in writing and shall
be delivered in person or by certified mail (return receipt
requested) to the parties at the addresses set forth below:
If to the Manager: WRL Investment Management, Inc.
570 Carillon Parkway
St. Petersburg, FL 33716
Attn: Thomas E. Pierpan, Esq.
If to the Sub-Adviser: The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Fax #: 212-922-6880
Attn: General Counsel
or such other name or address as may be given in writing to the
other party.
Unless specifically provided elsewhere, notice given as provided
above shall be deemed to have been given, if by personal delivery,
on the day of such delivery, and if by certified mail, on the date
on which such notice is received.
19. EXECUTION. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers.
WRL INVESTMENT MANAGEMENT, INC.
By:
Name: John R. Kenney
Title: Chairman, Director & President
THE DREYFUS CORPORATION
By:
Name:
Title:
<PAGE>
Sub-Advisory Agreement
SCHEDULE A
SUB-ADVISORY FEE
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------- -----------------------------------
PORTFOLIO ANNUAL PERCENTAGE TERMINATION DATE
OF MONTHLY AVERAGE
DAILY NET ASSETS
- ------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
WRL DREYFUS MID CAP 0.45% of the first April 30, 2001
$100 million of the
portfolio's average
daily net assets;
0.40% of assets in
excess of $100
million (from first
dollar)*
- ------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
*In the event that an IDEX Dreyfus Mid Cap fund is established, the fees payable
for this portfolio will be based upon the average daily net assets, on a
combined basis, for both the WRL Dreyfus Mid Cap portfolio and the IDEX Dreyfus
Mid Cap fund.
<PAGE>
EXHIBIT A
EXAMPLES OF THE ROUTINE ACCOUNTING AND OPERATIONAL INFORMATION AND DOCUMENTATION
REQUIREMENTS OF THE PORTFOLIO TO BE SATISFIED BY THE SUB-ADVISER
The following information is to be provided to:
Investors Bank & Trust Company
200 Clarendon Street
16th Floor
Boston, Massachusetts 02116
FAX: (617) 330-6033
PHONE: (617) 330-6700
1. DOCUMENTATION OF TRADES. On a daily basis, via facsimile, a listing of that
day's executed trades and copies of the trade tickets for that day's trades. The
signature or initials of a duly authorized officer or employee of the
Sub-Adviser should be placed on the trade tickets to validate the authenticity
of the trading information. With respect to trades for which no DTC affirmation
is available, hard copies of broker confirmation for such trades.
2.SECURITY PRICING. On a monthly basis, or more frequently as required under
the circumstances, by telephone or facsimile: (i): review with the Company's
Fund Accounting Department (the "Department") the prices of the Portfolio's
securities, which shall be provided by the Department; (ii) inform the
Department of its agreement or disagreement with such prices; and (iii) in any
instance where the pricing services utilized by the Department do not provide
a price for a security held by the Portfolio, provide the Department with
reasonable assistance in determining a price for such security.
EXHIBIT 99.B5-20
EXHIBIT (D)(21)
FORM OF SUB-ADVISORY AGREEMENT ON BEHALF OF
WRL PILGRIM BAXTER GROWTH
<PAGE>
WRL SERIES FUND
SUB-ADVISORY AGREEMENT
BETWEEN
WRL INVESTMENT MANAGEMENT, INC.
AND
PILGRIM BAXTER AND ASSOCIATES, LTD.
This Agreement is entered into as of May 1, 1999 between WRL
MANAGEMENT, INC., a Florida corporation (referred to herein as "WRL
Management"), and Pilgrim Baxter and Associates, Ltd. a Delaware corporation
(referred to herein as "Pilgrim Baxter").
WHEREAS, WRL Management entered into a Management and Investment
Advisory Agreement (referred to herein as the "Advisory Agreement"), dated as of
January 1, 1997 with WRL Series Fund, Inc, a Maryland corporation (referred to
herein as the "Fund"), an open-end management investment company registered
under The Investment Company Act of 1940 (the "1940 Act"), on behalf of WRL
Pilgrim Baxter Mid Cap Growth (the "Portfolio"), under which WRL Management has
agreed, among other things, to act as investment adviser to the Portfolio.
WHEREAS, the Advisory Agreement provides that WRL Management may engage
a Sub-Adviser to furnish investment information and advice to assist WRL
Management in carrying out its responsibilities under the Advisory Agreement as
investment adviser to the Fund.
WHEREAS, it is the purpose of this Agreement to express the mutual
agreements of the parties hereto with respect to the services to be provided by
Pilgrim Baxter to WRL Management and the terms and conditions under which such
services will be rendered.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. SERVICES OF PILGRIM BAXTER. Pilgrim Baxter shall act as investment
adviser to WRL Management with respect to the Portfolio. In this capacity,
Pilgrim Baxter shall have the following responsibilities:
(a) to provide a continuous investment program for the Portfolio
including management of the acquisition, holding or disposition of
any or all of the securities or other assets which the Portfolio
may own or contemplate acquiring from time to time;
(b) Pilgrim Baxter will place orders for the purchase and sale of
securities primarily with or through such persons, brokers or
dealers whom it believes will provide the most favorable price and
efficient execution. Within the framework of this policy, in
accordance with the Advisory Agreement, and in accordance with
Section 28(e) of the Securities & Exchange Act of 1934, Pilgrim
Baxter may consider the financial responsibility, research and
investment information and other services provided by brokers or
dealers who may effect or be a party to any such transaction or
other transactions to which Pilgrim Baxter's other clients may be
a party. It is understood that it is desirable for the Portfolio
that Pilgrim Baxter have access to supplemental investment and
market research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher cost to
the Portfolio that may result when allocating brokerage to other
brokers solely on the basis of seeking the most favorable price.
Therefore, Pilgrim Baxter is authorized to place orders for the
purchase and sale of securities for the Portfolio with such
brokers, subject to review by WRL Management and the Fund's Board
of Directors, from time to time, with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers also may be useful to Pilgrim Baxter in
connection with Pilgrim Baxter's services to other clients.
<PAGE>
On occasions when Pilgrim Baxter deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as
other clients of Pilgrim Baxter, to the extent permitted by
applicable laws and regulations, Pilgrim Baxter may, but shall be
under no obligation to, aggregate the securities to be so
purchased or sold in order to obtain the most favorable price or
lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well
as the expenses incurred in the transaction, will be made by
Pilgrim Baxter in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Portfolio and
to such other clients.
(c) to cause its officers to attend meetings of WRL Management or the
Fund and furnish oral or written reports, as WRL Management may
reasonably require, in order to keep WRL Management and its
officers and the Directors of the Fund and appropriate officers of
the Fund fully informed as to the condition of the investment
portfolio of the Portfolio, the investment recommendations of
Pilgrim Baxter, and the investment considerations which have given
rise to those recommendations;
(d) to furnish such statistical and analytical information and reports
as may reasonably be required by WRL Management from time to time;
and
(e) to supervise the purchase and sale of securities.
2. OBLIGATIONS OF WRL MANAGEMENT. WRL Management shall have the
following obligations under this Agreement:
(a) to keep Pilgrim Baxter continuously and fully informed as to the
composition of the Portfolio's investment portfolio and the nature
of the Portfolio's assets and liabilities from time to time;
(b) to furnish Pilgrim Baxter with a certified copy of the Fund's
By-laws and with a certified copy of any financial statement or
report prepared for the Portfolio by certified or independent
public accountants, and with copies of any financial statements or
reports made by the Fund to its shareholders or to any
governmental body or securities exchange;
(c) to promptly furnish Pilgrim Baxter with copies of the Fund's
current prospectus and statement of additional information,
together with any investment restrictions or limitations imposed
upon the management of the assets of the Portfolio by the Fund's
Board of Directors or officers, or those imposed by WRL
Management, and copies of any or all Exemptive Orders or no-action
letters received by the Fund from the Securities and Exchange
Commission which may apply to the Portfolio.
(d) to furnish Pilgrim Baxter with any further materials or
information which Pilgrim Baxter may reasonably request to enable
it to perform its functions under this Agreement;
(e) to compensate Pilgrim Baxter for its services provided and the
expenses assumed under this Agreement, by (i) the payment of a
monthly fee as set forth on schedule A attached to this Agreement,
as it may be amended from time to time in accordance with Section
10 below. (The fees payable to Pilgrim Baxter with respect to the
WRL Pilgrim Baxter Mid Cap Growth portfolio will be based upon the
average daily net assets, on a combined basis, of both the IDEX
Pilgrim Baxter Mid Cap Growth fund and the WRL Pilgrim Baxter Mid
Cap Growth portfolio.) In the event that this Agreement shall be
effective for only part of a period to which any such fee received
by WRL Management is attributable, then an appropriate pro-ration
of the fee that would have been payable hereunder if this
<PAGE>
Agreement had remained in effect until the end of such period
shall be made, based on the number of calendar days in such period
and the number of calendar days during the period in which this
Agreement was in effect. The fees payable to Pilgrim Baxter
hereunder shall be payable upon receipt by WRL Management from the
Portfolio of fees payable to WRL Management under Section 6 of the
Advisory Agreement; and
3. TREATMENT OF INVESTMENT ADVICE. WRL Management may direct Pilgrim
Baxter to furnish its investment information, advice and recommendations
directly to officers of the Fund.
4. PURCHASES BY AFFILIATES. Neither Pilgrim Baxter nor any of its
officers or Directors shall take a long or short position in the securities
issued by the Portfolio. This prohibition, however, shall not prevent the
purchase from the Portfolio of shares issued by the Portfolio on behalf of the
Portfolio by the officers and Directors of Pilgrim Baxter (or deferred benefit
plans established for their benefit) at the current price available to the
public, or at such price with reductions in sales charge as may be permitted in
the Fund's current prospectus in accordance with Section 22(d) of the Investment
Company Act of 1940, as amended (the "1940 Act").
5. LIABILITY OF PILGRIM BAXTER. Pilgrim Baxter may rely on information
provided to it by WRL Management or the Fund reasonably believed by it to be
accurate and reliable. Except as may otherwise be provided by the 1940 Act,
neither Pilgrim Baxter nor its officers, directors, employees or agents shall be
subject to any liability to the Portfolio or any shareholders of the Portfolio
or to WRL Management for any error of judgment, mistake of law or any loss
arising out of any investment or other act or omission in the course of,
connected with or arising out of any service to be rendered hereunder, except by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of reckless disregard of its obligations and duties
under this Agreement.
6. COMPLIANCE WITH LAWS. Pilgrim Baxter represents that it is, and will
continue to be throughout the term of this Agreement, an investment adviser
registered under all applicable federal and state laws. In all matters relating
to the performance of this Agreement, Pilgrim Baxter will act in conformity with
the Fund's Articles of Incorporation, Bylaws, and current prospectus and with
the instructions and direction of WRL Management and Fund's Directors, and will
conform to and comply with the 1940 Act and all other applicable federal or
state laws and regulations.
7. TERMINATION. This Agreement shall terminate automatically with
respect to the Portfolio upon the termination of the Advisory Agreement with
respect to such Portfolio. This Agreement may be terminated at any time with
respect to the Portfolio, without penalty, by WRL Management or by the Fund's
Board by giving 60 days' written notice of such termination to Pilgrim Baxter at
its principal place of business, provided that, if terminated by the Fund, such
termination is approved by the Board of Directors of the Fund or by vote of a
majority of the outstanding voting securities (as that phrase is defined in
Section 2(a)(42) of the 1940 Act) of the Portfolio, or per the terms of the
exemptive order - Release No. 23379 - under section 6(c) of the Act from section
15(a) and rule 18f-2 under the Act. This Agreement may be terminated at any time
by Pilgrim Baxter by giving 60 days' written notice of such termination to the
Fund's Board and WRL Management at their respective principal places of
business.
8. ASSIGNMENT. This Agreement shall terminate automatically in the
event of any assignment (as that term is defined in Section 2(a)(4) of the 1940
Act) of this Agreement.
9. TERM. This Agreement shall continue in effect, unless sooner
terminated in accordance with its terms, for an initial term ending April 30,
2001, and shall continue in effect from year to year thereafter so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Directors of WRL who are not parties hereto or interested persons (as
that term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
the terms of such renewal, and by either the Directors of the Fund or the
affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
<PAGE>
10. AMENDMENTS. This Agreement may be amended with respect to the
Portfolio only with the approval by the affirmative vote of a majority of the
outstanding voting securities (as that phrase is defined in Section 2(a)(42) of
the 1940 Act) of such Portfolio and the approval by the vote of a majority of
the Directors of the Fund who are not parties hereto or interested persons (as
that term is defined in Section 2(a)(19) of the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on the approval of
such amendment, unless otherwise permitted by the 1940 Act.
11. PRIOR AGREEMENTS. This agreement supersedes all prior agreements
between the parties relating to the subject matter hereof, and all such prior
agreements are deemed terminated upon the effectiveness of this agreement.
12. MISCELLANEOUS
(a) Pilgrim Baxter shall not be required to pay any expenses of the Portfolio.
In particular, but without limiting the generality of the foregoing, Pilgrim
Baxter shall not be responsible for the following expenses of the Portfolio:
organization and certain offering expenses of the Portfolio, legal expenses;
auditing and accounting expenses; interest expenses; telephone, telex,
facsimile, postage and other communications expenses; taxes and governmental
fees; fees, dues and expenses incurred by or with respect to the Portfolio in
connection with membership in investment company trade organization; costs of
insurance relating to fidelity coverage for the Fund's officers and employees;
fees and expenses of the Fund's custodian, any subcustodian, transfer agent
registrar, or dividend disbursing agent; maintaining the Fund's financial books
and records and calculating the daily net asset value; other payments for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates; other
expenses in connection with the issuance, offering, distribution, sale or
redemption of securities issued by the Portfolio; expenses relating to investor
and public relations; expenses of registering and qualifying shares of the
Portfolio for sale; freight, insurance and other charges in connection with the
shipment of the Portfolio's portfolio securities; brokerage commissions or other
costs of acquiring or disposing of any portfolio securities or other assets of
the Portfolio, or of entering into other transactions or engaging in any
investment practices with respect to the Portfolio; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to stockholders; costs of stationery; any litigation
expenses; and costs of stockholders' meetings; costs relating to meetings of the
Board of Directors of the Fund except for travel expenses for representatives of
Pilgrim Baxter to the extent that such expenses relate to attendance at meetings
of the Board of Directors of the Fund with respect to matters concerning the
Portfolio, or any committees thereof or advisers thereto.
(b) It is understood that the services of Pilgrim Baxter are not
exclusive, and that nothing in this Agreement shall prevent Pilgrim Baxter from
providing similar services to other investment companies or to other series of
investment companies, or from engaging in other activities, provided such other
services and activities do not, during the term of the Agreement, interfere in a
material manner with Pilgrim Baxter's ability to meet its obligations to the
Portfolio hereunder. When Pilgrim Baxter recommends the purchase or sale of the
same security for the Portfolio, it is understood that in light of its fiduciary
duty to the Portfolio, such transactions will be executed on a basis that is
fair and equitable to the Portfolio. In connection with purchases or sales of
portfolio securities for the account of the Portfolio, neither Pilgrim Baxter
nor any of its directors, officers or employees shall act as principal or agent
or receive any commission, provided that portfolio transactions for the
Portfolio may be executed through firms affiliated with Pilgrim Baxter in
accordance with applicable legal requirements, and procedures adopted by the
Directors of the Fund.
(c) During the term of this Agreement, WRL Management agrees to
furnish Pilgrim Baxter, at is principal office, all prospectuses, proxy
statements, reports to shareholders, sales literature or other materials
prepared for distribution to shareholders of the Portfolio, the Fund or the
public that refer to Pilgrim Baxter or its clients in any way.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATTEST: THE PILGRIM BAXTER & ASSOCIATES, LTD.
______________________________ By:_________________________________
Secretary Title:
ATTEST: WRL MANAGEMENT, INC.
______________________________ By:_________________________________
Assistant Secretary John R. Kenney
Chairman, Director & President
<PAGE>
Sub-Advisory Agreement
SCHEDULE A
<TABLE>
<CAPTION>
- ------------------------------------------ --------------------------------------- --------------------------
FUND ANNUAL PERCENTAGE OF MONTHLY AVERAGE TERMINATION DATE
DAILY NET ASSETS
- ------------------------------------------ --------------------------------------- --------------------------
<S> <C> <C>
WRL PILGRIM BAXTER MID CAP GROWTH 0.50% of the first $100 million of April 30, 2001
the Portfolio's average daily net
assets; 0.40% of assets in excess of
$100 million (from first dollar)*
- ------------------------------------------ --------------------------------------- --------------------------
</TABLE>
*The fees payable for this portfolio will be based upon the average daily net
assets, on a combined basis, for both the WRL Pilgrim Baxter Mid Cap Growth
portfolio and the IDEX Pilgrim Baxter Mid Cap Growth fund.
EXHIBIT 99.B6
EXHIBIT (E)
DISTRIBUTION AGREEMENT
<PAGE>
DISTRIBUTION AGREEMENT
(AS AMENDED MAY 1, 1999)*
AGREEMENT made this 1st day of January, 1997, between WRL Series Fund,
Inc., a Maryland corporation (the "Fund"), and InterSecurities, Inc., a Delaware
corporation (the "Distributor"), each with offices at 201 Highland Avenue,
Largo, Florida 33770.
WHEREAS, the Fund is a registered open-end management investment
company, which currently offers shares of its common stock in twenty series,
each as set forth on Schedule A hereto (the "Current Portfolios"), and the Fund
may offer shares of one or more additional Portfolios in the future;
WHEREAS, the Fund was originally organized to act as the funding
vehicle for certain individual variable life insurance policies and individual
and group variable annuity contracts offered by Western Reserve Life Assurance
Co. of Ohio ("Western Reserve") or life insurance companies affiliated with
Western Reserve through separate accounts of such life insurance companies; and
WHEREAS, in the future, the Fund may also offer its shares to life
insurance companies unaffiliated with Western Reserve (together with Western
Reserve and its affiliated life insurance companies, the "Life Companies") as a
funding vehicle for variable life insurance policies and variable annuity
contracts (together with the variable life insurance policies and variable
annuity contracts offered by Western Reserve and its affiliated life insurance
companies, the "Policies"), and/or to qualified pension and retirement plans
(the "Qualified Plans"); and
WHEREAS, from time to time, the Fund may enter into sales agreements
with Life Companies that have or will establish one or more separate accounts to
offer Policies, pursuant to which one or more Portfolios of the Fund serves as
the underlying funding vehicle for such Policies; and, under certain
circumstances, may enter into sales agreements with the Qualified Plans; and
WHEREAS, it is contemplated that, in addition to entering into sales
agreements with Life Companies and/or Qualified Plans, the Distributor shall
engage in certain promotional and sales efforts on behalf of the Fund, as
described in the Distribution Plan pursuant to Rule 12b-1 adopted by the Fund
concurrent with the effective date of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. (a) The Fund proposes to issue and sell shares of common stock of
the Fund (the "Shares") to separate accounts of Life Companies and to the
Qualified Plans as may be permitted by applicable law and subject to the Fund's
obtaining any necessary regulatory approvals. The Fund hereby appoints the
Distributor as agent to sell the Shares and the Distributor hereby accepts such
appointment. The Shares will be distributed under such terms as are set by the
Fund and will be sold to the separate accounts and the Qualified Plans permitted
to buy the Shares as specified by the Fund's Board of Directors.
(b) In the event that the Fund from time to time designates one or
more Portfolios in addition to the Current Portfolios ("Additional Portfolios"),
it shall notify the Distributor. If the Distributor is willing to perform
services hereunder to the Additional Portfolios, it shall so notify the Fund.
Thereafter, the Fund and the Distributor shall mutually agree to amend Schedule
A to this Agreement in writing to add the Additional Portfolios and the
Additional Portfolios shall be subject to this Agreement, subject to the
approval of the Board of Directors as set forth in Section 7.(a) below.
<PAGE>
2. (a) The Distributor agrees that (i) all Shares sold by the
Distributor shall be sold at the net asset value thereof as described in the
Fund's prospectus, and (ii) the Fund shall receive 100% of such net asset value.
(b) The Shares will be sold in accordance with any sales
agreements between the Fund and Life Companies and, where applicable, the Fund
and Qualified Plans. The Current Portfolios and all Additional Portfolios
subject to this Agreement are referred to collectively as "Portfolios."
3. (a) All sales literature and advertisements used by the Distributor
in connection with sales of Shares shall be subject to approval by the Fund. The
Fund authorizes the Distributor, in connection with the sales or arranging for
the sale of Shares, to provide only such information and to make only such
statements or representations as are contained in the Fund's then-current
Prospectus or in sales literature or advertisements approved by the Fund or in
such financial and other statements which are furnished to the Distributor
pursuant to the next paragraph. The Fund shall not be responsible in any way for
any information provided or statements or representations made by the
Distributor or its representatives or agents other than the information,
statements and representations described in the preceding sentence. The
Distributor shall review all materials submitted to it by Life Companies and
Qualified Plans that describe the Fund, the Shares or the Fund's investment
adviser. The Distributor shall not be responsible for any information provided
or statements or representations made by Life Companies or Qualified Plans,
representatives or agents of Life Companies or Qualified Plans, or any other
persons or entities other than the Distributor's representatives or agents.
(b) The Fund shall keep the Distributor fully informed with regard
to its affairs, shall furnish the Distributor with a certified copy of all
financial statements and a signed copy of each report prepared by its
independent certified public accountants, and shall cooperate fully in the
efforts of the Distributor to sell the Shares and in the performance by the
Distributor of all its duties under this Agreement.
4. (a) The Fund will pay or cause to be paid:
(i) registration fees for registering its shares under the
Securities Act of 1933 (the "1933 Act");
(ii) the expenses, including counsel fees, of preparing
registration statements and such other documents as the Fund
believes are necessary for registering the Shares with the
Securities and Exchange Commission (the "SEC") and such states
as are deemed necessary or appropriate;
(iii) expenses incident to preparing amendments to
registration statements of the Fund under the 1933 Act and the
Investment Company Act of 1940, as amended (the "1940 Act");
(iv) expenses for preparing and setting in type all
prospectuses and the expense of supplying them to the then
existing shareholders or beneficial owners of Shares
(including owners of Policies whose contracts use one or more
Portfolios as their funding vehicle);
(v) expenses incident to the issuance of its Shares such as
the cost of stock certificates, if any, taxes and fees of the
transfer agent for establishing shareholder record accounts
and confirmations; and
(vi) expenses for administrative and transfer agency services,
pursuant to and in accordance with the Administrative Services
and Transfer Agency Agreement between the Fund and WRL
Investment Services, Inc. dated January 1, 1997, as it may be
amended from time to time in accordance with its terms.
<PAGE>
(b) The Distributor shall pay all of its own costs and expenses
connected with the offer and sale of Shares ("Distribution Expenses"), except
that certain Distribution Expenses may be reimbursed to the Distributor as
provided in Section 5 hereof.
5. (a) Pursuant to a Distribution Plan (the "Plan") adopted by the
Board of Directors of the Fund in accordance with Section 12(b) of the 1940 Act,
Rule 12b-1 and the other rules and regulations promulgated thereunder, as the
same may be, from time to time, issued or amended, the Fund, on behalf of a
Portfolio that has approved the Plan pursuant to Section 3 thereof, may
reimburse the Distributor, as direct payment for expenses incurred in connection
with the distribution of a Portfolio's shares, amounts equal to actual expenses
associated with distributing such Portfolio's shares, up to a maximum rate of
0.15%, on an annualized basis of a Portfolio's average daily net assets.
Reimbursements shall be measured and accrued daily, and remitted to the
Distributor monthly. Such reimbursement may be made only for the period
commencing on the date hereof and ending December 31, 1997, and for each twelve
month period (or portion thereof) thereafter, in which the Plan is in effect for
that Portfolio.
(b) Distribution Expenses reimbursable hereunder shall include,
but not necessarily be limited to, the following:
(i) the cost for printing and mailing of Fund prospectuses and
statements of additional information, and any supplements
thereto, to potential investors;
(ii) the costs relating to the development and preparation of
Fund advertisements and sales literature and brokers' and
other promotional materials describing and/or relating to the
Fund;
(iii) expenses incurred in connection with the presentation of
seminars and sales meetings describing the Fund attended by
sales personnel and potential investors;
(iv) the development of consumer-oriented sales materials
describing and/or relating to the Fund; and
(v) expenses attributable to "distribution-related" services
provided to the Fund. "Distribution-related services" include,
but are not limited to: salaries and benefits; office
expenses; equipment expenses (I.E., computers, software,
office equipment, etc.); training costs; travel costs;
printing costs; supply expenses; computer programming time;
and data center expenses, each as they relate to the promotion
of the sale of Fund shares.
(c) The Distributor shall submit annual reimbursable Distribution
Expense budgets to the Board of Directors of the Fund. As soon as practicable
after the end of each calendar quarter, the Distributor shall submit to the
Board of Directors reports requesting ratification of reimbursement of
Distribution Expenses as to each Portfolio for that quarter. The Distributor
will allocate to each Portfolio reimbursable Distribution Expenses not
specifically attributable to the distribution of shares of a particular
Portfolio, based upon the ratio of the net asset value of each Portfolio at the
end of each calendar month to the net asset value of all Portfolios on that same
date. The Board of Directors will consider each request at its next regular
meeting after such request is submitted, and the Distributor shall only retain
reimbursements by the Fund on behalf of a Portfolio for those reimbursable
Distribution Expenses that are approved by the Board of Directors, including a
majority of the "Disinterested Directors" (as that term is defined in Section 7
hereof).
6. (a) The Fund shall maintain a currently effective Registration
Statement on Form N-1A and shall file with the SEC such reports and other
documents as may be required under the 1933 Act and the 1940 Act or by the rule
and regulations of the SEC thereunder.
<PAGE>
(b) The Fund represents and warrants that its Registration
Statement, post-effective amendments, Prospectus and Statement of Additional
Information (excluding statements based upon written information furnished by
the Distributor expressly for inclusion therein) shall not contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that all statements or information furnished to the Distributor, pursuant to
Section 3(b) hereof, shall be true and correct in all material respects.
7. (a) This Agreement shall take effect on the date hereof after it has
been approved by a vote of the majority of Directors of the Fund and those
Directors of the Fund who are not "interested persons" of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or this
Agreement (the "Disinterested Directors"), cast in person at a meeting called
for the purpose of voting on this Agreement. This Agreement shall remain in full
force and effect until December 31, 1997, and may be continued for twelve month
periods (or portions thereof) thereafter; provided that such continuance shall
be specifically approved annually by the Board of Directors of the Fund or by a
majority of the outstanding voting securities of each Portfolio of the Fund as
it applies to that Portfolio, and in either case, also by a majority of the
Disinterested Directors. This Agreement may be amended, with respect to any
Portfolio, with the approval of the Board of Directors or of a majority of the
outstanding voting securities of each Portfolio of the Fund as it applies to
that Portfolio, provided, that in either case, such amendment shall also be
approved by a majority of the Disinterested Directors.
(b) This Agreement, with respect to any Portfolio, may be
terminated, at any time without payment of any penalty, by vote of a majority of
the Disinterested Directors or by vote of a majority of the outstanding voting
securities of that Portfolio, or may be terminated by the Distributor, in either
case on not more than 60 days' written notice delivered personally or mailed by
registered mail, postage prepaid, to the other party.
(c) This Agreement shall automatically terminate in the event of
its assignment.
(d) The terms "interested persons," "assignment" and "vote of a
majority of the outstanding voting securities" as used herein shall have the
meanings given to them in the 1940 Act.
8. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties ("disabling conduct") hereunder
on the part of the Distributor (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity affiliated with
the Distributor or retained by it to perform or assist in the performance of its
obligations under this Agreement) the Distributor shall not be subject to
liability to the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder, of law or for
any loss suffered by any of them in connection with the matters to which this
Agreement relates.
9. This Agreement is made by the Fund, on behalf of each Portfolio,
pursuant to authority granted by the Board of Directors, and the obligations
created hereby are not binding on any of the Directors or shareholders of the
Fund individually, but bind only the property of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed by their duly authorized officers and under their respective
seals on the day and year first above written.
WRL SERIES FUND, INC.
Attest:
_________________________ By /s/ JOHN R. KENNEY_________
Secretary John R. Kenney
Chairman of the Board and President
Attest: INTERSECURITIES, INC.
__________________________ By /s/ G. JOHN HURLEY__________
Secretary G. John Hurley
President
<PAGE>
SCHEDULE A
As of May 1, 1999, the Distributor shall act as distributor for shares of the
following Portfolios of WRL Series Fund, Inc.:
WRL Janus Growth
WRL AEGON Bond
WRL Janus Global
WRL J. P. Morgan Money Market
WRL AEGON Balanced
WRL VKAM Emerging Growth
WRL LKCM Strategic Total Return
WRL Alger Aggressive Growth
WRL Federated Growth & Income
WRL Dean Asset Allocation
WRL C.A.S.E. Growth
WRL NWQ Value Equity
WRL GE/Scottish Equitable International Equity
WRL GE U.S. Equity
WRL Third Avenue Value
WRL J.P. Morgan Real Estate Securities
WRL T. Rowe Price Small Cap
WRL T. Rowe Price Dividend Growth
WRL Goldman Sachs Small Cap
WRL Goldman Sachs Growth
WRL Salomon All Cap
WRL Dreyfus Mid Cap
WRL Pilgrim Baxter Mid Cap Growth
<PAGE>
*AMENDMENT TO DISTRIBUTION AGREEMENT
DATED JANUARY 1, 1997, AS AMENDED MAY 1, 1999
Effective May 1, 1999, AFSG Securities Corporation, located at 4333 Edgewood
Road, Cedar Rapids, Iowa will replace InterSecurities, Inc. as distributor to
the portfolios of the WRL Series Fund.
WRL SERIES FUND, INC.
Attest:
___________________________ By: _______________________
Assistant Secretary John R. Kenney
Chairman of the Board and President
Attest: AFSG Securities Corporation
__________________________ By: ____________________
EXHIBIT 99.B10
EXHIBIT (I)
OPINION AND CONSENT OF THOMAS E. PIERPAN
AS TO LEGALITY OF SECURITIES BEING REGISTERED
<PAGE>
April 21, 1999
WRL Series Fund
P.O. Box 5068
Clearwater, Florida 33758-5068
Dear Gentlemen:
This opinion is furnished in connection with the proposed registration of the
WRL Series Fund, Inc.
1. The WRL Series Fund, Inc. has been duly organized, is existing in
good standing and is authorized to issued shares of its stock.
2. The shares of WRL Series Fund, Inc. to be issued in connection with
the Registration Statement have been duly authorized and when issued and
delivered as provided in the Registration Statement will be validly issued,
fully paid and nonassessable.
I, as legal counsel to the WRL Series Fund, Inc., hereby consent to the filing
of this opinion with the Registration Statement.
Very truly yours,
/s/ Thomas E. Pierpan
Thomas E. Pierpan
Vice President, Associate General Counsel
and Assistant Secretary
EXHIBIT 99.B11
EXHIBIT (J)(1)
OPINION AND CONSENT OF PRICEWATERHOUSECOOPERS LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 36 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 29, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report of the WRL Series Fund, Inc., which is also incorporated by reference
into the Registration Statement. We also consent to the reference to us under
the heading "Independent Accountants" in the Prospectuses and Statements of
Additional Information.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 20, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. MONEY MARKET PORTFOLIO FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 168,507
<INVESTMENTS-AT-VALUE> 168,507
<RECEIVABLES> 1,269
<ASSETS-OTHER> 48
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 169,824
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93
<TOTAL-LIABILITIES> 93
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169,731
<SHARES-COMMON-STOCK> 169,731
<SHARES-COMMON-PRIOR> 119,708
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 169,731
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,034
<OTHER-INCOME> 0
<EXPENSES-NET> 727
<NET-INVESTMENT-INCOME> 8,307
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,307)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 415,785
<NUMBER-OF-SHARES-REDEEMED> (374,069)
<SHARES-REINVESTED> 8,307
<NET-CHANGE-IN-ASSETS> 50,023
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 645
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 727
<AVERAGE-NET-ASSETS> 158,554
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. BOND PORTFOLIO, FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> BOND PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 160,238
<INVESTMENTS-AT-VALUE> 165,578
<RECEIVABLES> 2,345
<ASSETS-OTHER> 25,928
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 193,851
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,107
<TOTAL-LIABILITIES> 23,107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169,555
<SHARES-COMMON-STOCK> 14,727
<SHARES-COMMON-PRIOR> 11,637
<ACCUMULATED-NII-CURRENT> 175
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,326)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,340
<NET-ASSETS> 170,744
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,967
<OTHER-INCOME> 0
<EXPENSES-NET> 792
<NET-INVESTMENT-INCOME> 8,175
<REALIZED-GAINS-CURRENT> 1,952
<APPREC-INCREASE-CURRENT> 2,580
<NET-CHANGE-FROM-OPS> 12,707
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,188)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,906
<NUMBER-OF-SHARES-REDEEMED> (4,522)
<SHARES-REINVESTED> 706
<NET-CHANGE-IN-ASSETS> 41,090
<ACCUMULATED-NII-PRIOR> 188
<ACCUMULATED-GAINS-PRIOR> (6,278)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 664
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 792
<AVERAGE-NET-ASSETS> 147,507
<PER-SHARE-NAV-BEGIN> 11.14
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.40
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. GROWTH PORTFOLIO, FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,490,981
<INVESTMENTS-AT-VALUE> 3,021,883
<RECEIVABLES> 70,368
<ASSETS-OTHER> 164,615
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,256,866
<PAYABLE-FOR-SECURITIES> 3,592
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 167,217
<TOTAL-LIABILITIES> 170,809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,441,298
<SHARES-COMMON-STOCK> 51,486
<SHARES-COMMON-PRIOR> 49,925
<ACCUMULATED-NII-CURRENT> 1,083
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 112,912
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,530,764
<NET-ASSETS> 3,086,057
<DIVIDEND-INCOME> 13,736
<INTEREST-INCOME> 11,344
<OTHER-INCOME> 0
<EXPENSES-NET> 19,221
<NET-INVESTMENT-INCOME> 5,859
<REALIZED-GAINS-CURRENT> 109,620
<APPREC-INCREASE-CURRENT> 1,067,908
<NET-CHANGE-FROM-OPS> 1,183,387
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,582)
<DISTRIBUTIONS-OF-GAINS> (20,376)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,017
<NUMBER-OF-SHARES-REDEEMED> (5,996)
<SHARES-REINVESTED> 540
<NET-CHANGE-IN-ASSETS> 1,246,604
<ACCUMULATED-NII-PRIOR> 3,203
<ACCUMULATED-GAINS-PRIOR> 20,271
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,112
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,221
<AVERAGE-NET-ASSETS> 2,321,993
<PER-SHARE-NAV-BEGIN> 36.84
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 23.49
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.42)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 59.94
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. GLOBAL PORTFOLIO, FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> GLOBAL PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 760,078
<INVESTMENTS-AT-VALUE> 1,072,738
<RECEIVABLES> 3,706
<ASSETS-OTHER> 74,490
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,150,934
<PAYABLE-FOR-SECURITIES> 2,233
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78,936
<TOTAL-LIABILITIES> 81,169
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 745,703
<SHARES-COMMON-STOCK> 45,121
<SHARES-COMMON-PRIOR> 41,272
<ACCUMULATED-NII-CURRENT> (1,472)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,867
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 310,667
<NET-ASSETS> 1,069,765
<DIVIDEND-INCOME> 8,647
<INTEREST-INCOME> 2,454
<OTHER-INCOME> 0
<EXPENSES-NET> 8,946
<NET-INVESTMENT-INCOME> 2,155
<REALIZED-GAINS-CURRENT> 40,987
<APPREC-INCREASE-CURRENT> 193,520
<NET-CHANGE-FROM-OPS> 236,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,524)
<DISTRIBUTIONS-OF-GAINS> (37,099)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,631
<NUMBER-OF-SHARES-REDEEMED> (5,681)
<SHARES-REINVESTED> 1,899
<NET-CHANGE-IN-ASSETS> 283,799
<ACCUMULATED-NII-PRIOR> 5,937
<ACCUMULATED-GAINS-PRIOR> (6,557)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,946
<AVERAGE-NET-ASSETS> 942,443
<PER-SHARE-NAV-BEGIN> 19.04
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 5.61
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.86)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.71
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. STRATEGIC TOTAL RETURN PORTFOLIO, FOR THE
PERIOD ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> STRATEGIC TOTAL RETURN PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 494,435
<INVESTMENTS-AT-VALUE> 605,388
<RECEIVABLES> 3,857
<ASSETS-OTHER> 30,328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 639,573
<PAYABLE-FOR-SECURITIES> 16,319
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,942
<TOTAL-LIABILITIES> 47,261
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 465,024
<SHARES-COMMON-STOCK> 36,106
<SHARES-COMMON-PRIOR> 33,702
<ACCUMULATED-NII-CURRENT> 1,633
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,702
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 110,953
<NET-ASSETS> 592,312
<DIVIDEND-INCOME> 6,733
<INTEREST-INCOME> 11,716
<OTHER-INCOME> 0
<EXPENSES-NET> 4,827
<NET-INVESTMENT-INCOME> 13,622
<REALIZED-GAINS-CURRENT> 25,081
<APPREC-INCREASE-CURRENT> 12,649
<NET-CHANGE-FROM-OPS> 51,352
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,507)
<DISTRIBUTIONS-OF-GAINS> (11,332)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,867
<NUMBER-OF-SHARES-REDEEMED> (3,000)
<SHARES-REINVESTED> 1,537
<NET-CHANGE-IN-ASSETS> 65,735
<ACCUMULATED-NII-PRIOR> 1,275
<ACCUMULATED-GAINS-PRIOR> 1,196
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,485
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,827
<AVERAGE-NET-ASSETS> 559,673
<PER-SHARE-NAV-BEGIN> 15.62
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 1.09
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> (0.32)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.40
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. EMERGING GROWTH PORTFOLIO, FOR THE PERIOD
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 07
<NAME> EMERGING GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 527,329
<INVESTMENTS-AT-VALUE> 858,383
<RECEIVABLES> 2,328
<ASSETS-OTHER> 114,486
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 975,197
<PAYABLE-FOR-SECURITIES> 6,448
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 115,309
<TOTAL-LIABILITIES> 121,757
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 501,337
<SHARES-COMMON-STOCK> 31,698
<SHARES-COMMON-PRIOR> 29,066
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21,049
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 331,054
<NET-ASSETS> 853,440
<DIVIDEND-INCOME> 1,280
<INTEREST-INCOME> 2,314
<OTHER-INCOME> 0
<EXPENSES-NET> 6,043
<NET-INVESTMENT-INCOME> (2,449)
<REALIZED-GAINS-CURRENT> 48,782
<APPREC-INCREASE-CURRENT> 178,298
<NET-CHANGE-FROM-OPS> 224,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (28,331)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,401
<NUMBER-OF-SHARES-REDEEMED> (3,952)
<SHARES-REINVESTED> 1,183
<NET-CHANGE-IN-ASSETS> 261,437
<ACCUMULATED-NII-PRIOR> 15
<ACCUMULATED-GAINS-PRIOR> 598
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,408
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,043
<AVERAGE-NET-ASSETS> 676,659
<PER-SHARE-NAV-BEGIN> 20.37
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 7.56
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.93)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.92
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. AGGRESSIVE GROWTH PORTFOLIO, FOR THE PERIOD
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 08
<NAME> AGGRESSIVE GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 389,436
<INVESTMENTS-AT-VALUE> 574,429
<RECEIVABLES> 593
<ASSETS-OTHER> 52,782
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 627,804
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,640
<TOTAL-LIABILITIES> 53,640
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 368,006
<SHARES-COMMON-STOCK> 25,588
<SHARES-COMMON-PRIOR> 20,952
<ACCUMULATED-NII-CURRENT> 9,035
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,130
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 184,993
<NET-ASSETS> 574,164
<DIVIDEND-INCOME> 1,844
<INTEREST-INCOME> 1,086
<OTHER-INCOME> 0
<EXPENSES-NET> 3,815
<NET-INVESTMENT-INCOME> (885)
<REALIZED-GAINS-CURRENT> 44,175
<APPREC-INCREASE-CURRENT> 131,450
<NET-CHANGE-FROM-OPS> 174,740
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,181)
<DISTRIBUTIONS-OF-GAINS> (28,097)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,605
<NUMBER-OF-SHARES-REDEEMED> (3,430)
<SHARES-REINVESTED> 1,461
<NET-CHANGE-IN-ASSETS> 237,998
<ACCUMULATED-NII-PRIOR> 506
<ACCUMULATED-GAINS-PRIOR> 6,647
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,816
<AVERAGE-NET-ASSETS> 420,847
<PER-SHARE-NAV-BEGIN> 16.04
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 7.68
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (1.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.44
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. BALANCED PORTFOLIO, FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 09
<NAME> BALANCED PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 81,102
<INVESTMENTS-AT-VALUE> 94,570
<RECEIVABLES> 2,256
<ASSETS-OTHER> 21,221
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 118,047
<PAYABLE-FOR-SECURITIES> 3,078
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,969
<TOTAL-LIABILITIES> 23,047
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,990
<SHARES-COMMON-STOCK> 7,574
<SHARES-COMMON-PRIOR> 6,116
<ACCUMULATED-NII-CURRENT> 316
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,774)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,468
<NET-ASSETS> 95,000
<DIVIDEND-INCOME> 1,452
<INTEREST-INCOME> 1,771
<OTHER-INCOME> 0
<EXPENSES-NET> 772
<NET-INVESTMENT-INCOME> 2,451
<REALIZED-GAINS-CURRENT> (2,695)
<APPREC-INCREASE-CURRENT> 6,041
<NET-CHANGE-FROM-OPS> 5,797
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,097)
<DISTRIBUTIONS-OF-GAINS> (90)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,254
<NUMBER-OF-SHARES-REDEEMED> (971)
<SHARES-REINVESTED> 175
<NET-CHANGE-IN-ASSETS> 21,549
<ACCUMULATED-NII-PRIOR> 597
<ACCUMULATED-GAINS-PRIOR> (624)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 772
<AVERAGE-NET-ASSETS> 84,804
<PER-SHARE-NAV-BEGIN> 12.01
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.54
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. GROWTH & INCOME PORTFOLIO, FOR THE PERIOD
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> GROWTH & INCOME PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 85,200
<INVESTMENTS-AT-VALUE> 87,606
<RECEIVABLES> 1,328
<ASSETS-OTHER> 11,198
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,132
<PAYABLE-FOR-SECURITIES> 1,233
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,283
<TOTAL-LIABILITIES> 12,516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,048
<SHARES-COMMON-STOCK> 7,135
<SHARES-COMMON-PRIOR> 4,817
<ACCUMULATED-NII-CURRENT> 1,628
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 534
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,406
<NET-ASSETS> 87,616
<DIVIDEND-INCOME> 2,976
<INTEREST-INCOME> 1,040
<OTHER-INCOME> 0
<EXPENSES-NET> 686
<NET-INVESTMENT-INCOME> 3,330
<REALIZED-GAINS-CURRENT> 1,377
<APPREC-INCREASE-CURRENT> (2,082)
<NET-CHANGE-FROM-OPS> 2,625
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,680)
<DISTRIBUTIONS-OF-GAINS> (645)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,566
<NUMBER-OF-SHARES-REDEEMED> (1,602)
<SHARES-REINVESTED> 354
<NET-CHANGE-IN-ASSETS> 27,124
<ACCUMULATED-NII-PRIOR> 1,554
<ACCUMULATED-GAINS-PRIOR> 226
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686
<AVERAGE-NET-ASSETS> 76,537
<PER-SHARE-NAV-BEGIN> 12.56
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.28
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. TACTICAL ASSET ALLOCATION PORTFOLIO, FOR THE
PERIOD ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> TACTICAL ASSET ALLOCATION PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 339,745
<INVESTMENTS-AT-VALUE> 362,708
<RECEIVABLES> 2,634
<ASSETS-OTHER> 49,306
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 414,648
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,910
<TOTAL-LIABILITIES> 48,910
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 339,633
<SHARES-COMMON-STOCK> 27,393
<SHARES-COMMON-PRIOR> 22,239
<ACCUMULATED-NII-CURRENT> 1,336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,806
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,963
<NET-ASSETS> 365,738
<DIVIDEND-INCOME> 3,836
<INTEREST-INCOME> 8,978
<OTHER-INCOME> 0
<EXPENSES-NET> 2,919
<NET-INVESTMENT-INCOME> 9,895
<REALIZED-GAINS-CURRENT> 19,941
<APPREC-INCREASE-CURRENT> (3,713)
<NET-CHANGE-FROM-OPS> 26,123
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,269)
<DISTRIBUTIONS-OF-GAINS> (24,569)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,661
<NUMBER-OF-SHARES-REDEEMED> (2,073)
<SHARES-REINVESTED> 2,566
<NET-CHANGE-IN-ASSETS> 62,993
<ACCUMULATED-NII-PRIOR> 848
<ACCUMULATED-GAINS-PRIOR> 7,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,711
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,919
<AVERAGE-NET-ASSETS> 337,958
<PER-SHARE-NAV-BEGIN> 13.61
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.71
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> (0.99)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.35
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. C.A.S.E. GROWTH PORTFOLIO, FOR THE PERIOD
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> C.A.S.E. GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 77,157
<INVESTMENTS-AT-VALUE> 70,240
<RECEIVABLES> 97
<ASSETS-OTHER> 6,227
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,564
<PAYABLE-FOR-SECURITIES> 621
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,542
<TOTAL-LIABILITIES> 7,163
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,226
<SHARES-COMMON-STOCK> 5,342
<SHARES-COMMON-PRIOR> 4,325
<ACCUMULATED-NII-CURRENT> 3,954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (862)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,917)
<NET-ASSETS> 69,401
<DIVIDEND-INCOME> 452
<INTEREST-INCOME> 281
<OTHER-INCOME> 0
<EXPENSES-NET> 644
<NET-INVESTMENT-INCOME> 89
<REALIZED-GAINS-CURRENT> 7,730
<APPREC-INCREASE-CURRENT> (6,329)
<NET-CHANGE-FROM-OPS> 1,490
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,177)
<DISTRIBUTIONS-OF-GAINS> (411)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,031
<NUMBER-OF-SHARES-REDEEMED> (1,519)
<SHARES-REINVESTED> 505
<NET-CHANGE-IN-ASSETS> 8,805
<ACCUMULATED-NII-PRIOR> 1,677
<ACCUMULATED-GAINS-PRIOR> 184
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 644
<AVERAGE-NET-ASSETS> 64,402
<PER-SHARE-NAV-BEGIN> 14.01
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> (1.26)
<PER-SHARE-DISTRIBUTIONS> (0.09)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.99
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. GLOBAL SECTOR PORTFOLIO, FOR THE PERIOD
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 15
<NAME> GLOBAL SECTOR PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 10,742
<INVESTMENTS-AT-VALUE> 11,451
<RECEIVABLES> 48
<ASSETS-OTHER> 118
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,617
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13
<TOTAL-LIABILITIES> 13
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,937
<SHARES-COMMON-STOCK> 1,049
<SHARES-COMMON-PRIOR> 1,227
<ACCUMULATED-NII-CURRENT> 92
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (134)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 709
<NET-ASSETS> 11,604
<DIVIDEND-INCOME> 70
<INTEREST-INCOME> 271
<OTHER-INCOME> 0
<EXPENSES-NET> 157
<NET-INVESTMENT-INCOME> 184
<REALIZED-GAINS-CURRENT> 112
<APPREC-INCREASE-CURRENT> 810
<NET-CHANGE-FROM-OPS> 1,106
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (203)
<DISTRIBUTIONS-OF-GAINS> (139)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 284
<NUMBER-OF-SHARES-REDEEMED> (493)
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> (1,117)
<ACCUMULATED-NII-PRIOR> 16
<ACCUMULATED-GAINS-PRIOR> (12)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 157
<AVERAGE-NET-ASSETS> 12,355
<PER-SHARE-NAV-BEGIN> 10.37
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 0.85
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. VALUE EQUITY PORTFOLIO, FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 18
<NAME> VALUE EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 156,170
<INVESTMENTS-AT-VALUE> 157,014
<RECEIVABLES> 297
<ASSETS-OTHER> 4,993
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162,304
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,147
<TOTAL-LIABILITIES> 5,147
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,035
<SHARES-COMMON-STOCK> 12,972
<SHARES-COMMON-PRIOR> 12,473
<ACCUMULATED-NII-CURRENT> 607
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,329)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 844
<NET-ASSETS> 157,157
<DIVIDEND-INCOME> 2,290
<INTEREST-INCOME> 907
<OTHER-INCOME> 0
<EXPENSES-NET> 1,598
<NET-INVESTMENT-INCOME> 1,599
<REALIZED-GAINS-CURRENT> 7,509
<APPREC-INCREASE-CURRENT> (21,758)
<NET-CHANGE-FROM-OPS> (12,650)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,203)
<DISTRIBUTIONS-OF-GAINS> (11,177)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,316
<NUMBER-OF-SHARES-REDEEMED> (4,985)
<SHARES-REINVESTED> 1,168
<NET-CHANGE-IN-ASSETS> (16,278)
<ACCUMULATED-NII-PRIOR> 104
<ACCUMULATED-GAINS-PRIOR> 446
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,598
<AVERAGE-NET-ASSETS> 180,362
<PER-SHARE-NAV-BEGIN> 13.90
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> (0.78)
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.12
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. INTERNATIONAL EQUITY PORTFOLIO, FOR THE
PERIOD ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 19
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 27,295
<INVESTMENTS-AT-VALUE> 30,356
<RECEIVABLES> 85
<ASSETS-OTHER> 1,748
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,189
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40
<TOTAL-LIABILITIES> 40
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,968
<SHARES-COMMON-STOCK> 2,664
<SHARES-COMMON-PRIOR> 1,850
<ACCUMULATED-NII-CURRENT> 42
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (943)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,082
<NET-ASSETS> 32,149
<DIVIDEND-INCOME> 425
<INTEREST-INCOME> 69
<OTHER-INCOME> 0
<EXPENSES-NET> 413
<NET-INVESTMENT-INCOME> 81
<REALIZED-GAINS-CURRENT> (548)
<APPREC-INCREASE-CURRENT> 2,913
<NET-CHANGE-FROM-OPS> 2,446
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,225
<NUMBER-OF-SHARES-REDEEMED> (1,413)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 12,354
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> (422)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 275
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 541
<AVERAGE-NET-ASSETS> 27,559
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 1.35
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.07
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. U.S. EQUITY PORTFOLIO, FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 20
<NAME> U.S. EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 92,545
<INVESTMENTS-AT-VALUE> 104,648
<RECEIVABLES> 228
<ASSETS-OTHER> 6,119
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 110,995
<PAYABLE-FOR-SECURITIES> 93
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99
<TOTAL-LIABILITIES> 192
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,074
<SHARES-COMMON-STOCK> 7,684
<SHARES-COMMON-PRIOR> 3,511
<ACCUMULATED-NII-CURRENT> 1,275
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 199
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,255
<NET-ASSETS> 110,803
<DIVIDEND-INCOME> 914
<INTEREST-INCOME> 291
<OTHER-INCOME> 0
<EXPENSES-NET> 733
<NET-INVESTMENT-INCOME> 472
<REALIZED-GAINS-CURRENT> 4,584
<APPREC-INCREASE-CURRENT> 11,132
<NET-CHANGE-FROM-OPS> 16,188
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,284)
<DISTRIBUTIONS-OF-GAINS> (758)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,159
<NUMBER-OF-SHARES-REDEEMED> (2,272)
<SHARES-REINVESTED> 286
<NET-CHANGE-IN-ASSETS> 67,852
<ACCUMULATED-NII-PRIOR> 532
<ACCUMULATED-GAINS-PRIOR> (72)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 555
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 734
<AVERAGE-NET-ASSETS> 70,115
<PER-SHARE-NAV-BEGIN> 12.23
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 2.69
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.42
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. THIRD AVENUE VALUE PORTFOLIO, FOR THE PERIOD
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> THIRD AVENUE VALUE PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 17,045
<INVESTMENTS-AT-VALUE> 15,589
<RECEIVABLES> 428
<ASSETS-OTHER> 2,237
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,254
<PAYABLE-FOR-SECURITIES> 33
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15
<TOTAL-LIABILITIES> 48
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,334
<SHARES-COMMON-STOCK> 1,960
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 328
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,456)
<NET-ASSETS> 18,206
<DIVIDEND-INCOME> 76
<INTEREST-INCOME> 150
<OTHER-INCOME> 0
<EXPENSES-NET> 140
<NET-INVESTMENT-INCOME> 86
<REALIZED-GAINS-CURRENT> 292
<APPREC-INCREASE-CURRENT> (1,456)
<NET-CHANGE-FROM-OPS> (1,078)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (50)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,566
<NUMBER-OF-SHARES-REDEEMED> (612)
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> 18,206
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 154
<AVERAGE-NET-ASSETS> 13,613
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.74)
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF WRL SERIES FUND, INC. REAL ESTATE SECURITIES PORTFOLIO, FOR THE
PERIOD ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 22
<NAME> REAL ESTATE SECURITIES PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,388
<INVESTMENTS-AT-VALUE> 2,311
<RECEIVABLES> 23
<ASSETS-OTHER> 83
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,417
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,691
<SHARES-COMMON-STOCK> 284
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 72
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (272)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (77)
<NET-ASSETS> 2,414
<DIVIDEND-INCOME> 79
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> 12
<NET-INVESTMENT-INCOME> 72
<REALIZED-GAINS-CURRENT> (272)
<APPREC-INCREASE-CURRENT> (77)
<NET-CHANGE-FROM-OPS> (277)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 448
<NUMBER-OF-SHARES-REDEEMED> (164)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,414
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 40
<AVERAGE-NET-ASSETS> 1,794
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> (1.85)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.51
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
