DECEMBER 31, 1998
ANNUAL
REPORT
TO VARIABLE LIFE POLICYOWNERS
DYNAMIC
VARIABLE LIFE
Dynamic Variable Life
ReliaStar Life Insurance
Company of New York
Variable Separate Account
USLICO Series Fund
THIS REPORT IS FOR THE INFORMATION OF POLICYOWNERS AND NOT AN OFFERING OF THE
SALE OF THE VARIABLE LIFE POLICY, WHICH CAN ONLY BE MADE BY A CURRENT
PROSPECTUS.
RELIASTAR
RELIASTAR LIFE INSURANCE
COMPANY OF NEW YORK
4601 Fairfax Drive, PO Box 3700
Arlington, VA 22203
VL 4026 (2/98)
<PAGE>
A MESSAGE TO VARIABLE LIFE POLICYOWNERS
We are now in the fourth year of significant increases in the U.S. Stock
Markets, as measured by the Dow Jones Industrial Average and the Standard &
Poor's 500 Index. Propelled by a fourth quarter increase of 17.1%, the Dow's
increase for the twelve months ended December 31, 1998, was 16.1%. The S&P
increased 20.9% in the fourth quarter and 26.7% for the year of 1998. Both the
Dow Jones Industrial Average and the S&P 500 are unmanaged indices and the
percentage changes exclude dividends.
The yield on the 30-year Treasury Bond has declined, so that at the end of 1998,
it was approximately 5.1%. Short term rates, as measured by the 3-month Treasury
Bill, are yielding 4.5%, which is also below a year ago.
The U.S. Gross Domestic Product for the fourth quarter of 1998 has increased
5.6% while inflation remains low with the Consumer Price Index increasing by
1.6% year-over-year on December 31, 1998.
The Variable Life Insurance Policies which are the subject of this report are
distributed by Washington Square Securities, Inc. ("WSSI"), 20 Washington Avenue
South, Minneapolis, Minnesota 55401, (612) 372-5507. WSSI, a registered
broker-dealer, is an affiliated company of ReliaStar Life Insurance Company of
New York, the issuer of your insurance policy.
THE STOCK ACCOUNT. On December 31, 1998, the invested assets were allocated
99.5% to 79 different stock positions with the remainder in a high quality money
market fund. Our emphasis within the stock portfolio continues to be in issues
which we believe will perform well in the current environment and tend to hold
their values during market weakness.
THE MONEY MARKET ACCOUNT. On December 31, 1998, this portfolio held 20 different
issues of the highest quality commercial paper with maturities ranging from 1
week to 6 weeks.
THE INVESTMENT GRADE BOND ACCOUNT. Bonds represented 97.8% of the investable
funds on December 31, 1998 with the remainder in a high quality money market
fund. The portfolio was comprised of 28 bond issues, with scheduled maturities
ranging from 10 months to 51 years.
THE ASSET ALLOCATION ACCOUNT. On December 31, 1998, invested assets were
allocated 54.9% to common stocks, 43.3% to bonds, with the remainder in a high
quality money market fund. There were 80 different common stock issues in the
portfolio and 33 different bond positions.
THE OUTLOOK. For 1999, we expect economic growth to slow to 1.5% to 2.5% given
the lagged effect of the global financial crisis. Inflation and interest rates
should remain near current levels. At the time of this report, macroeconomic
indicators are showing signs of moderation and low unemployment. While the
business expansion has been underway for almost 8 years, it is likely to be
sustained throughout 1999. Nevertheless, profits are expected to grow albeit at
a slower rate than in the past few years.
ReliaStar Life Insurance Company of New York is a wholly owned subsidiary of
ReliaStar Financial Corp.
Respectfully,
/s/ Robert C. Salipante
Robert C. Salipante
President and Chief Executive Officer
ReliaStar Life Insurance Company of New York
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Sub-accounts
------------
COMMON MONEY ASSET TOTAL
STOCK MARKET BOND ALLOCATION SUB-ACCOUNTS
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in USLICO Series
Fund Portfolios $12,612,520 $ 5,073,370 $ 1,209,061 $ 6,052,855 $24,947,806
Policy loans 1,507,114 735,321 10,626 638,624 2,891,685
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 14,119,634 5,808,691 1,219,687 6,691,479 27,839,491
----------- ----------- ----------- ----------- -----------
LIABILITIES:
Net accrued for policy related
transactions due to (from) ReliaStar Life of New York 340,921 30,758 (245) 89,721 461,155
Amounts payable to ReliaStar Life of New York 375,000 125,000 1,000,000 1,000,000 2,500,000
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 715,921 155,758 999,755 1,089,721 2,961,155
----------- ----------- ----------- ----------- -----------
NET ASSETS - FOR VARIABLE LIFE
INSURANCE POLICIES $13,403,713 $ 5,652,933 $ 219,932 $ 5,601,758 $24,878,336
=========== =========== =========== =========== ===========
Investments basis data:
Shares Owned 925,350 5,073,370 124,006 507,364
Cost $11,093,250 $ 5,073,370 $ 1,248,207 $ 5,694,195
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Sub-accounts
------------
COMMON MONEY ASSET TOTAL
STOCK MARKET BOND ALLOCATION SUB-ACCOUNTS
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Reinvested dividends $ 630,884 $ 239,866 $ 81,834 $ 354,491 $ 1,307,075
Expenses:
Mortality and expense risk charges 62,942 24,839 5,971 29,563 123,315
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME 567,942 215,027 75,863 324,928 1,183,760
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net unrealized gains (losses) on investments 123,370 -- (27,376) 4,950 100,944
Net realized gains (losses) on investments 3,009 -- (240) 808 3,577
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) RESULTING FROM INVESTMENTS 126,379 -- (27,616) 5,758 104,521
------------ ------------ ------------ ------------ ------------
NET INCREASE RESULTING FROM OPERATIONS 694,321 215,027 48,247 330,686 1,288,281
------------ ------------ ------------ ------------ ------------
POLICY RELATED TRANSACTIONS:
Transfers in for net premiums 651,372 471,978 22,681 674,767 1,820,798
Transfers between sub-accounts (12,936) (31,437) 44,506 (133) --
Transfers for withdrawal/surrender (1,294,727) (251,809) (42,444) (384,431) (1,973,411)
TRANSFER OF INVESTMENT AND OPERATING
RESULTS FROM (TO) RELIASTAR LIFE OF NEW YORK 92,974 (202,334) (46,334) (273,884) (429,578)
------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS 131,004 201,425 26,656 347,005 706,090
NET ASSETS, BEGINNING OF YEAR 13,272,709 5,451,508 193,276 5,254,753 24,172,246
------------ ------------ ------------ ------------ ------------
NET ASSETS, END OF YEAR $ 13,403,713 $ 5,652,933 $ 219,932 $ 5,601,758 $ 24,878,336
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Sub-accounts
------------
COMMON MONEY ASSET TOTAL
STOCK MARKET BOND ALLOCATION SUB-ACCOUNTS
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Reinvested dividends $ 2,580,642 $ 240,105 $ 88,176 $ 835,462 $ 3,744,385
Expenses:
Mortality and expense risk charges 61,528 24,586 6,023 28,422 120,559
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME 2,519,114 215,519 82,153 807,040 3,623,826
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net unrealized losses on investments (378,013) -- (6,453) (78,357) (462,823)
Net realized gains (losses) on investments 147,232 -- (1,109) 28,538 174,661
------------ ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE RESULTING FROM INVESTMENTS (230,781) -- (7,562) (49,819) (288,162)
------------ ------------ ------------ ------------ ------------
NET INCREASE RESULTING FROM OPERATIONS 2,288,333 215,519 74,591 757,221 3,335,664
------------ ------------ ------------ ------------ ------------
POLICY RELATED TRANSACTIONS:
Transfers in for net premiums 698,365 500,497 23,758 731,659 1,954,279
Transfers between sub-accounts 7,355 (9,057) 2,198 (496) --
Transfers for withdrawal/surrender (911,793) (322,535) (11,166) (374,126) (1,619,620)
TRANSFER OF INVESTMENT AND OPERATING
RESULTS TO RELIASTAR LIFE OF NEW YORK (488,269) (207,625) (71,165) (389,564) (1,156,623)
------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS 1,593,991 176,799 18,216 724,694 2,513,700
NET ASSETS, BEGINNING OF YEAR 11,678,718 5,274,709 175,060 4,530,059 21,658,546
------------ ------------ ------------ ------------ ------------
NET ASSETS, END OF YEAR $ 13,272,709 $ 5,451,508 $ 193,276 $ 5,254,753 $ 24,172,246
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Sub-accounts
------------
COMMON MONEY ASSET TOTAL
STOCK MARKET BOND ALLOCATION SUB-ACCOUNTS
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Reinvested dividends $ 1,730,933 $ 239,222 $ 79,033 $ 616,657 $ 2,665,845
Expenses:
Mortality and expense risk charges 52,648 25,332 6,246 26,396 110,622
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME 1,678,285 213,890 72,787 590,261 2,555,223
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net unrealized gains (losses) on investments 218,820 -- (45,487) (58,160) 115,173
Net realized gains (losses) on investments 112,451 -- (2,455) 45,103 155,099
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) RESULTING
FROM INVESTMENTS 331,271 -- (47,942) (13,057) 270,272
------------ ------------ ------------ ------------ ------------
NET INCREASE RESULTING FROM OPERATIONS 2,009,556 213,890 24,845 577,204 2,825,495
------------ ------------ ------------ ------------ ------------
POLICY RELATED TRANSACTIONS:
Transfers in for net premiums 750,758 525,344 26,137 771,955 2,074,194
Transfers between sub-accounts 7,794 (9,177) 1,629 (246) --
Transfers for withdrawal/surrender (629,285) (289,528) (7,385) (389,029) (1,315,227)
TRANSFER OF INVESTMENT AND OPERATING
RESULTS TO RELIASTAR LIFE OF NEW YORK (397,332) (247,087) (28,931) (362,831) (1,036,181)
------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS 1,741,491 193,442 16,295 597,053 2,548,281
NET ASSETS, BEGINNING OF YEAR 9,937,227 5,081,267 158,765 3,933,006 19,110,265
------------ ------------ ------------ ------------ ------------
NET ASSETS, END OF YEAR $ 11,678,718 $ 5,274,709 $ 175,060 $ 4,530,059 $ 21,658,546
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I -
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1998
(1) ORGANIZATION - ReliaStar Life Insurance Company of New York Variable Life
Separate Account I ("Separate Account I") was established by ReliaStar Life
Insurance Company of New York ("ReliaStar Life of New York"), previously
ReliaStar Bankers Security Life Insurance Society, in 1986 under New York
insurance laws. Separate Account I operates as a unit investment trust under the
Investment Company Act of 1940 and is used to fund certain benefits for variable
life insurance policies issued by ReliaStar Life of New York. The assets of
Separate Account I and its sub-accounts are the property of ReliaStar Life of
New York. The portion of Separate Account I assets applicable to the variable
life policies will not be charged with liabilities arising out of any other
business ReliaStar Life of New York may conduct. The net assets maintained in
the sub-accounts provide the basis for the periodic determination of the amount
of increased or decreased benefits under the policies. The net assets may not be
less than the amount required under the state insurance law to provide for death
benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in ReliaStar Life of New York
general account to cover the contingency that the guaranteed minimum death
benefit might exceed the death benefit which would have been payable in the
absence of such guarantee.
In January 1995, ReliaStar Life of New York became an indirect wholly-owned
subsidiary of ReliaStar Financial Corp. ("ReliaStar"), a financial services
company based in Minneapolis, Minnesota. Prior to that time ReliaStar Life of
New York was an indirect wholly-owned subsidiary of USLICO Corporation. USLICO
Series Fund ("Series Fund") is an open-end diversified management investment
company whose shares are sold only to ReliaStar Life of New York and other
affiliates' separate accounts.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) VALUATION OF INVESTMENTS - Investments in shares of the Series Fund are
valued at the reported net asset value of the respective portfolios. The
aggregate cost of the investments acquired and the aggregate proceeds of
investments sold, for the year ended December 31, 1998, were:
Cost of Shares Proceeds from
Sub-account Acquired Shares Sold
----------- -------------- -------------
Common Stock $ 630,884 $ 796,930
Money Market 239,866 74,438
Bond 81,834 36,646
Asset Allocation 354,491 109,202
---------- ----------
Total $1,307,075 $1,017,216
(b) SECURITY TRANSACTIONS - Purchases and sales are recorded on the trade
date.
(c) FEDERAL INCOME TAXES - ReliaStar Life of New York is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended (the
"Code"). Since the sub-accounts are not separate entities from ReliaStar Life of
New York, and their operations form a part of ReliaStar Life of New York, they
will not be taxed separately as a "regulated investment company" under
Sub-chapter M of the Code. Under existing Federal income tax law, investment
income of the sub-accounts, to the extent that it is applied to increase
reserves under a contract, is not taxed and may be compounded for reinvestment
without additional tax to ReliaStar Life of New York.
(d) CHARGES DEDUCTED FROM PREMIUMS - Transfers to the sub-accounts of Separate
Account I for net premiums represent gross premiums payable for a policy year,
less deductions for sales loads, administrative expenses, premium taxes, risk
charges and additional premiums, if any, for optional insurance benefits.
(e) AMOUNTS PAYABLE TO RELIASTAR LIFE OF NEW YORK - The amounts payable to
ReliaStar Life of New York in each sub-account arises from the amount allocated
from ReliaStar Life of New York to facilitate commencement of operations.
(f) DIVIDENDS - Dividends received on the shares held by the sub-accounts of
Separate Account I are reinvested to purchase additional shares of the
applicable portfolio of the Series Fund.
(g) TRANSFER OF INVESTMENT AND OPERATING RESULTS FROM(TO) RELIASTAR LIFE OF
NEW YORK - The sub-accounts transfer their investment and operating results in
excess of amounts required to meet policyholder reserve and liability amounts to
ReliaStar Life of New York. When investment and operating results are
insufficient to meet reserve requirements, ReliaStar Life of New York transfers
to the sub-accounts amounts sufficient to fund the deficiency. Also included in
this transfer are cost of insurance charges totaling $767,677, $796,500 and
$789,100 for all sub-accounts for the year ended December 31, 1998, 1997 and
1996 respectively.
(3) ADMINISTRATION AND RELATED PARTY TRANSACTIONS - A daily charge is made by
ReliaStar Life of New York against each sub-account's investments for mortality
and expense risks at an effective annual rate of .50%. The mortality risk
assumed by ReliaStar Life of New York is that insureds may live for a shorter
period of time than estimated and, therefore, a greater amount of death benefits
than expected will be payable in relation to the amount of premiums received.
The expense risk assumed by ReliaStar Life of New York is that expenses incurred
in issuing and administering the policies will be greater than estimated. Other
costs of administering Separate Account I are absorbed by ReliaStar Life of New
York.
Washington Square Securities, Inc., a direct wholly-owned ReliaStar subsidiary,
acts as principal underwriter (as defined in the Investment Company Act of 1940)
of Separate Account I's policies. ReliaStar Investment Research, Inc.,
previously known as Washington Square Advisers, Inc., also a direct wholly-owned
ReliaStar subsidiary, serves as investment adviser to the Series Fund with
respect to short-term and fixed maturity securities. Pilgrim Baxter Value
Investors, Inc. serves as investment sub-adviser to the Series Fund with respect
to equity securities.
Certain officers and directors of ReliaStar and ReliaStar Life of New York are
also officers and directors of Washington Square Securities, Inc., the Series
Fund and ReliaStar Investment Research, Inc.
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To ReliaStar Life Insurance Company of New York
and ReliaStar Life Insurance Company of New York Variable Life Separate
Account I Policyowners:
We have audited the accompanying statement of assets and liabilities of
ReliaStar Life Insurance Company of New York Variable Life Separate Account I
(consisting of the common stock, money market, bond, and asset allocation
portfolios) as of December 31, 1998, and the related statements of operations
and changes in net assets for the years ended December 31, 1998, 1997 and 1996.
These financial statements are the responsibility of the management of ReliaStar
Life Insurance Company of New York. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting the ReliaStar Life Insurance Company of New York
Variable Life Separate Account I as of December 31, 1998, and the results of its
operations and changes in its net assets for the years ended December 31, 1998,
1997 and 1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, MN
February 16, 1999
7
<PAGE>
USLICO SERIES FUND
INVESTMENT STRATEGIES AND PERFORMANCE OF THE STOCK PORTFOLIO
Pilgrim Baxter Value Investors, Inc. (formerly Newbold's Asset
Management, Inc.), (the "Sub-Adviser') is responsible for the investments and
reinvestments of the Stock Portfolio's assets. They are "value oriented" in
their investment philosophy, which means they proceed from the premise that
investment value and return can best be realized through buying companies with a
low price relative to current earnings. This "bottom up" approach seeks to
identify companies whose earnings growth suggests an increasing stream of future
dividend income, and whose shares' pricing represents a level below realizable
value.
In the continued strong stock market environment during 1998, Pilgrim
Baxter participated reasonably well given their value-style investment approach.
Individual stock selection, particularly in the Energy, Financial and Healthcare
sectors, contributed positively to the year's results. The shortfall in return
relative to the S&P 500 was largely due to the Fund's underweighting in bank
stocks and the high-performing Technology sector relative to the index, and to a
higher weighting in the lagging Utility sector. Pilgrim Baxter's investment
approach precluded them from holding a full market weighting in Technology due
to the high equity valuations in that sector. The increased weighting in the
Financial sector and reduced commitment to Utility stocks, in comparison with
the prior year, contributed positively to the Fund's performance. Consistent
with Pilgrim Baxter's investment philosophy, the Fund continues to be positioned
in a portfolio of high quality stocks with low valuations and high current
dividend yields. The Total Return for 1998, after all expenses at the Portfolio
level was 6.00%.
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*
BETWEEN THE STOCK PORTFOLIO AND THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
1 Year 6.00%
5 Years 17.73%
10 Years 13.99%
[PLOT POINTS CHART]
STOCK S&P 500
PORTFOLIO INDEX
--------- -----
(THOUSANDS OF DOLLARS)
12/86 10.0 10.0
12/87 10.5 10.5
12/88 12.3 12.3
12/89 14.3 15.9
12/90 13.3 15.6
12/91 15.7 20.4
12/92 16.6 22.0
12/93 18.3 24.2
12/94 18.8 24.5
12/95 24.8 33.7
12/96 30.5 41.5
12/97 38.1 55.3
12/98 40.4 71.1
* $10,000 INVESTED ON 12/31/86 IN FUND OR INDEX INCLUDING REINVESTMENT OF
DIVIDENDS
FISCAL YEARS ENDED 12/31
Returns include the reinvestment of all distributions at Net Asset Value and the
change in share price for the stated period, but exclude insurance and
administration charges assessed by the insurance company's separate accounts.
The average annual total return for one, five and ten years which reflects all
common fees and charges for both the underlying fund and separate account levels
are 6.41%, 15.35% and 12.43%, respectively. Such figures do not include the
charges the insurance company makes for the cost of insurance, which if
included, would significantly reduce the return. Please refer to the
hypothetical illustrations in the prospectus of the separate account which
indicate how the cost of insurance can impact performance or you may request a
personalized illustration of historical performance which reflects the cost for
insurance protection. Past performance is not predictive of future performance.
Investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
8
<PAGE>
USLICO SERIES FUND
INVESTMENT STRATEGIES AND PERFORMANCE OF THE BOND PORTFOLIO
The responsibility for investments and reinvestments in the Bond
Portfolio is with ReliaStar Investment Research, Inc. (formerly Washington
Square Advisers, Inc.), which is affiliated with ReliaStar Life Insurance
Company of New York and ReliaStar Life Insurance Company. Investments are
primarily in investment-grade intermediate to long-term bonds. During 1998, the
Bond Portfolio was primarily invested in corporate bonds rated "BBB" or better
by Moody's or Standard & Poor's. The Portfolio also holds adjustable rate
mortgages and U.S. Government strips. The average maturity of the bonds was less
than ten years. The composition of the Portfolio holdings tended to have heavier
emphasis on corporate bonds than that of its broad market index, which is the
Lehman Brothers Aggregate Bond Index. The Total Return for 1998, after all
expenses at the Portfolio level was 4.30%.
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*
BETWEEN THE BOND PORTFOLIO AND THE LEHMAN BROS AGGREGATE BOND INDEX
AVERAGE ANNUAL TOTAL RETURN
1 Year 4.30%
5 Years 5.69%
10 Years 7.73%
[PLOT POINTS CHART]
LEHMAN BROS
BOND AGGREGATE
PORTFOLIO BOND INDEX**
--------- ------------
(THOUSANDS OF DOLLARS)
6/25/87 10.0 10.0
12/87 10.1 10.1
12/88 11.1 10.9
12/89 12.5 12.4
12/90 13.0 13.5
12/91 14.9 15.6
12/92 16.0 16.8
12/93 17.7 18.7
12/94 17.1 18.0
12/95 20.1 21.5
12/96 20.7 22.1
12/97 22.2 24.3
12/98 23.1 26.4
* $10,000 INVESTED ON 6/25/87 IN FUND OR 7/1/87 IN INDEX INCLUDING REINVESTMENT
OF INCOME. FISCAL YEARS ENDED 12/31
**THE GRAPH ABOVE USED THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX AS A
COMPARISON INDEX FROM JUNE 1987 THROUGH DECEMBER 1997. THE LEHMAN BROTHERS
AGGREGATE BOND INDEX IS THE COMPARISON INDEX SINCE JANUARY 1998.
Returns include the reinvestment of all distributions at Net Asset Value and the
change in share price for the stated period, but exclude insurance and
administration charges assessed by the insurance company's separate accounts.
The average annual total return for one, five and ten years which reflects all
common fees and charges for both the underlying fund and separate account levels
are 4.08%, 5.02% and 7.28%, respectively. Such figures do not include the
charges the insurance company makes for the cost of insurance, which if
included, would significantly reduce the return. Please refer to the
hypothetical illustrations in the prospectus of the separate account which
indicate how the cost of insurance can impact performance or you may request a
personalized illustration of historical performance which reflects the cost for
insurance protection. Past performance is not predictive of future performance.
Investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
9
<PAGE>
USLICO SERIES FUND
INVESTMENT STRATEGIES AND PERFORMANCE OF THE ASSET ALLOCATION PORTFOLIO
This Portfolio consists of stocks, intermediate to long term bonds of
primarily investment grade and money market instruments. The stocks are chosen
by Pilgrim Baxter Value Investors, Inc. (formerly Newbold's Asset Management,
Inc.), which is also responsible for choosing the stocks in the Stock Portfolio.
It is a "value oriented" investment manager and uses the same strategies to pick
stocks for this Portfolio as is described under "Investment Strategies and
Performance of the Stock Portfolio." The Adviser for the bonds and money market
portions is ReliaStar Investment Research, Inc. (formerly Washington Square
Advisers, Inc.). During 1998, the bonds in the Portfolio were primarily invested
in corporate bonds rated "BBB" or better by Moody's or Standard and Poor's. The
Portfolio also holds adjustable rate mortagages and U.S. Government strips. The
average maturity of the bonds was less than ten years. The composition of the
Portfolio holdings tended to have heavier emphasis on corporate bonds than that
of its broad market index, which is the Lehman Brothers Aggregate Bond Index.
The Total Return for 1998, after all expenses at the Portfolio level, was 5.51%.
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*
BETWEEN THE ASSET ALLOCATION PORTFOLIO, LEHMAN BROS AGGREGATE BOND INDEX
AND S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
1 Year 5.51%
5 Years 11.68%
10 Years 10.91%
[PLOT POINTS CHART]
ASSET LEHMAN BROS
ALLOCATION S&P 500 AGGREGATE
PORTFOLIO INDEX BOND INDEX**
---------- ------- ------------
(THOUSANDS OF DOLLARS)
6/25/87 10.0 10.0 10.0
12/87 10.1 10.3 10.1
12/88 10.0 12.0 10.9
12/89 12.2 15.5 12.4
12/90 12.3 15.3 13.5
12/91 14.1 19.9 15.6
12/92 15.2 21.4 16.8
12/93 16.8 23.6 18.7
12/94 16.6 23.9 18.0
12/95 20.8 32.9 21.5
12/96 22.1 40.4 23.4
12/97 24.3 53.9 24.3
12/98 26.4 69.3 25.8
* $10,000 INVESTED ON 6/25/87 IN FUND OR 7/1/87 IN INDEX INCLUDING REINVESTMENT
OF INCOME. FISCAL YEARS ENDED 12/31
**THE GRAPH ABOVE USED THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX AS A
COMPARISON INDEX FROM JUNE 1987 THROUGH DECEMBER 1997. THE LEHMAN BROTHERS
AGGREGATE BOND INDEX IS THE COMPARISON INDEX SINCE JANUARY 1998.
Returns include the reinvestment of all distributions at Net Asset Value and the
change in share price for the stated period, but exclude insurance and
administration charges assessed by the insurance company's separate accounts.
The average annual total return for one, five and ten years which reflects all
common fees and charges for both the underlying fund and separate account levels
are 5.83%, 10.29% and 9.97%, respectively. Such figures do not include the
charges the insurance company makes for the cost of insurance, which if
included, would significantly reduce the return. Please refer to the
hypothetical illustrations in the prospectus of the separate account which
indicate how the cost of insurance can impact performance or you may request a
personalized illustration of historical performance which reflects the cost for
insurance protection. Past performance is not predictive of future performance.
Investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
10
<PAGE>
USLICO SERIES FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON MONEY ASSET TOTAL
STOCK MARKET BOND ALLOCATION PORTFOLIOS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 714,644 $ 38,475 $ 33,621 $ 392,453 $ 1,179,193
Common stock, at fair value (cost
$24,300,644 and $7,898,031, respectively) 27,622,273 -- -- 8,981,795 36,604,068
Bonds, at fair value (cost
$2,804,231 and $7,056,859, respectively) -- -- 2,768,228 7,067,033 9,835,261
Commercial paper, at amortized
cost which approximates fair value -- 5,974,947 -- -- 5,974,947
Dividends receivable 31,243 -- -- 9,853 41,096
Interest receivable 1,409 -- 38,482 88,162 128,053
Securities not settled, net (414,307) -- -- (142,003) (556,310)
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS 27,955,262 6,013,422 2,840,331 16,397,293 53,206,308
------------ ------------ ------------ ------------ ------------
LIABILITIES
Accrued expenses 181,245 49,695 8,449 61,925 301,314
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 181,245 49,695 8,449 61,925 301,314
------------ ------------ ------------ ------------ ------------
NET ASSETS $ 27,774,017 $ 5,963,727 $ 2,831,882 $ 16,335,368 $ 52,904,994
============ ============ ============ ============ ============
NET ASSET VALUE PER SHARE $ 13.63 $ 1.00 $ 9.75 $ 11.92
============ ============ ============ ============
SHARES OUTSTANDING 2,037,007 5,963,727 290,556 1,370,087
============ ============ ============ ============
NET ASSETS CONSIST OF:
Capital stock ($.001 par value) $ 2,037 $ 5,964 $ 291 $ 1,370
Additional paid-in capital 24,282,851 5,957,763 2,865,746 15,188,302
Accumulated undistributed
net investment income 5,809 -- 2,021 6,984
Accumulated undistributed net
realized gains (losses) from
investment transactions 161,690 -- (173) 44,774
Net unrealized appreciation (depreciation)
of investments 3,321,630 -- (36,003) 1,093,938
------------ ------------ ------------ ------------
Net assets $ 27,774,017 $ 5,963,727 $ 2,831,882 $ 16,335,368
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
USLICO SERIES FUND-COMMON STOCK PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1998
COMMON STOCK
<TABLE>
<CAPTION>
FAIR FAIR
SHARES VALUE SHARES VALUE
-------- ------------ -------- ------------
COMPUTERS & ELECTRONICS - 13.56% INDUSTRIAL - 8.70%
- -------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Computer Associates International. Inc. 10,200 $ 434,775 Arrow Electronics, Inc. 14,800 $ 394,975
Computer Sciences Corp. 2,100 135,318 DuPont E I DeNemours & Co. 4,300 228,169
Diebold, Inc. 4,200 149,888 Federal Mogul Corp. 4,500 267,750
Honeywell, Inc. 3,200 241,000 Fluor Corp. 3,900 165,994
International Business Machines Corp. 5,400 997,650 Ford Motor Co. 14,900 874,444
Intel Corp. 6,000 711,375 General Motors, Inc. 3,100 221,844
Keane, Inc. 4,500 179,718 Vulcan Materials Co. 2,000 263,125
Lexmark International Group 4,900 492,450 ------------
Novell, Inc. 9,000 163,125 2,416,301
Sterling Software, Inc. 9,600 259,800 ------------
------------ RETAIL TRADE - 4.03%
3,765,099 --------------------
------------ Federated Department Stores, Inc. 12,000 522,750
DRUGS & HEALTH CARE - 1.90% TJX Companies, Inc. New 9,900 287,100
- --------------------------- Tyco International LTD New 4,100 309,294
Abbott Labs 2,300 112,700 ------------
Allergan, Inc. 6,400 414,400 1,119,144
------------ ------------
527,100 TELECOMMUNICATIONS - 15.19%
------------ ---------------------------
ENERGY - 6.65% A T & T Corp. 6,000 451,500
- -------------- Ameritech Corp. 7,400 468,975
Allegheny Energy, Inc. 5,200 179,399 Bell Atlantic Corp. 15,064 798,392
Atlantic Richfield Co. 2,400 156,600 BellSouth Corp. 12,600 628,425
Exxon Corp. 5,500 402,188 GTE Corp. 13,400 871,000
Mobil Corp. 1,300 113,262 Knight Rider, Inc. 5,400 276,075
Peco Energy Co. 9,700 403,762 MCI WorldCom, Inc. 4,500 322,875
P P + L Res, Inc. 6,800 189,550 SBC Communications, Inc. 6,400 343,200
Texaco, Inc. 7,600 401,850 US West, Inc. New 900 58,163
------------ ------------
1,846,611 4,218,605
------------ ------------
FINANCE - 28.51% TRANSPORTATION - 3.25%
- ---------------- ----------------------
Allstate Corp. 12,100 467,362 AMR Corp. 6,000 356,250
AMBAC Financial Group, Inc. 5,500 331,031 Comair Holdings, Inc. 7,000 236,249
American International Group, Inc. 3,700 357,512 Delta Airlines, Inc. 3,100 161,200
Amsouth Bancorportation 12,000 547,500 ------------
Bank One Corp. 3,200 163,400 753,699
BankAmerica Corp. New 6,300 378,788 ------------
BankAmerica Corp. 1,300 78,163 UTILITIES - 1.29%
Bank Boston Corp. 9,800 381,587 -----------------
Chase Manhattan Corp. 2,700 183,769 Florida Progress Corp. 6,000 268,875
Consolidated Edison, Inc. 7,500 396,563 GPU Corp. 11,500 508,156
Federal Home Loan Mortgage Corp. 13,700 882,793 Houston Inds, Inc. 10,700 343,738
Federal National Mortgage Assn 6,200 458,800 LG & E Energy Corp. 15,100 427,519
First Security Corp. 2,100 49,088 NCR Corp. New 1,500 62,625
First Union Corp. 4,700 285,819 Sabre Group Holdings, Inc. 2,000 89,000
Fleet Financial Group, Inc. 17,400 777,563 Southern Co. 15,300 444,656
Hibernia Corp. 22,700 394,413 ------------
Mellon Bank Corp. 3,200 220,000 2,144,569
Mercantile Bankshares Corp. 5,200 200,200 ------------
Mony Group, Inc. 5,700 178,481
Morgan Stanley Dean Witter & Co. 8,600 610,600
PNC Bank Corp. 10,600 573,725
------------ TOTAL COMMON STOCK 99.45% 27,622,273
7,917,157
------------ OTHER ASSETS AND
FOOD, HOUSE & PERSONAL PRODUCTS - 10.49% LIABILITIES, NET .55% 151,744
- ---------------------------------------- ------------
Anheuser Busch Cos, Inc. 5,200 341,249
Conagra, Inc. 7,400 233,100 NET ASSETS 100.00% $ 27,774,017
Eastman Kodak Co. 3,200 230,400 ============
Maytag 6,300 392,175
Philip Morris Companies, Inc. 5,700 304,950
Ralston Purina Co. 2,100 67,988
Royal Caribbean Cruises LTD 6,400 236,800
Sara Lee Corp. 9,400 264,963
Supervalu, Inc. 16,300 456,400
Tricon Global Restaurants, Inc. 7,700 385,963
------------
2,913,988
------------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
USLICO SERIES FUND-MONEY MARKET PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
COMMERCIAL PAPER AMOUNT COST
------------- -----------
<S> <C> <C>
Bank of New York, 5.31%, Due January 5, 1999 $ 300,000 $ 299,823
Merrill Lynch & Co. Inc., 5.35%, Due January 7, 1999 300,000 299,733
Pfizer Inc., 5.20%, Due January 11, 1999 300,000 299,567
Motorola Inc., 5.20%, Due January 11, 1999 300,000 299,567
Walt Disney Co., 5.13%, Due January 11, 1999 300,000 299,573
Amertech Corp., 5.02%, Due January 12, 1999 300,000 299,540
Heinz Co., 5.30%, Due January 12, 1999 300,000 299,514
Cambell Soup Co., 5.20%, Due January 13, 1999 300,000 299,480
Aluminum Co. America, 5.17%, Due January 15, 1999 300,000 299,397
Gannett Inc., 5.15%, Due January 15, 1999 300,000 299,399
Smithkline Beecham Corp., 5.22%, Due January 15, 1999 300,000 299,391
Paccar Financial Corp., 5.05%, Due January 21, 1999 300,000 299,158
Pepsico Inc., 5.25%, Due January 21, 1999 300,000 299,125
American Express Co., 5.05%, Due January 22, 1999 300,000 299,116
Eastman Kodak Co., 5.05%, Due January 25, 1999 300,000 298,990
Coca Cola Company, 5.07%, Due January 26, 1999 290,000 288,979
American General Financial Corp., 5.38%, Due January 29, 1999 300,000 298,745
Procter & Gamble Co., 5.13%, Due January 29, 1999 300,000 298,803
Nicor Inc., 5.15%, Due February 1, 1999 300,000 298,670
Dupont E I De Nemours & Co., 5.12%, Due February 8, 1999 300,000 298,379
------------ -----------
TOTAL COMMERCIAL PAPER 100.19 % $ 5,990,000 5,974,947
============
OTHER ASSETS AND
LIABILITIES, NET (.19)% (11,220)
-----------
NET ASSETS 100.00 % $ 5,963,727
===========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
USLICO SERIES FUND-BOND PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PAR FAIR
BONDS VALUE VALUE
----------- -----------
<S> <C> <C>
GOVERNMENT - 14.64%
- -------------------
FHLMC, 5.58%, Due December, 2026 # $ 124,346 $ 125,989
FNMA, 7.50%, Due July, 2027 # 25,524 25,721
FNMA, 6.93%, Due July, 2027 # 78,106 79,340
GNMA Pool 181826, 9.00%, Due March, 2021 # 26,390 28,328
US Trust Security Strips, Due February, 2021 530,000 155,237
----------- -----------
784,366 414,615
----------- -----------
DRUGS & HEALTH CARE - 8.70%
- ---------------------------
American Health PPTYS Inc., 7.05%, Due January, 2002 100,000 97,857
Columbia/HCA Healthcare Corp., 6.41%, Due June, 2000 150,000 148,623
----------- -----------
250,000 246,480
----------- -----------
FINANCE - 57.96%
- ----------------
Abbey National PLC, 7.35%, Due October, 2049 # 100,000 107,464
Advanta Mortgage Loan Trust, 6.06%, Due March, 2028 50,000 50,649
Amerco, 6.65%, Due October, 1999 150,000 149,946
Amresco Residential Securities Corp., 6.30%, Due January, 2028 100,000 100,500
BHP Finance USA, 6.42%, Due March, 2026 # 100,000 101,414
Equity Office Properties Trust, 6.38%, Due February, 2003 150,000 147,345
IBJ Preferred Capital Co., 8.79%, Due December, 2049 # 25,000 21,539
Macsaver Financial Services Inc., 7.40%, Due February, 2002 150,000 130,094
Malayan Banking Berhad-NY, 7.13%, Due September, 2005 100,000 62,332
Noranda Forest Inc., 6.88%, Due November, 2005 100,000 98,177
Protection One Alarm Monitor Inc., 7.38%, Due August 2005 150,000 151,431
Regency Centers, LP., 7.13%, Due July, 2005 100,000 103,074
SB Treasury Co., 9.40%, Due December, 2049 # 25,000 24,617
Salomon Brothers Mortgage Securities VII, 6.30%, Due June, 2028 145,000 144,909
Salomon Brothers Mortgage Securities VII, 1.00%, Due October , 2028 75,000 75,000
TriNet Corporate Realty Trust, 6.75%, Due March, 2003 100,000 97,411
United Companies Financial Corp., 9.35%, Due November, 1999 100,000 75,500
----------- -----------
1,720,000 1,641,402
----------- -----------
RETAIL TRADE - 2.63%
- --------------------
Saks Inc., 8.25%, Due November, 2008 70,000 74,467
----------- -----------
70,000 74,467
----------- -----------
INDUSTRIAL - 13.82%
- -------------------
Bantec Inc., 7.5%, Due June, 2008 100,000 102,525
Conseco Inc., 7.88%, Due December, 2000 140,000 140,349
US Filter Corp., 6.38%, Due May, 2011 150,000 148,390
----------- -----------
390,000 391,264
----------- -----------
TOTAL BONDS 97.75% $ 3,214,366 2,768,228
===========
OTHER ASSETS AND
LIABILITIES, NET 2.25% 63,654
-----------
NET ASSETS 100.00% $ 2,831,882
===========
</TABLE>
# - Callable at the option of the issuer.
See accompanying notes to financial statements.
14
<PAGE>
USLICO SERIES FUND-ASSET ALLOCATION PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1998
COMMON STOCK
<TABLE>
<CAPTION>
FAIR FAIR
SHARES VALUE SHARES VALUE
-------- ------------ -------- ------------
COMPUTERS & ELECTRONICS - 6.98% FOOD, HOUSE & PERSONAL PRODUCTS - 5.64%
- ------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Computer Associates International, Inc. 3,600 $ 153,450 Anheuser Busch Companies, Inc. 1,900 $ 124,688
Computer Sciences Corp. 700 45,106 Conagra, Inc. 2,800 88,200
Diebold, Inc. 1,400 49,963 Eastman Kodak Company 1,000 72,000
Honeywell, Inc. 1,000 75,313 Maytag Corp. 2,300 143,175
International Business Machines Corp. 1,200 221,700 Philip Morris Companies, Inc. 1,800 96,300
IntelCorp. 2,000 237,125 Ralston Purina Co. 800 25,900
Keane, Inc. 1,400 55,912 Ryol Caribbean Cruises LTD 1,700 62,900
Lexmark 1,600 160,800 Sara Lee Corp. 1,200 33,825
Novell, Inc. 3,000 54,375 Supervalu, Inc. 5,500 154,000
Sterling Software, Inc. 3,200 86,600 Tricon Global Restaurants, Inc. 2,400 120,300
------------ ------------
1,140,344 921,288
------------ ------------
DRUGS & HEALTH CARE - .92% INDUSTRIAL - 5.91%
- -------------------------- ------------------
Abbott Labs 700 34,300 Arrow Electronics, Inc. 6,400 170,800
Allergan, Inc. 1,800 116,550 Du Pont E I De Nemours & Co. 1,400 74,288
------------ Flour Corp. 1,000 42,563
150,850 Ford Motor Co. 4,800 281,700
------------ General Motors, Inc. 900 64,406
ENERGY - 4.19% Houston Industries, Inc. 3,500 112,438
- -------------- LG&E Enerfy Corp. 5,400 152,888
Allegheny Energy, Inc. 2,100 72,450 Vulcan Materials Co. 500 65,781
Atlantic Richfield Co. 900 58,725 ------------
Conoco, Inc. 3,100 64,713 964,864
Exxon Corp. 1,700 124,313 ------------
Mobil Corp. 400 34,850 RETAIL TRADE - 2.05%
Peco Energy Co. 3,400 141,525 --------------------
PP&L Res, Inc. 2,400 66,900 Federated Department Stores, Inc. 3,600 156,825
Texaco, Inc. 2,300 121,613 TJX Companies, Inc. New 3,300 95,700
------------ Tyco International LTD New 1,100 82,981
685,089 ------------
------------ 335,506
FINANCE - 15.86% ------------
- ---------------- TELECOMMUNICATIONS - 9.23%
Allstate Corp. 4,100 158,363 --------------------------
AMBAC Financial Group, Inc. 1,300 78,243 A T & T Corp. 2,100 158,025
American International Group, Inc. 1,500 144,937 Ameritech Corp. 2,400 152,100
Amsouth Bancorporation 3,100 141,437 Bell Atlantic Corp. 5,142 272,526
Bank One Corp. 800 40,850 BellSouth Corp. 4,200 209,475
BankAmerica Corp. New 1,200 72,150 GTE Corp. 4,650 302,250
BankAmerica Corp. 700 42,087 Knight Ridder, Inc. 1,800 92,025
Bank Boston Corp. 3,200 124,600 MCI Worldcom, Inc. 2,500 179,375
Chase Manhattan Corp. 1,100 74,868 NCR Corporation New 500 20,875
Consolidated Edison, Inc. 2,400 126,900 SBC Communications, Inc. 1,900 101,888
Federal Home Loan Mortage Corp. 4,300 277,081 US West, Inc. New 300 19,388
Federal Mogul Corp. 1,400 83,300 ------------
Federal National Mortage Assn 1,800 133,200 1,507,927
First Security Corp. 600 14,025 ------------
First Union Corp. 1,500 91,219 TRANSPORTATION - 1.59%
Fleet Financial Group, Inc. 5,200 232,375 ----------------------
Hibernia Corp. 7,400 128,575 AMR Corp. 2,000 118,750
Mellon Bank Corp. 1,500 103,125 Comair Holdings, Inc. 2,500 84,375
Mercantile Bankshares Corp. 2,100 80,850 Delta Air Lines, Inc. 1,100 57,200
Mony Group, Inc. 1,900 59,493 ------------
Morgan Stanley Dean Witter & Co. 2,800 198,800 260,325
PNC Bank Corp. 3,400 184,025 ------------
------------ UTILITIES - 2.60%
2,590,503 -----------------
------------ Florida Progress Corp. 1,900 85,144
GPU, Inc. 3,700 163,494
Sabre Group Holdings, Inc. 700 31,150
Southern Company 5,000 145,313
------------
425,101
------------
TOTAL COMMON STOCK 54.98% 8,981,795
------------
</TABLE>
See accompanying notes to financial statements. (continued)
15
<PAGE>
USLICO SERIES FUND-ASSET ALLOCATION PORTFOLIO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PAR FAIR
BONDS VALUE VALUE
----------- -----------
<S> <C> <C>
GOVERNMENT - 7.84%
- ------------------
FHLMC, 9.00%, Due October, 2019 # $ 11,708 $ 12,406
FHLMC, 5.58%, Due December, 2026 # 325,607 329,908
FNMA, 5.84%, Due July, 2027 # 127,618 128,604
FNMA, 6.00%, Due July, 2027 # 207,763 211,045
GNMA, 10.00%, Due February, 2016 # 8,729 9,593
US Trust Security Strips, 6.71%, Due February, 2019 350,000 114,349
US Trust Security Strips, 6.93%, Due February, 2021 1,620,000 474,499
----------- -----------
2,651,425 1,280,404
----------- -----------
FINANCE - 26.31%
- ----------------
Abbey National PLC, 7.35%, Due October, 2049 # 100,000 107,464
Advanta Mortgage Loan Trust, 6.06%, Due March, 2028 100,000 101,298
Amerco, 6.65%, Due October, 1999 250,000 249,910
American Health PPTYS Inc., 7.05%, Due January 2002 200,000 195,714
Amresco Residential Securities Corp., 6.30%, Due January, 2028 200,000 201,000
BHP Finance USA, 6.42%, Due March, 2026 # 100,000 101,414
Columbia/HCA Healthcare Corp., 6.41%, Due June, 2000 370,000 366,603
Equity Office Properties Trust, 6.375%, Due February, 2003 300,000 294,690
IBJ Preferred Capital Co., 8.79%, Due December, 2049 # 125,000 107,695
Macsaver Financial Services Inc., 7.40%, Due February, 2002 350,000 303,552
Malayan Banking Berhad-NY, 7.125%, Due September, 2005 100,000 62,332
Nomura Depositor Trust, 6.18%, Due January, 2003 # 100,000 100,125
Noranda Forest Inc., 6.88%, Due November, 2005 100,000 98,177
Protection One Alarm Monitor Inc., 7.38%, Due August 2005 350,000 353,339
Regency Centers, LP., 7.13%, Due July, 2005 300,000 309,222
SB Treasury Co., 9.40% Due December, 2049 # 125,000 123,085
Salomon Brothers Mortgage Securities VII, 6.30%, Due June, 2028 365,000 364,772
Salomon Brothers Mortgage Securities VII, 1.00%, Due October, 2028 365,000 365,000
TriNet Corporate Realty Trust, 6.75%, Due March, 2003 350,000 340,939
United Companies Financial Corp., 9.35%, Due November, 1999 200,000 151,000
----------- -----------
4,450,000 4,297,331
----------- -----------
RETAIL TRADE - 1.63%
- --------------------
Saks Inc, 8.25%, Due November 15, 2008 250,000 265,953
----------- -----------
250,000 265,953
----------- -----------
INDUSTRIAL - 6.86%
- ------------------
Bantec Inc., 7.5%, Due June 2008 300,000 307,575
Canadian Pacific, 6.875%, Due April, 2003 100,000 105,305
Conseco Inc, 7.88%, Due December, 2000 360,000 360,897
US Filter Corp., 6.38%, Due May, 2011 350,000 346,245
----------- -----------
1,110,000 1,120,022
----------- -----------
UTILITIES - .63%
- ----------------
Kansas City Power & Light, 7.40%, Due February, 2008 # 100,000 103,323
----------- -----------
100,000 103,323
----------- -----------
TOTAL BONDS 43.26% 8,561,425 7,067,033
=========== ===========
TOTAL INVESTMENTS 98.25% 16,048,828
OTHER ASSETS AND
LIABILITIES, NET 1.75% 286,540
-----------
NET ASSETS 100.00% $16,335,368
===========
</TABLE>
# - Callable at the option of the issuer.
See accompanying notes to financial statements.
16
<PAGE>
USLICO SERIES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON MONEY ASSET
STOCK MARKET BOND ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Income:
Dividends $ 577,895 $ -- $ -- $ 183,365
Interest 40,175 326,572 177,913 454,308
------------ ------------ ------------ ------------
Total income 618,070 326,572 177,913 637,673
------------ ------------ ------------ ------------
Expenses:
Accounting fee 38,462 5,051 1,576 16,412
Custodian fee 26,570 12,671 8,063 32,005
Management fee 98,513 19,255 12,107 57,991
Other administrative 73,246 11,751 4,606 32,610
------------ ------------ ------------ ------------
Subtotal 236,791 48,728 26,352 139,018
Less expenses reimbursed by RLNY & RL 29,374 4,518 4,985 17,478
------------ ------------ ------------ ------------
Total expenses 207,417 44,210 21,367 121,540
------------ ------------ ------------ ------------
Net investment income 410,653 282,362 156,546 516,133
------------ ------------ ------------ ------------
Realized and unrealized gains (losses)
on investments:
Net proceeds from sales 46,792,538 -- 2,535,129 21,494,987
Cost of securities sold (45,712,465) -- (2,499,533) (21,019,044)
------------ ------------ ------------ ------------
Net realized gains on investments 1,080,072 -- 35,596 475,943
Net unrealized gains (losses) on investments 19,784 -- (70,913) (133,360)
------------ ------------ ------------ ------------
Net gains (losses) on investments 1,099,856 -- (35,317) 342,583
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations $ 1,510,510 282,362 121,229 858,716
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
USLICO SERIES FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Money Asset
Stock Market Bond Allocation
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income $ (410,935) $ (282,362) $ (156,186) $ (515,110)
Net realized gains on investments (967,581) -- (35,769) (445,245)
CAPITAL SHARE TRANSACTIONS 350,378 179,415 100,234 536,913
------------ ------------ ------------ ------------
Net increase in net assets 482,372 179,415 29,508 435,274
NET ASSETS, BEGINNING OF YEAR 27,291,645 5,784,312 2,802,374 15,900,094
------------ ------------ ------------ ------------
NET ASSETS, END OF YEAR $ 27,774,017 $ 5,963,727 $ 2,831,882 $ 16,335,368
============ ============ ============ ============
FOR THE YEAR ENDED DECEMBER 31, 1997
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income $ (484,004) $ (285,060) $ (165,423) $ (563,393)
Net realized gains on investments (4,933,549) -- (39,902) (1,693,428)
CAPITAL SHARE TRANSACTIONS 3,982,104 (195,549) 31,451 1,319,869
------------ ------------ ------------ ------------
Net increase in net assets 3,733,554 (195,549) 18,989 1,285,526
NET ASSETS, BEGINNING OF YEAR 23,558,091 5,979,861 2,783,385 14,614,568
------------ ------------ ------------ ------------
NET ASSETS, END OF YEAR $ 27,291,645 $ 5,784,312 $ 2,802,374 $ 15,900,094
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
USLICO SERIES FUND - NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1998
(1) ORGANIZATION - USLICO Series Fund (the Fund) is an open-end, diversified
management investment company registered under the Investment Company Act of
1940 and consisting of four separate series (Portfolios), each of which has its
own investment objectives and policies. The Fund was organized as a business
trust under the laws of Massachusetts on January 19, 1988. Shares of the
Portfolios are sold only to separate accounts of ReliaStar Life Insurance
Company (ReliaStar Life), previously ReliaStar United Services Life Insurance
Company and ReliaStar Life Insurance Company of New York (ReliaStar Life of New
York), previously ReliaStar Bankers Security Life Insurance Society, to serve as
the investment medium for variable life insurance policies issued by these
companies. The separate accounts invest in shares of one or more of the
Portfolios, in accordance with allocation instructions received from
policyowners. Each Portfolio share outstanding represents a beneficial interest
in the respective Portfolio and carries a par value of $.001. The Fund has an
unlimited number of shares authorized.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) VALUATION OF INVESTMENTS
1. Common Stock, Bond and Asset Allocation Portfolios - Equity securities
for which market quotations are readily available are stated at that fair value.
Fair value is determined on the basis of last reported sales price, or, if no
sales are reported, the latest available bid price obtained from a quotation
reporting system or from established market makers. Money market instruments are
valued at fair value, except that instruments maturing in sixty days or less are
valued using amortized cost which approximates fair value. Debt securities
(other than obligations having a maturity of sixty days or less at their date of
acquisition) are valued on the basis of market quotations obtained from brokers
and dealers or pricing services, which take into account appropriate factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics, and
other market data. Debt obligations having a maturity of sixty days or less are
generally valued at amortized cost, which approximates fair value.
2. Money Market Portfolio - Investment securities held by the Money Market
Portfolio are all carried at amortized cost.
(b) INCOME RECOGNITION - Dividend income is recorded on the ex-dividend date.
Interest income is accrued daily. Realized gains and losses on the sale of
securities are computed on the basis of the identified cost of the related
securities sold and are recognized at the date of trade.
(c) OTHER ADMINISTRATIVE FEES - Other administrative fees are charged to the
Portfolios at an annual percentage rate of .5%. Fund expenses directly
attributable to a Portfolio are charged to that Portfolio. All other expenses
are allocated proportionately among all Portfolios in relation to respective net
assets.
(d) FEDERAL INCOME TAXES - Each Portfolio intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. Accordingly,
a Portfolio will not be subject to Federal income taxes if it makes
distributions of net investment income and net realized gains in compliance with
subchapter M and meets certain other requirements. (Normally, however, such
distributions are automatically reinvested in additional portfolio shares.) As
the Fund is believed to be in compliance with these requirements, no federal
income tax provision has been provided.
(e) MANAGEMENT FEES - The Fund's investment advisers are compensated with a
quarterly management fee based on an annual percentage of the average daily net
assets of each Portfolio. During 1998, 1997 and 1996 the adviser was paid a fee
at an annual rate of .25% of the net asset value of the Portfolios. The maximum
management fee which may be charged is an annual percentage rate of .50% on the
first $100 million of average daily net assets and .45% of average daily net
assets in excess thereof. ReliaStar Life will reimburse the Portfolios to the
extent that management fees exceed .25%.. For the year ended December 31, 1998
ReliaStar Life has reimbursed the Common Stock Portfolio $29,374, the Money
Market Portfolio $4,518, the Bond Portfolio $4,985 and the Asset Allocation
Portfolio $17,478.
(f) CONTRIBUTIONS AND WITHDRAWALS - Net funds contributed into or withdrawn
from the Fund are made on the basis of the net asset value per share prevailing
at the close of business on the preceding business day.
(g) RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to current year presentation.
(3) AFFILIATIONS AND RELATED PARTY TRANSACTIONS - ReliaStar Life and ReliaStar
Life of New York are indirect wholly-owned subsidiaries of ReliaStar Financial
Corp. ("ReliaStar"), a financial services company based in Minneapolis,
Minnesota. Washington Square Advisers, Inc., previously Washington Square
Capital, Inc., a direct wholly-owned ReliaStar subsidiary, serves as investment
adviser to the Fund. Effective June 30, 1998, Washington Square Advisers, Inc.
changed its name to ReliaStar Investment Research, Inc. The Fund's distributor,
Washington Square Securities, Inc., is also a direct wholly-owned ReliaStar
subsidiary. Newbold's Asset Management, Inc. serves as investment sub-adviser
for the Common Stock Portfolio and the common stock portion of the Asset
Allocation Portfolio. The Fund purchases securities through Newbold's Asset
Management, Inc. in the normal course of business. Effective January 1, 1998,
Newbold's Asset Management, Inc. changed its name to Pilgrim Baxter Value
Investors, Inc.
Officers of the Fund are also officers of ReliaStar, Washington Square
Securities, Inc., ReliaStar Life and ReliaStar Life of New York and receive
compensation therefrom. They do not receive additional compensation for services
rendered to the Fund. Trustees of the Board receive a fee of $1,000 for each
meeting attended during 1998. $500 was paid for each meeting attended during
1997 and 1996. For the years ended December 31, 1998, 1997, and 1996, total fees
paid to the Trustees aggregated $16,000, $8,000, and $6,000, respectively, for
all Portfolios combined.
19
<PAGE>
(4) INVESTMENTS - As of December 31, 1998, net unrealized appreciation
(depreciation) for each portfolio was as follows:
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
Portfolio Appreciation Depreciation (Depreciation)
--------- ------------ ------------ --------------
<S> <C> <C> <C>
Common Stock $3,662,927 $ (341,297) $3,321,630
Money Market N/A N/A N/A
Bond 65,953 (101,956) (36,003)
Asset Allocation 1,397,407 (303,468) 1,093,938
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS - Transactions in capital stock for the years
ended December 31, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMMON STOCK PORTFOLIO:
Shares issued in reinvestment of dividends ................. 101,216 351,841 $ 1,378,516 $ 5,417,553
----------- ----------- ----------- -----------
101,216 351,841 1,378,516 5,417,553
Shares redeemed ............................................ (85,893) (107,554) (1,028,138) (1,435,449)
----------- ----------- ----------- -----------
Net increase (decrease) ................................. 15,323 244,287 $ 350,378 $ 3,982,104
=========== =========== =========== ===========
MONEY MARKET PORTFOLIO:
Shares issued in reinvestment of dividends ................. 282,362 285,062 $ 282,362 $ 285,062
----------- ----------- ----------- -----------
282,362 285,062 282,362 285,062
Shares redeemed ............................................ (102,947) (480,611) (102,947) (480,611)
----------- ----------- ----------- -----------
Net increase (decrease) ................................. 179,415 (195,549) $ 179,415 $ (195,549)
=========== =========== =========== ===========
BOND PORTFOLIO:
Shares issued in reinvestment of dividends ................. 19,421 20,117 $ 191,954 $ 205,325
----------- ----------- ----------- -----------
19,421 20,117 191,954 205,325
Shares redeemed ............................................ (9,163) (17,469) (91,720) (173,874)
----------- ----------- ----------- -----------
Net increase (decrease) ................................. 10,258 2,648 $ 100,234 $ 31,451
=========== =========== =========== ===========
ASSET ALLOCATION PORTFOLIO:
Shares issued in reinvestment of dividends ................. 79,912 173,578 $ 960,355 $ 2,256,821
----------- ----------- ----------- -----------
79,912 173,578 960,355 2,256,821
Shares redeemed ............................................ (37,539) (79,005) (423,441) (936,952)
----------- ----------- ----------- -----------
Net increase (decrease) ................................. 42,372 94,573 $ 536,914 $ 1,319,869
=========== =========== =========== ===========
</TABLE>
20
<PAGE>
USLICO SERIES FUND
CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON MONEY ASSET
STOCK MARKET BOND ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 13.50 $ 1.00 $ 10.00 $ 11.98
Income from investment operations:
Net investment income 0.20 0.05 0.55 0.39
Net realized and unrealized
gains on securities 0.62 -- (0.13) 0.27
------------ ------------ ------------ ------------
Total from investment operations 0.82 0.05 0.42 0.66
Distributions:
Distribution of income (0.20) (0.05) (0.55) (0.39)
Distribution of capital gains (0.48) -- (0.13) (0.33)
------------ ------------ ------------ ------------
Net asset value, end of year $ 13.64 $ 1.00 $ 9.74 $ 11.92
============ ============ ============ ============
Total return 6.00% 5.00% 4.30% 5.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $ 27,774,017 $ 5,963,727 $ 2,831,882 $ 16,335,368
Expenses to average net assets 0.75% 0.75% 0.75% 0.75%
Net investment income to average net assets 1.49% 4.79% 5.50% 3.19%
Portfolio turnover rate 172.22% N/A 90.97% 135.68%
Weighted average number of shares outstanding
for year ended December 31, 1998 2,008,104 5,895,120 283,193 1,332,191
FOR THE YEAR ENDED DECEMBER 31, 1997
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 13.25 $ 1.00 $ 10.02 $ 11.85
Income from investment operations:
Net investment income 0.27 0.05 0.59 0.46
Net realized and unrealized
gains (losses) on securities 3.05 -- 0.12 1.51
------------ ------------ ------------ ------------
Total from investment operations 3.32 0.05 0.71 1.97
Distributions:
Distribution of income (0.27) (0.05) (0.59) (0.46)
Distribution of capital gains (2.80) -- (0.14) (1.38)
------------ ------------ ------------ ------------
Net asset value, end of year $ 13.50 $ 1.00 $ 10.00 $ 11.98
============ ============ ============ ============
Total return 25.06% 5.00% 7.09% 16.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $ 27,291,645 $ 5,784,312 $ 2,802,374 $ 15,900,094
Expenses to average net assets 0.73% 0.75% 0.75% 0.74%
Net investment income to average net assets 1.87% 4.88% 5.88% 3.68%
Portfolio turnover rate 88.55% N/A 117.24% 104.30%
Weighted average number of shares outstanding
for year ended December 31, 1997 1,760,754 5,852,073 280,426 1,228,385
</TABLE>
21
<PAGE>
USLICO SERIES FUND
CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON MONEY ASSET
STOCK MARKET BOND ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 12.62 $ 1.00 $ 10.38 $ 11.82
Income from investment operations:
Net investment income 0.34 0.05 0.64 0.53
Net realized and unrealized
gains (losses) on securities 2.55 -- (0.36) 0.94
------------ ------------ ------------ ------------
Total from investment operations 2.89 0.05 0.28 1.47
Distributions:
Distribution of income (0.33) (0.05) (0.64) (0.53)
Distribution of capital gains (1.93) -- -- (0.91)
------------ ------------ ------------ ------------
Net asset value, end of year $ 13.25 $ 1.00 $ 10.02 $ 11.85
============ ============ ============ ============
Total return 22.90% 5.00% 2.70% 12.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $ 23,558,091 $ 5,979,861 $ 2,783,385 $ 14,614,568
Expenses to average net assets 0.75% 0.75% 0.75% 0.75%
Net investment income to average net assets 2.50% 4.77% 6.45% 4.39%
Portfolio turnover rate 79.17% N/A 47.37% 61.98%
Weighted average number of shares outstanding
for year ended December 31, 1996 1,575,455 5,897,797 284,090 1,148,567
FOR THE YEAR ENDED DECEMBER 31, 1995
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 10.37 $ 1.00 $ 9.41 $ 10.18
Income from investment operations:
Net investment income 0.36 0.05 0.66 0.55
Net realized and unrealized
gains on securities 2.95 -- 1.04 2.01
------------ ------------ ------------ ------------
Total from investment operations 3.31 0.05 1.70 2.56
Distributions:
Distribution of income (0.37) (0.05) (0.66) (0.55)
Distribution of capital gains (0.69) -- (0.07) (0.37)
------------ ------------ ------------ ------------
Net asset value, end of year $ 12.62 $ 1.00 $ 10.38 $ 11.82
============ ============ ============ ============
Total return 31.92% 5.00% 18.07% 25.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $ 19,968,336 $ 5,819,470 $ 3,068,825 $ 13,675,779
Expenses to average net assets 0.63% 0.63% 0.63% 0.63%
Net investment income to average net assets 3.07% 5.37% 6.49% 4.81%
Portfolio turnover rate 62.51% N/A 32.67% 44.97%
Weighted average number of shares outstanding
for year ended December 31, 1995 1,450,668 5,763,272 276,475 1,068,503
</TABLE>
22
<PAGE>
USLICO SERIES FUND
CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON MONEY ASSET
STOCK MARKET BOND ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 11.23 $ 1.00 $ 10.49 $ 11.26
Income from investment operations:
Net investment income 0.36 0.04 0.67 0.55
Net realized and unrealized
losses on securities (0.05) -- (1.06) (0.70)
------------ ------------ ------------ ------------
Total from investment operations 0.31 0.04 (0.39) (0.15)
Distributions:
Distribution of income (0.36) (0.04) (0.67) (0.55)
Distribution of capital gains (0.81) -- (0.02) (0.38)
------------ ------------ ------------ ------------
Net asset value, end of year $ 10.37 $ 1.00 $ 9.41 $ 10.18
============ ============ ============ ============
Total return 2.76% 4.00% (3.72)% (1.33)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $ 14,687,489 $ 5,752,426 $ 2,484,720 $ 10,548,284
Expenses to average net assets 0.75% 0.75% 0.75% 0.75%
Net investment income to average net assets 3.23% 3.54% 6.67% 5.09%
Portfolio turnover rate 59.41% N/A 10.94% 28.53%
Weighted average number of shares outstanding
for year ended December 31, 1994 1,195,719 5,527,212 254,126 892,257
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
USLICO Series Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of USLICO Series Fund (consisting of the common
stock, money market, bond, and asset allocation portfolios) as of December 31,
1998, and the related statements of operations and changes in net assets and the
condensed financial information for the years ended December 31, 1998, 1997,
1996 and 1995. These financial statements and condensed financial information
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the condensed financial
information based on our audits. The condensed financial information for the
year ended December 31, 1994 was audited by other auditors whose report, dated
February 2, 1995, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and the condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1998, by
correspondence with custodians and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the condensed financial information
referred to above present fairly, in all material respects, the net assets and
investments of each of the respective portfolios constituting the USLICO Series
Fund as of December 31, 1998, and the results of their operations and changes in
their net assets and the condensed financial information for the years ended
December 31, 1998 and 1997, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Minneapolis, MN
February 16, 1999
24
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<PAGE>
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