- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
WRL SERIES FUND, INC.
AND
MERIDIAN/INVESCO
SECTOR VARIABLE
ANNUITY
WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO
February 1997
ACC00011 (2/97)
<PAGE>
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TABLE OF CONTENTS
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PAGE
Chairman's Letter .......................................... 1
Report of Independent Accountants ........................... 2
WRL SERIES FUND, INC.
Portfolio Managers' Commentary:
Meridian/INVESCO Global Sector Portfolio .................. 4
Meridian/INVESCO US Sector Portfolio ...................... 5
Meridian/INVESCO Foreign Sector Portfolio ................. 6
Schedules of Investments:
Meridian/INVESCO Global Sector Portfolio .................. 7
Meridian/INVESCO US Sector Portfolio ...................... 10
Meridian/INVESCO Foreign Sector Portfolio ................. 13
Statements of Assets and Liabilities ...................... 14
Statements of Operations .................................. 15
Statements of Changes in Net Assets ....................... 16
Financial Highlights ...................................... 17
Notes to Financial Statements ............................. 18
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
Statements of Assets, Liabilities and Equity Accounts ...... 24
Statements of Operations .................................. 24
Statements of Changes in Equity Accounts .................. 25
Selected Per Unit Data and Ratios ......................... 26
Notes to Financial Statements ............................. 27
THE PORTFOLIOS OF THE WRL SERIES FUND, INC. ARE MADE AVAILABLE THROUGH VARIABLE
LIFE INSURANCE, VARIABLE ANNUITY, AND GROUP ANNUITY PRODUCTS ISSUED BY WESTERN
RESERVE LIFE ASSURANCE CO. OF OHIO AND ITS AFFILIATES. THE AVAILABILITY OF
CERTAIN PORTFOLIOS MAY VARY FROM PRODUCT TO PRODUCT.
<PAGE>
JOHN R. KENNEY
CHAIRMAN OF THE BOARD
FELLOW CONTRACT OWNERS:
ALL'S WELL THAT ENDS WELL.
YES, DESPITE A SCARY SUMMER SELL-OFF AND MORE THAN A LITTLE NERVOUSNESS IN
DECEMBER, INVESTORS STILL BID A FOND FAREWELL TO 1996, AND TO ANOTHER
OUTSTANDING YEAR FOR THE MARKETS. OFFICIALLY, THE DOW JONES INDUSTRIAL
AVERAGE GAINED 28.89% ON THE YEAR, THE S&P INDEX OF 500 COMMON STOCKS 22.96%,
AND THE NASDAQ COMPOSITE 23.2% -- REMARKABLE NUMBERS IN THEIR OWN RIGHT, BUT
STUNNING WHEN CONSIDERED WITH 1995'S EXTRAORDINARY RETURNS.
NOT TOO SURPRISINGLY, EVEN AS THE MAJOR AVERAGES SEEMED TO PUSH ALMOST DAILY
INTO UNCHARTED TERRITORY, THE DEBATES RAGED AS TO HOW LONG THE GOOD TIMES
WOULD LAST. HOW LONG BEFORE STOCKS WOULD FINALLY "CORRECT." HOW LONG BEFORE
THIS GREAT "BUBBLE" WOULD BURST. HOW LONG INVESTORS WOULD HANG AROUND AFTER
THE FIRST SIGN OF TROUBLE.
SO IT GOES. IT IS, QUITE SIMPLY, THE NATURE OF THE BUSINESS FOR
WELL-INTENTIONED FOLKS TO OFFER UP THEIR PROGNOSIS OF A BULL MARKET DURING A
BULL MARKET. BUT THE FACT REMAINS, IT'S UTTERLY IMPOSSIBLE TO KNOW WHEN THE
TOPS AND BOTTOMS WILL OCCUR. AND ANYONE WHO PRETENDS TO KNOW HAS DISPLACED
FAITH IN THE FUTURE WITH SPECULATION ABOUT THE FUTURE.
THAT'S NOT TO SAY WE DON'T NEED TO PAY ATTENTION; WE DO. INDEED, PERHAPS IT'S
A KEEN PERSPECTIVE, NOT INTELLECTUAL BRILLIANCE, THAT'S THE KEY TO INVESTMENT
SUCCESS. AND IN THE END, FOR MOST INVESTORS THE IMPORTANT THING MAY BE NOT SO
MUCH THEIR ABSOLUTE RETURNS, BUT THE STABILITY AND SUITABILITY OF THEIR
PORTFOLIOS ALONG THE WAY.
THE MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY HAS BEEN DESIGNED TO HELP YOU
CONSTRUCT YOUR OWN "HEALTHY" PORTFOLIO. THE THREE MERIDIAN/INVESCO
PORTFOLIOS -- US SECTOR, GLOBAL SECTOR, AND FOREIGN SECTOR -- ARE CO-MANAGED
BY TWO OF THE INDUSTRY'S MOST DISTINCTIVE INVESTMENT ADVISORY GROUPS,
MERIDIAN INVESTMENT MANGEMENT CORPORATION AND INVESCO GLOBAL ASSET MANAGEMENT
LIMITED. THE PORTFOLIOS BRING A SYSTEMATIC, NON-EMOTIONAL SECTOR ALLOCATION
STRATEGY TO GLOBAL ASSET MANAGEMENT. PLEASE TAKE A FEW MINUTES AND REVIEW THE
PERSONAL COMMENTS FROM THE MANAGER ON HOW THE PORTFOLIOS HAVE BEEN INVESTED
AND WHY. I INVITE YOU TO EVALUATE THESE REPORTS AND REVIEW THE DATA,
INCLUDING MAJOR POSITIONS AND WEIGHTINGS. ALL OF THIS INFORMATION IS INTENDED
TO PROVIDE YOU WITH AN INSIGHT INTO THE PORTFOLIOS' PERFORMANCE FOR THE
PERIOD.
AS WE HEAD INTO 1997, THE ECONOMIC AND POLITICAL SETTINGS ARE CLOSE TO IDEAL
FOR THE MARKETS. BUT, FOR WHAT IT'S WORTH, I WOULDN'T EXPECT TO SEE THE SAME
KIND OF HISTORIC PERFORMANCE WE'VE WITNESSED OVER THE LAST TWO YEARS. WHAT I
DO EXPECT IS FOR THE MERIDIAN/INVESCO PORTFOLIOS TO STAY THE COURSE WHATEVER
THE MARKET DOES AND FOCUS SQUARELY ON LONG-TERM RESULTS.
AS ALWAYS, OUR HIGHEST PRIORITY REMAINS THE SAFETY OF THE FUNDS YOU HAVE
ENTRUSTED WITH US. OUR COMMITMENT IS TO PROVIDE YOU WITH SUPERIOR PRODUCTS
AND EXCEPTIONAL SERVICE FOR THE LONG TERM. WE RESPECT YOUR PERSONAL TASK OF
FINANCIAL PLANNING AND APPRECIATE THE OPPORTUNITY TO HELP.
SINCERELY YOURS,
/s/ JOHN R. KENNEY
---------------------
JOHN R. KENNEY
CHAIRMAN OF THE BOARD CHAIRMAN OF THE BOARD
WRL SERIES FUND, INC. CHIEF EXECUTIVE OFFICER
AND PRESIDENT
WESTERN RESERVE LIFE
ASSURANCE OF OHIO
1
<PAGE>
WRL SERIES FUND, INC.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of the WRL Series Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Meridian/INVESCO Global Sector,
Meridian/INVESCO US Sector and Meridian/INVESCO Foreign Sector Portfolios
(three of the portfolios constituting the WRL Series Fund, Inc., hereafter
referred to as the "Portfolios") at December 31, 1996, and the results of each
of their operations, the changes in each of their net assets and the financial
highlights for the period May 1, 1996 (commencement of operations) through
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1997
2
<PAGE>
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Western Reserve Life Assurance Co. of Ohio and
Contract Owners of the WRL Series Annuity Account - Meridian/INVESCO Sector
Variable Annuity Contracts
In our opinion, the accompanying statements of assets, liabilities and equity
accounts and the related statements of operations and of changes in equity
accounts and the selected per unit data and ratios present fairly, in all
material respects, the financial position of each of the Sub-Accounts
constituting the Meridian/INVESCO Sector Variable Annuity Contracts of the WRL
Series Annuity Account (a separate account of Western Reserve Life Assurance Co.
of Ohio, hereafter referred to as the "Annuity Account") at December 31, 1996,
and the results of each of their operations, the changes in each of their equity
accounts and the selected per unit data and ratios for the period May 1, 1996
(commencement of operations) through December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements and
selected per unit data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Annuity Account's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1997
3
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
PORTFOLIO MANAGERS' COMMENTARY
For the period ended December 31, 1996
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO, FINANCIAL TIMES WORLD INDEX AND THE
LEHMAN HUTTON AGGREGATE BOND INDEX
[GRAPH 1]
THE MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO, WITH ITS INVESTMENT OBJECTIVE OF
CAPITAL GROWTH, FOLLOWS AN ASSET ALLOCATION AND SECTOR ROTATION STRATEGY WHICH
SHIFTS BETWEEN A WIDE RANGE OF ASSET CLASSES, AND WITHIN THEM, SECTORS. THE
PORTFOLIO INCREASED 6.08% FROM ITS INCEPTION MAY 1, 1996 THROUGH DECEMBER 31,
1996. THE PORTFOLIO'S BENCHMARK, WHICH CONSISTS OF A 60% WEIGHTING IN THE
FINANCIAL TIMES WORLD INDEX AND A 40% WEIGHTING IN THE LEHMAN HUTTON AGGREGATE
BOND INDEX, WAS UP 6.08% FOR THE SAME PERIOD. INDIVIDUALLY, THE FINANCIAL TIMES
WORLD INDEX INCREASED 4.73%, WHILE THE LEHMAN HUTTON AGGREGATE BOND INDEX WAS UP
8.11%.
THE U.S. EQUITY MARKET POSTED A SECOND STRAIGHT YEAR OF RECORD GAINS. THE YEAR,
HOWEVER, WAS MARKED BY INCREASED VOLATILITY AND DIVERGENT SECTOR PERFORMANCE.
THE MARKET CONTINUED TO FAVOR LARGE CAPITALIZATION STOCKS, AS REPRESENTED BY THE
DOW JONES INDUSTRIAL AVERAGE AND THE STANDARD AND POOR'S INDEX OF 500 COMMON
STOCKS. THIS WAS MAINLY DUE TO A ROBUST ECONOMIC BACKGROUND AND A LOW INFLATION
ENVIRONMENT. SMALL STOCKS, MEANWHILE, CONSIDERABLY LAGGED THE BROADER MARKET
AVERAGES. AS ECONOMIC GROWTH SLOWS IN THE UPCOMING YEAR, EARNINGS GROWTH WILL
BECOME A MORE HIGHLY PRIZED COMMODITY. THIS SHOULD INCREASE THE OPPORTUNITIES
AVAILABLE FOR A SECTOR ROTATION STRATEGIST WITH AN EMPHASIS ON STOCK SELECTION.
DURING THE FOURTH QUARTER, WE INCREASED OUR EXPOSURE TO THE CONSUMER STAPLES
SECTOR, INCLUDING POSITIONS IN THE HEALTH CARE DELIVERY AND FOOD INDUSTRIES.
THESE WERE UNDER CONSIDERABLE PRESSURE DURING MOST OF 1996 AND VALUATIONS NOW
APPEAR TO BE EXCEPTIONAL. THESE INDUSTRIES SHOULD BENEFIT FROM ENCOURAGING
DEMOGRAPHICS, IMPROVING FUNDAMENTALS, AND FASTER GROWTH IN THE UPCOMING YEAR.
OUR QUANTITATIVE RESEARCH INDICATES THAT WHILE THE U.S. EQUITY MARKET, AS A
WHOLE, IS FAIRLY VALUED, THERE ARE NUMEROUS OPPORTUNITIES IN MARKETS OUTSIDE OUR
BORDERS. INTERNATIONAL EQUITY MARKETS IN OUR OPINION REPRESENT THE BEST GLOBAL
OPPORTUNITY. WHILE SEVERAL INTERNATIONAL MARKETS LOOK ATTRACTIVE, OUR ANALYSIS
INDICATES THAT EUROPEAN EQUITIES ARE THE MOST UNDER-PRICED RELATIVE TO THEIR
FAIR VALUE. THE PORTFOLIO HAS EQUITY EXPOSURE IN GERMANY, DENMARK, AND ITALY.
WHILE THESE MARKETS HAVE ASSISTED IN THE PORTFOLIO'S PERFORMANCE OVER THE PAST
YEAR, THEY STILL REPRESENT EXCELLENT OPPORTUNITIES.
THE U.S. DOLLAR REMAINS A CONCERN WITH REGARD TO JAPANESE EQUITIES. THE DOLLAR
CURRENTLY TRADES AT NEARLY 115 YEN, WHICH REPRESENTS A THREE-YEAR HIGH. FEARS
AND CONCERNS HAVE PUT PRESSURE ON THE JAPANESE EQUITY MARKETS OVER THE PAST
YEAR. AND THOUGH THE PORTFOLIO REMAINS UNDER-WEIGHTED IN JAPAN, OUR ANALYSIS
SHOWS THAT JAPANESE EQUITIES ARE TRADING BELOW OUR VALUATIONS. AS SUCH, WE WILL
CONTINUE TO MONITOR THIS MARKET AND TAKE ADVANTAGE OF ANY MISPRICINGS.
OUR FIXED-INCOME STRATEGY INCLUDES HIGH QUALITY ISSUES, AND IS MAINLY USED AS A
DEFENSIVE POSITION. CURRENTLY, OUR EMPHASIS IS ON HIGH-QUALITY BONDS WITH A
RELATIVELY SHORT OVERALL MATURITY. WE HAVE SUPPLEMENTED THIS EXPOSURE WITH A
SIZABLE POSITION IN THE REAL ESTATE MARKET. REAL ESTATE, REPRESENTED BY REAL
ESTATE INVESTMENT TRUSTS (REITS) HAS PERFORMED WELL THIS YEAR. IT WAS, IN FACT,
THE SECOND BEST PERFORMING ASSET CLASS IN 1996. WE CONTINUE TO FEEL THIS IS A
GOOD INVESTMENT THAT WILL ADD TO THE PORTFOLIO'S STABILITY.
FOR THE PAST TWO YEARS THE U.S. EQUITY MARKET HAS BEEN THE BEST PERFORMING ASSET
CLASS. WE REMAIN CAUTIOUS ON OUR OUTLOOK FOR THE MARKET, HOWEVER, AS DOMESTIC
STOCKS ARE TRADING NEAR THEIR FAIR VALUE. ASSET ALLOCATION, WE THINK, WILL BE
THE MOST CRUCIAL ASPECT AFFECTING THE MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO'S
RETURNS IN THE UPCOMING YEAR. OUR STRATEGY IN 1997 WILL BE TO ENHANCE VALUE BY
INCREASING DIVERSIFICATION GLOBALLY AND INVESTING IN ASSET CLASSES THAT REMAIN
BARGAIN-PRICED.
[LOGO]
(1)A REGISTERED SERVICE /s/ BRYAN M. RITZ
MARK OF INVESCO PLC ---------------------
BRYAN M. RITZ
MERIDIAN/INVESCO
GLOBAL SECTOR PORTFOLIO MANAGER
This material must be preceded or accompanied by the Fund's current prospectus.
Foreign securities involve special risks described in the prospectus that should
be considered carefully before investing.
4
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO US SECTOR PORTFOLIO
PORTFOIO MANAGERS'COMMENTARY
For the period ended December 31,1996
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE WRL SERIES FUND, INC.
MERIDIAN/INVESCO US SECTOR PORTFOLIO AND THE STANDARD & POOR'S INDEX OF 500
COMMON STOCKS
[GRAPH 2]
THE INVESTMENT OBJECTIVE OF THE MERIDIAN/INVESCO US SECTOR PORTFOLIO IS CAPITAL
APPRECIATION. THE PORTFOLIO FOLLOWS A SECTOR ROTATION STRATEGY THAT SHIFTS AMONG
A WIDE RANGE OF INDUSTRIES. THE PORTFOLIO HAS GAINED 4.25% FROM ITS INCEPTION,
MAY 1, 1996 THROUGH DECEMBER 31, 1996. THE STANDARD & POOR'S INDEX OF 500 COMMON
STOCKS GAINED 15.00% FOR THE SAME PERIOD, WHILE THE RUSSELL 2000 GAINED 4.63%.
THE FINANCIAL MARKETS POSED THE SECOND STRAIGHT YEAR OF RECORD GAINS. THE YEAR
WAS MARKED BY INCREASED VOLATILITY AND DIVERGENT SECTOR PERFORMANCE. THE MARKET
CONTINUED TO FAVOR LARGE CAPITALIZATION STOCKS, REPRESENTED BY THE DOW JONES
INDUSTRIAL AVERAGE AND THE S&P 500. THIS WAS MAINLY DUE TO A ROBUST ECONOMIC
BACKGROUND AND A LOW INFLATION ENVIRONMENT. SMALL STOCKS, MEANWHILE,
CONSIDERABLY LAGGED BROADER MARKET AVERAGES. AS ECONOMIC GROWTH SLOWS IN THE
UPCOMING YEAR, EARNINGS GROWTH WILL BECOME A MORE HIGHLY PRIZED COMMODITY. THIS
SHOULD INCREASE THE OPPORTUNITIES AVAILABLE FOR A SECTOR ROTATION STRATEGIST
WITH AN EMPHASIS ON STOCK SELECTION.
WE INCREASED OUR EXPOSURE IN THE CONSUMER STAPLES SECTOR, INCLUDING SIZABLE
POSITIONS IN THE HEALTH CARE DELIVERY, HEALTH CARE DRUGS, AND FOOD INDUSTRIES.
THESE INDUSTRIES HAVE BEEN UNDER CONSIDERABLE PRESSURE DURING MOST OF 1996 AND
VALUATIONS APPEAR TO BE EXCEPTIONAL. THESE INDUSTRIES SHOULD BENEFIT FROM
ENCOURAGING DEMOGRAPHICS, IMPROVING FUNDAMENTALS AND FASTER GROWTH IN THE
UPCOMING YEAR.
OUR QUANTITATIVE RESEARCH INDICATES THAT THE MARKET, AS A WHOLE, IS
FAIRLY-VALUED. SINCE THE MARKET IS ALREADY TRADING NEAR ITS FAIR VALUE, STOCKS
PRICES WILL BE INFLUENCED MAINLY BY INTEREST RATES AND EARNINGS GROWTH. INTEREST
RATES HAVE HOVERED NEAR THEIR LOWEST LEVELS IN MORE THAN A DECADE, WHILE THE
ECONOMY CONTINUES TO GROW AT ABOVE AVERAGE LEVELS. THE MARKET'S EXPECTATIONS
REGARDING INFLATION WILL CONTINUALLY BE A SOURCE OF CONCERN AND FEAR FOR MOST OF
THE YEAR. STOCK RETURNS, THEREFORE, WILL BE MORE DEPENDENT ON THE DIRECTION OF
INTEREST RATES AND LESS ON EARNINGS THAN IN THE PAST. THIS LEADS US TO BELIEVE
THE MARKET WILL BE VOLATILE OVER THE UPCOMING SIX MONTHS.
A VOLATILE MARKET GENERALLY PRODUCES A BROAD RANGE OF PERFORMANCES AMONG THE
VARIOUS MARKET SECTORS. THIS ENVIRONMENT SHOULD BE POSITIVE FOR A SECTOR AND
INDUSTRY ROTATION STRATEGY. THE PORTFOLIO'S WEIGHTINGS IN THE DIFFERENT
INDUSTRIES SHOULD HAVE A MORE PRONOUNCED IMPACT ON PERFORMANCE IN 1997. THE
PROSPECTS FOR OUR CURRENT HOLDINGS REMAIN PROMISING, ESPECIALLY IN THE HEALTH
CARE AND TECHNOLOGY INDUSTRIES. WE LOOK FORWARD TO THE UPCOMING YEAR AS WE
CONTINUE TO SEARCH FOR UNDER-VALUED INDUSTRIES THAT REPRESENT OPPORTUNITIES.
[LOGO]
(1)A REGISTERED SERVICE /s/ BRYAN M. RITZ
MARK OF INVESCO PLC -----------------------
BRYAN M. RITZ
MERIDIAN/INVESCO
US SECTOR PORTFOLIO MANAGER
This material must be preceded or accompanied by the Fund's current prospectus.
5
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
PORTFOLIO MANAGERS' COMMENTARY
For the period ended December 31, 1996
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE WRL SERIES FUND, INC.
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO AND THE FINANCIAL TIMES WORLD INDEX
[GRAPH 3]
THE INVESTMENT OBJECTIVE OF THE MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO IS
CAPITAL APPRECIATION. THE PORTFOLIO FOLLOWS A COUNTRY ROTATION STRATEGY THAT
SHIFTS AMONG A WIDE RANGE OF COUNTRIES AROUND THE GLOBE. IT HAS GAINED 3.44%
FROM ITS INCEPTION MAY 1, 1996 THROUGH DECEMBER 31, 1996. THE FINANCIAL TIMES
WORLD INDEX EXCLUDING THE U.S. RETREATED (1.17%) FOR THE SAME PERIOD.
THE INTERNATIONAL EQUITY MARKETS HAVE LAGGED THE U.S. EQUITY MARKET FOR THE
SECOND STRAIGHT YEAR. WHILE PERFORMANCE HAS BEEN POSITIVE IN MOST EQUITY
MARKETS, THE DOLLAR HAS CONTINUALLY NEGATED RETURNS. WE BELIEVE THE DOLLAR IS
NOW TRADING NEAR ITS TRUE VALUE AGAINST OTHER MAJOR CURRENCIES AND FEEL IT WILL
NOT HAVE A MAJOR IMPACT ON THE PORTFOLIO'S RETURNS IN 1997. WHILE COUNTRY
SELECTION HAS BENEFITED THE PORTFOLIO, STOCK SELECTION HAS BEEN KEY TO
PERFORMANCE. INVESCO HAS ONE OF THE MOST EXTENSIVE GLOBAL RESEARCH TEAMS IN THE
FINANCIAL INDUSTRY. THEY ARE LOCATED AROUND THE GLOBE AND ARE UNIQUELY SITUATED
TO TAKE ADVANTAGE OF INTERNATIONAL OPPORTUNITIES.
THERE ARE NUMEROUS OPPORTUNITIES IN MARKETS OUTSIDE THE U.S. THROUGH OUR
ANALYSIS WE FEEL INTERNATIONAL EQUITY MARKETS REPRESENT THE BEST OPPORTUNITY
GLOBALLY. WHILE SEVERAL INTERNATIONAL MARKETS LOOK ATTRACTIVE, OUR ANALYSIS
INDICATES THAT EUROPEAN EQUITIES ARE THE MOST UNDER-PRICED RELATIVE TO THEIR
FAIR VALUE. THE PORTFOLIO HAS HAD EXPOSURE IN GERMANY, DENMARK, BELGIUM, ITALY,
AND SPAIN THROUGHOUT THE YEAR. WHILE THESE MARKETS HAVE APPRECIATED IN THE PAST
YEAR, THEY STILL REPRESENT EXCELLENT OPPORTUNITIES.
WE INCREASED OUR EXPOSURE TO EUROPEAN EQUITIES, TAKING POSITIONS IN THE UNITED
KINGDOM AND FRANCE. THESE MARKETS HAVE AIDED PERFORMANCE, BUT THEY ARE STILL
TRADING BELOW THEIR FAIR VALUES. WE REMAIN BULLISH ON BOTH THESE MARKETS.
THE DOLLAR REMAINS A CONCERN WITH REGARD TO JAPANESE EQUITIES; IT CURRENTLY
TRADES NEAR 115 YEN AND HAS INCREASED DRAMATICALLY OVER THE PAST YEAR. FEARS AND
CONCERNS HAVE PUT PRESSURE ON THE JAPANESE EQUITY MARKETS OVER THE PAST YEAR.
WHILE THE PORTFOLIO REMAINS UNDER-WEIGHTED IN JAPAN, OUR ANALYSIS SHOWS THAT
JAPANESE EQUITIES ARE TRADING BELOW OUR VALUATIONS. WE WILL CONTINUE TO MONITOR
THIS MARKET AND TAKE ADVANTAGE OF ANY MISPRICINGS.
THE PORTFOLIO ALSO HAS A SMALL POSITION IN KOREA. THIS MARKET HAS BEEN DEPRESSED
DUE TO POLITICAL UNCERTAINTY AND SLOWING ECONOMIC GROWTH. THIS MARKET'S
VALUATION, HOWEVER, REMAINS ATTRACTIVE AND WE ARE CAUTIOUSLY OPTIMISTIC IN 1997.
THE PORTFOLIO'S STRATEGY OF INVESTING IN SELECTIVE COUNTRY EQUITY MARKETS HAS
PROVEN TO BE A SUCCESSFUL METHOD OF PARTICIPATING IN INTERNATIONAL MARKETS. WE
CONTINUE TO EXPECT VOLATILE MARKETS DURING THE UPCOMING YEAR. OUR STRATEGY OF
INVESTING IN UNDER-VALUED COUNTRIES SHOULD BENEFIT THE PORTFOLIO IN THIS TYPE OF
ENVIRONMENT.
/s/ BRYAN M. RITZ
---------------------
[LOGO] BRYAN M. RITZ
(1)A REGISTERED SERVICE MERIDIAN/INVESCO
MARK OF INVESCO PLC FOREIGN SECTOR PORTFOLIO MANAGER
This material must be preceded or accompanied by the Fund's current prospectus.
Foreign securities involve special risks described in the prospectus that should
be considered carefully before investing.
6
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
----------- ---------
U.S GOVERNMENT OBLIGATIONS (21.33%)
U.S. Treasury Notes
6.63%, due 06/30/01 .................... $ 735,000 $ 746,628
U.S. Treasury Notes
7.25%, due 08/15/04 ..................... 290,000 305,178
U.S. Treasury Notes
5.88%, due 02/15/04 ..................... 450,000 438,084
-----------
Total U.S Government Obligations
(cost: $1,481,001) ........................................ 1,489,890
-----------
ASSET-BACKED SECURITIES (0.94%)
General Motors Acceptance Corporation
6.75%, due 03/15/03 ..................... 66,000 65,753
-----------
Total Asset-Backed Securities
(cost: $64,614) ....................................... 65,753
-----------
CORPORATE DEBT SECURITIES (5.98%)
COMMERCIAL BANKS (3.81%)
Hitachi Credit Corp.
6.63%, due 11/19/01 ..................... 200,000 200,750
NationsBank Corporation
7.00%, due 05/15/03 ..................... 65,000 65,569
FINANCE (2.17%)
Commercial Credit Company
6.13%, due 12/01/05 ..................... 160,000 151,200
-----------
Total Corporate Debt Securities
(cost: $414,328) ....................................... $ 417,519
-----------
NUMBER OF MARKET
SHARES VALUE
----------- ---------
PREFERRED STOCKS (1.05%)
COMPUTER & DATA PROCESSING (1.05%)
SAP AG -Vorzug .............................. 525 $ 73,400
-----------
Total Preferred Stock
(cost: $79,779) ........................................... 73,400
-----------
COMMON STOCKS (61.39%)
AEROSPACE (0.45%)
Mitsubishi Heavy Industries, Ltd. ........... 4,000 31,771
AGRICULTURE (1.04%)
Dole Food Company ........................... 2,150 72,831
COMMON STOCKS (CONTINUED)
APPAREL & ACCESSORY STORES (0.77%)
Gucci Group ................................. 800 $ 53,797
AUTOMOTIVE (1.46%)
Bayerische Motoren Werke AG ................. 105 73,264
Honda Motor Company, Ltd. ................... 1,000 28,576
BEER, WINE, & DISTILLED BEVERAGES (0.59%)
Asahi Breweries ............................. 4,000 41,440
CHEMICALS & ALLIED PRODUCTS (2.70%)
Bayer AG .................................... 1,980 80,858
Hoechst AG .................................. 1,460 69,022
Mitsubishi Chemical Corp. (a) ............... 12,000 38,850
COMMERCIAL BANKS (0.80%)
Sanwa Bank Ltd. ............................. 2,000 27,281
Sumitomo Trust & Bank ....................... 2,000 28,835
COMMUNICATION (1.45%)
US West, Inc. (a) ........................... 5,460 101,010
COMMUNICATIONS EQUIPMENT (1.30%)
Lucent Technologies, Inc. ................... 1,380 63,825
Tadiran Telecommunications Ltd. ............. 1,200 26,850
COMPUTER & DATA PROCESSING SERVICE (0.19%)
Bay Networks, Inc. (a) ...................... 630 13,151
COMPUTER & OFFICE EQUIPMENT (0.87%)
Cisco Systems, Inc. (a) ..................... 540 34,358
Sterling Commerce, Inc. (a) ................. 750 26,438
CONSTRUCTION (0.55%)
Daiwa House Industry Co., Ltd. (a) .......... 3,000 38,591
DEPARTMENT STORES (0.52%)
Takashimaya Co. ............................. 3,000 36,001
ELECTRICAL GOODS (0.53%)
Motorola, Inc. .............................. 600 36,825
ELECTRONIC COMPONENTS & ACCESSORIES (3.31%)
Atmel Corporation (a) ....................... 790 26,169
Fujitsu Ltd. ................................ 5,000 46,620
Intel Corporation ........................... 840 109,988
Lattice Semiconductor Corporation (a)........ 1,060 48,760
See notes to schedule of investments.
The notes to the financial statements are an integral part of this report.
7
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1996
NUMBER OF MARKET
SHARES VALUE
----------- ---------
COMMON STOCKS (CONTINUED)
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (1.92%)
Hirose Electric Co. ......................... 900 $ 52,137
Sharp Corporation ........................... 3,000 42,735
Sony Corporation ............................ 600 39,316
FABRICATED METAL PRODUCTS (1.16%)
Mitsubishi Materials Corp. .................. 11,000 44,444
NSK Ltd. .................................... 6,000 36,364
FINANCE (1.07%)
Nikko Securities Company Ltd. (a) ........... 5,000 37,296
Orix Corp. .................................. 900 37,451
FOOD & KINDRED PRODUCTS (1.59%)
Heinz (H.J.) Company ........................ 1,475 52,731
Ralston-Ralston Purina Group ................ 800 58,700
HEALTH SERVICES (5.61%)
Columbia/HCA Healthcare Corporation ......... 2,300 93,725
Falck A/S ................................... 450 134,499
Oxford Health Plans, Inc. (a) ............... 2,800 163,975
HOLDING & OTHER INVESTMENT OFFICES (10.41%)
Bay Apartment Communities, Inc. ............. 4,580 164,880
Beacon Properties Corporation ............... 4,300 157,488
Gables Residential Trust .................... 5,090 147,610
Public Storage, Inc. ........................ 4,020 124,620
Starwood Lodging Trust ...................... 2,415 133,127
INSTRUMENTS & RELATED PRODUCTS (0.41%)
KLA Instruments Corporation (a) ............. 810 28,755
INSURANCE (0.46%)
Dai-Tokyo Fire & Marine
Insurance Co. ............................. 6,000 31,857
MACHINERY, EQUIPMENT & SUPPLIES (0.64%)
Daikin Industries Ltd. ...................... 5,000 44,462
MANUFACTURING INDUSTRIES (1.63%)
Bulgari SpA ................................. 4,600 93,456
Sega Enterprises ............................ 600 20,202
MEDICAL INSTRUMENTS & SUPPLIES (1.60%)
Coloplast A/S-Class B ....................... 980 111,505
METAL CANS & SHIPPING CONTAINERS (1.99%)
Crown Cork & Seal Company, Inc. ............. 2,555 138,928
OIL & GAS EXTRACTION (1.40%)
Ente Nazionale Idrocarburi SpA .............. 19,000 97,795
PHARMACEUTICALS (1.73%)
Novo Nordisk A/S ............................ 640 120,642
PRIMARY METAL INDUSTRIES (0.49%)
Kawasaki Steel .............................. 12,000 34,499
PRINTING & PUBLISHING (1.47%)
A.H. Belo Corporation -Class A .............. 2,950 102,881
RADIO & TELEVISION BROADCAST (1.17%)
Emmis Broadcasting Corporation (a) .......... 2,500 81,875
REAL ESTATE (0.43%)
Mitsui Fudosan .............................. 3,000 30,044
RESTAURANTS (3.36%)
Cracker Barrel Old Country Store, Inc. ...... 2,540 64,453
Lone Star Steakhouse & Saloon (a) ........... 2,350 62,863
McDonald's Corporation ...................... 2,370 107,243
RUBBER & MISC. PLASTIC PRODUCTS (0.94%)
Adidas AG ................................... 760 65,730
STONE, CLAY & GLASS PRODUCTS (1.22%)
Owens-Illinois, Inc. (a) .................... 3,750 85,313
TELECOMMUNICATIONS (2.20%)
Newbridge Networks Corporation (a) .......... 600 16,950
Nippon Telegraph & Telephone Corp. .......... 4 30,320
Telecom Italia Mobile SpA ................... 42,000 106,524
TEXTILE MILL PRODUCTS (0.27%)
Toray Industries, Inc. ...................... 3,000 18,519
TRUCKING & WAREHOUSING (0.59%)
Nippon Express Co. .......................... 6,000 41,129
WHOLESALE TRADE DURABLE GOODS (1.10%)
Canon Sales Co. ............................. 2,000 44,548
Itochu Corp. ................................ 6,000 32,219
-----------
Total Common Stocks
(cost: $4,024,742) ........................................ 4,288,921
-----------
Total Investment Securities
(cost: $6,064,464) ........................................ $ 6,335,483
===========
See notes to schedule of investments.
The notes to the financial statements are an integral part of this report.
8
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO GLOBAL SECTOR PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1996
SUMMARY
Investments at value ......................... 90.69% $ 6,335,483
Other Assets in
Excess of Liabilities ...................... 9.31% 650,592
---------- -----------
Net Assets ................................... 100.00% $ 6,986,075
========== ===========
INVESTMENTS BY COUNTRY
Size of investment is indicated as a percentage of total portfolio net
assets.
MARKET
VALUE PERCENTAGE
----------- ------------
Denmark ..................................... $ 366,647 5.25%
Germany ..................................... 362,275 5.19%
Netherlands ................................. 53,797 0.77%
Italy ....................................... 297,775 4.26%
Japan ....................................... 935,509 13.39%
United States ............................... 4,970,072 71.14%
----------- -----------
$ 6,986,075 100.00%
=========== ===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) No income dividends were paid during the preceding twelve months.
See notes to schedule of investments.
The notes to the financial statements are an integral part of this report.
9
<PAGE>
WRL SERIES FIND, INC.
MERIDIAN/INVESCO US SECTOR PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
NUMBER OF MARKET
SHARES VALUE
------------ ------------
COMMON STOCKS (81.05%)
AIR TRANSPORTATION (4.01%)
Alaska Air Group, Inc. (a) .................. 900 $ 18,900
Midwest Express Holdings, Inc. (a) .......... 600 21,600
UAL Corporation (a) ......................... 700 43,750
AMUSEMENT & RECREATION SERVICE (0.44%)
Gaylord Entertainment Company ............... 400 9,150
BUSINESS SERVICES (1.74%)
Omnicom Group, Inc. ......................... 800 36,600
COMMUNICATION (0.29%)
Comcast Corporation ......................... 347 6,181
COMMUNICATIONS EQUIPMENT (4.01%)
ADC Telecommunications, Inc. (a) ............ 900 28,012
Northern Telecom Limited .................... 400 24,750
Octel Communications
Corporation (a) ........................... 300 5,250
P-COM, Inc. (a) ............................. 200 5,925
Tadiran Telecommunications Ltd. ............. 700 15,662
Voice Control Systems, Inc. (a) ............. 600 4,725
COMPUTER & DATA PROCESSING SERVICE (4.37%)
Cadence Design Systems, Inc. (a) ............ 500 19,875
EPIC Design Technology, Inc. (a) ............ 100 2,500
HBO & Company ............................... 500 29,687
Netscape Communications Corporation (a) ..... 700 39,812
DEPARTMENT STORES (1.12%)
TJX Companies, Inc. ......................... 500 23,687
ELECTRICAL GOODS (1.46%)
Motorola, Inc. .............................. 500 30,687
ELECTRONIC COMPONENTS & ACCESSORIES (4.98%)
Analog Devices, Inc. (a) .................... 700 23,712
Intel Corporation ........................... 300 39,281
Lattice Semiconductor Corporation (a) ....... 300 13,800
Linear Technology Corporation ............... 200 8,775
Texas Instruments, Inc. ..................... 300 19,125
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (1.32%)
Harman International Industries, Inc. ....... 500 27,812
FOOD & KINDRED PRODUCTS (5.82%)
General Mills, Inc. ......................... 200 12,675
H.J. Heinz Company .......................... 900 32,175
Kellogg Company ............................. 600 39,375
Quaker Oats Company ......................... 1,000 38,125
HEALTH SERVICES (2.75%)
Columbia/HCA Healthcare Corporation ......... 700 28,525
Oxford Health Plans, Inc. (a) ............... 500 29,281
HOTELS & OTHER LODGING PLACES (1.15%)
Circus Circus Enterprises (a) ............... 700 24,062
INSTRUMENTS & RELATED PRODUCTS (0.51%)
KLA Instruments Corporation (a) ............. 300 10,650
LUMBER & OTHER BUILDING MATERIALS (1.19%)
Home Depot, Inc. ............................ 500 25,063
MANUFACTURING INDUSTRIES (2.10%)
K2, Inc. .................................... 1,600 44,000
METAL CANS & SHIPPPING CONTAINERS (2.07%)
Crown Cork & Seal Company, Inc. ............. 800 43,500
MOTION PICTURES (2.62%)
News Corporation Limited .................... 1,400 24,675
News Corporation Limited -ADR ............... 600 12,525
Time Warner, Inc. ........................... 475 17,813
PAPER & ALLIED PRODUCTS (1.39%)
Sealed Air Corporation (a) .................. 700 29,138
PAPER & PAPER PRODUCTS (1.27%)
Caraustar Industries, Inc. .................. 800 26,600
PAPERBOARD CONTAINERS AND BOXES (1.55%)
Temple-Inland, Inc. ......................... 600 32,475
PHARMACEUTICALS (4.04%)
Eli Lilly & Company ......................... 300 21,900
Merck & Company, Inc. ....................... 300 23,775
Pfizer, Inc. (a) ............................ 200 16,575
Warner - Lambert Company .................... 300 22,500
See notes to schedule of investments.
The notes to the financial statements are an integral part of this report.
10
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO US SECTOR PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1996
NUMBER OF MARKET
SHARES VALUE
------------ ------------
COMMON STOCKS (CONTINUED)
PRINTING & PUBLISHING (3.02%)
American Greetings Corporation .............. 1,000 $ 28,375
A.H. Belo Corporation ....................... 300 10,463
E.W. Scripps Company ........................ 700 24,500
RESEARCH & TESTING SERVICES (1.26%)
Quintiles Transnational
Corporation (a) ........................... 400 26,500
RESTAURANTS (5.96%)
Cracker Barrel Old Country Store, Inc. ...... 2,000 50,750
Lone Star Steakhouse & Saloon (a) ........... 500 13,375
McDonald's Corporation ...................... 900 40,725
Papa John's International, Inc. (a) ......... 600 20,250
RETAIL TRADE (3.65%)
Price/Costco, Inc. (a) ...................... 1,500 37,688
Toys "R" Us, Inc. (a) ....................... 1,300 39,000
STONE, CLAY & GLASS PRODUCTS (0.87%)
Owens-Illinois, Inc. (a) .................... 800 18,200
TELECOMMUNICATIONS (8.08%)
Ameritech Corporation ....................... 600 36,375
Frontier Corporation ........................ 900 20,363
Mfs Communications Company, Inc.(a) ......... 700 38,150
SBC Communications, Inc. .................... 600 31,050
Sprint Corporation .......................... 1,100 43,863
TRANSPORTATION & PUBLIC UTILITIES (0.80%)
Sabre Group Holdings Inc. (a) ............... 600 16,725
WATER TRANSPORTATION (1.89%)
Carnival Corporation ........................ 1,200 39,600
WHOLESALE TRADE DURABLE GOODS (2.09%)
Johnson & Johnson ........................... 300 14,925
Omnicare, Inc. .............................. 900 28,913
WHOLESALE TRADE NONDURABLE GOODS (3.23%)
Richfood Holdings, Inc. ..................... 450 10,913
Supervalu, Inc. ............................. 1,200 34,050
Sysco Corporation ........................... 700 22,838
-----------
Total Common Stocks
(cost: $1,593,888) ........................................ 1,702,256
-----------
Total Investment Securities
(cost: $1,593,888) ..................................... $ 1,702,256
===========
SUMMARY
Investments at value ........................ 81.05% $ 1,702,256
Other Assets in
Excess of Liabilities ..................... 18.95% 397,930
----------- -----------
Net Assets ................................ 100.00% $ 2,100,186
=========== ===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) No income dividends were paid during the preceding twelve months.
ADR American Depository Receipt.
See notes to schedule of investments.
The notes to the financial statements are an integral part of this report.
11
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
NUMBER OF MARKET
SHARES VALUE
------------ -------------
PREFERRED STOCKS (1.70%)
COMPUTER & DATA PROCESSING SERVICE (1.70%)
SAP AG -Vorzug .............................. 180 $ 25,166
-----------
Total Preferred Stocks
(cost: $23,963) ........................................... 25,166
-----------
COMMON STOCKS (89.42%)
AEROSPACE (1.08%)
Mitsubishi Heavy Industries Ltd. ............ 2,000 15,885
APPAREL PRODUCTS (0.88%)
Burton Group plc ............................ 4,870 13,005
APPAREL & ACCESSORY STORES (0.91%)
Gucci Group ................................. 200 13,449
AUTOMOTIVE (2.83%)
Bayerische Motoren Werke AG ................. 60 41,865
BEER, WINE, & DISTILLED BEVERAGES (2.28%)
Asahi Breweries ............................. 1,000 10,360
Bass PLC .................................... 1,660 23,329
CHEMICALS & ALLIED PRODUCTS (6.06%)
Bayer AG .................................... 1,180 48,188
Hoechst AG (a) .............................. 670 31,674
Mitsubishi Chemical Corp. ................... 3,000 9,713
COMMERCIAL BANKS (9.89%)
Banco Bilbao Vizcaya, S.A ................... 970 52,358
Bank of East Asia, Ltd. ..................... 4,000 17,792
Kredietbank NV .............................. 190 62,303
Sanwa Bank Ltd. ............................. 1,000 13,641
CONSTRUCTION (1.89%)
Daiwa House Industry Co., Ltd. (a) .......... 1,000 12,864
Dong-Ah Construction Industrial
Company EDR (a) ........................... 1,400 14,980
DEPARTMENT STORES (0.81%)
Takashimaya Co. ............................. 1,000 12,000
ELECTRIC, GAS & SANITARY SERVICES (1.25%)
Korea Electric Power Corporation
- sponsored ADR ........................... 900 18,450
ELECTRONIC COMPONENTS & ACCESSORIES (1.28%)
Toshiba Corporation ......................... 3,000 18,855
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (3.04%)
Samsung Electronics GDR 144A (a) (b) ........ 600 11,070
Sharp Corporation ........................... 1,000 14,245
Sony Corporation ............................ 300 19,658
FABRICATED METAL PRODUCTS (2.60%)
Mitsubishi Materials Corp. .................. 5,000 20,202
NSK Ltd. .................................... 3,000 18,182
FINANCE (5.53%)
Lloyds TSB Group plc ........................ 3,406 25,100
Nikko Securities Company Ltd. ............... 2,000 14,918
Orix Corp. .................................. 1,000 41,613
FOOD STORES (7.09%)
Carrefour SA (a) ............................ 30 19,537
Centros Comerciales Pryca, SA ............... 1,120 23,716
Delhaize-Le Lion, SA ........................ 1,035 61,514
HOLDING & OTHER INVESTMENT OFFICES (1.60%)
Hutchison Whampoa Limited ................... 3,000 23,565
INDUSTRIAL MACHINERY & EQUIPMENT (0.99%)
Siebe plc ................................... 787 14,604
INSTRUMENTS & RELATED PRODUCTS (2.45%)
Safilo S.p.A ................................ 2,100 36,217
INSURANCE (1.51%)
AXA - UAP ................................... 350 22,280
MANUFACTURING INDUSTRIES (9.46%)
Barco Industries nv (a) ..................... 340 58,746
Bulgari S.p.A ............................... 2,300 46,728
Christian Dior SA ........................... 120 19,375
Societe BIC SA (a) .......................... 100 15,008
MEDICAL INSTRUMENTS & SUPPLIES (3.08%)
Coloplast A/S Class B ....................... 400 45,512
OIL & GAS EXTRACTION (0.84%)
Shell Transport & Trading ................... 720 12,436
PHARMACEUTICALS (4.28%)
Novo Nordisk A/S ............................ 335 63,149
PRIMARY METAL INDUSTRIES (0.78%)
Kawasaki Steel .............................. 4,000 11,500
See notes to schedule of investments.
The notes to the financial statements are an integral part of this report.
13
<PAGE>
WRL SERIES FUND, INC.
MERIDIAN/INVESCO FOREIGN SECTOR PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1996
NUMBER OF MARKET
SHARES VALUE
------------ -------------
COMMON STOCKS (CONTINUED)
RADIO & TELEVISION BROADCASTING (2.29%)
Compagnie Luxembourgeoise pour
l'Audio-Visuel et la Finance .............. 720 $ 33,825
RAILROADS (0.84%)
Guangshen Railway Company Limited ADR (a) ... 600 12,375
REAL ESTATE (2.48%)
Cheung Kong (Holdings) Ltd. ................. 3,000 26,668
Mitsui Fudosan Co., Ltd. .................... 1,000 10,015
RUBBER & MISC. PLASTIC PRODUCTS (1.76%)
Adidas AG ................................... 300 25,946
TELECOMMUNICATIONS (3.26%)
Telecom Italia Mobile SpA ................... 19,000 48,189
TEXTILE MILL PRODUCTS (0.84%)
Toray Industries, Inc. ...................... 2,000 12,346
TRANSPORTATION & PUBLIC UTILITIES (3.52%)
Empresa Nacional de Electricidad, S.A ....... 730 51,937
TRUCKING & WAREHOUSING (0.93%)
Nippon Express Co., Ltd. .................... 2,000 13,710
WHOLESALE TRADE DURABLE GOODS (1.09%)
Itochu Corporation .......................... 3,000 16,110
-----------
Total Common Stocks
(cost: $1,293,421) ...................................... 1,320,707
-----------
Total Investment Securities
(cost: $1,317,384) ...................................... $ 1,345,873
===========
SUMMARY
Investments at value ........................ 91.12% $ 1,345,873
Other Assets in
Excess of Liabilities ..................... 8.88% 131,201
----------- -----------
Net Assets .................................. 100.00% $ 1,477,074
=========== ===========
INVESTMENTS BY COUNTRY
Size of investment is indicated as a percentage of total portfolio net
assets.
MARKET VALUE PERCENTAGE
------------- -------------
Belgium ...................................... $ 216,388 14.65%
Denmark ...................................... 108,661 7.36%
France ....................................... 76,200 5.16%
Germany ...................................... 172,840 11.70%
Hong Kong .................................... 68,024 4.61%
Italy ........................................ 131,134 8.88%
Japan ........................................ 285,816 19.35%
Netherlands .................................. 13,449 0.91%
Spain ........................................ 128,012 8.67%
United Kingdom ............................... 88,474 5.99%
United States ................................ 188,076 12.72%
----------- -----------
$ 1,477,074 100.00%
=========== ===========
NOTES TO SCHEDULE OF INVESTMENTS:
(a) No income dividends were paid during the preceding twelve months.
(b) Securities are registered pursuant to rule 144A and may be deemed to be
restricted for resale.
ADR American Depository Receipt
GDR Global Depository Receipt
EDR European Depository Receipt
See notes to schedule of investments.
The notes to the financial statements are an integral part of this report.
13
<PAGE>
WRL SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
At December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
ASSETS:
Investments in securities, at cost ................... $ 6,064,464 $ 1,593,888 $ 1,317,384
=========== =========== ===========
Investments in securities, at market value ........... $ 6,335,483 $ 1,702,256 $ 1,345,873
Short-term securities, at amortized cost ............. 0 0 0
Cash ................................................. 612,319 403,024 139,692
Cash collateral for securities on loan ............... 0 0 0
Receivables:
Securities sold ..................................... 24,975 0 0
Interest ............................................ 23,258 1,177 465
Dividends ........................................... 7,026 1,908 759
Foreign receivable .................................. 203 5 641
Foreign currency contracts .......................... 0 0 0
Other ............................................... 0 0 0
----------- ----------- -----------
Total assets ....................................... 7,003,264 2,108,370 1,487,430
----------- ----------- -----------
LIABILITIES:
Securities purchased ................................. 0 0 0
Accounts payable and accrued liabilities:
Investment advisory fees ............................ 6,276 1,760 1,371
Due to custodian .................................... 0 0 0
Dividends to shareholders ........................... 0 0 0
Deposits for securities on loan ..................... 0 0 0
Foreign currency contracts .......................... 0 0 0
Other fees .......................................... 10,913 6,424 8,985
----------- ----------- -----------
Total liabilities .................................. 17,189 8,184 10,356
----------- ----------- -----------
Total net assets .................................. $ 6,986,075 $ 2,100,186 $ 1,477,074
=========== =========== ===========
NET ASSETS:
Capital stock shares authorized ...................... 75,000,000 75,000,000 75,000,000
=========== =========== ===========
Capital stock ($.01 par value) ....................... $ 6,622 $ 2,015 $ 1,456
Additional paid-in-capital ........................... 6,679,338 1,999,155 1,437,116
Accumulated undistributed net investment income (loss) 13,476 0 0
Accumulated undistributed net realized gain (loss) on:
Investment and foreign currency transactions ........ 15,624 (9,352) 10,000
Net unrealized appreciation (depreciation) on:
Investment securities ............................... 271,019 108,368 28,489
Foreign currency transactions ....................... (4) 0 13
----------- ----------- -----------
Net assets applicable to outstanding shares of capital $ 6,986,075 $ 2,100,186 $ 1,477,074
=========== =========== ===========
Shares outstanding at December 31, 1996 .............. 662,187 201,453 145,618
=========== =========== ===========
Net asset value per share ............................ $ 10.55 $ 10.43 $ 10.14
=========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of this report.
14
<PAGE>
WRL SERIES FUND, INC.
STATEMENTS OF OPERATIONS
For the period ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
PORTFOLIO(A) PORTFOLIO(A) PORTFOLIO(A)
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ............................................... $ 57,042 $ 4,657 $ 4,361
Dividends .............................................. 24,188 5,957 8,990
Foreign tax withheld ................................... (543) (95) (1,059)
-------- -------- --------
Total investment income ............................... 80,687 10,519 12,292
-------- -------- --------
EXPENSES:
Investment advisory fees ............................... 26,485 6,446 8,289
Printing and shareholder reports ....................... 1,711 120 0
Custody fees ........................................... 26,048 19,766 24,078
Legal fees ............................................. 51 2 0
Auditing and accounting fees ........................... 3,000 3,000 3,000
Directors fees ......................................... 19 1 0
Registration fees ...................................... 14 6 5
Other fees ............................................. 565 40 0
-------- -------- --------
Total expenses ........................................ 57,893 29,381 35,372
Less:
Advisory fee waiver and expense reimbursement ......... 0 0 0
Fees paid indirectly .................................. 0 0 0
-------- -------- --------
Net expenses ......................................... 57,893 29,381 35,372
-------- -------- --------
Net investment income (loss) ........................... 22,794 (18,862) (23,080)
-------- -------- --------
Net realized gain (loss) on:
Investment securities ................................. 39,864 (9,352) 38,366
Foreign currency transactions ......................... 2,540 0 (2,160)
-------- -------- --------
Total net realized gain (loss) ...................... 42,404 (9,352) 36,206
-------- -------- --------
Change in unrealized appreciation (depreciation) on:
Investment securities .............................. 271,019 108,368 28,489
Foreign currency transactions ......................... (4) 0 13
-------- -------- --------
Total change in unrealized appreciation (depreciation) 271,015 108,368 28,502
-------- -------- --------
Net gain (loss) on investments ........................ 313,419 99,016 64,708
-------- -------- --------
Net increase (decrease) in net assets
resulting from operations .......................... $336,213 $ 80,154 $ 41,628
======== ======== ========
</TABLE>
(a) The inception of this portfolio was May 1, 1996.
The notes to the financial statements are an integral part of this report.
15
<PAGE>
WRL SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the period ended
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
DECEMBER 31 DECEMBER 31 DECEMBER 31
----------------- ----------------- -----------------
1996(a) 1996(a) 1996(a)
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................................. $ 22,794 $ (18,862) $ (23,080)
Net realized gain (loss) on investments and
foreign currency transactions ............................... 42,404 (9,352) 36,206
Change in unrealized appreciation (depreciation) on investments
and foreign currency transactions ........................... 271,015 108,368 28,502
----------- ---------- ----------
Net increase (decrease) in net assets resulting from operations 336,213 80,154 41,628
----------- ---------- ----------
DISTRIBUTION TO SHAREHOLDERS:
Net investment income ......................................... (11,859) 0 0
In excess of net investment income ............................ 0 0 0
Net realized gains ............................................ (24,239) 0 (28,366)
In excess of net realized gains ............................... 0 0 0
----------- ---------- ----------
Total distributions .......................................... (36,098) 0 (28,366)
----------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares ............................. 7,998,720 2,024,608 1,442,105
Dividends and distributions reinvested ........................ 36,098 0 28,366
Cost of shares repurchased .................................... (1,348,858) (4,576) (6,659)
----------- ---------- ----------
Increase (decrease) in net assets from
capital share transactions ................................. 6,685,960 2,020,032 1,463,812
----------- ---------- ----------
Net increase (decrease) in net assets ......................... 6,986,075 2,100,186 1,477,074
NET ASSETS:
Beginning of period ........................................... 0 0 0
----------- ---------- ----------
End of period ................................................. $ 6,986,075 $2,100,186 $1,477,074
=========== ========== ==========
Undistributed net investment income .......................... $ 13,476 $ 0 $ 0
=========== ========== ==========
SHARE ACTIVITY:
Shares outstanding--beginning of period ....................... 0 0 0
----------- ---------- ----------
Shares issued ................................................. 788,163 201,911 143,376
Shares issued--reinvestment of dividends and distributions .... 3,424 0 2,823
Shares redeemed ............................................... (129,400) (458) (581)
----------- ---------- ----------
Increase (decrease) in shares outstanding ..................... 662,187 201,453 145,618
----------- ---------- ----------
Shares outstanding--end of period ............................. 662,187 201,453 145,618
=========== ========== ==========
</TABLE>
(a) The inception of this portfolio was May 1, 1996.
The notes to the financial statements are an integral part of this report.
16
<PAGE>
WRL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS*
For the period ended
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR PORTFOLIO US SECTOR PORTFOLIO FOREIGN SECTOR PORTFOLIO
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------------------ ------------------- ------------------------
1996(c) 1996(c) 1996(c)
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period ............ $10.00 $10.00 $10.00
Income from operations:
Net investment income (loss) ............... 0.06 (0.21) (0.20)
Net realized and unrealized gain (loss)
on investments .............................. 0.55 0.64 0.54
------ ------ ------
Total income (loss) from operations .......... 0.61 0.43 0.34
------ ------ ------
Distributions:
Dividends from net investment income .......... (0.02) 0.00 0.00
Dividends in excess of net investment income .. 0.00 0.00 0.00
Distributions from net realized gains
on investments .............................. (0.04) 0.00 (0.20)
Distributions in excess of net realized gains
on investments .............................. 0.00 0.00 0.00
------ ------ ------
Total distributions .......................... (0.06) 0.00 (0.20)
------ ------ ------
Net asset value, end of period .................. $10.55 $10.43 $10.14
====== ====== ======
Total return (a) ................................ 6.08% 4.25% 3.44%
Ratios and supplemental data:
Net assets at end of period (in thousands) ..... $6,986 $2,100 $1,477
Ratio of expenses to average net assets (b) .... 2.37% 4.76% 4.68%
Ratio of net investment income (loss) to average
net assets (b) ............................... 0.62% (2.04%) (2.03%)
Ratio of commissions paid to number of shares .. 3.13% 5.55% 6.43%
Portfolio turnover rate (a) .................... 27.58% 55.61% 28.08%
</TABLE>
* The above table illustrates the change for a share outstanding computed
using average shares outstanding throughout each period. See Note 5.
(a) For periods less than one year the total return and portfolio turnover
are not annualized.
(b) For periods less than one year the ratio of expenses to average net
assets and the ratio of net investment income to average net assets are
annualized.
(c) The inception of this portfolio was May 1, 1996.
The notes to the financial statements are an integral part of this report.
17
<PAGE>
WRL SERIES FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The WRL Series Fund, Inc., (the "Fund") is a diversified, open-end,
investment management company registered under the Investment Company Act of
1940, as amended. The Fund was incorporated on August 21, 1985, as a Maryland
corporation and commenced operations on October 2, 1986.
The Fund consists of a series of investment Portfolios, including the
Meridian/INVESCO Global Sector Portfolio, the Meridian/INVESCO US Sector
Portfolio, and the Meridian/INVESCO Foreign Sector Portfolio (the
"Portfolios"). Shares of the Portfolios are sold to the WRL Series Annuity
Account (the "Annuity Account") of Western Reserve Life Assurance Co. of Ohio
("WRL"), to fund benefits under the Meridian/INVESCO Sector Variable Annuity
Contracts. The Separate Account contains three investment options referred to
as sub-accounts, each of which upon instructions received from contract
owners of Meridian/INVESCO Sector Variable Annuity Contracts, invests in a
corresponding Meridian/INVESCO Sector Portfolio.
On May 1, 1996, WRL supplied seed capital as follows:
PORTFOLIO CONTRIBUTION
- --------- ------------
Meridian/INVESCO Global Sector $ 1,000,000
Meridian/INVESCO US Sector $ 500,000
Meridian/INVESCO Foreign Sector $ 1,000,000
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
A. VALUATION OF INVESTMENTS
Securities held by the Portfolios are valued at market value, except for
short-term debt securities. Short-term debt securities maturing in 60 days
or less are valued on the amortized cost basis, which approximates market
value. Stocks are valued at the latest sale price on the last business day
of the fiscal period as reported by the principal securities exchange on
which the issue is traded or, if no sale is reported for a stock, the
latest bid price is used. Bonds are valued using prices quoted by a major
dealer in bonds which offers a pricing service. Certain pricing
methodologies, such as matrix pricing of bonds, may involve the use of
estimates and actual sales prices may differ. Securities for which
quotations may not be readily available are valued as determined in good
faith in accordance with procedures established by and under the general
supervision of the Fund's Board of Directors.
The value of foreign securities are translated into U.S. dollars using
foreign exchange spot rates.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Security gains and
losses are calculated on the first-in, first-out basis for both tax and
financial reporting purposes. Dividend income is recorded on the
ex-dividend date, and interest income, including amortization of bond
premium and accretion of discount, is accrued daily. Dividend income on
foreign securities is recorded net of foreign tax expense.
The accounting records of the Fund are maintained in U.S. dollars. For
transactions denominated in a currency other than the U.S. dollar,
purchases and sales of securities, income received, and expenses paid are
translated into U.S. dollars at the foreign exchange spot rate on the date
the transaction is recorded. Currency gain and loss is also calculated on
payables and receivables that are denominated in foreign currencies. The
payables and receivables are generally related to security transactions
and income.
The unrealized gain or loss on forward foreign currency contracts is due
to the difference between the foreign exchange contract rate and the
foreign exchange forward rate applicable to that contract at the end of
the period. This gain or loss becomes realized when the contract is closed
or settled.
Futures contracts and options are valued based upon daily settlement
prices with the fluctuations in value recorded as unrealized gains and
losses. These gains and losses become realized when the position is
closed. The risks associated with the use of options and futures contracts
involve the possibilities of an illiquid market and an imperfect
correlation between the value of the instrument and the underlying
security.
18
<PAGE>
WRL SERIES FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 1 (CONTINUED)
C. FEDERAL INCOME TAXES
It is the Fund's policy to distribute substantially all of its taxable
income and capital gains to its shareholders and otherwise qualify as a
regulated investment company under the Internal Revenue Code. Pursuant to
Code Section 4982(f), regulated investment companies serving as funding
vehicles for life insurance company separate accounts are not subject to
excise tax distribution requirements. Accordingly, no provision for
Federal income taxes has been made.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Reclassifications between undistributed net investment income (UNII) and
undistributed net realized capital gains (UNCG) were made to appropriately
conform financial accounting and tax treatment of dividend distributions.
Net investment income, net realized gains and net assets were not affected
by these reclassifications. The Portfolios and the amounts of the
reclassifications are as follows:
PORTFOLIO UNII UNCG
--------- ---- ----
Meridian/INVESCO
Global Sector $ 2,541 $(2,541)
Meridian/INVESCO
Foreign
Sector (2,160) 2,160
In addition, reclassifications were made in the Meridian/INVESCO US Sector
and Meridian/INVESCO Foreign Sector Portfolios for $18,862 and $25,240,
respectively, between undistributed net investment income and additional
paid-in capital.
D. DIVIDENDS AND DISTRIBUTIONS
Dividends of the Portfolios are typically declared and reinvested
semi-annually, while capital gain distributions are typically declared and
reinvested annually. Dividends and distributions of the Fund are generally
paid to and reinvested by the Separate Account on the next business day
after declaration.
E. ORGANIZATION COSTS
All costs incurred in connection with the formation of the Fund and its
Portfolios were paid by WRL.
F. EXPENSE OFFSET ARRANGEMENT
Fees paid indirectly, in the accompanying Statement of Operations,
represent reductions in custody expenses in lieu of interest income earned
on incidental uninvested cash balances. Such fees have been added to
custody fees to reflect total Fund expenses.
NOTE 2--INVESTMENT ADVISORY AND TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY
The Fund has entered into an annually renewable investment advisory
agreement for the Portfolios with WRL as investment adviser. The Fund pays
to WRL, and charges to each respective Portfolio, advisory fees each month
at the following annual rate expressed as a percentage of the average
daily net assets of the respective Portfolio:
PORTFOLIO PERCENT OF ASSETS
--------- -----------------
Meridian/INVESCO
Global Sector 1.10%
Meridian/INVESCO US
Sector 1.10%
Meridian/INVESCO
Foreign Sector 1.10%
Pursuant to the Meridian/INVESCO Sector Portfolio agreements, Meridian
Investment Management Corporation receives monthly compensation from the
investment adviser, as a percentage of the Portfolio's average daily net
assets, at an annual rate of 0.30% of the first $100 million of net assets
and 0.35% of net assets in excess of $100 million. For its services,
INVESCO Global Asset Management Limited receives monthly compensation from
the investment adviser, as a percentage of the Portfolio's average daily
net assets, at an annual rate of 0.40% of the first $100 million of net
assets and 0.35% of net assets in excess of $100 million.
The Portfolios are charged for expenses that specifically relate to their
individual operations. All other operating expenses of the Fund that are
not attributable to a specific portfolio are allocated based upon the
proportionate number of policy and contract owners of the underlying
sub-accounts.
19
<PAGE>
WRL SERIES FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2 (CONTINUED)
WRL directly incurs and pays these operating expenses relating to the
Fund, which subsequently reimburses WRL.
At a Special Meeting of Fund shareholders on December 16, 1996, a change
in investment adviser from WRL to WRL Investment Management, Inc. (WRL
Management) was approved, effective January 1, 1997. At the same meeting,
shareholders also approved new investment advisory agreements ("New
Advisory Agreements") between WRL Management and the Fund, on behalf of
each Portfolio. The terms of the New Advisory Agreements are substantially
the same as the terms of the current advisory agreements between WRL and
each Portfolio. At the same Special Meeting, Fund shareholders also
approved, effective January 1, 1997, new investment sub-advisory
agreements ("New Sub-Advisory Agreements") between the Fund, on behalf of
each Portfolio, and each respective sub-adviser for each Portfolio. The
terms of the New Sub-Advisory Agreements are substantially the same as the
terms of the current sub-advisory agreements. WRL Management is a direct,
wholly-owned subsidiary of WRL.
B. AFFILIATES
WRL is an indirect wholly-owned subsidiary of AEGON USA, Inc., which is an
indirect wholly-owned subsidiary of AEGON nv, a Netherlands corporation.
C. PLAN OF DISTRIBUTION
Effective January 1, 1997, the Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended ("Distribution Plan") and pursuant to the Plan, has entered into a
Distribution Agreement with InterSecurities, Inc. ("ISI").
Under the Distribution Plan, the Fund, on behalf of the Portfolios, is
authorized to pay to various service providers, as direct payment for
expenses incurred in connection with the distribution of a Portfolio's
shares, amounts equal to actual expenses associated with distributing such
Portfolio's shares, up to a maximum rate of 0.15% on an annualized basis
of the average daily net assets.
ISI has determined that it will not seek payment by the Fund of
distribution expenses with respect to any Portfolio during the fiscal year
ending December 31, 1997. Prior to ISI seeking reimbursement, Contract
Owners will be notified in advance.
D. DEFERRED COMPENSATION PLAN
Each eligible Director of the WRL Series Fund, Inc. who is not an officer
or affiliated person as defined under the Investment Company Act of 1940,
as amended, may elect to participate in the Deferred Compensation Plan for
Directors of the WRL Series Fund, Inc. (the "Plan"). Under the Plan, such
Directors may elect to defer payment of a percentage of their total fees
earned as a Director of the Fund. These deferred amounts may be invested
in any Portfolio of the IDEX Series Fund. Invested plan amounts are
included in other assets. The total liability for deferred compensation to
Directors under the Plan at December 31, 1996, is included in other
liabilities in the accompanying Statement of Assets and Liabilities.
20
<PAGE>
WRL SERIES FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3--SECURITIES TRANSACTIONS
Securities transactions are summarized as follows:
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
PORTFOLIO PORTFOLIO PORTFOLIO
----------------- ----------------- ----------------
<S> <C> <C> <C>
For the period ended December 31, 1996:
Purchases of securities:
Long-term excluding U.S. Government ............ $ 4,941,216 $ 2,046,244 $ 1,582,095
U.S. Government securities ..................... 1,987,236 0 0
Proceeds from maturities and sales of
securities:
Long-term excluding U.S. Government ............ 609,711 443,005 303,077
U.S. Government securities ..................... 295,054 0 0
</TABLE>
NOTE 4--FEDERAL INCOME TAX MATTERS
The income, expenses, gains and losses on security transactions attributed
to each Portfolio for accounting purposes are attributed to that Portfolio
for Federal income tax purposes. Gains and losses on forward currency
contracts, if applicable, are treated as ordinary income for Federal income
tax purposes pursuant to Section 988 of the Internal Revenue Code.
Each Portfolio has and will continue to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, and
accordingly, has made or intends to make sufficient distributions of net
investment income and net realized gains, if any, to relieve it from all
Federal and state income taxes and Federal excise taxes.
The net capital loss carrryforwards noted below as of December 31, 1996,
if applicable, are available to offset future realized capital gains through
the periods listed. Each Portfolio will elect to treat the net capital losses
incurred in the two month period ended December 31, 1996, (Post-October
Losses Deferred), if applicable, as having been incurred in the following
fiscal year.
<TABLE>
<CAPTION>
POST-OCTOBER PRIOR YEAR DECEMBER 31, 1996 NET CAPITAL LOSS
NET CAPITAL LOSSES NET CAPITAL LOSS NET CAPITAL LOSS CARRYFORWARD
PORTFOLIO GAINS DEFERRED CARRYFORWARD UTILIZED CARRYFORWARD AVAILABLE THROUGH:
- --------- ----- -------- --------------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Meridian/INVESCO
Global Sector... $ 40,098 $ 0 $ 0 $ 0 N/A
Meridian/INVESCO
US Sector ..... 0 0 0 (9,352) December 31, 2004
Meridian/INVESCO
Foreign Sector.. 38,366 969 0 0 N/A
</TABLE>
The aggregate cost of investments and composition of unrealized
appreciation and depreciation for Federal income tax purposes as of December
31, 1996, are as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO COST BASIS APPRECIATION DEPRECIATION (DEPRECIATION)
- --------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Meridian/INVESCO Global Sector... $ 6,064,698 $ 510,905 $ 240,120 $ 270,785
Meridian/INVESCO US Sector....... 1,593,888 144,591 36,223 108,368
Meridian/INVESCO Foreign Sector.. 1,317,384 127,119 98,630 28,489
</TABLE>
21
<PAGE>
WRL SERIES FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5--FINANCIAL HIGHLIGHTS
The total return set forth in "Financial Highlights" reflects the advisory
fee and all other Portfolio expenses and includes reinvestment of dividends
and capital gains; it does not reflect the charges against the corresponding
sub-accounts or the charges and deductions under the applicable Policies or
Annuity Contracts. Where a Portfolio's period from inception is less than one
year, the total return shown is not annualized.
22
<PAGE>
WRL SERIES FUND, INC
- --------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Section 270.30d-1 under the Investment Company Act of 1940, as amended,
titled "Reports to Stockholders of Management Companies," requires regulated
investment companies to report on all subject matter put to a vote of the
shareholders and provide final results.
In adherence to this Amendment, WRL solicited a vote by the policyholders
for:
1. A new investment advisory agreement between the fund, on behalf of each
portfolio, and WRL Investment Management, Inc., effective January 1, 1997;
2. A new investment sub-advisory agreement for each Portfolio between WRL
Management, Inc., on behalf of such Portfolio, and the Portfolio's current
sub-adviser(s), effective January 1, 1997;
3. A distribution plan pursuant to rule 12b-1 under the Investment
Company Act of 1940, as amended, pursuant to which the Portfolios may
reimburse InterSecurities, Inc., ("ISI") which will act as Distributor of the
Fund's shares for distribution related expenses incurred by ISI in the
performance of its duties as Distributor pursuant to a distribution agreement
between ISI and the Fund.
At a special shareholders/policyholders meeting on December 16, 1996 the
results of the resolution were as follows:
PROPOSAL 1
-------------------------------------
PORTFOLIOS FOR AGAINST ABSTAIN
- ---------- --- ------- -------
Meridian/INVESCO Global Sector 93% 6% 1%
Meridian/INVESCO US Sector 100% 0% 0%
Meridian/INVESCO Foreign Sector 100% 0% 0%
PROPOSAL 2
-------------------------------------
PORTFOLIOS FOR AGAINST ABSTAIN
- ---------- --- ------- -------
Meridian/INVESCO Global Sector (a) 94% 5% 1%
Meridian/INVESCO Global Sector (b) 93% 6% 1%
Meridian/INVESCO US Sector (a) 74% 0% 26%
Meridian/INVESCO US Sector (b) 100% 0% 0%
Meridian/INVESCO Foreign Sector (a) 100% 0% 0%
Meridian/INVESCO Foreign Sector (b) 100% 0% 0%
(a) Sub-advisory agreement between the investment advisor and INVESCO Global
Asset Management Limited.
(b) Sub-advisory agreement between the investment advisor and Meridian
Investment Management Corporation.
PROPOSAL 3
-------------------------------------
PORTFOLIOS FOR AGAINST ABSTAIN
- ---------- --- ------- -------
Meridian/INVESCO Global Sector 88% 11% 1%
Meridian/INVESCO US Sector 100% 0% 0%
Meridian/INVESCO Foreign Sector 100% 0% 0%
23
<PAGE>
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
STATEMENTS OF ASSETS, LIABILITIES AND EQUITY ACCOUNTS
At December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C>
ASSETS:
Investments:
Investment in WRL Series Fund, Inc.:
Shares .................................... 99,620.331 201,453.499 145,618.400
============== ============== ===============
Cost ...................................... $ 1,009,498 $ 2,020,033 $ 1,463,899
============== ============== ===============
Investments, at net asset value ............ $ 1,051,224 $ 2,100,186 $ 1,477,074
Accrued transfers from (to) depositor - net. 0 0 0
-------------- -------------- ---------------
Total assets .............................. 1,051,224 2,100,186 1,477,074
-------------- -------------- ---------------
LIABILITIES: ................................ 0 0 0
-------------- -------------- ---------------
Total net assets .......................... $ 1,051,224 $ 2,100,186 $ 1,477,074
============== ============== ===============
EQUITY ACCOUNTS:
Contract Owners' equity:
Units .................................... 50,034.169959 153,036.458708 43,917.514952
============== ============== ===============
Unit value ............................... $ 10.508888 $ 10.343885 $ 10.263335
============== ============== ===============
Contract Owners' equity .................. $ 525,804 $ 1,582,992 $ 450,740
-------------- -------------- ---------------
Depositor's equity:
Units .................................... 49,997.705211 50,000.000000 100,000.000000
============== ============== ===============
Unit value ............................... $ 10.508888 $ 10.343885 $ 10.263335
============== ============== ===============
Depositor's equity ....................... $ 525,420 $ 517,194 $ 1,026,334
-------------- -------------- ---------------
Total equity ............................. $ 1,051,224 $ 2,100,186 $ 1,477,074
============== ============== ===============
</TABLE>
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
STATEMENTS OF OPERATIONS
For the period ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
SUB-ACCOUNT(A) SUB-ACCOUNT(A) SUB-ACCOUNT(A)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................... $ 1,801 $ 0 $ 0
Capital gain distributions ............................ 3,682 0 28,366
------- ------- -------
5,483 0 28,366
EXPENSES:
Mortality and expense risk ............................ 6,106 7,460 9,046
------- ------- -------
Net investment income (loss) ......................... (623) (7,460) 19,320
------- ------- -------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from securities transactions 53 2 88
Change in unrealized appreciation (depreciation) ..... 41,726 80,152 13,174
------- ------- -------
Net gain (loss) on investments ....................... 41,779 80,154 13,262
------- ------- -------
Net increase (decrease) in equity accounts resulting
from operations ................................... $41,156 $72,694 $32,582
======= ======= =======
</TABLE>
(a) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
24
<PAGE>
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
STATEMENTS OF CHANGES IN EQUITY ACCOUNTS
For the period ended
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31
----------------- ---------------- ----------------
1996(a) 1996(a) 1996(a)
------ ------- -------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............... $ (623) $ (7,460) $ 19,320
Net gain (loss) on investments ............. 41,779 80,154 13,262
---------- ---------- ----------
Net increase (decrease) in equity accounts
resulting
from operations .......................... 41,156 72,694 32,582
---------- ---------- ----------
EQUITY TRANSACTIONS:
Proceeds from units sold (redeemed) ........ 510,068 1,527,492 444,492
---------- ---------- ----------
Less cost of units redeemed:
Administrative charges .................... 0 0 0
Policy loans .............................. 0 0 0
Surrender benefits ........................ 0 0 0
Death benefits ............................ 0 0 0
---------- ---------- ----------
0 0 0
---------- ---------- ----------
Increase (decrease) in equity accounts from
capital
unit transactions ....................... 510,068 1,527,492 444,492
---------- ---------- ----------
Net increase (decrease) in equity accounts 551,224 1,600,186 477,074
Depositors' equity contribution (redemption) 500,000 500,000 1,000,000
EQUITY ACCOUNTS:
Beginning of period ........................ 0 0 0
---------- ---------- ----------
End of period .............................. $1,051,224 $2,100,186 $1,477,074
========== ========== ==========
</TABLE>
(a) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
25
<PAGE>
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
SELECTED PER UNIT DATA AND RATIOS*
For the period ended
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN/INVESCO MERIDIAN/INVESCO MERIDIAN/INVESCO
GLOBAL SECTOR US SECTOR FOREIGN SECTOR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
DECEMBER 31 DECEMBER 31 DECEMBER 31
---------------- ---------------- ----------------
1996(c) 1996(c) 1996(c)
------- ------- -------
<S> <C> <C> <C>
Accumulation unit value, beginning of period ..................... $10.00 $10.00 $10.00
------ ------ ------
Income from operations:
Net investment income (loss) .................................... (0.01) (0.08) 0.17
Net realized and unrealized gain (loss) on investments .......... 0.52 0.42 0.09
------ ------ ------
Total income (loss) from operations ............................ 0.51 0.34 0.26
------ ------ ------
Accumulation unit value, end of period ........................... $10.51 $10.34 $10.26
====== ====== ======
Total return (a) ................................................. 5.09% 3.44% 2.63%
Ratios and supplemental data:
Net assets at end of period (in thousands) ...................... $1,051 $2,100 $1,477
Ratio of net investment income (loss) to average net assets (b).. (0.14%) (1.26%) 2.55%
</TABLE>
* The above table illustrates the change for a unit outstanding computed
using average units outstanding throughout each period.
(a) For periods less than one year the total return is not annualized.
(b) For periods less than one year the ratio of net investment income to
average net assets is annualized.
(c) The inception date of this sub-account was May 1, 1996.
The notes to the financial statements are an integral part of this report.
26
<PAGE>
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The WRL Series Annuity Account (the "Annuity Account") was established as a
variable accumulation deferred annuity separate account of Western Reserve Life
Assurance Co. of Ohio ("WRL") and is registered as a unit investment trust
("Trust") under the Investment Company Act of 1940, as amended.
The Annuity Account holds assets that support the benefits under flexible
payment variable accumulation deferred annuity contracts (the "Contracts")
issued by WRL, including the Meridian/INVESCO Sector Variable Annuity. The
Annuity Account equity transactions are accounted for using the appropriate
effective date at the corresponding accumulation unit value.
The Meridian/INVESCO Sector Variable Annuity investment options, referred
to as sub-accounts, are the Meridian/INVESCO Global Sector Sub-Account, the
Meridian/INVESCO US Sector Sub-Account and the Meridian/INVESCO Foreign
Sector Sub-Account. Each sub-account invests in the corresponding portfolio
of the WRL Series Fund, Inc. (the "Fund"), a registered management investment
company under the Investment Company Act of 1940, as amended. The investment
managers for these three portfolios are Meridian Investment Management
Corporation and INVESCO Global Asset Management Limited.
On May 1, 1996, WRL made an initial contribution to each of the
Meridian/INVESCO Sub-Accounts. The amount of the contribution and the units
received from the corresponding sub-accounts are as follows:
SUB-ACCOUNT CONTRIBUTION UNITS
----------- ------------ -----
Meridian/INVESCO
Global Sector $ 500,000 49,997.705211
Meridian/INVESCO
US Sector $ 500,000 50,000.000000
Meridian/INVESCO
Foreign Sector $1,000,000 100,000.000000
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following significant accounting policies, which are in conformity
with generally accepted accounting principles for unit investment trusts,
have been consistently used in preparation of the Trust's financial
statements.
A. VALUATION OF INVESTMENTS
The investments in the Fund's shares are stated at the closing net asset
value ("NAV") per share as determined by the Fund on December 31, 1996.
Investment transactions are accounted for on the trade date, using the
Fund NAV next determined after receipt of a sale or redemption order
without sales charges. Dividend income, and capital gain distributions are
recorded on the ex-dividend date. The cost of investments sold is
determined on a first-in, first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Annuity Account are a part of and are taxed with the
total operations of WRL, which is taxed as a life insurance company under
the Internal Revenue Code. Under current law, the investment income of the
Annuity Account, including realized and unrealized capital gains, is not
taxable to WRL. Accordingly, no provision for federal income taxes has
been made.
NOTE 2--CHARGES AND DEDUCTIONS
Charges are assessed by WRL in connection with issuance and administration
of the Contracts.
A. CONTRACT CHARGES
No deduction for sales expenses are made from the purchase payments. A
contingent deferred sales charge may, however, be assessed against
contract values when withdrawn or surrendered.
On each anniversary through maturity date, WRL will deduct an annual
contract charge as partial compensation for providing administrative
services under the Contracts.
B. SUB-ACCOUNT CHARGES
A daily charge equal to an annual rate of 1.40% of average daily net
assets is assessed to compensate WRL for assumption of mortality and
expense
27
<PAGE>
WRL SERIES ANNUITY ACCOUNT
MERIDIAN/INVESCO SECTOR VARIABLE ANNUITY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2 (CONTINUED)
risks and administrative services in connection with issuance and
administration of the Contracts. This charge (not assessed at the
individual contract level) effectively reduces the value of a unit
outstanding during the year.
NOTE 3--DIVIDENDS AND DISTRIBUTIONS
Dividends of the Portfolios are typically declared and reinvested
semiannually, while capital gain distributions are typically declared and
reinvested annually. Dividends and distributions of the Fund are generally
paid to and reinvested by the Annuity Account the next business day after
declaration.
NOTE 4--OTHER MATTERS
As of December 31, 1996 the equity accounts include net unrealized
appreciation (depreciation) on investments as follows:
SUB-ACCOUNT
- -----------
Meridian/INVESCO Global Sector $41,726
Meridian/INVESCO US Sector 80,153
Meridian/INVESCO Foreign Sector 13,175
28
<PAGE>
- -----------------------------------------------------------------------------
W R L S E R I E S F U N D , I N C .
- -----------------------------------------------------------------------------
WRL SERIES ANNUITY ACCOUNT
OFFICE OF THE WRL SERIES FUND, INC.
WRL SERIES ANNUITY ACCOUNT
201 Highland Avenue
Largo, FL 33770-2597
1-800-851-9777
------------------------------------
DISTRIBUTOR:
InterSecurities, Inc.
201 Highland Avenue
Largo, FL 33770-2597
------------------------------------
FUND CUSTODIAN:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
------------------------------------
INVESTMENT ADVISER:
WRL Investment Management, Inc.
201 Highland Avenue
Largo, FL 33770-2957
------------------------------------
SUB-ADVISERS:
Meridian Investment Management Corporation
12835 East Arapahoe Road
Tower II, 7th Floor
Englewood, CO 80112
INVESCO Global Asset Management Limited
Rosebank, 12 Bermudiana Road
Hamilton, Bermuda HM11
------------------------------------
INSURER:
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Largo, FL 33770-2597
------------------------------------
INDEPENDENT ACCOUNTANTS:
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
<PAGE>
THIS MATERIAL IS FOR CONTRACT HOLDER'S
REPORTING PURPOSES ONLY AND SHALL NOT BE
USED IN CONNECTION WITH A SOLICITATION,
OFFER OR ANY PROPOSED SALE OR PURCHASE
OF SECURITIES. THIS MATERIAL MUST BE
PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
[LOGO] [LOGO]
-------------------------------------------
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
Distributor: InterSecurities, Inc.
201 Highland Avenue /bullet/ Largo, FL 33770-2597
February 1997
ACC00011 (2/97)
<PAGE>
Appendix to Electronic Format Page 1 of 1
WRL Series Fund. Inc.
Meridian/INVESCO Sector Variable Annuity
Page 1 (photo) Shown is John R. Kenney, Chairman of the Board
Page 4 (graph 1) Mountain graph depicting the change in value of a
$10,000 investment in the portfolio since inception versus
the Financial Times World Index (FT) and the Lehman Hutton
Bond Index (LH) over the same time frame.
Portfolio FT Index LH Index
Inception 5/1/96 $10,000 $10,000 $10,000
Period Ended 12/31/96 $10,608 $10,473 $10,811
Page 5 (graph 2) Mountain graph depicting the change in value of a
$10,000 investment in the portfolio since inception versus
the Standard & Poor's Index of 500 Common Stocks (S&P) over
the same time frame.
Portfolio S&P Index
Inception 5/1/96 $10,000 $10,000
Period Ended 12/31/96 $10,425 $11,500
Page 6 (graph 3) Mountain graph depicting the change in value of a
$10,000 investment in the portfolio since inception versus
the Financial Times World Index excluding the U.S.(FT-EX)
over the same time frame.
Portfolio FT-EX Index
Inception 5/1/96 $10,000 $10,000
Period Ended 12/31/96 $10,344 $9,883
