WRL SERIES FUND INC, 497, 2000-09-06

WRL SERIES FUND INC
497, 2000-09-06

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WRL SERIES FUND, INC.
WRL VKAM EMERGING GROWTH
WRL T. ROWE PRICE SMALL CAP
WRL GOLDMAN SACHS SMALL CAP
WRL PILGRIM BAXTER MID CAP GROWTH
WRL ALGER AGGRESSIVE GROWTH
WRL THIRD AVENUE VALUE
WRL VALUE LINE AGGRESSIVE GROWTH
WRL GE INTERNATIONAL EQUITY
WRL JANUS GLOBAL
WRL GREAT COMPANIES -- GLOBAL2
WRL GABELLI GLOBAL GROWTH
WRL GREAT COMPANIES -- TECHNOLOGYSM
WRL JANUS GROWTH
WRL GOLDMAN SACHS GROWTH
WRL GE U.S. EQUITY
WRL GREAT COMPANIES -- AMERICASM
WRL SALOMON ALL CAP
WRL C.A.S.E. GROWTH
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.
PILGRIM BAXTER & ASSOCIATES, LTD.
FRED ALGER MANAGEMENT, INC.
EQSF ADVISERS, INC.
VALUE LINE, INC.
GE ASSET MANAGEMENT INCORPORATED
JANUS CAPITAL CORPORATION
GREAT COMPANIES, L.L.C.
GABELLI ASSET MANAGEMENT COMPANY
SALOMON BROTHERS ASSET MANAGEMENT INC.
C.A.S.E. MANAGEMENT, INC.
THE DREYFUS CORPORATION
NWQ INVESTMENT MANAGEMENT COMPANY, INC.
DEAN INVESTMENT ASSOCIATES
LUTHER KING CAPITAL MANAGEMENT CORPORATION
J.P. MORGAN INVESTMENT MANAGEMENT INC.
FEDERATED INVESTMENT COUNSELING
AEGON USA INVESTMENT MANAGEMENT, INC.

The date of the Prospectus to which this Statement of Additional Information
relates is May 1, 2000, as supplemented August 30, 2000 and the date of this
Statement of Additional Information is May 1, 2000, 2000, as amended August 30,
2000.
<PAGE>

TABLE OF CONTENTS
-----------------

<TABLE>
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Page in this Statement
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Additional Information
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<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 Growth 4
WRL Goldman Sachs Small Cap 4
WRL Pilgrim Baxter Mid Cap Growth 5
WRL Alger Aggressive Growth 6
WRL Third Avenue Value 6
WRL Value Line Aggressive Growth 7
WRL GE International Equity 8
WRL Janus Global 9
WRL Gabelli Global Growth 10
WRL Great Companies -- Global(2) 11
WRL Great Companies -- America(SM) 12
WRL Great Companies -- Technology(SM) 12
WRL Janus Growth 12
WRL C.A.S.E. Growth 12
WRL AEGON Bond 12
WRL GE U.S. Equity 13
WRL Salomon All Cap 14
WRL Dreyfus Mid Cap 15
WRL NWQ Value Equity 16
WRL Dean Asset Allocation 17
WRL LKCM Strategic Total Return 17
WRL J.P. Morgan Real Estate Securities 18
WRL Federated Growth & Income 19
WRL AEGON Balanced 20
WRL J.P. Morgan Money Market 21
INVESTMENT POLICIES 22
Lending 22
Borrowing 23
Short Sales 23
Foreign Securities 23
Sovereign Debt Securities (WRL Gabelli Global Growth) 24
Foreign Bank Obligations 24
Forward Foreign Currency Contracts 24
When-Issued, Delayed Settlement and Forward Delivery Securities 25
Investment Funds (WRL GE International Equity) 25
Securities Subject to Reorganization (WRL Gabelli Global Growth) 25
Repurchase and Reverse Repurchase Agreements 26
Temporary Defensive Position 26
U.S. Government Securities 26
Non-Investment Grade Debt Securities 27
Convertible Securities 27
Investments in Futures, Options and Other Derivative Instruments 27
Zero Coupon, Pay-In-Kind and Step Coupon Securities 37
Warrants and Rights 38
</TABLE>

i
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<TABLE>
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Page in this Statement
of
Additional Information
-----------------------
<S> <C>
Mortgage-Backed Securities 38
Asset-Backed Securities 38
Pass-Through Securities 39
Other Income Producing Securities 39
Illiquid and Restricted/144A Securities 39
Money Market Reserves
(WRL T. Rowe Price Small Cap and
WRL T. Rowe Price Dividend Growth) 40
Other Investment Companies 40
Quality and Diversification Requirements
(WRL J.P. Morgan Money Market) 41
Bank and Thrift Obligations 41
Investments in the Real Estate Industry and Real Estate Investment Trusts
("REITs") 42
Variable Rate Master Demand Notes 42
Debt Securities and Fixed-Income Investing 43
High Yield/High-Risk Securities 43
Trade Claims 43
MANAGEMENT OF THE FUND 44
Directors and Officers 44
The Investment Adviser 46
The Sub-Advisers 50
Joint Trading Accounts 57
Personal Securities Transactions 57
Administrative and Transfer Agency Services 58
PORTFOLIO TRANSACTIONS AND BROKERAGE 58
Portfolio Turnover 58
Placement of Portfolio Brokerage 59
PURCHASE AND REDEMPTION OF SHARES 62
Determination of Offering Price 62
Net Asset Valuation 62
CALCULATION OF PERFORMANCE
RELATED INFORMATION 62
Total Return 62
Yield Quotations 63
Yield Quotations - WRL J.P. Morgan Money Market 63
TAXES 64
CAPITAL STOCK OF THE FUND 65
REGISTRATION STATEMENT 65
FINANCIAL STATEMENTS 66
OTHER INFORMATION 66
Independent Certified Public Accountants 66
Custodian 66
Appendix A - Description of Portfolio Securities A-1
Appendix B - Brief Explanation of
Rating Categories B-1
</TABLE>

ii
<PAGE>

[GRAPHIC]
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")
Peoples Benefit Life Insurance Company ("Peoples") and Transamerica Occidental
Life Insurance Company ("Transamerica"), (the "Life Companies"). Shares may be
offered to other life insurance companies in the future.

Because Fund shares are sold to separate accounts established to receive and
invest premiums received under variable life insurance policies and purchase
payments received under the variable annuity contracts, it is conceivable that,
in the future, it may become disadvantageous for variable life insurance
separate accounts and variable annuity separate accounts of the Life Companies
to invest in the Fund simultaneously. Neither the Life Companies nor the Fund
currently foresees any such disadvantages or conflicts, either to variable life
insurance policyholders or to variable annuity contract owners. Any Life Company
may notify the Fund's Board of a potential or existing conflict. The Fund's
Board will then determine if a material conflict exists and what action, if any,
should be taken in response. Such action could include the sale of Fund shares
by one or more of the separate accounts, which could have adverse consequences.
Material conflicts could result from, for example, (1) changes in state
insurance laws, (2) changes in Federal income tax laws, or (3) differences in
voting instructions between those given by variable life insurance policyholders
and those given by variable annuity contract owners. The Fund's Board might
conclude that separate funds should be established for variable life and
variable annuity separate accounts. If this happens, the affected Life Companies
will bear the attendant expenses of establishing separate funds. As a result,
variable life insurance policyholders and variable annuity contract owners would
no longer have the economies of scale typically resulting from a larger combined
fund.

The Fund offers a separate class of common stock for each portfolio. All shares
of a portfolio have equal voting rights, but only shares of a particular
portfolio are entitled to vote on matters concerning only that portfolio. Each
of the issued and outstanding shares of a portfolio is entitled to one vote and
to participate equally in dividends and distributions declared by the portfolio
and, upon liquidation or dissolution, to participate equally in the net assets
of the portfolio remaining after satisfaction of outstanding liabilities. The
shares of a portfolio, when issued, will be fully paid and nonassessable, have
no preference, preemptive, conversion, exchange or similar rights, and will be
freely transferable. Shares do not have cumulative voting rights. The holders of
more than 50% of the shares of the Fund voting for the election of directors can
elect all of the directors of the Fund if they so choose. In such event, holders
of the remaining shares would not be able to elect any directors.

Only the separate accounts of the Life Companies may hold shares of the Fund and
are entitled to exercise the rights directly as described above. To the extent
required by law, the Life Companies will vote the Fund's shares held in the
separate accounts, including Fund shares which are not attributable to
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 Value
Line Aggressive Growth, WRL GE 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
Great Companies -- AmericaSM, WRL Great Companies -- TechnologySM, 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]
WRL VKAM EMERGING 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. 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]
WRL T. ROWE PRICE SMALL CAP AND
WRL T. ROWE PRICE DIVIDEND GROWTH

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

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

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

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

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

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

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

3
<PAGE>

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

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

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

(A) A portfolio may not purchase additional securities when money borrowed
exceeds 5% of its total assets. This restriction shall not apply to temporary
borrowings until the portfolio's net assets exceed $40,000,000.

(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 or Government 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]
WRL GOLDMAN SACHS GROWTH AND
WRL GOLDMAN SACHS SMALL CAP

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

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

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

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

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

4
<PAGE>

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

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

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

(C) A portfolio may not purchase additional securities when money borrowed
exceeds 5% of its total assets. This restriction shall not apply to temporary
borrowings until the portfolio's net assets exceed $40,000,000.

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

[GRAPHIC]
WRL PILGRIM BAXTER MID CAP GROWTH

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

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

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

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

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

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

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

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

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

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

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

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

5
<PAGE>

With respect to restriction 7 above, the portfolio may use (with the
consent of the Investment Adviser) industry classifications reflected by
Bloomberg Sub-Groups for the comunications equipment, electronic components and
accessories, and the computer and other data processing service sectors, if
applicable at the time of determination.

[GRAPHIC]
WRL ALGER AGGRESSIVE GROWTH

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

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]
WRL THIRD AVENUE VALUE

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

6
<PAGE>

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
331/3% 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 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]
WRL VALUE LINE AGGRESSIVE 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 securities of any one class of securities of such issuer.

3. Invest in commodities or commodity contracts except that the portfolio
may invest in stock index futures contracts and options on stock index futures
contracts.

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, provided that repurchase agreements maturing in more than seven
days when taken together with other illiquid investments do not exceed 10% of
the portfolio's assets, and (c) loans of securities as permitted by applicable
law.

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 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 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 ("short against the box"), 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.

(C) The portfolio may not purchase 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.

(D) The portfolio may not invest more than 10% of its net assets in
illiquid securities. This does not include

7
<PAGE>

securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 or any securities for which the Board of Directors or sub-adviser has made
a determination of liquidity, as permitted under the 1940 Act.

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

(F) The portfolio may not purchase or sell any put or call options or any
combinations thereof, except that the portfolio may write and sell covered call
option contracts on securities owned by the portfolio. The portfolio may also
purchase call options for the purpose of terminating its outstanding obligations
with respect to securities upon which covered call option contracts have been
written (i.e., "closing purchase transaction"). The portfolio may also purchase
and sell put and call options on stock index futures contracts.

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

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

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

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

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

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

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

7. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in an amount exceeding 331/3% of the value of the
portfolio's total assets (including the 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.

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.

8
<PAGE>

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 Asset
Management Incorporated ("GEAM"), created specifically to serve as a vehicle for
the collective investment of cash balances of the portfolio and other accounts
advised by GEAM, 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]
WRL JANUS GLOBAL

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

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

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

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

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

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

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

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

9
<PAGE>

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.

(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.

(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]
WRL GABELLI GLOBAL 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 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. Issue senior securities, except to the extent that senior securities
may be deemed to arise from bank borrowings and purchases of government
securities on a "when-issued" or "delayed delivery" basis, as described in the
prospectus.

3. Borrow money except (a) the portfolio may borrow from banks (as defined
in the 1940 Act) or through reverse repurchase agreements, (b) the portfolio
may, to the extent permitted by applicable law, borrow up to an additional 5% of
its total assets for temporary purposes (not for leveraging or borrowing), (c)
or pledge its assets other than to secure such issuances or in connection with
hedging transactions, short-sales, when-issued and forward commitment
transactions and similar investment strategies.

4. Make loans except (i) by purchasing fixed-income securities 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.

5. Act as 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. Invest in companies for the purpose of exercising control or
management.

7. 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.

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

9. Invest 25% or more 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.

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 fund may not invest more than 15% of its net assets in illiquid
securities. This does not include

10
<PAGE>

securities eligible for resale pursuant to Rule 144A under the 1933 or any other
securities as to which a determination as to liquidity has been made pursuant to
guidelines adopted by the Board of Trustees as permitted under the 1940 Act.

(B) The fund may not mortgage, pledge or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in connection
with any permissible borrowing or to collateral arrangements in connection with
permissible activities.

(C) The fund may not purchase securities on margin, provided that the fund
may obtain short-term credits necessary for the clearance of purchases and sales
of securities, and further provided that the fund may make margin deposits in
connection with its use of financial futures, forward contracts, or derivative
instruments.

[GRAPHIC]
WRL GREAT COMPANIES -- GLOBAL(2)

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

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

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

8. Issue senior securities, except to the extent that senior securities
may be deemed to arise from bank borrowings and purchases of government
securities on a "when-issued" or "delayed delivery" basis, as described in the
prospectus.

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:

(D) The portfolio may not (i) purchase securities of other investment
companies, except in the open market

11
<PAGE>

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 no apply to money market funds or to
securities received as dividends, through offers of exchange, or as a
result of a consolidation, merger or other reorganization.

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

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

[GRAPHIC]
WRL GREAT COMPANIES -- AMERICA(SM)
WRL GREAT COMPANIES -- TECHNOLOGY(SM)

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

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

3. 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.)

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. 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.

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

7. Lend any security or make any other loan if, as a result, more than
331/3% 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, each 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) Each 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) Each portfolio may not participate on a "joint" or "joint and several"
basis in any trading account in securities.

(C) Each 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.

[GRAPHIC]
WRL JANUS GROWTH, WRL C.A.S.E. GROWTH AND WRL AEGON BOND

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).

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

12
<PAGE>

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.

(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]
WRL GE U.S. EQUITY

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

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

13
<PAGE>

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

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

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

7. Borrow money or issue senior securities (as defined in the 1940 Act),
except that the portfolio may borrow money from banks for temporary or emergency
purposes (not for leveraging or investment) in an aggregate amount not exceeding
331/3% 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 GEAM, created
specifically to serve as a vehicle for the collective investment of cash
balances of the portfolio and other accounts advised by GEAM 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 restriction, illiquid securities are
securities that cannot be disposed of by the portfolio within seven days in the
ordinary course of business at approximately the amount at which the portfolio
has valued the securities. This Restriction does not include securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 or any other
securities as to which a determination as to liquidity has been made pursuant to
guidelines adopted by the Board of Directors, as permitted under the 1940 Act.

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

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

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

[GRAPHIC]
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

14
<PAGE>

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

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

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

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

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

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

(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]
WRL DREYFUS MID CAP

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

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

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

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

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

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

15
<PAGE>

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.

(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. This
restriction shall not apply to temporary borrowings until the portfolio's net
assets exceed $40,000,000.

[GRAPHIC]
WRL NWQ VALUE EQUITY

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

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

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

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

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

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

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

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

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

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

16
<PAGE>

(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]
WRL DEAN ASSET ALLOCATION

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

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

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

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

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

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

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

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

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

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

(F) The portfolio may not invest in securities of foreign issuers
denominated in foreign currency and not publicly traded in the United States if
at the time of acquisition more than 25% of the portfolio's total assets would
be invested in such securities. (See "Foreign Securities," p. 23.)

[GRAPHIC]
WRL LKCM STRATEGIC TOTAL RETURN

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

17
<PAGE>

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.

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

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

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

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

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

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

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

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

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

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

[GRAPHIC]
WRL J.P. MORGAN REAL ESTATE SECURITIES

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

18
<PAGE>

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 331/3% of the value of the
portfolio's total assets (including the 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 the 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.

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

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

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

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

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

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

[GRAPHIC]
WRL FEDERATED GROWTH & INCOME

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

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

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

19
<PAGE>

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 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]
WRL AEGON BALANCED

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

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

20
<PAGE>

purchasing or selling options, futures, swaps and forward contracts or from
investing in securities or other instruments backed by physical commodities).

5. Lend any security or make any other loan if, as a result, more than 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.

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

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

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

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

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

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

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

(G) The portfolio may not invest in securities of foreign issuers
denominated in foreign currency and not publicly traded in the United States if
at the time of acquisition more than 25% of the portfolio's total assets would
be invested in such securities. (See "Foreign Securities," p. 23.)

[GRAPHIC]
WRL J.P. MORGAN MONEY MARKET

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

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

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

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

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

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).

21
<PAGE>

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.

(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]
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 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.

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[GRAPHIC]
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 331/3% of total assets for the WRL GE International
Equity, WRL GE U.S. Equity, 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 Goldman Sachs Small Cap, WRL Goldman Sachs Growth; 15% for 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, WRL Great
Companies -- AmericaSM and WRL Great Companies -- TechnologySM; 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 (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 and WRL Value
Line 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:

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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.

[GRAPHIC]
Leveraging may exaggerate the effect on net asset value of any increase or
decease in the market value of a portfolio's securities.

[GRAPHIC]
Money borrowed for leveraging will be subject to interest costs. In certain
cases, interest costs may exceed the return received on the securities
purchased.

[GRAPHIC]
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]
SHORT SALES

Each portfolio other than WRL Goldman Sachs Small Cap, 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]
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:

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

/bullet/ 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.

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

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

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

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

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

/bullet/ 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.

/bullet/ 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

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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.

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.

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SOVEREIGN DEBT SECURITIES
(WRL GABELLI GLOBAL GROWTH)

The WRL Gabelli Global Growth portfolio may invest in securities issued or
guaranteed by any country and denominated in any currency. The portfolio expects
that it generally will invest in developed countries including Australia,
Canada, Finland, France, Germany, the Netherlands, Japan, Italy, New Zealand,
Norway, Spain, Sweden, the United Kingdom and the United States. The obligations
of governmental entities have various kinds of government support and include
obligations issued or guaranteed by governmental entities with taxing power.
These obligations may or may not be supported by the full faith and credit of a
government. Debt securities issued or guaranteed by foreign governmental
entities have credit characteristics similar to those of domestic debt
securities but include additional risks. These additional risks include those
resulting from devaluation of currencies, future adverse political and economic
developments and other foreign governmental laws.

The portfolio may also purchase securities issued by semi-governmental or
supranational agencies such as the Asian Developmental Bank, the International
Bank for Reconstruction and Development, the Export-Import Bank and the European
Investment 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. The portfolio will not invest more than 25%
of its assets in the securities of supranational entities.

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FOREIGN BANK OBLIGATIONS

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

[GRAPHIC] 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.

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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

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to exchange an amount of currency at some future time at an agreed upon rate.

[GRAPHIC] 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.

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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.

[GRAPHIC] 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.

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INVESTMENT FUNDS
(WRL GE INTERNATIONAL EQUITY)

The WRL GE 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]
SECURITIES SUBJECT TO REORGANIZATION (WRL GABELLI GLOBAL GROWTH)

The WRL Gabelli Global Growth portfolio may invest in securities for which a
tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgment of Gabelli, there is a
reasonable prospect of high total return significantly greater than the
brokerage and other transaction expenses involved.

In general, securities which are the subject of such an offer or proposal sell
at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated.

Such investments may be advantageous when the discount significantly overstates
the risk of the contingencies involved; significantly undervalues the
securities, assets or cash to be received by shareholders of the prospective
portfolio company as a result of the contemplated transaction; or fails
adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the sub-adviser which must appraise not only the value of the issuer and
its component businesses as well as the assets or securities to be received as a
result of the

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contemplated transaction but also the financial resources and business
motivation of the offer and the dynamics and business climate when the offer of
the proposal is in process. Since such investments are ordinarily short-term in
nature, they will tend to increase the turnover ratio of the portfolio thereby
increasing its brokerage and other transaction expenses. Gabelli intends to
select investments of the type described which, in its view, have a reasonable
prospect of capital appreciation which is significant in relation to both risk
involved and the potential of available alternate investments.

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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.

[GRAPHIC] 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.

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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]
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

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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]
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]
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]
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

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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 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

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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 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

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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 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").

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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 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

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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.

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

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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 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

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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., 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

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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 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

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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 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

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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]
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

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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]
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]
MORTGAGE-BACKED SECURITIES

Subject to a portfolio's investment restrictions and policies, 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]
ASSET-BACKED SECURITIES

Subject to a portfolio's investment restrictions and policies, asset-backed
securities represent interests in pools

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<PAGE>

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]
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]
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]
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

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<PAGE>

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

It is expected that WRL T. Rowe Price Dividend Growth and WRL T. Rowe Price
Small Cap portfolios will invest their 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") and Government Reserve Investment Fund ("GRIF") are
series of Reserve Investment Funds, Inc. Additional series may be created in the
future. These funds were created and operate under an Exemptive Order issued by
the Securities and Exchange Commission (Investment Company Act Release No.
IC-22770, July 29, 1997).

The funds 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 GRIF
invests primarily in a portfolio of U.S. Government-backed securites, primarily
U.S. Treasuries, and repurchase agreements thereon.

The RIF and GRIF provide very efficient means of managing the cash reserves of
the portfolios. While the funds do not pay an advisory fee to the Investment
Manager, they will incur other expenses. However, the RIF and GRIF are expected
by T. Rowe Price to operate at very low expense ratios. The portfolios will only
invest in RIF or GRIF to the extent it is consistent with their objectives and
programs.

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

[GRAPHIC]
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 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, acquisition, reorganization
or offer of exchange and except as otherwise permitted under the 1940 Act.
Investments by the WRL GE International Equity and WRL GE U.S. Equity portfolios
in the GEI Short-Term Investment Fund, an investment fund advised by GEAM,
created specifically to serve as a vehicle for the collective investment of cash
balances of these portfolios and other accounts

40
<PAGE>

advised by GEAM 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 and WRL Goldman Sachs Small Cap 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]
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]
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

41
<PAGE>

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]
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").

[GRAPHIC] 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" on page 43.)

[GRAPHIC]
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.

42
<PAGE>

[GRAPHIC] 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]
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.)

[GRAPHIC] 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]
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.)

[GRAPHIC] 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]
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

43
<PAGE>

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.

[GRAPHIC] 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]
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:

<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION(S) HELD WITH FUND PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
-------------------------------- ---------------------------- -------------------------------------------------------------
<S> <C> <C>
PETER R. BROWN DIRECTOR Retired (January, 2000 - present); Chairman of the Board,
(DOB 5/10/28), Peter Brown Construction Company (construction contrac-
11180 6th Street East tors and engineers), Largo, Florida (1963 - 2000); Trustee
Treasure Island, Florida 33706 of IDEX Mutual Funds, Rear Admiral (Ret.) U.S. Navy
Reserve, Civil Engineer Corps.
CHARLES C. HARRIS DIRECTOR Trustee of IDEX Mutual Funds, (March, 1994 - present)
(DOB 7/15/30), former Trustee of IDEX Fund, IDEX II Series Fund and
35 Winston Drive IDEX Fund 3.
Clearwater, Florida 34616
RUSSELL A. KIMBALL, JR. DIRECTOR General Manager, Sheraton Sand Key Resort (resort
(DOB 8/17/44), hotel), Clearwater, Florida (1975 - present)
1160 Gulf Boulevard
Clearwater Beach, Florida 34630
JOHN R. KENNEY(1,2) CHAIRMAN OF THE BOARD Chairman of the Board, Director and Co-CEO of Great
(DOB 2/8/38) OF DIRECTORS Companies, L.L.C.; Chairman of the Board of
Directors (1982 - present), Chief Executive Officer
(1982 - present), President (1978 - 1987 and
December, 1992 - 1999), 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.
</TABLE>

44
<PAGE>

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

JOHN K. CARTER(1,2) VICE PRESIDENT, Vice President, Secretary and Counsel (December, 1999 -
(DOB 04/24/61) SECRETARY AND COUNSEL present), IDEX Mutual Funds; Vice President and Counsel,
Western Reserve Life Assurance Co. of Ohio (June, 2000
- present); Vice President, Counsel and Assistant
Secretary (April, 2000 - present) of Idex Investor Services,
Inc., AEGON Asset Management Services, Inc. and WRL
Investment Services, Inc.; Vice President, Counsel,
Compliance Officer and Assistant Secretary (April, 2000 -
present) of Idex Management, Inc. and WRL Investment
Management, Inc.; Vice President and Counsel (March,
1997 - May 1999), Salomon Smith Barney; Assistant Vice
President, Associate Corporate Counsel and Trust Officer
(September, 1993 - March 1997), Franklin Templeton
Mutual Funds.

THOMAS E. PIERPAN(1,2) ASSISTANT SECRETARY Vice President, Secretary and Counsel (December, 1997 -
(DOB 10/18/43) AND VICE PRESIDENT December, 1999); Assistant Secretary (March, 1995 -
December, 1997) of WRL Series Funds, Inc.; Vice President
and Assistant Secretary 1999 - present), Vice President,
Counsel and Secretary (December, 1997 - 1999) of IDEX
Mutual Funds (mutual fund); Assistant Vice President,
Counsel and Assistant Secretary (November, 1997 - present)
of Intersecurities, Inc. (broker-dealer); Senior Vice
President, General Counsel and Assistant Secretary (April,
2000 - present) of AEGON Equity Group; Senior Vice
President and General Counsel (1999 - present), Vice
President (November, 1993 - present), Associate General
Counsel (February, 1995 - 1997), Assistant Secretary,
(February, 1995 - present) of Western Reserve Life
Assurance of Ohio.

ALAN M. YAEGER(1,2) EXECUTIVE VICE Executive Vice President (June, 1993 - present), Chief
(DOB 10/21/46) PRESIDENT Financial Officer (December, 1995 - present), Actuary
(1972 - present), Western Reserve Life Assurance
Company 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.
</TABLE>
------------------------------
(1) The principal business address is Western Reserve Life Assurance Co. of
Ohio, P.O. Bos 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 $10,000 to each Director
who is not affiliated with the Investment Adviser or the Sub-Advisers
("disinterested Director"). Each disinterested Director also receives $1,500,
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, 1999. The compensation table provides compensation
amounts paid to disinterested Directors of the Fund for the fiscal year ended
December 31, 1999. (Information is not included for WRL Great Companies --
AmericaSM, WRL Great Companies -- TechnologySM WRL Value Line Aggressive Growth,
WRL Great Companies -- Global2 and WRL Gabelli Global Growth as they had not
commenced operations as of December 31, 1999).

45
<PAGE>

Director's Fees Paid - Year Ended December 31, 1999
---------------------------------------------------

<TABLE>
<CAPTION>
PORTFOLIO AMOUNT PAID
---------------------------------------- ------------
<S> <C>
WRL VKAM Emerging Growth $8,000
WRL T. Rowe Price Small Cap -0-
WRL Goldman Sachs Small Cap -0-
WRL Alger Aggressive Growth 6,000
WRL GE International Equity(1) -0-
WRL Janus Global 8,000
WRL Third Avenue Value -0-
WRL Dreyfus Mid Cap -0-
WRL Salomon All Cap -0-
WRL Pilgrim Baxter Mid Cap Growth -0-
WRL Janus Growth 11,000
WRL Goldman Sachs Growth -0-
WRL C.A.S.E. Growth 1,000
WRL GE U.S. Equity 1,000
WRL NWQ Value Equity 1,000
WRL T. Rowe Price Dividend Growth -0-
WRL Dean Asset Allocation 2,000
WRL LKCM Strategic Total Return 3,000
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 -0-
</TABLE>

------------------------------
(1) Prior to May 1, 2000, this portfolio was named WRL GE/Scottish Equitable
International Equity.

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

<TABLE>
<CAPTION>
Pension Or
Retirement
Benefits Total Compensation
Aggregate Accrued As Estimated Paid to Directors From
Compensation From Part of Annual Benefits WRL Series Fund, Inc. and
Name of Person, Position WRL Series Fund, Inc. Fund Expenses* Upon Retirement IDEX Mutual Funds
----------------------------------- ----------------------- ---------------- ----------------- --------------------------
<S> <C> <C> <C> <C>
Peter R. Brown, Director $15,500 0 N/A $43,750
Charles C. Harris, Director 15,500 0 N/A 43,750
Russell A. Kimball, Jr., Director 15,500 0 N/A 15,500
</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]
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.

46
<PAGE>

("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 (portfolios that commenced
operations prior to that date). 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. 47.

Advisory Fee. The method of computing the investment advisory fee is fully
described in the Fund's prospectus. For the years ended December 31, 1999, 1998
and 1997, the Investment Adviser was paid fees for its services to each
portfolio in the following amounts (information is not included for WRL Value
Line Aggressive Growth, WRL Great Companies -- AmericaSM, WRL Great Companies --
TechnologySM, WRL Great Companies -- Global2 and WRL Gabelli Global Growth as
these portfolios had not commenced operations as of December 31, 1999):

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

<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
Portfolio 1999 1998 1997
------------------------------------------- ------------- --------------- -------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth $ 5,873,932 $ 3,361,604 $ 2,249,801
WRL VKAM Emerging Growth 8,946,705 5,408,098 4,075,498
WRL GE International Equity(2) 329,326 275,279 111,702
WRL Janus Global 10,293,952 7,537,671 5,591,818
WRL Janus Growth 25,489,599 18,111,607 13,716,824
WRL Third Avenue Value(3) 145,682 111,928 N/A
WRL C.A.S.E. Growth 669,877 515,902 334,892
WRL GE U.S. Equity (2) 1,177,975 555,341 140,280
WRL NWQ Value Equity(4) 1,214,963 1,458,166 900,818
WRL Dean Asset Allocation 2,623,575 2,710,626 2,079,540
WRL LKCM Strategic Total Return 4,766,336 4,485,018 3,703,670
WRL J.P. Morgan Real Estate Securities(3) 24,531 9,338 N/A
WRL Federated Growth & Income 615,256 578,162 338,267
WRL AEGON Balanced 842,458 680,543 491,901
WRL AEGON Bond(1) 731,366 663,484 479,685
WRL J.P. Morgan Money Market 1,078,993 644,611 514,968
WRL Goldman Sachs Small Cap(4) 11,839 N/A N/A
WRL Goldman Sachs Growth(4) 26,410 N/A N/A
WRL Dreyfus Mid Cap(4) 7,501 N/A N/A
WRL Salomon All Cap(4) 25,424 N/A N/A
WRL T. Rowe Price Dividend Growth(4) 30,980 N/A N/A
WRL T. Rowe Price Small Cap(4) 32,294 N/A N/A
WRL Pilgrim Baxter Mid Cap Growth(4) 76,560 N/A N/A
----------- ----------- -----------
TOTAL $65,035,534 $47,107,378 $34,729,664
=========== =========== ===========
</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 was previously named WRL GE/Scottish Equitable International
Equity.
(3) Portfolio commenced operations May 1, 1998.
(4) Portfolio commenced operations May 1, 1999.

47
<PAGE>

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,
2001, 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, 1.20% for the WRL GE International Equity
and WRL Gabelli Global Growth). The following expenses were paid by the
investment adviser for the fiscal years ended December 31, 1999, 1998, and 1997
(WRL served as investment adviser for 1996) (there are no expenses included for
WRL Value Line Aggressive Growth, WRL Great Companies -- AmericaSM, WRL Great
Companies -- TechnologySM, WRL Great Companies -- Global2 and WRL Gabelli Global
Growth because these portfolios had not yet commenced operations as of December
31, 1999):

48
<PAGE>

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

<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------
Portfolio 1999 1998 1997
------------------------------------------- ---------- -------------------------- ------------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth -0- -0- -0-
WRL VKAM Emerging Growth -0- -0- -0-
WRL GE International Equity 112,088 127,763 179,163
WRL Janus Global -0- -0- -0-
WRL Janus Growth -0- -0- -0-
WRL Third Avenue Value 10,734 14,229 N/A
WRL C.A.S.E. Growth -0- -0- 49,784
WRL GE U.S. Equity -0- -0- 29,464
WRL NWQ Value Equity -0- -0- -0-
WRL Dean Asset Allocation -0- -0- -0-
WRL LKCM Strategic Total Return -0- -0- -0-
WRL J.P. Morgan Real Estate Securities(2) 51,924 28,275 N/A
WRL Federated Growth & Income -0- -0- -0-
WRL AEGON Balanced -0- -0- -0-
WRL AEGON Bond(1) -0- -0- -0-
WRL J.P. Morgan Money Market -0- -0- -0-
WRL Goldman Sachs Small Cap(3) 60,555 N/A N/A
WRL Goldman Sachs Growth(3) 49,677 N/A N/A
WRL Dreyfus Mid Cap(3) 34,541 N/A N/A
WRL Salomon All Cap(3) 53,174 N/A N/A
WRL T. Rowe Price Dividend Growth(3) 46,989 N/A N/A
WRL T. Rowe Price Small Cap(3) 63,542 N/A N/A
WRL Pilgrim Baxter Mid Cap Growth(3) 34,986 N/A N/A
</TABLE>

------------------------------
(1) Prior to January 1, 1998, Janus Capital Corporation served as the
Sub-Adviser for the WRL AEGON Bond.
(2) Portfolio commenced operations on May 1, 1998.
(3) Portfolio commenced operations May 1, 1999.

Effective May 1, 2000, the Investment Adviser has entered into an agreement with
the Fund on behalf of, and pursuant to which, the Investment Adviser will be
reimbursed for operating expenses paid on behalf of a portfolio during the
previous 36 months, but only if, after such reimbursement, the portfolio's
expense ratio does not exceed the expense cap. The agreement has an initial term
through April 30, 2001, and will automatically renew for one-year terms unless
terminated by a 30 day written notice to the Fund.

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, 1999 (there are no fees
included for WRL Value Line Aggressive Growth, WRL Great Companies -- AmericaSM,
WRL Great Companies -- TechnologySM, WRL Great Companies -- Global2 or WRL
Gabelli Global Growth because these portfolios had not commenced operations as
of December 31, 1999):

49
<PAGE>

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

<TABLE>
<CAPTION>
Portfolio 1999 1998 1997
------------------------------ ----------- --------------- -------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth $178,687 $73,408 $122,776
WRL VKAM Emerging Growth 214,882 95,721 166,269
WRL GE International Equity 8,983 3,731 3,901
WRL Janus Global 223,428 99,277 165,294
WRL Janus Growth 306,127 143,999 260,374
WRL Third Avenue Value 2,871 1,139 N/A
WRL C.A.S.E. Growth 30,645 14,345 15,798
WRL GE U.S. Equity 27,038 6,364 3,218
WRL NWQ Value Equity 35,693 18,893 23,307
WRL Dean Asset Allocation 50,791 25,722 41,445
WRL LKCM Strategic Total
Return 89,085 47,197 87,766
WRL J.P. Morgan Real Estate
Securities 384 -0- N/A
WRL Federated Growth &
Income 27,663 12,140 16,773
WRL AEGON Balanced 23,945 10,827 18,333
WRL AEGON Bond 32,651 16,871 31,011
WRL J.P. Morgan Money
Market 13,674 6,378 12,092
WRL Goldman Sachs Small
Cap 175 N/A N/A
WRL Goldman Sachs Growth 279 N/A N/A
WRL Dreyfus Mid Cap 73 N/A N/A
WRL Salomon All Cap 283 N/A N/A
WRL T. Rowe Price Dividend
Growth 217 N/A N/A
WRL T. Rowe Price Small Cap 402 N/A N/A
WRL Pilgrim Baxter Mid Cap
Growth 527 N/A 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. 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 (by all portfolios that had commenced operations on that
date). 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,
2001. (ISI waived payment by the Fund for the fiscal year ended December 31,
1999.) 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]
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; May 1, 1998 with respect to WRL J.P. Morgan Real Estate Securities,
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), May
1, 2000 with respect to WRL Value Line Agressive Growth, WRL Great Companies --
AmericaSM or WRL Great Companies -- TechnologySM and August 30, 2000 with
respect to WRL Great Companies -- Global2 and WRL Gabelli Global Growth) 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 (for portfolios that had
commenced operations prior to that date) (December 9, 1997

50
<PAGE>

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. 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; WRL Value Line Aggressive Growth, WRL Great Companies --
AmericaSM, WRL Great Companies -- TechnologySM, WRL Great Companies Global2 and
WRL Gabelli Global Growth will continue for an initial term ending April 30,
2002; 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. The
agreements may also be terminated under the term of an Exemptive Order granted
by the SEC under section 6(c) of the 1940 Act from section 15(a) and rule 18f-2
under the 1940 Act (Release #23379).

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:

[GRAPHIC]
FRED ALGER MANAGEMENT, INC.

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

Alger, located at One World Trade Center, Suite 9333, New York, New York 10048,
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, 2000, had approximately $21.8
billion under management.

[GRAPHIC] PORTFOLIO MANAGER:

DAVID D. ALGER AND SEILAI KHOO 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. Alger has served as a portfolio manager of the WRL
Aggressive Growth portfolio since its inception and Ms. Khoo has served as
co-manager since June 2000. Ms. Khoo has been employed by Alger as a senior
research analyst since 1989 and as a senior vice president since 1995. Mr.
Alger has served as portfolio manager of WRL Alger Aggressive Growth since its
inception. Mr. Alger and Ms. Khoo also serve as portfolio managers for other
mutual funds and investment accounts managed by Alger Management.

[GRAPHIC]
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.

[GRAPHIC] PORTFOLIO MANAGER:

GARY M. LEWIS leads an investment team and 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 and portfolio manager of Van Kampen from 1989 to October 1995.

[GRAPHIC]
JANUS CAPITAL CORPORATION

Janus Capital Corporation ("Janus") serves as the Sub-Adviser to WRL Janus
Growth and 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 $261 billion as of February 1, 2000. Janus Capital is
owned in part by Stilwell Financial Inc. ("Stilwell"), which owns approximately
81.5% of the outstanding voting stock of Janus Capital. Stilwell is a publicly
traded holding company

51
<PAGE>

with principal operations in financial asset management businesses. Thomas H.
Bailey, President and Chairman of the Board of Janus Capital, owns approximately
12% of Janus Capital's voting stock and, by agreement with Stilwell, selects at
least a majority of Janus capital's Board subject to the approval of Stilwell,
which approval cannot be unreasonably withheld.

[GRAPHIC] PORTFOLIO MANAGER:

EDWARD KEELY has served as manager of the WRL Janus Growth portfolio since
January 2000. He previously served as co-portfolio manager of this portfolio
since January 1999. Prior to joining Janus in 1998, Mr. Keely was a senior vice
president of investments at Founders.

HELEN YOUNG HAYES, CFA AND LAURENCE CHANG, CFA have served as co-portfolio
managers of the WRL Janus Global portfolio since January 2000. Ms. Hayes
previously served as manager of this portfolio since its inception. She has been
employed by Janus since 1987.

Mr. Chang has been employed by Janus since 1993. Before joining Janus, Mr.
Chang was a project director at the National Security Archive.

[GRAPHIC]
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.

[GRAPHIC] 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.

[GRAPHIC]
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.

[GRAPHIC] PORTFOLIO MANAGER:

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.

[GRAPHIC]
NWQ INVESTMENT MANAGEMENT COMPANY, INC.

NWQ Investment Management Company, Inc. ("NWQ") serves as sub-adviser to 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 $5.63 billion in assets under management as
of December 31, 1999.

[GRAPHIC] 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).

[GRAPHIC]
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

52
<PAGE>

individuals and institutional clients worldwide. Dean provides a full range of
investment advisory services and currently has $2.5 billion of assets under
management.

[GRAPHIC] PORTFOLIO MANAGER:

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 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.

[GRAPHIC]
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, 1999, the
total assets managed by Luther King was approximately $6.5 billion.

[GRAPHIC] PORTFOLIO MANAGER:

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.

[GRAPHIC]
FEDERATED INVESTMENT COUNSELING

Federated Investment Counseling ("Federated") serves as the sub-adviser to 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.

[GRAPHIC] PORTFOLIO MANAGER:

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, Senior Vice President, 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.

[GRAPHIC]
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 subsidiaries of AEGON USA and had in excess of $46 billion under
management as of December 31, 1999.

[GRAPHIC] PORTFOLIO MANAGER:

CLIFFORD A. SHEETS, CFA AND DAVID R. HALFPAP, CFA have served as co-portfolio
managers of this portfolio since January 2000. Mr. Sheets previously served as
co-portfolio manager of this portfolio since 1998. Mr. Sheets joined AIMI in
1990.

Mr. Halfpap has been employed by AIMI since 1975 and is currently a senior vice
president.

53
<PAGE>

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.

[GRAPHIC]
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.

[GRAPHIC] PORTFOLIO MANAGER:

JOHN T. DONOHUE AND MARK SETTLES have served as co-portfolio managers of the
WRL J.P. Morgan Money Market Portfolio since January 2000. Mr. Donohue has been
employed by J.P. Morgan since 1997 and is a portfolio manager in the Fixed
Income Group. He previously served as senior money market trader. Mr. Donohue
was a portfolio manager at Goldman Sachs for 10 years prior to his employment
at J.P. Morgan.

MR. SETTLES is a product portfolio manager in the Short Term Fixed Income Group
at J.P. Morgan. Previously, he spent five years trading dollar and
euro-denominated fixed income products in J.P. Morgan's New York and London
trading desks.

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.

[GRAPHIC]
GE ASSET MANAGEMENT INCORPORATED

GE Asset Management Incorporated ("GEAM") serves as a sub-adviser to WRL GE
International Equity and WRL GE U.S. Equity. Prior to May 1, 2000, GEAM served
as co-sub-adviser to WRL GE/Scottish Equitable International Equity.

GEAM is located at 3003 Summer Street, P.O. Box 7900, Stamford, Connecticut
06904. GEAM is a wholly-owned subsidiary of General Electric Company and a
registered investment adviser. As of December 31, 1999, GEAM oversaw $115.8
billion and managed individual and institutional assets of $91.7 billion, of
which more than $18.2 billion was invested in mutual funds.

[GRAPHIC] PORTFOLIO MANAGER:

RALPH R. LAYMAN is a Director and Executive Vice President of GEAM. Mr. Layman
manages the overall International Equity Investments for GEAM. He leads a team
of portfolio managers for WRL GE International. Mr. Layman joined GEAM in 1991
as Executive Vice President for International Investments.

EUGENE K. BOLTON is Director and Executive Vice President of GEAM. He manages
U.S. Equity investments for GEAM. 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 GEAM 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.

[GRAPHIC]
GOLDMAN SACHS ASSET MANAGEMENT

As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman, Sachs & Co. and this newly
created entity includes Goldman Sachs Asset Management ("GSAM"). Goldman Sachs
& Co. registered as an investment adviser in 1981. GSAM serves as the
sub-adviser to the WRL Goldman Sachs Growth and WRL Goldman Sachs Small Cap.
GSAM is located at 32 Old Slip, New York, New York 10005. The Goldman Sachs
Group, L.P., which controlled GSAM, merged into the Goldman Sachs Group, Inc.
as a result of an initial public offering.

[GRAPHIC] PORTFOLIO MANAGER:

HERBERT E. EHLERS has served as head of a thirteen 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.

54
<PAGE>

[GRAPHIC]
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
Citigroup.

[GRAPHIC] PORTFOLIO MANAGER:

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.

[GRAPHIC]
THE DREYFUS CORPORATION

The Dreyfus Corporation ("Dreyfus") serves as the sub-adviser to 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 $128 billion, as of December
31, 1999.

[GRAPHIC] 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.

[GRAPHIC]
T. ROWE PRICE ASSOCIATES, INC.

T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as sub-adviser to 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.

[GRAPHIC] PORTFOLIO MANAGER:

TOM HUBER has managed the WRL T. Rowe Price Dividend Growth portfolio since
March, 2000 and heads an Investment Team for this portfolio. He joined T. Rowe
Price in 1994.

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.

[GRAPHIC]
GABELLI ASSET MANAGEMENT COMPANY

Gabelli Asset Management Company ("Gabelli") serves as sub-adviser to WRL
Gabelli Global Growth.

Gabelli is located at One Corporate Center, Rye, New York 10580-1434.

[GRAPHIC] PORTFOLIO MANAGER:

MARC J. GABELLI heads an investment team and is primarily responsible for all
the investment decisions for the portfolio. Mr. Gabelli has been a portfolio
manager and an analyst with Gabelli since 1993.

[GRAPHIC]
PILGRIM BAXTER AND ASSOCIATES, LTD.

Pilgrim Baxter and Associates, Ltd. ("Pilgrim Baxter") serves as 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. Pilgrim Baxter is a wholly-owned subsidiary of United Asset
Management.

[GRAPHIC] 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.

[GRAPHIC]
GREAT COMPANIES, INC.

Great Companies, L.L.C. ("Great Companies") serves as the sub-adviser to WRL
Great Companies -- AmericaSM, WRL Great Companies -- TechnologySM and WRL Great
Companies -- Global2.

Great Companies, located at 8550 Ulmerton Road, Largo, FL 33771, is a
professional investment management firm.

James H. Huguet, John R. Kenney (Chairman of the Board and President of the
Fund), and AEGON USA are each a controlling minority shareholder of Great
Companies. Great Companies may be deemed to be an affiliate of the Investment
Adviser.

[GRAPHIC] PORTFOLIO MANAGER:

James H. Huguet and Gerald W. Bollman, CFA have served as co-managers of the
portfolios since inception.

[GRAPHIC]
VALUE LINE, INC.

Value Line, Inc. ("Value Line") serves as the sub-adviser to WRL Value Line
Aggressive Growth.

Value Line, located at 220 East 42nd Street, New York, New York 10017-5891 also
acts as investment adviser to

55
<PAGE>

other mutual funds and furnishes investment counseling services to private and
institutional clients resulting in combined assets under management of over $5
billion. Value Line was organized in 1982 and is the successor to substantially
all of the operations of Arnold Bernhard & Co., Inc. which with its predecessor
has been in business since 1931.

[GRAPHIC] PORTFOLIO MANAGER:

A committee of employees of Value Line, Inc. is jointly and primarily
responsible for the day-to-day management of the portfolio.

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%
WRL AEGON Bond 0.20% (Prior to January 1, 1998, Janus Capital
Corporation, previous Sub-Adviser, received 0.25%)
WRL Janus Global 0.40%
WRL J.P. Morgan Money Market 0.15%
WRL AEGON Balanced 0.40%, less 50% of amount of excess expenses(1)
WRL VKAM Emerging Growth 0.40%, less 50% of amount of excess expenses(1)
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(1)
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(1)
WRL GE International Equity 50% of the fees received by the investment adviser(3)
WRL GE U.S. Equity 0.40%
WRL Third Avenue Value 0.40%, less 50% of amount of excess expenses(1)
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)(2)
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(2)
WRL Goldman Sachs Growth 0.50% of the first $50 million of portfolio's average
daily net assets; 0.45% of the next $50-100 million in assets;
and 0.40% of assets in excess of $100 million after
the first year of the contract, the minimum fees will be
$150,000 (in aggregate)(2)
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)(2)
WRL Goldman Sachs Small Cap 0.50% after the first year of the contract, minimum fees will
be $150,000
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)
WRL Value Line Aggressive Growth 0.40%, less 50% of amount of excess expenses(1)
WRL Great Companies -- America(SM) 0.40%, less 50% of amount of excess expenses(1)
WRL Great Companies -- Technology(SM) 0.40%, less 50% of amount of excess expenses
WRL Great Companies -- Global(2 0.40%, less 50% of amount of excess expenses(1)
WRL Gabelli Global Growth 0.50% of the first $500 million of the portfolio's average daily
net assets; 0.40% of assets over $500
million up to $1 billion; and 0.30%
of assets in excess of $1 billion,
less 50% of any amount reimbursed
pursuant to its expense limitations
</TABLE>

--------------
(1) Excess expenses are those expenses paid by the Investment Adviser on behalf
of a portfolio pursuant to any expense limitation.
(2) The average daily net assets will be determined on a combined basis with the
same name fund managed by the sub-adviser for IDEX Mutual Funds.
(3) Prior to May 1, 2000, Scottish Equitable served as co-manager of this
portfolio and the portfolio was know as WRL GE/Scottish Equitable
International Equity.

56
<PAGE>

The method of computing each Sub-Adviser's fees is set forth above. For the
years ended December 31, 1999, 1998 and 1997 each Sub-Adviser was paid fees for
their services in the following amounts (fees are not included for WRL Value
Line Aggressive Growth, WRL Great Companies - AmericaSM, WRL Great Companies -
TechnologySM, WRL Great Companies -- Global2 or WRL Gabelli Global Growth as
these portfolios had not yet commenced operations as of December 31, 1999):

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

<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
Sub-adviser Portfolio 1999 1998 1997
---------------- ---------------------------------------- ------------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
Alger WRL Alger Aggressive Growth $2,936,966 $1,680,802 $1,124,900
VKAM WRL VKAM Emerging Growth 4,473,352 2,704,049 2,037,749
Janus WRL Janus Growth 12,744,800 9,055,804 6,858,412
WRL Janus Global 5,146,976 3,768,835 2,795,909
WRL J.P. Morgan Money Market N/A N/A N/A
WRL AEGON Bond(1) 325,052 N/A 239,843
EQSF WRL Third Avenue Value 72,841 55,964 N/A
C.A.S.E. WRL C.A.S.E. Growth 334,939 257,951 167,446
NWQ WRL NWQ Value Equity 607,482 729,083 450,409
Dean WRL Dean Asset Allocation 1,311,787 1,355,313 1,039,770
LKCM WRL LKCM Strategic Total Return 2,383,168 2,242,509 1,851,835
Federated WRL Federated Growth & Income 300,086 287,959 202,218
AIMI WRL AEGON Balanced 421,229 340,271 245,951
WRL AEGON Bond(1) 325,052 294,882 N/A
J.P. Morgan WRL J.P. Morgan Real Estate Securities 12,266 4,669 N/A
WRL J.P. Morgan Money Market 404,622 241,729 193,113
GEIM WRL GE U.S. Equity(2) 588,987 277,671 70,140
WRL GE International Equity(2)(3) 86,818 69,749 27,889
SEIM WRL GE International Equity(2)(3) 77,845 67,890 27,962
GSAM WRL Goldman Sachs Small Cap 6,577 N/A N/A
WRL Goldman Sachs Growth 14,672 N/A N/A
Dreyfus WRL Dreyfus Mid Cap 3,971 N/A N/A
Salomon WRL Salomon All Cap 8,475 N/A N/A
T. Rowe Price WRL T. Rowe Price Dividend Growth 17,211 N/A N/A
WRL T. Rowe Price Small Cap 15,071 N/A N/A
Pilgrim Baxter WRL Pilgrim Baxter Mid Cap Growth 42,533 N/A N/A
</TABLE>

------------------------------
(1) 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.
(2) Prior to May 1, 2000 this portfolio was known as WRL GE/Scottish Equitable
International Equity.
(3) GEIM and SEIM served as Co-sub-advisers for the WRL GE International Equity
until May 1, 2000.

[GRAPHIC]
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]
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

57
<PAGE>

the terms of the Ethics Policy, must adopt and enforce their own Code of Ethics
and Insider Trading Policies appropriate to their operations. The Board is
required to review and approve the Code of Ethics for each Sub-Adviser. Each
Sub-Adviser is also 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]
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 services in
connection with its serving as the Fund's investment adviser.

PORTFOLIO TRANSACTIONS AND BROKERAGE

[GRAPHIC]
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.

58
<PAGE>

The following table provides the portfolios' turnover rates for the fiscal years
ended December 31, 1999, 1998 and 1997 (information is not included for WRL
Value Line Aggressive Growth, WRL Great Companies -- AmericaSM, WRL Great
Companies -- TechnologySM, WRL Great Companies -- Global2 and WRL Gabelli Global
Growth as these portfolios had not yet commenced operations as of December 31,
1999):

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

<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------
Portfolio 1999 1998 1997
--------------------------------------------------- -------------------- ----------------------- -----------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth 101.71% 117.44% 136.18%
WRL VKAM Emerging Growth 117.72% 99.50% 99.78%
WRL GE/Scottish Equitable International Equity(2) 99.77% 71.74% 54.33%
WRL Janus Global 68.10% 87.36% 97.54%
WRL Janus Growth 70.95% 35.29% 85.88%
WRL Third Avenue Value 9.56% 4.35% N/A
WRL C.A.S.E. Growth 143.52% 205.28% 196.50%
WRL GE U.S. Equity 44.01% 63.08% 92.35%
WRL NWQ Value Equity 34.19% 43.60% 17.28%
WRL Dean Asset Allocation 88.78% 76.62% 63.76%
WRL LKCM Strategic Total Return 45.42% 49.20% 48.20%
WRL J.P. Morgan Real Estate Securities 189.80% 100.80% N/A
WRL Federated Growth & Income 117.14% 97.17% 155.77%
WRL AEGON Balanced 74.88% 83.94% 77.06%
WRL AEGON Bond 26.40% 51.60% 213.03%
WRL J.P. Morgan Money Market(1) N/A N/A N/A
WRL Goldman Sachs Small Cap 340.66% N/A N/A
WRL Goldman Sachs Growth 40.46% N/A N/A
WRL Dreyfus Mid Cap 94.19% N/A N/A
WRL Salomon All Cap 216.29% N/A N/A
WRL T. Rowe Price Dividend Growth 43.76% N/A N/A
WRL T. Rowe Price Small Cap 159.02% N/A N/A
WRL Pilgrim Baxter Mid Cap Growth 155.71% 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) This portfolio was previously known as WRL GE/Scottish Equitable
International Equity.

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]
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.

59
<PAGE>

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., One
World Trade Center, Suite 9333, 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 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

60
<PAGE>

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 1999 1998 1997
-------------------------------- ------------- ----------------- -----------------
<S> <C> <C> <C>
WRL Alger Aggressive Growth(1) $ 907,331 $ 916,267 $ 754,459
WRL VKAM Emerging Growth(5) 1,305,965 920,884 627,400
WRL Janus Global 2,219,248 2,373,255 2,305,145
WRL Janus Growth 2,717,764 1,023,925 1,367,104
WRL C.A.S.E. Growth 326,987 323,967 335,147
WRL Third Avenue Value(4)(7) 7,817 20,572 N/A
WRL Dean Asset
Allocation 521,249 339,951 352,964
WRL LKCM Strategic
Total Return 513,667 469,460 348,083
WRL Federated Growth &
Income 281,782 262,012 175,035
WRL AEGON Balanced 179,262 153,672 105,731
WRL NWQ Value Equity 168,551 191,139 157,512
WRL GE International Equity(3) 136,293 121,485 102,616
WRL GE U.S. Equity(2)(6) 133,539 102,182 39,301
WRL J.P. Morgan Real
Estate Securities(7) 17,545 8,206 N/A
WRL Goldman Sachs Small
Cap(9)(10) 14,335 N/A N/A
WRL Goldman Sachs
Growth(9)(11) 10,724 N/A N/A
WRL Dreyfus Mid Cap(9) 3,922 N/A N/A
WRL Salomon All Cap(9) 32,734 N/A N/A
WRL T. Rowe Price Dividend
Growth(9) 9,115 N/A N/A
WRL T. Rowe Price Small Cap(9) 15,525 N/A N/A
WRL Pilgrim Baxter Mid Cap
Growth(9) 26,811 N/A N/A

<CAPTION>
Affiliated Brokerage Commissions
Year Ended December 31
----------------------------------------------------------------------------------
Portfolio 1999 % 1998 % 1997 %
-------------------------------- --------------- -------------- ---------------- -------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
WRL Alger Aggressive Growth(1) $903,540 99.58% $912,105 99.55% $749,587 99.35%
WRL VKAM Emerging Growth(5) 9,346 <1% 1,308 < 1% 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 N/A
WRL Third Avenue Value(4)(7) 7,452 95.33% 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 N/A N/A N/A N/A N/A N/A
WRL GE International Equity(3) N/A N/A N/A N/A N/A N/A
WRL GE U.S. Equity(2)(6) 241 <1% 325 <1% N/A N/A
WRL J.P. Morgan Real
Estate Securities(7) N/A N/A N/A N/A N/A N/A
WRL Goldman Sachs Small
Cap(9)(10) 158 1.10% N/A N/A N/A N/A
WRL Goldman Sachs
Growth(9)(11) 198 1.85% N/A N/A N/A N/A
WRL Dreyfus Mid Cap(9) N/A N/A N/A N/A N/A N/A
WRL Salomon All Cap(9) N/A N/A N/A N/A N/A N/A
WRL T. Rowe Price Dividend
Growth(9) N/A N/A N/A N/A N/A N/A
WRL T. Rowe Price Small Cap(9) N/A N/A N/A N/A N/A N/A
WRL Pilgrim Baxter Mid Cap
Growth(9) 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, 1999, 1998 and 1997 was
98.90%, 99.27% and 98.37%, respectively.
(2) Portfolio commenced operations on January 2, 1997.
(3) Portfolio commenced operatoins January 2, 1997 and was known as WRL
GE/Scottish Equitable International Equity.
(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, 1999, 1998 and 1997 was 88.40%,
97.91%, 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, 1999, 1998 and 1997 was
1.06%, < 1% 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, 1999, 1998 and 1997 was < 1%, < 1%
and N/A, respectively.
(7) Portfolio commenced operations May 1, 1998.
(8) Portfolio commenced operations January 2, 1998
(9) Portfolio commenced operations May 3, 1999.
(10) The percentage of the portfolio's aggregate dollar amount of transactions
involving the payment of commissions effected through Goldman Sachs & Co.
for the fiscal year ended December 31, 1999, 1998 and 1997 was 36.91%, N/A
and N/A, respectively.
(11) The percentage of the portfolio's aggregate dollar amount of transactions
involving the payment of commissions effected through Goldman Sachs & Co.
for the fiscal year ended December 31, 1999, 1998 and 1997 was 2.44%, N/A
and N/A, respectively.

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

61
<PAGE>

The WRL AEGON Bond and the WRL J.P. Morgan Money Market did not pay any
brokerage commissions for the years ended December 31, 1999, 1998, and 1997.

During the fiscal year ended December 31, 1999, WRL AEGON Balanced, WRL VKAM
Emerging Growth, WRL C.A.S.E. Growth, WRL Federated Growth & Income, WRL LKCM
Strategic Total Return, WRL NWQ Value Equity, WRL Dean Asset Allocation and WRL
Dreyfus Mid Cap had transactions in the amounts of $68,190,393, $17,302,500,
$237,551,656, $37,901,146, $71,811,819, $14,620,351, $11,192,679 and $112,572,
respectively, which resulted in brokerage commissions of $127,677, $2,036,975,
$204,538, $71,676, $115,848, $1,019,464, $21,725 and $190, respectively, that
were directed to brokers for brokerage and research services provided. WRL GE
International Equity, WRL GE U.S. Equity, WRL Janus Growth, WRL T. Rowe Price
Dividend Growth, WRL Goldman Sachs Growth, WRL Salomon All Cap and WRL Pilgrim
Baxter Mid Cap Growth had brokerage commissions in the amounts of $2,707,
$20,309, $56,193, $23,749, $190, $109, $7,714, $1,098 and $518,856,
respectively, that were directed to brokerage and research services provided.

PURCHASE AND REDEMPTION OF SHARES

[GRAPHIC]
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]
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.

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]
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

<TABLE>
<S> <C> <C>
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 hypotheti- cal $1,000 payment made at the begin- ning of
the applicable period)
</TABLE>

62
<PAGE>

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]
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:

<TABLE>
<CAPTION>
<S> <C> <C>
a-b
YIELD = 2 [ ( --- + 1)6 - 1]
cd
</TABLE>

<TABLE>
<S> <C> <C>
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
</TABLE>

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

[GRAPHIC]
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 J.P. Morgan Money Market for the seven-day period ended
December 31, 1999, was 5.15% and was equivalent to a compound effective yield of
5.28%. 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.

63
<PAGE>

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 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

64
<PAGE>

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'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 Value Line Aggressive Growth, WRL GE
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 Great
Companies -- AmericaSM, WRL Great Companies -- Technology SM, WRL Great
Companies -- Global2, WRL Gabelli Global Growth, 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.

65
<PAGE>

FINANCIAL STATEMENTS

The audited financial statements for each portfolio (except WRL Value Line
Aggressive Growth, WRL Great Companies -- America(SM) and WRL Great Companies --
Technology(SM), which commenced operations on May 1, 2000, WRL Great Companies
-- Global(2) and WRL Gabelli Global Growth, which commenced operations on
September 1, 2000) of the Fund for the year ended December 31, 1999 and the
report of the Fund's independent certified public accountants are included in
the 1999 Annual Report, and are incorporated herein by reference to such report.

OTHER INFORMATION

[GRAPHIC]
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

PricewaterhouseCoopers LLP, located at 400 North Ashley Street, Suite 2800,
Tampa, Florida 33602, serves as the Fund's independent certified public
accountants. The Fund has engaged PricewaterhouseCoopers LLP to examine, in
accordance with auditing standards generally accepted in the United States, the
financial statements of each of the Fund's portfolios.

[GRAPHIC]
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.

66
<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.

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<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