USLICO SERIES FUND
4601 NORTH FAIRFAX DRIVE
ARLINGTON, VIRGINIA 22203
(800) 338-7737
USLICO Series Fund (the "Fund") is an open-end, diversified management
investment company currently consisting of four separate series (the
"Portfolios"), each of which has its own investment objective and policies. As
of the date of this Prospectus, shares of the Portfolios are sold to separate
accounts of United Services Life Insurance Company and Bankers Security Life
Insurance Society to serve as the investment medium for Variable Life Insurance
Policies (the "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 policy owners. Such allocation rights are described
further in the accompanying Prospectus offering the variable life insurance
policies.
The four Portfolios of the Fund are as follows:
The Stock Portfolio
The Money Market Portfolio
The Bond Portfolio
The Asset Allocation Portfolio
Information about the investment objective and restrictions of each
Portfolio, along with a detailed description of the types of securities in which
each Portfolio may invest, are set forth in this Prospectus. There can be no
assurance that the investment objective for any Portfolio will be achieved.
NONE OF THE PORTFOLIOS ARE INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
WHILE THE MONEY MARKET PORTFOLIO INTENDS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO OBTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Fund. A Statement of Additional
Information, dated April 30, 1996, containing additional and more detailed
information about the Fund has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference into this Prospectus. The
Statement of Additional Information is available without charge and may be
obtained by writing to the Fund at the address printed above or calling the Fund
at (800) 338-7737, extension 3623.
SHARES OF THE FUND ARE AVAILABLE EXCLUSIVELY TO INSURANCE COMPANY SEPARATE
ACCOUNTS AS AN INVESTMENT VEHICLE FOR VARIABLE INSURANCE CONTRACTS. THIS
PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OFFERING THE
VARIABLE INSURANCE CONTRACT, WHICH ACCOMPANIES THIS PROSPECTUS. BOTH
PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 30, 1996.
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGE
GENERAL DESCRIPTION OF THE FUND............................................ 3
CONDENSED FINANCIAL INFORMATION............................................ 3
INVESTMENT OBJECTIVES AND POLICIES......................................... 8
The Stock Portfolio.............................................. 8
The Money Market Portfolio....................................... 8
The Bond Portfolio............................................... 9
The Asset Allocation Portfolio................................... 9
INVESTMENT STRATEGIES AND PERFORMANCE...................................... 9
The Stock Portfolio.............................................. 9
The Bond Portfolio............................................... 11
The Asset Allocation Portfolio................................... 12
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................ 13
U.S. Government Securities...................................... 13
Mortgage-Related Securities..................................... 13
Repurchase Agreements........................................... 13
Certificates of Deposit......................................... 13
Bankers' Acceptances............................................ 14
Commercial Paper................................................ 14
Corporate Debt Securities....................................... 14
Options -- Calls................................................. 14
INVESTMENT RESTRICTIONS................................................... 14
Additional Investment Restrictions Applicable to the
Money Market and Bond Portfolios.......................... 15
MANAGEMENT OF THE FUND.................................................... 15
Investment Advisers............................................. 15
Portfolio Managers.............................................. 16
Management Fees................................................. 16
Other Expenses.................................................. 16
Total Expenses.................................................. 16
Distributor..................................................... 17
EXCHANGES................................................................. 17
PORTFOLIO TRANSACTIONS.................................................... 17
DESCRIPTION OF THE FUND'S SHARES.......................................... 17
Capitalization.................................................. 17
Voting Rights................................................... 18
DIVIDENDS, DISTRIBUTION AND TAXES......................................... 18
Federal Income Tax Status....................................... 18
Distributions and Dividends..................................... 18
PURCHASE OF SHARES........................................................ 18
NET ASSET VALUE........................................................... 19
REDEMPTION OF SHARES...................................................... 19
PERFORMANCE INFORMATION................................................... 19
INDEPENDENT AUDITORS...................................................... 20
<PAGE>
GENERAL DESCRIPTION OF THE FUND
The Fund is an open-end, diversified management investment company that
was organized as a Massachusetts business trust on January 19, 1988.
The Fund is the successor for accounting purposes to the Separate
Account I (a Stock Account), Separate Account II (a Money Market Account),
Separate Account III (a Bond Account), and Separate Account IV (an Asset
Allocation Account) of United Services Life Insurance Company and Separate
Account I (a Stock Account), Separate Account II (a Money Market Account),
Separate Account III (a Bond Account), and Separate Account IV (an Asset
Allocation Account) of Bankers Security Life Insurance Society (collective, the
"USL and BSL Separate Accounts"). On April 30, 1988, the investment-related
assets and liabilities of the USL and BSL Separate Accounts were transferred to
the Stock, Money Market, Bond, and Asset Allocation Portfolios of the Fund. This
transaction was pursuant to separate Agreements and Plans of Reorganization of
United Services Life Insurance Company, the USL Separate Accounts, and USLICO
Series Fund and Bankers Security Life Insurance Society, the BSL Separate
Accounts and USLICO Series Fund, respectively. At the same time, the USL
Separate Accounts were combined into one continuing separate account, United
Services Variable Life Separate Account I, which was simultaneously reorganized
to operate as a unit investment trust under the 1940 Act rather than an open-end
diversified management company. Similarly, the BSL Separate Accounts were
reorganized into one continuing separate account, Bankers Security Variable Life
Separate Account I, which was simultaneously reorganized to operate as a unit
investment trust under the 1940 Act rather than an open-end diversified
management company.
As a "series" type of mutual fund, the Fund issues shares of beneficial
interest relating to separate series of investment portfolios currently
consisting of the Stock Portfolio, Money Market Portfolio, Bond Portfolio, and
Asset Allocation Portfolio. Additional Portfolios may be established in the
future. An interest in the Fund is limited to the assets of the particular
Portfolio in which shares are held, and shareholders of each Portfolio are
entitled to a pro rata share of all dividends and distributions arising from
the net income and capital gains in the investment of such Portfolio.
The Fund's shares are sold only to separate accounts of insurance
companies to serve as the investment medium for variable insurance products.
Currently, the shares of the Fund are sold only to separate accounts (the
"Separate Accounts") of United Services Life Insurance Company ("USL") and
Bankers Security Life Insurance Society ("BSL"), a wholly-owned subsidiary of
USL, to serve as an investment medium for variable life insurance policies
issued by these companies. These separate accounts invest in shares of the Fund
in accordance with allocation instructions received from policy owners. In the
future, shares of the Fund may be sold to other separate accounts of USL or BSL,
or to separate accounts of other affiliated insurance companies to serve as the
investment medium for other variable life insurance policies or variable annuity
contracts. To the extent the Fund serves as the funding medium for variable life
insurance policies and variable annuity contracts, the Fund's Board of Trustees
will monitor events in order to identify any material irreconcilable conflicts
that may possibly arise between such policy owners and contract owners and to
determine what action, if any, should be taken in response thereto.
CONDENSED FINANCIAL INFORMATION
The following tables give information regarding income, distributions,
portfolio value changes and other information about the Common Stock, Money
Market, Bond and Asset Allocation Portfolios of the USLICO Series Fund (formerly
Bankers Security and United Services Variable Life Separate Accounts I, II, III
and IV), on a per fund share outstanding basis. The information is presented
under the continuing-entity basis of accounting, as if the Reorganization
described under "General Description of the Fund" had always been in effect.
Data shown for the periods prior to 1988 is derived solely from Bankers Security
Variable Life Separate Account which was deemed to be the principal predecessor
entity.
The information in the tables for the year ended December 31,1995, was
derived from financial statements of the Fund audited by Deloitte & Touche LLP,
independent auditors of the Fund.
The information in the tables for the period January 1, 1986 through
December 31, 1994 has been derived from financial statements of the Fund (as
restated to give effect to the Reorganization), for the same period, which have
been audited by KPMG Peat Marwick LLP, independent auditors. The financial
statements appear in the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
Common Stock Portfolio
Year Ended December 31,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.37 $11.23 $10.45 $10.55 $9.97 $11.81
Income from investment operations:
Net investment income 0.36 0.36 0.32 0.38 0.38 0.37
Net realized and unrealized gains
(losses) on securities 2.95 (0.05) 0.78 0.22 1.37 (1.15)
------------ ------------ ------------ ------------ ------------ -------------
Total from investment operations 3.31 0.31 1.10 0.60 1.75 (0.78)
Distributions:
Distribution of income (0.37) (0.36) (0.32) (0.70) (0.29) (0.58)
Distribution of capital gains (0.69) (0.81) - - (0.88) (0.48)
------------ ------------ ------------ ------------ ------------ -------------
Net asset value, end of period $12.62 $10.37 $11.23 $10.45 $10.55 $9.97
============ ============ ============ ============ ============ =============
Total return 31.92% 2.76% 10.53% 5.69% 17.55% (6.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $19,968,336 $14,687,489 $12,449,453 $11,102,452 $10,128,224 $ 7,807,886
Expense to average net assets 0.63% 0.75% 0.75% 0.75% 0.78% 0.72%
Net investment income to
average net assets 3.07% 3.23% 2.93% 3.53% 3.61% 3.46%
Portfolio turnover rate 62.51% 59.41% 51.27% 36.00% 98.05% 43.06%
Weighted average number of
shares outstanding for year
ended December 31 1,450,668 1,195,719 1,079,215 994,102 847,572 729,023
</TABLE>
<TABLE>
<CAPTION>
Common Stock Portfolio (continued)
Year Ended December 31,
1989 1988 1987 1986
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.36 $9.76 $9.64 $8.61
Income from investment operations:
Net investment income 0.33 0.52 0.42 0.41
Net realized and unrealized gains
(losses) on securities 2.17 0.80 (0.30) 0.62
------------ ------------ ------------ ------------
Total from investment operations 2.50 1.32 0.12 1.03
Distributions:
Distribution of income (0.33) (0.53) - -
Distribution of capital gains (0.72) (0.19) - -
------------ ------------ ------------ ------------
Net asset value, end of period $11.81 $10.36 $9.76 $9.64
============ ============ ============ ============
Total return 24.13% 10.80% 3.73% 11.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $ 8,203,966 $ 6,876,501 $ 4,192,224 $ 3,021,885
Expense to average net assets 0.84% 0.50% 0.26% 0.27%
Net investment income to
average net assets 2.90% 5.20% 3.30% 4.10%
Portfolio turnover rate 30.28% 12.79% 56.85% 79.03%
Weighted average number of
shares outstanding for year
ended December 31 663,118 614,675 512,620 395,220
</TABLE>
<TABLE>
<CAPTION>
Money Market Portfolio
Year Ended December 31,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income 0.05 0.04 0.02 0.03 0.05 0.07
Net realized and unrealized gains
on securities - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Total from investment operations 0.05 0.04 0.02 0.03 0.05 0.07
Distributions:
Distribution of income (0.05) (0.04) (0.02) (0.03) (0.05) (0.07)
Distribution of capital gains - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
============ ============ ============ ============ ============ ============
Total return 5.00% 4.00% 2.00% 3.00% 5.00% 7.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $ 5,819,470 $ 5,752,426 $ 5,371,877 $ 5,464,509 $ 5,329,151 $ 4,984,823
Expense to average net assets 0.63% 0.75% 0.75% 0.75% 0.75% 0.68%
Net investment income to
average net assets 5.37% 3.54% 2.42% 2.98% 5.30% 7.52%
Portfolio turnover rate N/A N/A N/A N/A N/A N/A
Weighted average number of
shares outstanding for year
ended December 31 5,763,272 5,527,212 5,386,166 5,433,008 5,144,416 4,730,373
</TABLE>
<TABLE>
<CAPTION>
Money Market Portfolio (continued)
Year Ended December 31,
1989 1988 1987 1986
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income 0.08 0.08 0.08 0.08
Net realized and unrealized gains
on securities - - - -
------------ ------------ ------------ ------------
Total from investment operations 0.08 0.08 0.08 0.08
Distributions:
Distribution of income (0.08) (0.08) (0.08) (0.08)
Distribution of capital gains - - - -
------------ ------------ ------------ ------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
============ ============ ============ ============
Total return 8.00% 6.00% 8.00% 8.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $ 4,616,689 $ 4,109,710 $ 2,535,315 $ 1,940,712
Expense to average net assets 0.84% 0.10% 0.27% 0.26%
Net investment income to
average net assets 8.39% 8.00% 6.50% 6.50%
Portfolio turnover rate N/A N/A N/A N/A
Weighted average number of
shares outstanding for year
ended December 31 4,421,651 3,896,950 2,928,408 2,320,300
</TABLE>
<TABLE>
<CAPTION>
Bond Portfolio
Year Ended December 31,
1995 1994 1993 1992 1991
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $9.41 $10.49 $10.21 $10.21 $9.65
Income from investment operations:
Net investment income 0.66 0.67 0.70 0.73 0.79
Net realized and unrealized gains
(losses) on securities 1.04 (1.06) 0.37 0.06 0.58
----------- ------------ ----------- ----------- -----------
Total from investment operations 1.70 (0.39) 1.07 0.79 1.37
Distributions:
Distribution of income (0.66) (0.67) (0.70) (0.79) (0.79)
Distribution of capital gains (0.07) (0.02) (0.09) - (0.02)
----------- ------------ ----------- ----------- -----------
Net asset value, end of period $10.38 $9.41 $10.49 $10.21 $10.21
=========== ============ =========== =========== ===========
Total return 18.07% (3.72%) 10.48% 7.74% 14.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $3,068,825 $2,484,720 $2,631,773 $2,507,559 $2,512,214
Expense to average net assets 0.63% 0.75% 0.75% 0.75% 0.81%
Net investment income to
average net assets 6.49% 6.67% 6.62% 7.16% 7.86%
Portfolio turnover rate 32.67% 10.94% 19.04% 41.30% 12.17%
Weighted average number of
shares outstanding for year
ended December 31 276,475 254,126 243,616 238,112 236,131
</TABLE>
<TABLE>
<CAPTION>
Bond Portfolio (continued)
Year Ended December 31,
Period from
6/25/87
(inception)
1990 1989 1988 to 12/31/87
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.00 $9.63 $9.66 $9.52
Income from investment operations:
Net investment income 0.78 0.78 0.92 0.39
Net realized and unrealized gains
(losses) on securities (0.36) 0.40 0.03 (0.25)
----------- ----------- ----------- -----------
Total from investment operations 0.42 1.18 0.95 0.14
Distributions:
Distribution of income (0.76) (0.78) (0.95) -
Distribution of capital gains (0.01) (0.03) (0.03) -
----------- ----------- ----------- -----------
Net asset value, end of period $9.65 $10.00 $9.63 $9.66
=========== =========== =========== ===========
Total return 4.20% 12.25% 9.83% 1.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $2,255,591 $2,375,680 $2,227,057 $2,090,880
Expense to average net assets 0.61% 0.89% 0.50% 0.02%
Net investment income to
average net assets 8.22% 7.90% 6.50% 8.10%
Portfolio turnover rate 10.56% 4.32% 4.18% -
Weighted average number of
shares outstanding for year
ended December 31 235,850 230,848 217,798 107,366
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation Portfolio
Year Ended December 31,
1995 1994 1993 1992 1991
------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.18 $11.26 $10.71 $10.71 $10.08
Income from investment operations:
Net investment income 0.55 0.55 0.58 0.61 0.61
Net realized and unrealized gains
(losses) on securities 2.01 (0.70) 0.58 0.19 0.87
------------ ------------- ----------- ----------- -----------
Total from investment operations 2.56 (0.15) 1.16 0.80 1.48
Distributions:
Distribution of income (0.55) (0.55) (0.58) (0.78) (0.58)
Distribution of capital gains (0.37) (0.38) (0.03) (0.02) (0.27)
------------ ------------- ----------- ----------- -----------
Net asset value, end of period $11.82 $10.18 $11.26 $10.71 $10.71
============ ============= =========== =========== ===========
Total return 25.15% (1.33%) 10.83% 7.47% 14.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $13,675,779 $10,548,284 $9,127,047 $8,054,067 $6,540,186
Expense to average net assets 0.63% 0.75% 0.75% 0.75% 0.77%
Net investment income to
average net assets 4.81% 5.09% 5.09% 5.61% 5.78%
Portfolio turnover rate 44.97% 28.53% 27.80% 26.79% 39.91%
Weighted average number of
shares outstanding for year
ended December 31 1,068,503 892,257 772,390 665,240 507,445
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation Portfolio (continued)
Year Ended December 31,
Period from
6/25/87
(inception)
1990 1989 1988 to 12/31/87
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.83 $9.97 $9.72 $10.26
Income from investment operations:
Net investment income 0.64 0.59 0.72 0.33
Net realized and unrealized gains
(losses) on securities (0.55) 1.09 0.29 (0.87)
----------- ----------- ----------- ------------
Total from investment operations 0.09 1.68 1.01 (0.54)
Distributions:
Distribution of income (0.69) (0.58) (0.68) -
Distribution of capital gains (0.15) (0.24) (0.08) -
----------- ----------- ----------- ------------
Net asset value, end of period $10.08 $10.83 $9.97 $9.72
=========== =========== =========== ============
Total return 0.83% 16.85% 10.39% (5.26%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $4,497,556 $4,072,387 $2,617,965 $2,085,034
Expense to average net assets 0.69% 0.87% 0.50% 0.26%
Net investment income to
average net assets 6.17% 5.53% 5.21% 6.20%
Portfolio turnover rate 19.54% 17.03% 5.28% 9.48%
Weighted average number of
shares outstanding for year
ended December 31 393,425 310,973 236,949 102,740
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The USLICO Series Fund currently offers four Portfolios with separate
investment objectives as described below. There can be no assurance that any of
the Portfolios will achieve its investment objective or objectives. Each
Portfolio is subject to the general risk of changing economic conditions, as
well as the risk inherent in the ability of the Investment Adviser to make
changes in the Portfolio's investments in anticipation of changes in economic,
business, or other financial conditions. As with any security, a risk of loss is
inherent in an investment in Fund shares.
The different types of securities and investment techniques used by the
individual Portfolios all have attendant risks of varying degrees. For example,
with respect to equity securities, there can be no assurance of capital
appreciation and there is a risk of market decline. With respect to debt
securities, there exists the risk that the issuer of a security may not be able
to meet its obligations on interest or principal payments at the time called for
by an instrument. In addition, because the value of debt instruments rises and
falls inversely with interest rates generally, the longer the maturity of a debt
security, the more volatile it will be in terms of changes in value. Because
each Portfolio seeks a different investment objective, each is subject to
varying degrees of financial and market risks.
Certain types of investments and investment techniques common to one or
more Portfolios are described in greater detail, including the risks of each, in
this Prospectus under "Description of Securities and Investment Techniques" and
in the Statement of Additional Information.
The Portfolios are subject to investment restrictions that are described
under the heading "Investment Restrictions." Those investment restrictions so
designated and the investment objective of each Portfolio are "fundamental
policies" of the Fund, which means that they may not be changed without a
majority vote of shareholders of the affected Portfolio. Except for the
investment objectives and those restrictions specifically identified as
fundamental, all investment policies and practices described in this Prospectus
and in the Statement of Additional Information are not fundamental, meaning that
the Board of Trustees may change them without shareholder approval.
THE STOCK PORTFOLIO
The Stock Portfolio's investment objective is to achieve intermediate
and long-term capital growth. A reasonable level of income is a secondary
objective. To achieve its objective, the Portfolio invests primarily in common
stock of companies believed by the Adviser to offer above average growth
potential over both the intermediate and the long term. There can be no
assurance that this objective will be achieved.
Under normal circumstances, at least 70% of the Portfolio's assets will
be invested in common stock (including debt securities convertible into common
stock). The majority of such common stock will be listed on a national
securities exchange, although the Portfolio may also invest in stocks that are
traded over-the-counter on the NASDAQ national market system. The Portfolio may
also invest in convertible preferred stocks, convertible debt securities,
non-convertible debt securities, U.S. Government securities, commercial paper,
and other money market instruments, including repurchase agreements maturing in
seven days or less. The Portfolio will invest only in debt securities in the top
four rating categories of either Standard and Poor's Corporation ("S&P") (AAA,
AA, A, and BBB) or Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A, and
Baa), or, if not rated, of comparable quality in the judgment of the Adviser,
and in commercial paper and money market instruments eligible for purchase by
the Money Market Portfolio.
The Portfolio may also seek to enhance the return on its common stock
portfolio by writing covered call options that are standardized and traded on a
United States securities exchange or board of trade (See "Options -- Calls" at
Page 14).
The Portfolio will retain a flexible approach to the investment of funds
and the portfolio composition may vary with the economic outlook. Therefore,
when, in the judgment of the Adviser, current cash needs or market or economic
conditions warrant a temporary defensive position, the Portfolio may invest to a
greater degree in short-term U.S. Government securities, commercial paper, and
other money market instruments.
THE MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to seek
maximum current income consistent with the preservation of capital and the
maintenance of liquidity by investing in "money market" instruments meeting
specified quality standards. The Portfolio may invest only in high-quality
instruments with a maturity or remaining maturity of 12 months or less from the
date of purchase, and may include the following: U.S. Government securities;
commercial paper maturing in nine months or less from the date of purchase if
rated A-1 by S&P or Prime-1 by Moody's, or, if not rated, issued by issuers
having outstanding debt securities rated at least AA by S&P or at least Aa by
Moody's; debt obligations rated at least AA by S&P or at least Aa by Moody's,
or, if not rated, issued by issuers having outstanding debt securities with such
a rating; repurchase agreements maturing in seven days or less with Federal
Reserve System banks or with dealers in U.S. Government securities; and
negotiable certificates of deposit, bankers' acceptances, fixed-time deposits,
and other obligations of federally chartered domestic banks, savings banks, or
savings and loan associations having total assets of $1 billion or more. The
Portfolio will not invest in any fixed-time deposit maturing in more than 7 days
if, as a result, more than 10% of the value of its total assets would be
invested in such fixed-time deposits and other illiquid securities. The
Portfolio may also invest in fixed-time or other deposits with a state-chartered
bank that acts as custodian to the Fund, provided that any such bank has total
assets of $2 billion or more. The Portfolio may also purchase obligations that
mature in 12 months or less from the date of purchase if the obligation is
accompanied by a guarantee of principal and interest provided that the guarantee
is that of a bank or corporation whose certificates of deposit or commercial
paper may otherwise be purchased by the Portfolio.
<PAGE>
THE BOND PORTFOLIO
The Bond Portfolio's investment objective is to provide a high level of
income consistent with prudent investment risk by investing primarily in
investment-grade intermediate to long-term corporate bonds and other debt
securities. As a secondary objective, the Portfolio seeks capital appreciation
when consistent with its principal objective. To achieve this objective, the
Portfolio invests primarily in securities rated in the top four rating
categories of either S&P (AAA, AA, A, and BBB) or Moody's (Aaa, Aa, A, and Baa)
or, if not rated, of equivalent quality in the judgment of the Adviser. The
Portfolio may also invest in U.S. Government securities, commercial paper,
certificates of deposit, and other money market instruments eligible for
purchase by the Money Market Portfolio. The Portfolio will not invest in common
stocks, rights, or other equity securities. There can be no assurance that the
Portfolio's objectives will be achieved.
The weighted average maturity of the securities in the Portfolio will
vary from time to time depending upon the judgment of the Adviser as to
prevailing conditions in the economy and the securities markets and the
prospects for interest rate changes among different categories of fixed-income
securities. Under normal circumstances, more than 80% of the Portfolio's assets
will be invested in fixed-income securities, including convertible and
non-convertible debt securities. Under unusual market or economic conditions,
the Adviser, for defensive or other purposes, may increase the amount of the
Portfolio's assets invested in U.S. Government securities, cash, and money
market obligations that can be purchased by the Money Market Portfolio,
including certificates of deposit and other bank obligations, commercial paper,
and other fixed-income securities.
Since shares of the Portfolio normally represent an investment primarily
in debt securities with market prices that may vary, the value of the
Portfolio's shares will vary as the aggregate value of the Portfolio's
investments increases or decreases. Although the Portfolio will invest only in
investment-grade debt securities, the market price of the Portfolio's securities
will likely be affected by changes in interest rates since the market value of
debt obligations may be expected to rise and fall inversely with interest rates
generally. As interest rates rise, the market value of fixed-income securities
will likely fall, adversely affecting the value of the Portfolio. Debt
obligations with longer maturities that typically provide the best yield will
subject the Portfolio to relatively greater price fluctuations than shorter-term
obligations.
THE ASSET ALLOCATION PORTFOLIO
The Asset Allocation Portfolio's investment objective is to seek, over
the intermediate and long-term, a high total return, consistent with prudent
investment risk by investing in common stocks, securities convertible into
common stocks, intermediate to long-term debt obligations and money market
instruments. Total return is the sum of dividend and interest income and capital
changes in the assets of the Portfolio. While this Portfolio will generally
emphasize investment in common stocks of larger capitalization issues and in
investment-grade debt securities, the Portfolio may also invest in stocks of
smaller and emerging growth companies. The Portfolio will invest only in debt
securities rated in the top four rating categories of either S&P (AAA, AA, A,
and BBB) or Moody's (Aaa, Aa, A, and Baa) or, if not rated, of equivalent
quality in the judgment of the Adviser, and in money market obligations eligible
for purchase by the Money Market Portfolio. In furtherance of its objective, the
Portfolio may also write covered call options traded on United States securities
exchanges or boards of trade. (See "Options -- Calls" at Page 14.) There can be
no assurance that the Portfolio's investment objective will be achieved.
The Adviser will determine the composition of the Portfolio based upon
an assessment of economic and market trends and the anticipated relative total
return available from investment in a particular type of security. Accordingly,
at any given time, the Portfolio may be substantially invested in common stocks,
debt securities, or money market securities. In determining asset allocation,
the Adviser may consider, among other factors, economic conditions, growth
potential of the economy, the securities markets, currency and tax
considerations, and other pertinent financial, social, national, and political
factors.
Because of the flexible investment policy of the Portfolio, turnover may
be greater than for a portfolio that does not allocate assets among various
types of securities, which may result in greater transactional costs.
<PAGE>
USLICO SERIES FUND
INVESTMENT STRATEGIES AND PERFORMANCE OF THE STOCK PORTFOLIO
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 1995, Newbold's participated in the exuberant stock market that
recorded the strongest annual returns since 1958 and the 3rd largest in the post
WW II era. Newbold's value style produced underweighted positions in two strong
"growth" sectors - Healthcare (ultimately the leading performance sector) - and
Technology, and those underweights generated a performance lag. However,
Newbold's large overweight in Utilities in the second half of the year resulted
in a recapture of nearly all of that lag. The large positions in Commercial
Aircraft producers also generated strong returns. Going into 1996, the portfolio
has de-emphasized economically sensitive issues, in favor of more stable
earnings producers found in the Utility, Food & Beverage, and Health Care
industries.
[GRAPHIC GOES HERE]
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*
Between the Stock Portfolio and the S & P 500 Index
Average Annual Total Return
1 Year 31.92%
5 Years 13.69%
10 Years 11.25%
(Thousands of Dollars)
12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
S & P 500
Index 10.0 11.5 11.7 13.1 16.7 15.6 19.7 20.6 22.1 21.7 29.2
Stock
Portfolio 10.0 11.2 11.6 12.9 16.0 14.9 17.5 18.5 20.5 21.1 27.8
* -$10,000 invested on 12/31/85 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 separate accounts.
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
USLICO SERIES FUND
INVESTMENT STRATEGIES AND PERFORMANCE OF THE BOND PORTFOLIO
The responsibility for investments and reinvestments in the Bond
Portfolio is with Washington Square Capital (the "Adviser"), which is affiliated
with Bankers Security Life Insurance Society and United Services Life Insurance
Company. Investments are primarily in investment-grade intermediate to long-term
corporate bonds. Bonds represented 97% of investable funds at year-end with the
remainder of the portfolio in a high quality money market fund.
During 1995, the Bond Portfolio was primarily invested in corporate
bonds rated "A" or better by Moody's or Standard & Poor's. The Portfolio holds
no Collateralized Mortgage Obligations.
The average maturity of the bonds was less than ten years. The
composition of the Portfolio holdings tended to be somewhat shorter in duration
and with heavier emphasis on corporate bonds than that of its most
representative industry index, which is the Lehman Brothers Government/Corporate
Bond Index. The Total Return for 1995, after all expenses at the Portfolio level
was 18.07%.
[GRAPHIC GOES HERE]
COMPARISON OF 102 MONTH CUMULATIVE TOTAL RETURN*
Between the Bond Portfolio and the Lehman Bros Gov't Corp Index
Average Annual Total Return
1 Year 18.07%
5 Years 9.35%
Inception 9.50%
(Thousands of Dollars)
6/25/87 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
Lehman Bros
Gov't Corp Index 10.0 10.1 10.9 12.4 13.5 15.6 16.8 18.7 18.0 21.5
Bond Portfolio 10.0 10.1 11.1 12.5 13.0 14.9 16.0 17.7 17.1 20.1
* -$10,000 invested on 6/25/87 in fund or 7/1/87 in index including reinvestment
of income
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 separate accounts.
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.
11
<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 Newbold's, 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 Washington Square Capital. During 1995, the bonds
in the Portfolio were primarily corporate bonds rated "A" or better by Moody's
or Standard and Poor's. The Portfolio holds no Collateralized Mortgage
Obligations. The average maturity of the bonds was less than ten years. Bond
holdings tended to be somewhat shorter in duration and with heavier emphasis on
corporate bonds than that of Lehman Brothers Government/Corporate Bond Index.
The Total Return for 1995, after all expenses at the Portfolio level, was
25.15%.
[GRAPHIC GOES HERE]
COMPARISON OF 102 MONTH CUMULATIVE TOTAL RETURN*
Between the Asset Allocation Portfolio, Lehman Bros Gov't Corp Index and S & P
500 Index
Average Annual Total Return
1 Year 25.15%
5 Years 11.36%
Inception 9.29%
(Thousands of Dollars)
6/25/87 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
S & P 500 Index 10.0 10.1 11.4 14.4 13.5 17.1 17.8 19.1 18.8 25.2
Lehman Bros
Gov't Corp Index 10.0 10.1 10.9 12.4 13.5 15.6 16.8 18.7 18.0 21.5
Asset Allocation
Portfolio 10.0 9.5 10.5 12.2 12.3 14.1 15.2 16.8 16.6 20.8
* -$10,000 invested on 6/25/87 in fund or 7/1/87 in index including reinvestment
of income
Fiscal years ended 12/31
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 separate accounts. 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.
12
<PAGE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. GOVERNMENT SECURITIES -- are obligations of, or guaranteed by, the
U.S. Government, its agencies or instrumentalities. Securities guaranteed by the
U.S. Government include: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes, and bonds) and (2) federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as GNMA certificates).
In these securities, the payment of principal and interest is unconditionally
guaranteed by the U.S. Government, and thus they are of the highest possible
credit quality. Such securities are subject to variations in market value due to
fluctuations in interest rates, but, if held to maturity, will be paid in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the Treasury.
However, they involve federal sponsorship in one way or another: some are
supported by the discretionary authority of the Treasury to purchase certain
obligations of the issuer; others are supported only by the credit of the
issuing government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to, Federal Land Banks, Farmers
Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and Federal Home Loan Banks. All of the Portfolios may invest in U.S.
Government securities.
MORTGAGE-RELATED SECURITIES -- The Bond and Asset Allocation Portfolios
may invest in GNMA certificates and FNMA and FHLMC mortgage-backed obligations.
GNMA Certificates: GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Although the mortgage loans in the pool will have maturities of up to
30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Reinvestment of prepayments
may occur at higher or lower rates than the original yield on the certificates.
FNMA and FHLMC Mortgage-Backed Obligations: The Federal National
Mortgage Association ("FNMA"), a federally chartered and privately-owned
corporation, issues pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest but this guarantee is not backed by the full faith and credit of the
U.S. Government. The Federal Home Loan Mortgage Corporation ("FHLMC"), a
corporate instrumentality of the United States, issues participation
certificates which represent an interest in a pool of conventional mortgage
loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal and maintains reserves to protect holders against losses
due to default, but the certificates are not backed by the full faith and credit
of the U.S. Government. As is the case with GNMA certificates, the actual
maturity of and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the underlying pool
of mortgages.
Risks of Mortgage-Related Securities: In the case of mortgage
pass-through securities such as GNMA certificates or FNMA and FHLMC
mortgage-backed obligations, early repayment of principal arising from
prepayments of principal on the underlying mortgage loans due to the sale of the
underlying property, the refinancing of the loan, or foreclosure may expose a
Portfolio to a lower rate of return upon reinvestment of principal. Prepayment
rates vary widely and may be affected by changes in market interest rates. In
periods of falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of the mortgage-related security.
Conversely, when interest rates are rising, the rate of prepayment tends to
decrease, thereby lengthening the actual average life of the mortgage-related
security. Accordingly, it is not possible to accurately predict the average life
of a particular pool. Reinvestment of prepayments may occur at higher or lower
rates than the original yield on the certificates. Therefore, the actual
maturity and realized yield on pass-through or modified pass-through
mortgage-related securities will vary based upon the prepayment experience on
the underlying pool of mortgages.
REPURCHASE AGREEMENTS -- are agreements by which the Portfolio purchases
a security and obtains a simultaneous commitment from the seller (a member bank
of the Federal Reserve System or a recognized securities dealer) to repurchase
the security at an agreed upon price and date. The resale price is in excess of
the purchase price and reflects an agreed upon market rate unrelated to the
coupon rate on the purchased security. Such transactions afford an opportunity
for a Portfolio to maintain liquidity and earn income over periods of time as
short as overnight.
The underlying securities on repurchase agreements are ordinarily U.S.
Government securities, but may be other securities in which the Portfolio might
otherwise invest. A Portfolio will enter into repurchase agreements only if they
are fully collateralized. The market value of the collateral, including accrued
interest, will equal or exceed the repurchase price, and the collateral will be
in the actual or constructive possession of the Portfolio.
A Portfolio will enter only into repurchase agreements that mature in
seven days or less. A repurchase agreement subjects a Portfolio to the risk of
the ability of the seller to pay the repurchase price on the delivery date;
however, the underlying security constitutes the collateral for the seller's
obligation. In addition, the Adviser will enter into repurchase agreements with
parties that it considers creditworthy. In the event the seller does default,
the Portfolio may incur (i) a loss if the value of the collateral declines and
(ii) disposition costs in connection with liquidating the collateral. In the
event bankruptcy proceedings are commenced with respect to the seller,
realization upon the collateral by the Portfolio may be delayed or limited and a
loss may be incurred if the collateral securing the repurchase agreement
declines in value during the bankruptcy proceedings.
CERTIFICATES OF DEPOSIT -- are certificates issued against funds
deposited in a bank, are for definite period of time, earn a specified rate of
return, and are normally negotiable.
<PAGE>
BANKERS' ACCEPTANCES -- are short-term credit instruments issued by
corporations to finance the import-export transfer or storage of goods. They are
termed "accepted" when a bank guarantees their payment at maturity. These
instruments reflect the obligation of both the bank and drawer to pay the face
amount of the instrument at maturity.
COMMERCIAL PAPER -- All Portfolios may invest in commercial paper.
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by bank holding companies, corporations, and finance companies. The
commercial paper purchased by a Portfolio will consist of direct obligations of
domestic issuers which, at the time of investment, (i) meet the rating standard
for particular Portfolios as specified in the section on Investment Objectives
and Policies, or (ii) if not rated, are determined to be of an investment
quality comparable to rated commercial paper in which a Portfolio may invest.
CORPORATE DEBT SECURITIES -- All Portfolios may invest in corporate debt
securities of domestic issuers. The debt securities in which a Portfolio may
invest are limited to corporate debt securities (corporate bonds, debentures,
notes, and other similar corporate debt instruments) which meet the minimum
ratings criteria or other standards set forth for that particular Portfolio, or,
if not so rated, are, in the Adviser's opinion, comparable in quality to
corporate debt securities in which a Portfolio may invest.
The investment return on corporate debt securities reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with the
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument.
OPTIONS -- CALLS -- The Stock Portfolio and the Asset Allocation
Portfolio may write (i.e., sell) call options ("calls") if (i) after any sale,
not more than 25% of that Portfolio's total assets are subject to calls; (ii)
the calls are traded on a domestic securities exchange or board of trade; and
(iii) the calls are "covered." The option is "covered" if the Portfolio owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, cash or cash equivalents in such amount are placed in
a segregated account by its custodian) upon conversion or exchange of other
securities held by the Portfolio. When the Portfolio writes a call, it receives
a premium and agrees to sell the callable securities to a purchaser at a fixed
exercise price (which may differ from the market price of the underlying
security) regardless of market price changes during the call period. The
Portfolio may purchase a call only in a "closing purchase transaction" to
terminate its obligation on a call which it has written. For as long as the
Portfolio remains obligated as a writer of a call, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
call price. The principal objective in writing covered calls is to attempt to
attain, through the receipt of premiums from expired calls and net profits, if
any, from closing purchase transactions, a greater current return than might be
realized by holding the securities without writing calls.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective as set forth under "Investment Objectives
and Policies," together with the investment restrictions set forth below, are
fundamental policies of each existing Portfolio and may not be changed with
respect to any Portfolio without the approval of a majority of the outstanding
voting shares of that Portfolio. The vote of a majority of the outstanding
voting securities of a Portfolio means the vote at an annual or special meeting
of: (i) 67% or more of the voting securities present at such meeting, if the
holders of more than 50% of the outstanding voting securities of such Portfolio
are present or represented by proxy; or (ii) more than 50% of the outstanding
voting securities of such Portfolio, whichever is the less. Under these
restrictions, an existing Portfolio may not:
1. Purchase securities on margin or make short sales;
2. Invest more than 25% of its total assets in securities of any one
particular industry nor invest more than 5% of its assets in any one
issuer, except that these restrictions do not apply to investments in
U.S. Government securities and the 25% limit does not apply to the
Money Market or Bond Portfolios for securities or obligations issued by
U.S. banks;
3. Invest in more than 10% of any issuer's outstanding voting securities;
4. Invest in securities of other investment companies;
5. Participate in the underwriting of securities;
6. Borrow, pledge, or hypothecate its assets, except that a Portfolio may
borrow from banks for temporary purposes, but any such borrowing is
limited to an amount equal to 25% of a Portfolio's net assets and a
Portfolio will not purchase additional securities while borrowing funds
in excess of 5% of that Portfolio's net assets;
7. Invest for the purpose of exercising control over any company;
8. Invest in commodities or commodity contracts;
9. Purchase warrants, or write, purchase, or sell puts, calls, straddles,
spreads, or combinations thereof, except the Stock and Asset Allocation
Portfolios may write covered call options as described on page 14;
10. Make investments in real estate or mortgages except that a Portfolio
may purchase readily marketable securities of companies holding real
estate or interest therein, or in oil, gas, or development programs;
<PAGE>
11. Purchase securities having legal or contractual restrictions on resale;
12. Make any loans of securities or cash, except that a Portfolio may,
consistent with its investment objective and policies, (i) invest in
debt obligations including bonds, debentures, or other debt securities,
bank and other depository institution obligations, and commercial
paper, even though the purchase of such obligations may be deemed the
making of loans, and (ii) enter into repurchase agreements;
13. Issue senior securities; and
14. Invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days or in portfolio securities that are
not readily marketable.
ADDITIONAL INVESTMENT RESTRICTIONS APPLICABLE TO THE MONEY MARKET AND BOND
PORTFOLIOS
The Fund has adopted the following investment restrictions applicable
only to the Money Market and Bond Portfolios under which such Portfolios may not
do the following:
1. Invest in common stocks or other equity securities; and
2. Invest in securities of companies which, together with predecessor
companies, have a record of less than five years continuous operations.
If a percentage restriction is adhered to at the time of an investment
for any Portfolio, a later increase or decrease in percentage resulting from a
change in the value of portfolio securities or the amount of the Portfolio's net
assets will not be considered a violation of any of the foregoing restrictions.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
its Board of Trustees according to applicable laws of the Commonwealth of
Massachusetts and the Fund's Declaration and Agreement of Trust. The Trustees
are Richard C. Kaufman, Chairman, Jeri A. Eckhart, Wayne O. Jefferson, Jr., and
David H. Roe. Additional information about the Trustees and the Fund's executive
officers may be found in the Statement of Additional Information under the
heading "Management of the Fund."
INVESTMENT ADVISERS
Effective April 1, 1995, the Fund entered into an Investment Advisory
Agreement with Washington Square Advisers, Inc. (the "Adviser"). The Adviser's
address is 100 Washington Square, Minneapolis, Minnesota 55401. Effective April
1, 1995 the Fund, the Adviser and Newbold's Asset Management, Inc. (the
"Sub-Adviser") entered into a Sub-Investment Advisory Agreement under which the
Sub-Adviser provides advisory services to the Stock Portfolio and the Asset
Allocation Portfolio of the Fund. The address of the Sub-Adviser is 950
Haverford Road, Bryn Mawr, PA 19010. Both agreements were reapproved by the
Board of Trustees on March 6, 1996.
Subject to overall supervision of the Fund's Board of Trustees, the
Adviser exercises overall responsibility for the investment and reinvestment of
the Fund's assets for which it has primary investment responsibility and
continuously monitors and supervises all aspects of the Sub-Adviser's
performance of its investment advisory duties. In so doing, the Adviser manages
the day-to-day investment operations of the Fund and the composition of the
investment portfolios of the Bond and Money Market Portfolios and the assets of
the Asset Allocation Portfolio not allocated to the management of the
Sub-Adviser, including the purchase, retention and disposition of the
investments, securities and cash contained therein, in accordance with each
Portfolio's investment objectives and policies as stated in the Fund's
Declaration and Agreement of Trust, By-Laws, Prospectus and Statement of
Additional Information as from time to time in effect. With the assistance of
the Sub-Adviser, the Adviser determines the portion of the Asset Allocation
Portfolio to be allocated to the management of the Sub-Adviser.
Subject to the overall responsibility of the Fund's Board of Trustees
and the Adviser, the Sub-Adviser will exercise overall responsibility for the
investment and reinvestment of the Stock Portfolio and the portion of the assets
of the Asset Allocation Portfolio allocated by the Adviser to the Sub-Adviser.
In so doing, the Sub-Adviser will manage the day-to-day operations of the
investment portfolio of the Stock Portfolio and the portion of the Asset
Allocation Portfolio for which it has primary advisory responsibility, which
includes all equity investments and will manage the composition of these
Portfolios, including the purchase, retention and disposition of the
investments, securities and cash contained therein, in accordance with each
Portfolio's investment objectives and policies as stated in the Fund's
Declaration and Agreement of Trust, By-Laws, Prospectus and Statement of
Additional Information as from time to time in effect. The Sub-Adviser will
furnish to the Board of Trustees such periodic and special reports as the Board
may reasonable request. The Sub-Adviser will also implement purchases and sales
of investments for each Portfolio in a manner consistent with such investment
policies, as from time to time amended.
At the Fund's request, the Adviser will provide, without charge,
personnel, who may be the Fund's officers, to render certain clerical,
accounting, administrative and other services, other than investor services, to
the Fund as it may from time to time request. Also, the Adviser will furnish to
the Fund, without additional charge, such administrative and management
supervision and office facilities, which may be the Adviser's own offices, as
the Adviser may believe appropriate or as the Fund may reasonably request,
subject to the requirements of any regulatory authority to which the Adviser may
be subject. However, the Fund may also hire its own employees and contract for
services to be performed by third parties.
<PAGE>
The Adviser is a wholly-owned subsidiary of ReliaStar Financial Corp.
ReliaStar Financial Corp is also the parent company of United Services Life
Insurance Company, which is the parent company of Bankers Security Life
Insurance Society. The Adviser was established in 1981. In addition to managing
the assets of the Fund, the Advisor is the investment advisor for the USLICO
Retirement Plan (the "Plan"), which covers the Employees of Bankers Security
Life Insurance Society and United Services Life Insurance Company. As of
December 31, 1995, total assets of the four Portfolios of the Fund were
approximately $42.8 million and total assets of the Plan were approximately
$106.5 million.
The Sub-Adviser was founded in 1943 and incorporated in June, 1988 for
the purpose of acquiring all the assets and liabilities of Newbold's Asset
Management. The Sub-Adviser is a wholly owned Subsidiary of United Asset
Management Corporation. No Trustee of the Fund has any financial interest in the
Sub-Adviser or its affiliates.
PORTFOLIO MANAGERS
The Stock Portfolio, and that portion of the Asset Allocation Portfolio
investing primarily in stocks, is managed by Denise B. Taylor, who since April,
1995 has had the primary responsibility for the day to day investment management
of those assets. She is a Senior Vice President of the Sub-Adviser, Newbold's
Asset Management, and a Chartered Financial Analyst (CFA). Ms. Taylor has 21
years of investment management experience and has been employed by the
Sub-Adviser since 1987, where, in addition to being a senior institutional
portfolio manager, she has specific research responsibilities in the Capital
Goods and Paper and Forest Products areas.
The Money Market and Bond Portfolios, and that portion of the Asset
Allocation Portfolio which invests in bonds and money market assets, in managed
by Gregory Hanson. He has been the Portfolio manager for these assets since
April, 1995. He is a Senior Vice President and Portfolio Manager of the Adviser,
Washington Square Advisers, where he has served in its investment department
since August 1979. He has an MBA degree in Finance from the University of St.
Thomas and is a Chartered Financial Analyst. His related duties include
portfolio analysis and strategy for the general accounts of insurance companies
affiliated with ReliaStar Financial Corp.
MANAGEMENT FEES
Under the Investment Advisory Agreement, the Adviser is compensated for
its services at a quarterly fee based on an annual percentage of the average
daily net assets of each Portfolio. For each Portfolio, the Fund pays the
Adviser a fee at a maximum annual rate of .50% of the first $100 million of the
average daily net assets of the Portfolio, and .45% of the average daily net
assets of the Portfolio in excess of $100 million. During 1995, the Fund paid
the Adviser an annual fee of .25% of the assets of all the Fund's Portfolios.
The Adviser pays the Sub-Adviser on a quarterly basis, based on the value of the
assets under the Sub-Adviser's Management on the last day of the quarter, an
annual fee of .50% on the first $20 million, .40% on the next $20 million and
.30% thereafter. The Fund does not directly compensate the Sub-Adviser. For the
years 1995, 1994 and 1993, the Fund paid the Advisor the following management
fees: Stock Portfolio, $23,450, $33,276 and $29,384, respectively; Money Market
Portfolio, $7,184, $13,776 and $13,469, respectively; Bond Portfolio, $3,692,
$6,302 and $6,497 respectively; Asset Allocation Portfolio, $16,081, $24,168 and
$21,623, respectively. For the years 1995, 1994 and 1993, the Plan paid the
Advisor approximately $77,000, $209,525 and $209,484, respectively for
management fees.
The Investment Advisory Agreement with the Adviser and the Sub-Advisory
Agreement were approved by a majority of the Board (including a majority of the
non-interested Trustees) on March 1, 1995, effective April 1, 1995, and approved
by Fund Shareholders on June 30, 1995. Assuming shareholder approval, the
Agreements will continue in effect so long as they are approved at least
annually by (i) the holders of a majority of the outstanding voting securities
of the Fund or by the Board and (ii) a majority of the non-interested Trustees
[as defined in the Investment Company Act of 1940 (the "1940 Act)]. Each
Agreement will terminate automatically in the event of its assignment, and may
be terminated without penalty on sixty days' written notice by any party to the
Agreement. (See "Description of the Fund's Shares -- Voting Rights" at Page 18.)
OTHER EXPENSES
The Fund bears all costs of its operations. Such costs include fees to
the Adviser, shareholder servicing costs, trustees' fees and expenses, legal,
accounting services, auditing fees, custodian fees, printing and supplies,
registration fees, and others. Fund expenses directly attributable to a
Portfolio are charged to that Portfolio; other expenses are allocated
proportionately among all the Portfolios in relation to the net assets of each
Portfolio. In 1995 and 1994, the Fund paid $189,587 and $155,043 respectively
for these services.
TOTAL EXPENSES
In 1995, the management fee (computed on an annualized basis as a
percentage of the net asset value of each Portfolio) and the total operating
expenses as a percentage of average net assets of each Portfolio were as
follows:
PORTFOLIO MANAGEMENT FEE TOTAL EXPENSES
(including management fees)
Common Stock Portfolio .25% .75%
Money Market Portfolio .25% .75%
Bond Portfolio .25% .75%
Asset Allocation Portfolio .25% .75%
<PAGE>
DISTRIBUTOR
Shares of the Fund are distributed through USLICO Securities Corporation
(the "Distributor"), a wholly-owned subsidiary of USLICO Corporation. USLICO
Securities Corporation's address is 4601 Fairfax Drive, Arlington, Virginia
22203. It is a registered broker-dealer under the Securities Exchange Act of
1934 and a member of the National Association of Securities Dealers, Inc., and
acts as Distributor without remuneration from the Fund.
EXCHANGES
Shares of any one Portfolio may be exchanged for shares of any of the
other Portfolios in the Fund, all of which are described in this Prospectus.
Exchanges are treated as a redemption of shares of one Portfolio and a purchase
of shares of one or more of the other Portfolios and are effected at the
respective net asset values per share of each Portfolio on the date of the
exchange. The Fund reserves the right to modify or discontinue its exchange
privilege at any time without notice.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser places orders
for the purchase and sale of portfolio investments for the Fund's Portfolios
with brokers or dealers selected by it in its discretion. In executing
transactions, the Adviser will attempt to obtain the best execution for a
Portfolio taking into account such factors as price (including the applicable
brokerage commission or dollar spread), size of order, the nature of the market
for the security, the timing of the transaction, the reputation, the experience
and financial stability of the broker-dealer involved, the quality of the
service, the difficulty of execution and operational facilities of the firms
involved, and the firm's risk in positioning a block of securities. In effecting
purchases and sales of portfolio securities in transactions on United States
stock exchanges for the account of the Fund, the Adviser may pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction. In the case of securities
traded on the over-the-counter markets, there is generally no stated commission,
but the price includes an undisclosed commission or markup.
Some securities considered for investment by the Fund may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of a Portfolio and one or
more of these clients served by the Adviser is considered at or about the same
time, transactions in such securities will be allocated among the Portfolio and
clients in a manner deemed fair and reasonable by the Adviser. Although there is
no specified formula for allocating such transactions, the various allocation
methods used by the Adviser, and the results of such allocations, are subject to
periodic review by the Fund's Adviser and Board of Trustees. It is anticipated
that the annual portfolio turnover, as defined above, will not exceed the
following limits of the Portfolios under normal market conditions: Stock
Portfolio -- 125%, Bond Portfolio -- 100%, and Asset Allocation Portfolio --
150%. Increased portfolio turnover may result in greater brokerage commissions.
In 1995, the Portfolio turnover rate was: Stock Portfolio -- 62.51%, Bond
Portfolio -- 32.67%, and Asset Allocation Portfolio -- 44.97%.
Market conditions and changes in interest rates may result in turnover
at a greater or lesser rate than anticipated. For information on calculating
portfolio turnover, see the section "Portfolio Turnover" in the Statement of
Additional Information.
DESCRIPTION OF THE FUND'S SHARES
CAPITALIZATION
The Fund was organized as a Massachusetts business trust on January 19,
1988, and currently consists of four separately managed Portfolios. The Board of
Trustees may establish additional Portfolios in the future. The capitalization
of the Fund consists solely of an unlimited number of shares of beneficial
interest with a par value of $0.001 each. When issued, shares of the Fund are
fully paid, non-assessable, and freely transferable.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration and Agreement of Trust disclaims liability of the
shareholders, Trustees, or officers of the Fund for acts or obligations of the
Fund, which are binding only on the assets and property of the Fund and requires
that notice of the disclaimer be given in each contract or obligation entered
into or executed by the Fund or the Trustees. The Declaration and Agreement of
Trust provides for indemnification out of Fund property for all loss and expense
of any shareholder held personally liable for the obligations of the Fund. The
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations and thus should be considered remote.
<PAGE>
VOTING RIGHTS
Shareholders of the Fund are given certain voting rights. Massachusetts
business trust law does not require the Fund to hold annual shareholder
meetings, although special meetings may be called for a specific Portfolio, or
for the Fund as a whole, for purposes such as electing or removing Trustees,
changing fundamental policies, or approving an advisory contract. In accordance
with current laws, it is anticipated that an insurance company issuing one or
more variable contracts that participate in the Fund will request voting
instructions from owners of the contracts and will vote shares or other voting
interests in the separate account in proportion to the voting instructions
received. The Fund's Declaration and Agreement of Trust provides that the
holders of not less than two-thirds of the outstanding shares of the Trust may
remove a person serving as a Trustee either by declaration in writing or a
meeting called for such a purpose. The Trustees are required to call a meeting
for the purpose of considering the removal of a person serving as Trustee if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust.
DIVIDENDS, DISTRIBUTION AND TAXES
FEDERAL INCOME TAX STATUS
Each Portfolio intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code"). Under such
provisions, a Portfolio will not be subject to federal income tax on the part of
its net investment income and its realized capital gains that it distributes to
the Separate Account. Such income and capital gains distributions are
automatically reinvested in additional shares of the Portfolio.
Distributions of any net investment income and of any net realized
short-term capital gains are treated as ordinary income for tax purposes in the
hands of the shareholder (Separate Account). The excess of any net long-term
capital gains over the net short-term capital losses will, to the extent
distributed, be treated as long-term capital gains in the hands of the Separate
Account regardless of the length of time the Separate Account may have held the
shares.
The Code generally imposes a 4 percent excise tax on a portion of the
undistributed income of a regulated investment company if that company fails to
distribute required percentages of its ordinary income and capital gain net
income. Each portfolio intends to employ practices that will eliminate or
minimize the imposition of this excise tax. To comply with regulations under
Section 817(h) of the Code, beginning after the first anniversary of investment
in the Fund, each Portfolio will be required to diversify its investments.
Generally, a Portfolio will be required to diversify its investments so that on
the last day of each quarter of a calendar year, no more than 55% of the value
of its assets is represented by securities of any one issuer, no more than 70%
is represented by securities of any two issuers, no more than 80% is represented
by securities of any three issuers, and no more than 90% is represented by
securities of any four issuers. For this purpose, each U.S. Government agency
and instrumentality is to be treated as a separate issuer. A special rule allows
an investment medium underlying variable life insurance contracts to include an
unlimited amount of Treasury securities (a direct obligation of the U.S.
Treasury) so long as its assets other than Treasury securities are adequately
diversified. For purposes of determining whether its assets other than Treasury
securities are adequately diversified, the generally applicable percentage
limitations are increased by one-half of the percentage of the value of the
assets of the account that is represented by Treasury securities and such
limitations are applied as if the Treasury securities were not included in the
account (i.e., the increased percentage limitations are applied as if the other
assets were the only assets in the account).
Reference is made to the Prospectus for the Separate Accounts that
invest in the Fund and the applicable Policy for information regarding the
federal income tax treatment of distributions to the Separate Accounts.
The foregoing is a general and abbreviated summary of the applicable
federal income tax provisions currently in effect. For complete information,
reference should be made to the pertinent Code sections and Treasury
regulations. The Code and regulations are subject to change by legislative or
administrative actions.
DISTRIBUTIONS AND DIVIDENDS
Any distributions made by any Portfolio will be automatically reinvested
in additional shares of that Portfolio, unless an election is made on behalf of
a Separate Account to receive distributions in cash. Dividends or distributions
by a Portfolio other than the Money Market Portfolio will reduce the per-share
net asset value by the per-share amount so paid.
PURCHASE OF SHARES
As of the date of this Prospectus, shares of the Fund are offered only
for purchase by the separate accounts of USL and BSL to serve as an investment
medium for the Policies issued by each insurance company. However, shares of
each Portfolio may be offered in the future to other separate accounts
established by USL or BSL or separate accounts of other affiliated insurance
companies to serve as the underlying investment medium for both variable annuity
and variable life insurance contracts. In the event that an insurance company
invests in the Fund as an investment medium for variable annuity contracts, the
Fund's Board will monitor events in order to identify any material conflicts
between variable annuity contract owners and variable life policy owners, and
will determine what action, if any, should be taken in the event of such a
conflict.
Shares of each Portfolio are sold at their respective net asset values
(without a sales charge) next computed after receipt of a purchase order.
<PAGE>
NET ASSET VALUE
The net asset value is determined by dividing the value of each
Portfolio's net assets by the number of its shares outstanding. That
determination is made once each business day, Monday through Friday, exclusive
of federal holidays at or about 4 p.m., eastern standard time, on each day that
the New York Stock Exchange is open for trading. The Board of Trustees has
established procedures to value each Portfolio's assets to determine net asset
value. In general, these valuations are based on actual or estimated market
value, with special provisions for assets not having readily available market
quotations and short-term debt securities. The net asset values per share of
each Portfolio will fluctuate in response to changes in market conditions and
other factors, except that the Money Market Portfolio will attempt to maintain a
constant net asset value per share of $1.00, which will not fluctuate in
response to changes in market conditions.
The Money Market Portfolio attempts to maintain a constant net asset
value per share by using the amortized cost method of valuation for its
portfolio securities. This involves valuing a security at cost on the date of
acquisition and thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity. See the Statement of Additional
Information for a description of certain conditions and procedures followed by
the Portfolio in connection with amortized cost valuation.
All other Portfolios are valued as follows:
Portfolio securities for which market quotations are readily available
are stated at market value. Market 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. In other cases, securities are valued at their fair value as determined
in good faith by the Board of Trustees of the Fund, although the actual
calculations may be made by persons acting under the direction of the Board.
Money market instruments are valued at market value, except that instruments
maturing in sixty days or less are valued using the amortized cost method of
valuation.
Debt securities (other than obligations having a maturity of sixty days
or less at their date of acquisition) are normally valued on the basis of quotes
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.
When a Portfolio writes a call option, the amount of the premium is
included in the Portfolio's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value of
the option. The premium paid for an option purchased by the Portfolio is
recorded as an asset and subsequently adjusted to market value.
REDEMPTION OF SHARES
Shares of any Portfolio may be redeemed on any business day. Redemptions
are effected at the per share net asset value next determined after receipt of
the redemption request. Redemption proceeds normally will be paid within seven
days following receipt of instructions in proper form. The right of redemption
may be suspended by the Fund (i) when the New York Stock Exchange is closed
(other than customary weekend and holiday closings) or for any period during
which trading thereon is restricted, (ii) because an emergency exists, as
determined by the Securities and Exchange Commission, making disposal of
portfolio securities or valuation of new assets not reasonably practicable, and
(iii) whenever the Securities and Exchange Commission has by order permitted
such suspension or postponement for the protection of shareholders.
PERFORMANCE INFORMATION
The Fund may, from time to time, include the yield and effective yield
of its Money Market Portfolio, the yield of the remaining Portfolios, and the
total return of all Portfolios in advertisements or reports to shareholders or
prospective investors. Performance information for the Fund will not be
advertised or included in sales literature unless accompanied by comparable
performance information for a Separate Account to which the Fund offers its
shares. Current yield for the Money Market Portfolio will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for Money Market Portfolio is
calculated in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings on reinvested dividends.
For the remaining Portfolios, any quotations of yield will be based on
all investment income per share earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the maximum public offering price per share on the last day of the period.
Quotations of average annual total return for any Portfolio will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Portfolios over a period of 1, 5, and 10 years (up to the life
of the Portfolios), will reflect the deduction of a proportional share of
Portfolio's expenses (on an annual basis), and will assume that all dividends
and distributions are reinvested when paid.
<PAGE>
Performance information for a Portfolio may be compared in
advertisement, sales literature, and reports to shareholders to: (i) the
Standard & Poor's 500 Stock Index ("S & P 500"), Dow Jones Industrial Average
("DJIA"), or other unmanaged indices so that investors may compare a Portfolio's
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Portfolio. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses. Advertisements or sales
literature containing any such comparisons will also be accompanied by
performance information for a Separate Account to which the Fund offers its
shares, and such information will be comparable to the performance information
given for the Fund.
Quotations of yield or total return for the Fund will not take into
account charges or deductions against the Separate Account to which the Fund
shares are sold or charges and deductions against the Policies issued by USL and
BSL. Performance information for a Portfolio reflects only the performance of a
hypothetical investment in the Portfolio during the particular time period on
which the calculation is based. Performance information should be considered in
light of the Portfolios' investment objectives and policies, characteristics and
quality of the Portfolios, and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future. For a description of the methods used to determine yield and
total return for the Portfolio, see the Statement of Additional Information.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Minneapolis, Minnesota, served as independent auditors of
the Fund.
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
USLICO SERIES FUND
Statement of Additional Information
April 30, 1996
USLICO Series Fund (the "Fund") is an open-end, diversified management
investment company currently consisting of four separate investment Portfolios:
the Money Market Portfolio, the Bond Portfolio, the Stock Portfolio and the
Asset Allocation Portfolio.
The Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated April 30, 1996, of
USLICO Series Fund, and has been filed with the Securities and Exchange
Commission as part of the Fund's Registration Statement. Investors should note,
however, that this Statement of Additional Information is not itself a
prospectus and should be read carefully in conjunction with the Fund's
Prospectus and retained for future reference. The contents of this Statement of
Additional Information are incorporated by reference in the Prospectus in their
entirety. A copy of the Prospectus may be obtained free of charge from the Fund
at the address and telephone number listed below.
-------------------------
USLICO Series Fund
4601 Fairfax Drive
Arlington, Virginia 22203
(800) 338-7737, extension 3623
<PAGE>
TABLE OF CONTENTS
Page
Introduction................................................................1
Description of Securities and Investment Techniques.........................1
U.S. Government Securities.........................................1
Mortgage-Related Securities........................................1
GNMA Certificates.........................................1
FNMA and FHLMC Mortgage-Backed Obligations................2
Bank Obligations...................................................3
Corporate Debt Securities..........................................3
Commercial Paper...................................................3
Repurchase Agreements..............................................3
Options............................................................4
Writing Options on Securities.............................4
Risks Associated with Call Options on Securities..........5
Money Market Portfolio Yield................................................5
Management of the Fund......................................................6
Trustees and Officers..............................................6
Compensation of Trustees...........................................7
The Investment Adviser.............................................7
Distribution of Fund Shares........................................8
Purchases and Redemptions..........................................8
Portfolio Transactions and Brokerage........................................8
Brokerage and Research Services....................................8
Portfolio Turnover.................................................9
Net Asset Value............................................................10
Performance Information....................................................10
Taxation...................................................................12
Distributions.....................................................12
Appendix I: Corporate Bond and Commercial Paper Ratings...................13
Financial Statements.......................................................14
-i-
<PAGE>
INTRODUCTION
This Statement of Additional Information is designed to elaborate upon
the discussion of certain securities and investment techniques which are
described in the Prospectus. The more detailed information contained herein is
intended solely for investors who have read the Prospectus and are interested in
a more detailed explanation of certain aspects of the Fund's securities and
investment techniques. Captions and defined terms in this Statement of
Additional Information generally correspond to like captions and terms in the
Prospectus.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUE
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the
U.S. Government, its agencies or instrumentalities. U.S. Government securities
include a variety of Treasury securities which differ with respect to certain
items such as coupons, maturities and dates of issue. Treasury bills have a
maturity of one year or less. Treasury notes have maturities of one to ten years
and Treasury bonds generally have a maturity of greater than ten years.
Securities guaranteed by the U.S. Government include federal agency obligations
guaranteed as to principal and interest by the U.S. Treasury (such as GNMA
certificates and Federal Housing Administration debentures). In these
securities, the payment of principal and interest is unconditionally guaranteed
by the U.S. Government and, thus, they are of the highest possible credit
quality. Such securities are subject to variations in market value due to
fluctuations in interest rates but, if held to maturity, will be paid in full.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another: some
are backed by specific types of collateral; some are supported by the issuer's
right to purchase certain obligations of the issuer; others are supported only
by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers
Financing Bank, Farm Credit Banks and the Tennessee Valley Authority. All of the
Portfolios may invest in U.S. Government securities.
Mortgage-Related Securities
The Bond and Asset Allocation Portfolios may invest in GNMA
certificates and FNMA and FHLMC mortgage-backed obligations. Mortgage-related
securities are interests in pools of mortgage loans made to residential home
buyers, including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental and government-related
organizations.
GNMA Certificates: GNMA certificates are mortgaged-backed securities
representing part ownership of a pool of mortgage loans for which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages. GNMA certificates
differ from typical bonds because principal is repaid monthly over the term of
the loan rather than returned in a lump sum at maturity. Because both interest
and principal payments (including prepayments) on the underlying mortgage loans
are passed through to the holder of the certificate, GNMA certificates are
called "pass-through" securities.
Interest in pools of mortgage-related securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a periodic payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the periodic payments made by the individual borrowers on the
residential mortgage loans, net any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayment of principal resulting
from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Mortgage-related
securities issued by GNMA are described as "modified pass-through" securities.
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the schedule payment
dates regardless of whether or not the mortgagor actually makes the payment.
Although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult as there is
currently no central repository for the paper form certificates. Expected
payments may be delayed due to the delays in registering the newly traded paper
securities. The custodian's policies for crediting missed payments while errant
receipts are tracked down may vary. Other mortgage-backed securities such as
those of FHLMC and FNMA trade in book-entry form and are not subject to the risk
of delays in timely payment of income.
Although the mortgage loans in the pool will have maturities of up to
30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Early payments of principal
on the underlying mortgages may expose a Portfolio to a lower rate of return
upon reinvestment of principal. Prepayment rates vary widely and may be affected
by changes in market interest rates. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of the GNMA certificates. Conversely, when interest rates are rising, the rate
of prepayment tends to decrease, thereby lengthening the actual life of the GNMA
certificates. Accordingly, it is not possible to accurately predict the average
life of a particular pool. Reinvestment of prepayments may occur at higher or
lower rates than the original yield on the certificates. Due to the prepayment
feature and the need to reinvest prepayments of principal at current rates, GNMA
certificates can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interests rates, although they
may have comparable ricks of decline in value during periods of rising interest
rates.
FNMA and FHLMC Mortgage-Backed Obligations: Government-related
guarantors (i.e., not backed by the full faith and credit of the U.S.
Government) include the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Association ("FHLMC"). FNMA, a federally-chartered
and privately-owned corporation, issues pass-through securities representing
interest in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest but this guarantee is not backed by the full
faith and credit of the U.S. Government. FNMA is a government-sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
conventional (i.e., not insured or guaranteed by any government agency)
residential mortgages from a list of approved seller/servicers which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers. FHLMC, a
corporate instrumentality of the United States, was created by Congress in 1970
for the purpose of increasing the availability of mortgage credit for
residential housing. Its stock is owned by the 12 Federal Home Loan Banks. FHLMC
issues Participation Certificates ("PCs") which represent interests in
conventional mortgages from FHLMC's national portfolio. GNMA guarantees the
timely payment of interest and ultimate collection of principal and maintains
reserves to protect holders against losses due to default, but PCs are not
backed by the full faith and credit of the U.S. Government. As is the case with
GNMA certificates, the actual maturity of and realized yield on particular FNMA
and FHLMC pass-through securities will vary based on the prepayment experience
of the underlying pool of mortgages.
Bank Obligations
Bank obligations in which all Portfolios may invest include
certificates of deposit, bankers' acceptances and fixed time deposits.
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which are
dependent upon the market conditions and the remaining maturity of obligations.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits.
A Portfolio will not invest in any security issued by a commercial bank
unless the bank is federally-chartered and has total assets of at least U.S. $1
billion, or the equivalent in other currencies. All Portfolios may invest in
obligations of savings and loan associations and savings banks. A Portfolio will
not invest in any security issued by a savings and loan association or savings
bank unless such institution is federally-chartered and has total assets of at
least $1 billion.
Corporate Debt Securities
All Portfolios may invest in corporate debt securities or obligations.
The investment return of corporate debt securities reflects interest earnings
and changes in the market value of the security. The market value of a corporate
debt obligation may also be expected to rise and fall inversely with interest
rates generally. There also exists the risk that the issuers of the securities
may not be able to meet their obligations on interest or principal payments at
the time called for by an instrument.
Commercial Paper
All of the Portfolios may invest in commercial paper (including
variable amount master demand notes) issued by U.S. corporations (1) that have
the rating designated for the applicable Portfolio as described in the
Prospectus in the section on Investment Objectives and Policies, or (2) if not
rated, are determined to be of an investment quality comparable to rated
commercial paper in which a Portfolio may invest.
Repurchase Agreements
All Portfolios may invest in repurchase agreements. If a Portfolio
acquires securities from a bank or broker-dealer, it may simultaneously enter
into a repurchase agreement with the seller wherein the seller agrees at the
time of sale to repurchase the security at a mutually agreed upon time and
price. The term of such an agreement is generally quite short, possibly
overnight or for a few days, although it may extend over a number of month (up
to one year) from the date of delivery. The resale price is in excess of the
purchase price by an amount which reflect an agreed upon market rate of return,
effective for the period of time the Portfolio is invested in the security. This
results in a fixed rate of return protected from market fluctuations during the
period of the agreement. This rate is not tied to the coupon rate on the
security subject to the repurchase agreement.
Under the Investment Company Act of 1940 (the "1940 Act"), repurchase
agreements are considered to be loans by the purchaser collateralized by the
underlying securities. The Adviser or Sub-Adviser of a Portfolio will monitor
the value of the underlying securities at the time a repurchase agreement is
entered into and at all times during the term of the agreement to ensure that
its value always equals or exceeds the agreed upon repurchase price to be paid
to the Portfolio. The Adviser, in accordance with procedures established by the
Board of Trustees, will also evaluate the creditworthiness and financial
responsibility of the banks and broker-dealers with which the Portfolio enters
into repurchase agreements.
A Portfolio may not enter into a repurchase agreement having more than
seven days remaining to maturity if, as a result, such agreements together with
any other securities which are not readily marketable, would exceed ten percent
(10%) of the net assets of the Portfolio. If the seller should become bankrupt
or default on its obligations to repurchase the securities, a Portfolio may
experience delay or difficulties in exercising its rights to the securities held
as collateral and might incur a loss if the value of the securities should
decline. A Portfolio also might incur disposition costs in connection with
liquidation of the securities.
Options
In pursuing their investments objectives, the Stock and Asset
Allocation Portfolios may engage in the writing of call options on debt
securities.
Writing Options on Securities: The Portfolios may write (sell) call
options on debt or other securities in standardized contracts traded on national
securities exchanges or boards of trade.
A call option on a security is a contract that gives the holder of the
call, in return for a premium, the right to buy the underlying security from the
writer of the option at a specified exercise price at any time during the term
of the option. The writer of a call option on a security has the obligation upon
exercise of the option to deliver the underlying security upon payment of the
exercise price.
A Portfolio may write call options only if they are "covered" or
"secured". In the case of a call option on a security, the option is "covered"
if the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon conversion
or exchange of other securities held by the Portfolio.
If an option written by a Portfolio expires unexercised, the Portfolio
realizes a capital gain equal to the premium received at the time the option was
written. If an option purchased by a Portfolio expire unexercised, the Portfolio
realized a capital loss equal to the premium paid.
A Portfolio may purchase a call only in a "closing purchase
transaction" to terminate its obligation on a call that it has written. Prior to
the earlier of exercise or expiration of the call, an option may be closed out
by an offsetting purchase of a call option of the same series (type, exchange,
underlying security, exercise price and expiration). There can be no assurance,
however, that a closing purchase transaction can be effected when the Portfolio
desires.
A Portfolio will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Portfolio will realize a capital
loss. The principal factors affecting the market value of a call option include
supply and demand, interest rates, the current market price of the underlying
security in relation to the exercise price of the option, the volatility of the
underlying security, and the time remaining until the expiration date.
The premium received for an option written by a Portfolio is recorded
as a deferred credit. The value of the option is marked-to-market daily and is
valued at the closing price on the exchange or board of trade on which it is
traded, or, if no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Call Options on Securities:
There are several risks associated with writing call options on
securities. For example, there are significant differences between the
securities and option markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when, and how to use a call option
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist when a
Portfolio seeks to close out an option position. If a Portfolio were unable to
close out a covered call option it had written on a security, it would not be
able to sell the underlying security unless the option expired without exercise.
As a writer of a covered call option, a Portfolio foregoes, during the option's
life, the opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and the exercise
price of the call.
If trading were suspended in an option written by a Portfolio, the
Portfolio would not be able to close out the option. If restrictions on exercise
were imposed, the Portfolio might be unable to exercise an option it has
purchased.
MONEY MARKET PORTFOLIO YIELD
To calculate a seven-day yield for the Money Market Portfolio, the Fund
uses a hypothetical, pre-existing account having a balance of $100 at the
beginning of the seven-day period. The net change in the value of the Portfolio
during the seven-day period (excluding any realized gains or losses from the
sale of securities and unrealized appreciation and depreciation) is divided by
the value of the Account at the beginning of the period and then multiplied by
365/7 to obtain the annual yield to the nearest hundredth of one percent. Since
the net change in the seven-day value is used, the values reflect the charges
made against the Portfolio.
The seven-day yield does not necessarily represent the future yield of
the Money Market Portfolio. Yields fluctuate on a daily basis and reflect
quality, length of maturities, rates of return and market conditions for money
market investments suitable for this Portfolio.
A hypothetical example of how we calculate the seven-day yield for the
period ending December 31, 1995, assuming the values used are as follows:
(1) Value on Dec. 22, 1995.............................. 2.1223068922
(2) Value on Dec. 30, 1995 (exclusive of capital charges 2.1241941705
(3) Net change: (2) - (1).............................. 0.0018872783
(4) Net change divided by Value on Dec. 23, 1995:
(3) divided by (1)......................... 0.00088925796
(5) Seven-day yield annualized (multiplied
by 365/7................................... 4.64%
MANAGEMENT OF THE FUND
Trustees and Officers
Information pertaining to the Trustees and officers of the Fund is set
forth below.
The Trustee and officers are as follows:
Principal Occupation
During the Past Five
Name and Position Years
Richard C. Kaufman Assistant Director of Legislative Affairs,
Chairman and Trustee AUSA Retired; Colonel, AUS (Ret.).
Jeri A. Ekhart Independent Management Consultant,
Trustee 1988-present; Board Member, White House
Fellows Foundation, 1990-present;
Associate Deputy Secretary, Department of
Labor, 1985-1988.
Wayne O. Jefferson, Jr. Telecommunications Consultant, 1994-
Trustee present; Executive Director, Support
Services, LLC, Arlington, VA 1992-
1994; General Manager, Telecom
Solutions, Inc., Arlington, VA, 1991-
1992; Telecommunications Consultant
and President, Jefferson Associates, Inc.,
Alexandria, VA, 1989-1992; Major
General, U.S. Air Force and Deputy
Director, Defense-wide Communications
Support, Joint Staff, The Pentagon,
1988-1989.
*David H. Roe Senior Vice President, ReliaStar Financial
Corp. 1995 to present; President and
Chief Operating Officer of USLICO
Corporation, 1993-1995; President and
CEO of United Services Life Insurance
Company ("USL"); and Bankers
Security Life Insurance Society ("BSL")
an officer since 1991.
*Rebecca B. Crunk Vice President and Controller of USL.
Vice President and Treasurer
*Robert B. Saginaw Vice President and Counsel of the Fund.
Vice President and Secretary
*Stephanie L. Copes Assistant Secretary of the Fund since
Assistant Secretary 1991.
*Francis A. Podlesney Assistant Vice President and Counsel
Assistant Secretary of BSL.
*Because of their positions as stated above, the officers are "interested
persons" of the Adviser, as defined in the 1940 Act. Their business address is
4601 Fairfax Drive, Arlington, Virginia 22203.
Compensation of Trustee
The officers are "interested persons" of the Fund and are compensated
by USL or its affiliates. They do not receive additional compensation for
services rendered to the Fund. The "Non-Interested" Trustees receive
compensation from the Fund for serving on the Board. They each receive an annual
retainer of $1,000.00 and a fee of $250 for each meeting that they attend for
serving on the Board. The regular meetings of the Board are held quarterly. A
total of $6,000.00 was paid for Trustees' fees in the year ended December 31,
1995.
The Investment Adviser
Since April 1, 1995, Washington Square Advisers, Inc. ("Washington
Square") has served as Investment Adviser (the "Adviser") to the Fund pursuant
to an Investment Advisory Agreement between it and the Fund. The Adviser is
responsible for administering affairs of and supervising the investment program
for the Fund. The Adviser also furnishes to the Board of Trustees, which has
overall responsibility for the business and affairs of the Fund, periodic
reports on the investment performance of each Portfolio. Effective April 1,
1995, the Fund, the Adviser and Newbold's Asset Management, Inc. (the
"Sub-Adviser") entered into an Investment Advisory and a Sub-Investment Advisory
Agreements. The Sub-Adviser provides advisory services to the Stock Portfolio
and the Asset Allocation Portfolio of the Fund. The address of the Sub-Adviser
is 937 Haverford Road, Bryn Mawr, PA 19010. From April 1988 through april 1995,
the Adviser for the Fund was Bankers Centennial Management Corp. Newbold's has
been the Sub-Adviser for equities since July 1992.
Subject to overall supervision of the Fund's Board of Trustees, the
Adviser exercises overall responsibility for the investment and reinvestment of
the Fund's Assets for which its has primary investment responsibility and
continuously monitors and supervises all aspects of the Sub-Adviser's
performance of its investment duties. In so doing, the Adviser manages the
day-to-day investment operations of the Fund and the composition of the
investment portfolios of the Bond and Money Market Portfolios and the assets of
the Asset allocation Portfolio not allocated to the management of the
Sub-Adviser, including the purchase, retention and disposition of the
investments, securities and cash contained therein.
Subject to overall responsibility of the Fund's Board of Trustees and
the Adviser, the Sub-Adviser will exercise overall responsibility for the
investment and reinvestment of the Stock Portfolio and the portion of the assets
of the Asset Allocation Portfolio allocated by the Adviser to the Sub-Adviser.
In so doing, the Sub-Adviser will manage the day-to-day operations of the
investment portfolio of the Stock Portfolio and the portion of the Asset
Allocation Portfolio for which it has primary advisory responsibility, which
includes all equity investments.
Under the terms of the Advisory Agreement, Washington Square is
obligated to manage the Fund's Portfolios in accordance with applicable laws and
regulations.
The Advisory and Sub-Advisory Agreements ("Agreements") were approved
by the Board of Trustees, including a majority of the Trustees who are not
parties to the Agreements, or interested persons of such parties, at its meeting
held on March 1, 1995, to be effective April 1, 1995. The Agreements will
continue in effect indefinitely, provided such continuance is approved annually
by (i) the holders of a majority of the outstanding voting securities of the
Fund or by the Board, and (ii) a majority of the Trustees who are not parties to
such Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
any such party. The Board approved the Agreements on March 6, 1996. Each
Agreement may be terminated without penalty on 60 days written notice by either
party to the Agreement and will terminate automatically if assigned.
The Fund pays the Adviser for its services under the Agreement a fee
based on an annual percentage of the average daily net assets of each portfolio.
For each Portfolio, the Fund pays the Adviser a fee at an annual rate not to
exceed .50% of the first $100 million of the average daily net assets of the
Portfolio, and .45% of the average daily net assets of the Portfolio in excess
of $100 million. The Fund does not pay the Sub-Adviser
Distribution of Fund Shares
USLICO Securities Corporation serves as the Fund's Distributor pursuant
to a distribution contract.
Purchases and Redemptions
For information on purchase and redemption of shares, see "Purchase of
Shares" and "Redemption of Shares" in the Fund's Prospectus. The Fund may
suspend the right of redemption of shares of any Portfolio for any period: (i)
during which the New York Stock Exchange is closed other than customary weekend
and holiday closings or during which trading on the New York Stock Exchange is
restricted; (ii) when the Securities and Exchange Commission determines that a
state of emergency exists which may make payment or transfer not reasonable
practicable; (iii) as the Securities and Exchange Commission may by order permit
for the protection of the security holder of the Fund; or (iv) at any other time
when the Fund may, under applicable laws and regulations, suspend payment on the
redemption of its shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Brokerage and Research Services
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price paid
by the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transaction on
national stock exchanges and other agency transaction involve the payment of the
Fund of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction.
The Adviser or the Sub-Adviser for a Portfolio places all orders for
the purchase and sale of portfolio securities and options for a Portfolio
through a substantial number of broker-dealers. In executing transactions, the
Adviser or the Sub-Adviser will attempt to obtain the best execution for a
Portfolio taking into account such factors as price (including the applicable
brokerage commission or dollar spread), size of order, the nature of the market
for the security, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer involved, the quality of the service,
the difficulty of execution and operational facilities of the firms involved,
and the firm's risk in positioning a block of securities. In effecting purchases
and sales of portfolio securities in transaction on national stock exchanges for
the account of the Fund the Adviser or the Sub-Adviser may pay higher commission
rates than the lowest available when the Adviser or the Sub-Adviser believes it
is reasonable to do so in light of the value of the brokerage and research
services provided by the broker-dealer effecting the transaction, as described
below. In the case of securities traded on the over-the-counter markets, there
is generally no stated commission, but the price includes an undisclosed
commission or mark-up.
Some securities considered for investment by the Fund's Portfolios may
also be appropriate for other clients served by the Adviser or the Sub-Adviser.
If a purchase or sale of securities consistent with the investment policies of a
Portfolio and one or more of these clients served by the Adviser or the
Sub-Adviser is considered at or about the same time, transactions in such
securities will be allocated among the Portfolios and clients in a manner deemed
fair and reasonable by the Adviser or the Sub-Adviser. Although there is no
specified formula for allocating such transaction, the various allocation
methods used by the Adviser or the Sub-Adviser, and the results of such
allocations, are subject to periodic review by the Fund's Adviser and Board of
Trustees.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser for a Portfolio may receive research services from many
broker-dealers with which the Adviser places the Portfolio transactions. These
services, which in some cases may also be purchased for cash, include such
matters as general economic and security market reviews, industry and company
reviews, evaluations of securities and recommendations as to the purchase and
sale of securities. Some of these services may be of value to the Adviser in
advising its various clients (including the Fund), although not all of these
services are necessarily useful and of value in managing a Portfolio. The
management fee paid by the Portfolio is not reduced because the Adviser and its
affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the adviser may cause a Portfolio to pay a broker-dealer, which provides
"brokerage and research services" (as defined in that Act) to the Adviser, an
amount of disclosed commission for effecting a securities transaction for the
Portfolio in excess of the commission which another broker-dealer would have
charged for effecting that transaction.
The Fund paid brokerage commissions of approximately $46,000.00 for the
year ended December 31, 1995.
Portfolio Turnover
For reporting purposes, the portfolio turnover rate of each Portfolio
is calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value of
portfolio securities owned by the Portfolio during the fiscal year. In
determining such portfolio turnover, long-term U.S. Government securities are
included. Short-term U.S. Government securities and all other securities whose
maturities at the time of acquisition were one year or less are excluded. A 100%
portfolio turnover rate would occur, for example, if all of the Portfolio's
securities (other than short-term securities) were replaced once during the
fiscal year. The portfolio turnover rate for each Portfolio will vary from year
to year, depending on market conditions. Because each Portfolio has a different
investment objective, each will have a different expected rate of portfolio
turnover. However, the portfolio turnover rate will not be a limiting factor
when management deems it appropriate to buy or sell securities for a particular
Portfolio.
The writing of call options by the Stock and Asset Allocation
Portfolios may result in higher turnover than otherwise would be the case and,
therefore, greater commission expenses.
It is anticipated that the annual portfolio turnover, as defined above,
will not exceed the following limits of the Portfolios under normal market
conditions: Money Market Portfolio -- 0%; Stock Portfolio -- 125%; Bond
Portfolio -- 100%; and Asset Allocation Portfolio -- 150%. Increased portfolio
turnover may result in greater brokerage commission. In 1995, the Portfolio
turnover rate was: Stock Portfolio -- 62.51%; Bond Portfolio -- 32.67%; and
Asset Allocation Portfolio -- 44.97%.
Market conditions and changes in interest rates may result in turnover
at a greater or lesser than anticipated.
NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectus, the Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined after 4:00 p.m. Eastern Standard Time, on each day the New York
Stock Exchange is open for trading. Net asset value will not be determined on
the following days: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The Money Market Portfolio's securities are valued using the amortized
cost method of valuation. This involves valuing a security at cost on the date
of acquisition and thereafter assuming a constant accretion of a discount of
amortization of a premium to maturity, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument. During such periods the yield to
investors in the Portfolio may differ somewhat from that obtained in a similar
investment company which uses available market quotations to value all of its
portfolio securities.
The Commissions regulations require that the Money Market Portfolio to
adhere to certain conditions. The Portfolio is required to maintain a
dollar-weighted average portfolio maturity of 120 days or less, to limit its
investments to instruments having remaining maturities of one year or less
(except securities held subject to repurchase agreements having one year or less
to maturity) and to invest only in securities determined by the Adviser to be of
high quality with minimal credit risks.
PERFORMANCE INFORMATION
The Fund may, from time to time, include the yield and effective yield
of its Money Market Portfolio, the yield of the remaining Portfolios, and the
total return of all Portfolios in advertisements or reports to the shareholders
or prospective investors. Performance information for the Fund will be
advertised or included in sales literature only when accompanied by the joint
Separate Account Fund prospectus that contains illustrations demonstrating the
effect of performance at the Separate Account level in terms of cash value and
death benefit.
The Fund is the successor to the Separate Account I (a Stock Account),
Separate Account II (a Money Market Account), Separate Account III (a Bond
Account) and Separate Account IV (an Asset Allocation Account) of United
Services Life Insurance Company and Separate Account I (a Stock Account),
Separate Account II ( a Money Market Account), Separate Account III (a Bond
Account) and Separate Account IV (an Asset Allocation Account) of Bankers
Security Life Insurance Society (collectively, the "USL and BSL Separate
Accounts"). On April 30, 1988, the investment-related assets and liabilities of
the USL and BSL Separate Accounts were transferred to the Stock, Money Market,
Bond and Asset Allocation Portfolios of the Fund. Performance calculations are
based upon the BSL Separate Accounts.
Current yield for the Money Market Portfolio may be reported and will
be based on the change in the value of a hypothetical investment (exclusive of
capital changes) over a particular seven-day period, less a pro-rata share of
Portfolio expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base
period"), and stated as a percentage of the investment at the start of the base
period (the "base period return"). The base period return is then annualized by
multiplying by 365/7, with the resulting yield figure carried to at least the
nearest hundredth of one percent.
Quotations of average annual total return for a Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Portfolio over a certain period that will include
periods of 1, 5 and 10 years (up to the life of the Portfolio), calculated
pursuant to the following formula: P(1 + T)(n) = ERV (where P = a hypothetical
initial payment of $1,000, T = the average annual total return, n = the number
of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period). All total return figures reflect the
deduction of a proportional share of Portfolio expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid.
Average annual total return figures for one year ending December 31,
1995 are: 31.92% -- Stock Portfolio; 5.00% -- Money Market Portfolio; 18.07% --
Bond Portfolio; and 25.15% -- Asset Allocation Portfolio. For the five-year
period ending December 31, 1995, the average annual total return figures are:
13.69% -- Stock Portfolio; 3.80% -- Money Market Portfolio; 9.35% -- Bond
Portfolio; and 11.36% -- Asset Allocation Portfolio. For the ten-year period
ending December 31, 1995, the average annual total return figures are: 11.25% --
Stock Portfolio; 5.60% -- Money Market Portfolio. (Because the Bond and the
Asset Allocation portfolios commenced operations on June 25, 1987, no ten-year
period average annual total return figures are reported.) Life of the fund
return figures are reported in lieu of 10-year figures based on the inception of
June 25, 1987 for the Bond and Asset Allocation Portfolios. Average Annual total
returns for the Life of the Funds ending December 31, 1995 are: 10.78% -- Stock
Portfolio; 6.54% -- Money Market Portfolio; 9.50% for the Bond Portfolio; and
9.29% for the Asset Allocation Portfolio.
Performance information for a Portfolio may be compared in
advertisements, sales literature, and reports to shareholders to: (i) the
Standard & Poor's 500 Stock Index ("S & P 500"), Dow Jones Industrial Average
("DJIA"), or other unmanaged indices so that investors may compare a Portfolio's
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual fund tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performances,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rack mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Portfolio. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management cost and expenses. Advertisements or sales
literature containing any such comparisons will also be accompanied by the joint
prospectus of the Fund and Separate Account. The prospectus includes
illustrations demonstrating the effect of various performance levels in terms of
cash value and death benefit.
Quotations of yield or total return for the Fund will not take into
account charges or deductions against the Separate Account to which the Fund
shares are sold or charges and deductions against the policies issued by USL and
BSL. Performance information for a Portfolio reflects only the performance of a
hypothetical investment in the Portfolio during the particular time period on
which the calculation is based. Performance information should be considered in
light of the Portfolios' investment objectives and policies, characteristics and
quality of the Portfolios, and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
TAXATION
Each Portfolio intends to qualify annually and elects to be treated as
a regulated investment company under the Internal Revenue Code of 1986 (the
"Code").
To qualify as a regulated investment company, each Portfolio must,
among other things: (i) derive in each taxable year at least ninety percent
(90%) of its gross income from dividends, interest, payments with respect to
securities loan, and gains from the sale or other disposition of stock,
securities or foreign currencies or other income derived with respect to its
business of investing in such stock, securities or currencies; (ii) derive in
each taxable year less than thirty percent (30%) of its gross income from the
sale or other disposition of stock or securities held less than three months;
(iii) diversify its holdings so that, at the end of each quarter of the taxable
year,(a) at least fifty percent (50%) of the market value of the Portfolios'
assets are represented by cash, U.S. Government securities, the securities of
other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than five percent (5%) of the value of the Portfolio's total
assets and 10 percent (10%) of the outstanding voting securities of such issuer,
and (b) not more than twenty-five percent (25%) of the value of its total assets
is invested in the securities of and one issuer (other than U.S. Government
securities or the securities of other resulted investment companies); and (iv)
distribute at least ninety percent (90%) of its net investment income (which
includes dividends, interest, and net short-term capital gains in excess of and
net long-term capital losses) each taxable year.
As a regulated investment company, a Portfolio will not be subject to
U.S. federal income tax on its net investment income and net capital gains (any
net long-term capital gains in excess of the sum of net short-term capital
losses and capital loss carryovers from prior years), if any, that it
distributes to shareholders. Each Portfolio intends to distribute to its
shareholders, at least annually, substantially all of its net investment income
and any net capital gains. In addition, amounts not distributed by a Portfolio
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible four percent (4%) excise tax. To avoid the tax, a
Portfolio must distribute during each calendar year, (i) at least ninety-eight
percent (98%) of its ordinary income (not taking into account any capital gains
or losses) for the calendar year, (ii) at least ninety-eight percent (98%) of
its capital gains in excess of its capital losses for the twelve-month period
ending October 31 of the calendar year, and (iii) all ordinary income and
capital gains for previous years that were not distributed during such years. To
avoid application of the excise tax, each Portfolio intends to make these
distributions in accordance with the calendar year distribution requirement. A
distribution will be treated as paid during the calendar year if it is declared
by a Portfolio before December 31 of the year and paid by the Portfolio by
January 31 of the following year. Such distribution will be taxable to
shareholders (the Separate Account) in the year the distributions are declared,
rather than the year in which the distributions are received.
Distributions
Distributions of any new investment income by a Portfolio are taxable
to the shareholder as ordinary income. Net capital gains will be treated, to the
extent distributed, as long-term capital gains in the hands of the shareholder.
<PAGE>
Appendix I
Corporate Bond and Commercial Paper Ratings
(a) Corporate Bonds: Bonds are rated Aa by Moody's Investors Service,
Inc. are judged by Moody's to be of high quality by all standards. Together with
bonds rated Aaa (Moody's highest rating) they comprise what are generally known
as high-grade bonds. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large as those of Aaa bonds, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than those
applicable to Aaa securities. Bonds which are rated A by Moody's possess may
favorable investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest as susceptibility to
impairment sometime in the future.
Moody's Baa rated bonds are Considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Bonds rated AA by Standard & Poor's Corporation are judged by Standard
& Poor's to be high-grade obligations and in the majority of instances differ
only in small degree from issues rated AAA (Standard & Poor's highest rating).
Bonds rated AAA are considered by Standard & Poor's to be the highest grade
obligations and possess the ultimate degree of protection as to principal and
interest. With AA bonds, as with AAA bonds, prices move with the long-term money
market. Bonds rated A by Standard 7 Poor's have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
Standard & Poor's BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and those where the speculative
elements begin to predominate. These bonds have adequate asset coverage and
normally are protected by satisfactory earnings. Their susceptibility to
changing conditions, particularly depressions, necessitates constant watching.
These bonds generally are more responsive to business and trade conditions than
to interest rates. This group is the lowest which qualifies for commercial bank
investment.
(b) Commercial Paper: The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors.
Commercial paper rated A by Standard & Poor's has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) long-term senior debt rating should be A or better, although in some cases
BBB credits may be allowed if other factors outweigh the BBB; (3) the issuer
should have access to at least two additional channels of borrowing; (4) basic
earnings and cash flow should have an upward trend with allowance made for
unusual circumstances; and (5) typically the issuer's industry should be well
established and the issuer should have a strong position within its industry and
the reliability and quality of management should be unquestioned. Issuers rated
A are further referred to by use of numbers 1, 2 and 3 to denote relative
strength within this highest classification.
<PAGE>
USLICO SERIES FUND
INVESTMENT STRATEGIES AND PERFORMANCE OF THE STOCK PORTFOLIO
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 1995, Newbold's participated in the exuberant stock market that
recorded the strongest annual returns since 1958 and the 3rd largest in
the post WW II era. Newbold's value style produced underweighted
positions in two strong "growth" sectors - Healthcare (ultimately the
leading performance sector) - and Technology, and those underweights
generated a performance lag. However, Newbold's large overweight in
Utilities in the second half of the year resulted in a recapture of
nearly all of that lag. The large positions in Commercial Aircraft
producers also generated strong returns. Going into 1996, the portfolio
has de-emphasized economically sensitive issues, in favor of more stable
earnings producers found in the Utility, Food & Beverage, and Health
Care industries.
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*
BETWEEN THE STOCK PORTFOLIO AND THE S&P 500 INDEX
Year Stock S&P 500
Portfolio Index
(in thousands of dollars)
12/85 10.0 10.0
12/86 11.2 11.5
12/87 11.6 11.7
12/88 12.9 13.1
12/89 16.0 16.7
12/90 14.9 15.6
12/91 17.5 19.7
12/92 18.5 20.6
12/93 20.5 22.1
12/94 21.1 21.7
12/95 27.8 29.2
*-$10,000 INVESTED ON 12/31/85 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
separate accounts.
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.
<PAGE>
USLICO SERIES FUND
INVESTMENT STRATEGIES AND PERFORMANCE OF THE BOND PORTFOLIO
The responsibility for investments and reinvestments in the Bond
Portfolio is with Washington Square Capital (the "Adviser"), which is
affiliated with Bankers Security Life Insurance Society and United
Services Life Insurance Company. Investments are primarily in
investment-grade intermediate to long-term corporate bonds. Bonds
represented 97% of investable funds at year-end with the remainder of
the portfolio in a high quality money market fund.
During 1995, the Bond Portfolio was primarily invested in corporate
bonds rated "A" or better by Moody's or Standard & Poor's. The
Portfolio holds no Collateralized Mortgage Obligations.
The average maturity of the bonds was less than ten years. The
composition of the Portfolio holdings tended to be somewhat shorter in
duration and with heavier emphasis on corporate bonds than that of its
most representative industry index, which is the Lehman Brothers
Government/Corporate Bond Index. The Total Return for 1995, after all
expenses at the Portfolio level was 18.07%.
COMPARISON OF 102 MONTH CUMULATIVE TOTAL RETURN*
BETWEEN THE BOND PORTFOLIO AND THE LEHMAN BROS GOV'T CORP INDEX
Year Stock Lehman Bros
Portfolio Gov't Corp Index
(in 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
*-$10,000 INVESTED ON 6/25/87 IN FUND OR 7/1/87 IN INDEX INCLUDING
REINVESTMENT OF INCOME
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
separate accounts.
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.
<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 Newbold's, 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 Washington Square Capital. During 1995, the bonds in the Portfolio
were primarily corporate bonds rated "A" or better by Moody's or
Standard and Poor's. The Portfolio holds no Collateralized Mortgage
Obligations. The average maturity of the bonds was less than ten years.
Bond holdings tended to be somewhat shorter in duration and with
heavier emphasis on corporate bonds than that of Lehman Brothers
Government/Corporate Bond Index. The Total Return for 1995, after all
expenses at the Portfolio level, was 25.15%.
COMPARISON OF 102 MONTH CUMULATIVE TOTAL RETURN*
BETWEEN THE ASSET ALLOCATION PORTFOLIO, LEHMAN BROS
GOV'T CORP INDEX AND S&P 500 INDEX
Year Stock Lehman Bros S&P 500
Portfolio Gov't Corp Index INDEX
(in thousands of dollars)
6/25/87 10.0 10.0 10.0
12/87 9.5 10.1 10.1
12/88 10.5 10.9 11.4
12/89 12.2 12.4 14.4
12/90 12.3 13.5 13.5
12/91 14.1 15.6 17.1
12/92 15.2 16.8 17.8
12/93 16.8 18.7 19.1
12/94 16.6 18.0 18.8
12/95 20.8 21.5 25.2
*-$10,000 INVESTED ON 6/25/87 IN FUND OR 7/1/87 IN INDEX INCLUDING
REINVESTMENT OF INCOME
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
separate accounts. 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.
<PAGE>
<TABLE>
USLICO Series Fund
Statement of Assets and Liabilities
December 31, 1995
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 $ 600,370 $ 2,654 $ 85,500 $ 276,593 $ 965,117
Common stock, at fair value (cost
$16,457,309 and $5,662,193, respectively) 19,413,676 - - 6,679,936 26,093,612
Bonds, at fair value (cost
$2,803,296 and $6,288,482, respectively) - - 2,961,368 6,593,786 9,555,154
Commercial paper, at amortized
cost which approximates fair value - 5,875,117 - - 5,875,117
Dividends receivable 46,199 - - 15,929 62,128
Interest receivable 1,987 15 50,362 112,589 164,953
Securities not settled, net 26,299 - - 59,082 85,381
------------ ------------ ------------ ------------ ------------
Total assets 20,088,531 5,877,786 3,097,230 13,737,915 42,801,462
------------ ------------ ------------ ------------ ------------
Liabilities
Accrued expenses 120,195 58,316 28,405 62,136 269,052
------------ ------------ ------------ ------------ ------------
Net assets $ 19,968,336 $ 5,819,470 $ 3,068,825 $ 13,675,779 $ 42,532,410
============ ============ ============ ============ ============
Net asset value per share $ 12.62 $ 1.00 $ 10.38 $ 11.82
============ ============ ============ ============
Shares outstanding 1,582,137 5,819,470 295,615 1,156,980
============ ============ ============ ============
Net assets consist of:
Capital stock ($.001 par value) $ 1,582 $ 5,819 $ 296 $ 1,157
Additional paid-in capital 17,011,431 5,813,651 2,909,963 12,348,396
Accumulated undistributed
net investment income (3,311) - 494 (73)
Accumulated undistributed net
realized gains from
investment transactions 2,267 - - 3,252
Net unrealized appreciation
of investments 2,956,367 - 158,072 1,323,047
------------ ------------ ------------ ------------
Net assets $ 19,968,336 $ 5,819,470 $ 3,068,825 $ 13,675,779
============ ============ ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USLICO Series Fund-Common Stock Portfolio
Statement of Investments
December 31, 1995
Common Stock
Fair Fair
Shares Value Shares Value
--------- ----------- --------- -----------
<S> <C> <C> <S> <C> <C>
Aerospace & Defense - 3.69% Food,House & Personal Products - 8.02%
- -------------------------- --------------------------------------
Boeing Co. 4,100 318,775 Anheuser-Busch Co., Inc. 3,200 $ 212,800
United Technologies Corp. 4,400 418,000 Archer-Daniels-Midland Co. 13,170 237,060
----------- Conagra 1,900 78,137
736,775 Dial Corp. 7,700 227,150
----------- RJR Nabisco Holdings 13,320 406,260
Computers - .82% RJR Nabisco PFD 14,500 90,625
- --------------- - Unilever N.V. 2,500 350,312
Apple Computer, Inc. 5,100 163,200 -----------
----------- 1,602,344
163,200 -----------
----------- Industrial - 10.55%
Diversified - 2.98% -------------------
- ------------------- Aluminum Co. of America 6,700 338,350
Corning, Inc. 10,900 333,812 Browning-Ferris Industries, In 8,300 236,550
General Electric 3,400 241,825 Genuine Parts Co. 5,800 235,625
ITT Industries, Inc. 800 19,000 Hanson PLC ADR 21,400 326,350
----------- International Paper Co. 5,200 195,650
594,637 Masco Corp. 12,000 373,500
----------- Mead Corp. 3,400 173,825
Drugs & Health Care - 7.97% Pitney Bowes, Inc. 4,900 226,625
- --------------------------- -----------
Baxter International, Inc. 5,200 217,100 2,106,475
Bristol-Myers Squibb Co. 6,100 522,313 -----------
US Healthcare, Inc. 6,200 282,875 Publishing - 3.64%
Warner Lambert Co. 5,900 569,350 ------------------
----------- Dun & Bradstreet 7,300 471,763
1,591,638 New York Times Co. 8,700 254,475
----------- -----------
726,238
Energy & Chemicals - 22.34% -----------
- --------------------------- Retail Trade - 3.75%
Amoco Corp. 3,500 252,438 --------------------
Atlantic Richfield Co. 4,000 446,500 American Stores Co. 12,200 320,250
Chevron Corp. 11,600 610,450 Dayton-Hudson Corp. 1,200 90,000
Dow Chemical Co. 1,600 110,800 Limited 18,700 301,538
Exxon Corp. 5,200 430,950 Reebok International Ltd. 1,300 36,562
Mobil Corp. 2,100 238,350 -----------
Panhandle Eastern Corp. 12,900 361,200 748,350
Rhone Poulenc ADR 8,300 177,412 -----------
Royal Dutch Petro-NY shares 900 126,675 Utilities/Communications - 24.17%
Schlumberger Ltd. 4,850 340,713 --------------------------------
TransCanada Pipelines Ltd. 25,200 349,650 AT & T Corp. 10,500 678,562
USX-Marathon Group 12,600 244,125 Baltimore Gas & Electric 6,500 184,437
W. R. Grace & Co. 5,500 328,625 Entergy Corp. 16,500 476,438
WMX Technologies, Inc. 15,300 443,700 FPL Group 7,600 351,500
----------- General Public Utilities Corp. 10,600 356,425
4,461,588 GTE Corp. 12,500 550,000
----------- Houston Industries, Inc. 8,000 195,000
Entertainment - .21% MCI Communications 4,300 112,875
- -------------------- NYNEX Corp. 13,000 677,625
ITT Corp. 800 42,000 Pacific Enterprises 1,500 42,375
----------- PacifiCorp 5,800 124,700
42,000 Peco Energy Co. 3,500 105,000
----------- SCEcorp 9,800 171,500
Finance - 9.08% Sprint Corp. 13,800 558,900
- --------------- Southern Co. 5,600 137,200
Aetna Life & Casualty Co. 2,900 203,725 Unicom Corp. 3,200 104,800
Bankers Trust N.Y. Co. 1,800 120,825 -----------
Chubb Corp. 3,350 327,463 4,827,337
Fleet Financial Group, Inc. 8,800 366,300 -----------
ITT Hartford Group, Inc. 800 38,500
NationsBank Corp. 2,250 156,656
Providian Corp. 5,300 212,000
St. Paul Companies 7,000 387,625
-----------
1,813,094
-----------
Total Common Stock 97.22% 19,413,676
Other Assets and
Liabilities, Net 2.78% 554,660
-----------
Net Assets 100.00% $19,968,336
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USLICO Series Fund-Money Market Portfolio
Statement of Investments
December 31, 1995
Principal Amortized
Commercial Paper 100.96% Amount Cost
------------ ------------
<S> <C> <C>
General Electric Capital Corp., 5.70%, Due January 1, 1996 $ 245,000 $ 245,000
Kansas City Power, 5.68%, Due January 2, 1996 200,000 199,874
Consolidated Gas Co., 5.75%, Due January 4, 1996 275,000 274,736
AT & T Capital, 5.70%, Due January 5, 1996 215,000 214,762
Consolidated Natural Gas Co., 5.72%, Due January 5, 1996 215,000 214,761
Temple Inland Inc., 5.75%, Due January 9, 1996 260,000 259,543
Household Finance, 5.75%, Due January 10, 1996 100,000 99,808
Baltimore Gas & Electric Co., 5.70%, Due January 11, 1996 250,000 249,485
Idaho Power Co., 5.65%, Due January 11, 1996 260,000 259,470
SAFECO Corp., 5.70%, Due January 11, 1996 250,000 249,483
Household Finance, 5.73%, Due January 12, 1996 138,000 137,692
Merrill Lynch & Co., 5.80%, Due January 12, 1996 250,000 249,436
Campbell Soup Co., 5.75%, Due January 16, 1996 260,000 259,253
Nordstrom Credit Inc., 5.80%, Due January 16, 1996 208,000 207,397
E.I .DuPont de Nemours, 5.70%, Due January 17, 1996 265,000 264,203
Beneficial Corp., 5.75%, Due January 18, 1996 250,000 249,201
American Express Credit Corp., 5.70%, Due January 19, 1996 260,000 259,136
American General Finance Corp., 5.74%, Due January 19, 1996 260,000 259,130
Chevron Oil Finance Corp., 5.70%, Due January 19, 1996 250,000 249,169
Florida Power Corp., 5.80%, Due January 19, 1996 260,000 259,120
Northern States Power, 5.70%, Due January 22, 1996 200,000 199,240
Stanley Morgan Group, 5.73%, Due January 24, 1996 260,000 258,924
Pitney Bowes Credit, 5.72%, Due January 24, 1996 260,000 258,930
Smithkline Beecham, 5.65%, Due January 30, 1996 250,000 248,745
Ameritech Corp., 5.68%, Due February 2, 1996 250,000 248,619
------------ ------------
Total Commercial Paper 100.96% $ 5,891,000 5,875,117
============
Other Assets and
Liabilities, Net (0.96)% (55,647)
------------
Net Assets 100.00% $ 5,819,470
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USLICO Series Fund-Bond Portfolio
Statement of Investments
December 31, 1995
Par Fair
Bonds Value Value
----------- ------------
<S> <C> <C>
Government - 36.17%
GNMA Pool 181826, 9.00%, Due March, 2021 # $ 40,144 $ 42,540
US Treasury Note, 8.00%, Due May, 2001 550,000 614,969
US Treasury Note, 7.50%, Due February, 2005 400,000 452,500
------------ ------------
990,144 1,110,009
------------ ------------
Finance - 17.07%
J.P. Morgan Co., 7.625%, Due September, 2004 100,000 109,406
NationsBank Corp., 5.375%, Due April, 2000 100,000 98,156
Sears Credit Acct Tr 1991B, 8.60%, Due May, 1998 100,000 106,052
Texaco Capital, Inc., 8.50%, Due February, 2003 100,000 112,305
U.S. Leasing International, 5.95%, Due October, 2003 100,000 97,850
------------ ------------
500,000 523,769
------------ ------------
Industrial - 22.32%
Alcan Aluminum Co., 5.875%, Due April, 2000 100,000 99,844
English China Clay, 7.375%, Due October, 2002 100,000 106,820
Hoechst Celanese, 6.125%, Due February, 2004 100,000 99,719
Midwest Power System, 7.00%, Due February, 2005 100,000 105,614
Motorola, Inc., 7.60%, Due January, 2007 100,000 110,813
Norfolk Southern Corp., 7.875%, Due February, 2004 50,000 55,769
Xerox Corp., 7.15%, Due August, 2004 100,000 106,500
------------ ------------
650,000 685,079
------------ ------------
Retail Trade - 7.41%
May Department Stores, 9.875%, Due June, 2000 100,000 115,396
Wal-Mart Stores, 8.625%, Due April, 2001 100,000 112,031
------------ ------------
200,000 227,427
------------ ------------
Utilities - 13.53%
General Telephone ILL, 7.50%, Due February, 2002 # 100,000 101,882
GTE Northwest, 7.375%, Due May, 2001 100,000 106,156
Southern California Edison, 7.375%, Due December, 2003 100,000 102,281
Washington Gas & Light, 7.53%, Due July, 2002 100,000 104,765
------------ ------------
400,000 415,084
------------ ------------
Total Bonds 96.50% $ 2,740,144 2,961,368
============
Other Assets and
Liabilities, Net 3.50% 107,457
------------
Net Assets 100.00% $ 3,068,825
============
</TABLE>
# - Callable at the option of the issuer.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
USLICO Series Fund-Asset Allocation Portfolio
Statement of Investments
December 31, 1995
Common Stock
Fair Fair
Shares Value Shares Value
--------- ----------- --------- -----------
S> <C> <C> <S> <C> <C>
Aerospace & Defense - 1.84% Food, House & Personal Products -3.83%
- -------------------------- --------------------------------------
Boeing Co. 1,400 $ 108,850 Anheuser-Busch Co., Inc. 1,100 $ 73,150
United Technologies Corp. 1,500 142,500 Archer-Daniels-Midland Co. 4,500 81,000
----------- Dial Corp. 2,600 76,700
251,350 RJR Nabisco Holdings 4,660 142,130
----------- RJR Nabisco PFD 5,100 31,875
Computers - 0.26% Unilever N.V. 850 119,106
- ------------------ -----------
Apple Computer, Inc. 1,100 35,200 523,961
----------- -----------
35,200 Industrial - 5.30%
----------- ------------------
Diversified - 1.50% Aluminum Co. of America 2,300 116,150
- ------------------ Browning-Ferris Industries, In 2,800 79,800
Corning, Inc. 3,700 113,312 Genuine Parts Co.. 2,000 81,250
General Electric 1,200 85,350 Hanson PLC ADR 7,400 112,850
ITT Industies, Inc. 300 7,125 International Paper Co. 1,800 67,725
----------- Masco Corp. 4,100 127,613
205,787 Mead Corp. 1,200 61,350
----------- Pitney Bowes, Inc. 1,700 78,625
Drugs & Health Care - 3.98% -----------
- --------------------------- 725,363
Baxter International, Inc. 1,800 75,150 -----------
Bristol-Myers Squibb Co. 2,100 179,812 Publishing - 1.82%
US Healthcare, Inc. 2,100 95,813 ------------------
Warner Lambert Co. 2,000 193,000 Dun & Bradstreet 2,500 161,562
----------- New York Times Co. 3,000 87,750
543,775 -----------
----------- 249,312
Energy & Chemicals - 11.25% -----------
- --------------------------- Retail Trade - 2.09%
Amoco Corp. 1,200 86,550 ---------------------
Atlantic Richfield Co. 1,400 156,275 American Stores Co. 4,200 110,250
Chevron Corp. 3,950 207,869 Dayton-Hudson Corp. 400 30,000
Dow Chemical Co. 600 41,550 Limited 6,400 103,200
Exxon Corp. 1,800 149,175 Reebok International Ltd. 1,500 42,187
Mobil Corp. 700 79,450 -----------
Panhandle Eastern Corp. 4,500 126,000 285,637
Rhone Poulenc ADR 2,900 61,988 -----------
Royal Dutch Petro-NY shares 300 42,225 Utilities/Communications - 12.33%
Schlumberger Ltd. 1,650 115,913 ---------------------------------
TransCanada Pipelines Ltd. 8,700 120,712 AT & T Corp. 3,600 232,650
USX-Marathon Group 4,300 83,312 Baltimore Gas & Electric 2,300 65,263
W.R. Grace & Co. 1,950 116,512 Entergy Corp. 5,600 161,700
WMX Technologies, Inc. 5,200 150,800 FPL Group 2,600 120,250
----------- General Public Utilities Corp. 3,600 121,050
1,538,331 GTE Corp. 4,300 189,200
----------- Houston Industries, Inc. 2,800 68,250
Entertainment - 0.11% MCI Communications 1,500 39,375
- -------------------------------------- NYNEX Corp. 4,500 234,563
ITT Corp. 300 15,750 Pacific Enterprises 1,500 42,375
----------- PacifiCorp 2,000 43,000
15,750 Peco Energy Co. 1,200 36,000
----------- SCEcorp 3,400 59,500
Finance - 4.53% Sprint Corp. 4,700 190,350
- ---------------------------- Southern Co. 1,900 46,550
Aetna Life & Casualty Co. 1,000 70,250 Unicom Corp. 1,100 36,025
Bankers Trust N.Y. Co. 600 40,275 -----------
Chubb Corp. 1,150 112,413 1,686,101
Fleet Financial Group, Inc. 3,000 124,875 -----------
ITT Hartford Group, Inc. 300 14,437
NationsBank Corp. 750 52,219
Providian Corp. 1,800 72,000
St. Paul Companies 2,400 132,900
-----------
619,369
-----------
Total Common Stock 48.84% 6,679,936
-----------
</TABLE>
<PAGE>
<TABLE>
USLICO Series Fund-Asset Allocation Portfolio
Statement of Investments
December 31, 1995
Bonds Par Fair
Value Value
------------ ------------
<S> <C> <C>
Government - 15.98%
FHLMC, 9.00%, Due October, 2019 # $ 38,438 $ 40,204
GNMA, 10.00%, Due February, 2016 # 9,230 10,159
US Treasury Note, 8.00%, Due May, 2001 1,100,000 1,229,938
US Treasury Note, 7.50%, Due February, 2005 800,000 905,000
------------ ------------
1,947,668 2,185,301
------------ ------------
Finance - 10.03%
Citicorp, 7.125%, Due June, 2003 100,000 105,062
Discover Card Trust 1991-D, 8.00%, Due October,1998 100,000 106,346
Ford Motor Credit, 8.00%, Due June, 2002 150,000 164,766
General Electric Capital, 7.875%, Due December, 2006 100,000 113,219
Grand Met Investment Corp., 6.50%, Due September, 1999 50,000 51,022
J.P. Morgan Co., 7.625%, Due September, 2004 100,000 109,406
Morgan Stanley, 6.375%, Due December, 2003 150,000 149,721
Norwest Financial, 6.125%, Due August, 2003 150,000 149,578
Sears Credit Acct Tr 1991B, 8.60%, Due May, 1998 100,000 106,052
Standard Credit Corp., 9.375%, Due July, 1997 100,000 105,609
Texaco Capital, Inc., 8.03%, Due October, 2002 100,000 110,350
U.S. Leasing International, 6.70%, Due April, 2003 100,000 100,877
------------ ------------
1,300,000 1,372,008
------------ ------------
Industrial - 10.83%
Associates Corp. of North America, 8.625%, Due June, 1997 100,000 104,031
Canadian Pacific, 6.875%, Due April, 2003 100,000 103,155
Communications Satellite, 8.125%, Due April, 2004 100,000 112,193
English China Clay, 7.375%, Due October, 2002 200,000 213,640
Equitable Resources, 8.19%, Due November, 2001 100,000 109,192
Hoechst Celanese, 6.125%, Due February, 2004 100,000 99,719
Lowe's Cos., 7.25%, Due August, 2002 100,000 103,151
Motorola, Inc., 7.60%, Due January, 2007 100,000 110,813
Norfolk Southern Corp., 7.875%, Due February, 2004 100,000 111,538
PepsiCo Inc., 7.75%, Due October, 1998 100,000 104,906
Sara Lee, 6.10%, Due May, 2003 100,000 99,161
Warner Lambert, 6.625%, Due September, 2002 100,000 102,844
Xerox Corp., 7.15%, Due August, 2004 100,000 106,500
------------ ------------
1,400,000 1,480,843
------------ ------------
(continued)
</TABLE>
<PAGE>
<TABLE>
USLICO Series Fund-Asset Allocation Portfolio
Statement of Investments
December 31, 1995
Bonds, continued Par Fair
Value Value
------------ ------------
<S> <C> <C>
Retail Trade - 3.13%
J.C. Penney, 6.125%, Due November, 2003 $ 100,000 $ 99,500
May Department Stores, 9.875%, Due June, 2000 100,000 115,396
Sears, 6.54%, Due July, 2003 100,000 101,209
Wal-Mart Stores, 8.625%, Due April, 2001 100,000 112,031
------------ ------------
400,000 428,136
------------ ------------
Utilities - 8.25%
Alabama Power, 6.85%, Due August, 2002 100,000 102,180
Allegheny Generating, 5.625%, Due September, 2003 100,000 96,764
AT&T Corp., 7.125%, Due January, 2002 100,000 105,969
General Telephone SE, 7.625%, Due July, 2002 100,000 101,907
Illinois Bell Telephone, 7.625%, Due April, 2006 # 100,000 101,875
Kansas City Power & Light, 7.40%, Due February, 2008 100,000 107,548
New England Telephone, 7.375%, Due October, 2007 # 100,000 102,002
Ohio Bell Telephone, 6.75%, Due July, 2008 # 100,000 100,985
Pacific Bell, 7.00%, Due July, 2004 100,000 105,750
Southern California Edison, 7.375%, Due December, 2003 100,000 102,281
South Carolina Electric & Gas, 6.00%, Due June, 2000 100,000 100,237
------------ ------------
1,100,000 1,127,498
------------ ------------
Total 48.22% $ 6,147,668 6,593,786
============ ------------
Total Investments 97.06% 13,273,722
Other Assets and
Liabilities, Net 2.94% 402,057
------------
Net Assets 100.00% $ 13,675,779
============
</TABLE>
# - Callable at the option of the issuer.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
USLICO Series Fund
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1995
Common Money Asset
Stock Market Bond Allocation
Portfolio Portfolio Portfolio Portfolio
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Investment income:
Income:
Dividends $ 586,560 $ - $ - $ 204,665
Interest 56,673 345,679 198,713 453,027
------------ ----------- ----------- ------------
Total income 643,233 345,679 198,713 657,692
------------ ----------- ----------- ------------
Expenses:
Management fee 23,450 7,184 3,692 16,081
Other administrative 87,083 28,778 13,812 59,914
------------ ----------- ----------- ------------
Total expenses 110,533 35,962 17,504 75,995
------------ ----------- ----------- ------------
Net investment income 532,700 309,717 181,209 581,697
------------ ----------- ----------- ------------
Realized and unrealized gains
on investments:
Net proceeds from sales 10,275,292 - 870,439 5,208,193
Cost of securities sold (9,268,825) - (849,932) (4,811,709)
------------ ----------- ----------- ------------
Net realized gains on investments 1,006,467 - 20,507 396,484
Net unrealized gains on investments 3,154,718 - 256,864 1,694,675
------------ ----------- ----------- ------------
Net gains on investments 4,161,185 - 277,371 2,091,159
------------ ----------- ----------- ------------
Net increase in net assets
resulting from operations 4,693,885 309,717 458,580 2,672,856
Distributions to shareholders from:
Net investment income (535,933) (309,717) (181,195) (582,747)
Net realized gains on investment (1,004,200) - (20,507) (393,232)
Capital share transactions 2,127,095 67,044 327,227 1,430,618
------------ ----------- ----------- ------------
Net increase in net assets 5,280,847 67,044 584,105 3,127,495
Net assets, beginning of year 14,687,489 5,752,426 2,484,720 10,548,284
------------ ----------- ----------- ------------
Net assets, end of year $ 19,968,336 $ 5,819,470 $ 3,068,825 $ 13,675,779
============ =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
USLICO Series Fund
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1994
Common Money Asset
Stock Market Bond Allocation
Portfolio Portfolio Portfolio Portfolio
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Investment income:
Income:
Dividends $ 478,008 $ - $ - $ 150,913
Interest 54,906 237,029 187,951 415,280
------------ ----------- ----------- ------------
Total income 532,914 237,029 187,951 566,193
------------ ----------- ----------- ------------
Expenses:
Management fee 33,276 13,776 6,302 24,168
Other administrative 66,551 27,552 12,604 48,336
------------ ----------- ----------- ------------
Total expenses 99,827 41,328 18,906 72,504
------------ ----------- ----------- ------------
Net investment income 433,087 195,701 169,045 493,689
------------ ----------- ----------- ------------
Realized and unrealized gains
and (losses) on investments:
Net proceeds from sales 7,249,138 - 269,657 2,609,575
Cost of securities sold (6,116,626) - (263,607) (2,269,413)
------------ ----------- ----------- ------------
Net realized gains on investments 1,132,512 - 6,050 340,162
Net unrealized losses on investments (1,364,494) - (275,367) (1,011,574)
------------ ----------- ----------- ------------
Net losses on investments (231,982) - (269,317) (671,412)
------------ ----------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations 201,105 195,701 (100,272) (177,723)
Distributions to shareholders from:
Net investment income (433,165) (195,701) (169,483) (494,576)
Net realized gains on investments (966,330) - (6,050) (340,826)
Capital share transactions 3,436,426 380,549 128,752 2,434,362
------------ ----------- ----------- ------------
Net increase (decrease) in net assets 2,238,036 380,549 (147,053) 1,421,237
Net assets, beginning of year 12,449,453 5,371,877 2,631,773 9,127,047
------------ ----------- ----------- ------------
Net assets, end of year $ 14,687,489 $ 5,752,426 $ 2,484,720 $ 10,548,284
============ =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
USLICO SERIES FUND - NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995
(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 United Services Life Insurance Company
(United Services) and Bankers Security Life Insurance Society (Bankers
Security) 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 advisors are compensated
with a quarterly management fee based on an annual percentage of the
average daily net assets of each Portfolio. In 1994 and from July 1,
1995 to December 31, 1995, the advisor was paid an annual fee of .25% of
the net asset value of the Portfolios. During the period from January
1, 1995, to June 30, 1995, no investment advisory fee was charged
pending approval of new advisory agreements which was received on June
30, 1995 (see below). 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.
(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.
(3) AFFILIATIONS AND RELATED PARTY TRANSACTIONS - On January 17, 1995,
United Services and Bankers Security became wholly-owned subsidiaries of
ReliaStar Financial Corp. ("ReliaStar"), previously The NWNL Companies,
Inc., an insurance holding company based in Minneapolis, Minnesota. In
conjunction with this merger, on April 1, 1995, Bankers Centennial
Management Corp. was replaced as investment advisor to the Fund by
Washington Square Capital, Inc., an indirect wholly-owned ReliaStar
subsidiary. The Fund's distributor, USLICO Securities Corp., became a
wholly-owned subsidiary of Washington Square Securities, Inc. which is
wholly-owned by ReliaStar. Newbold's Asset Management, Inc. continues
to act as investment advisor for the Common Stock Portfolio and the
common stock portion of the Asset Allocation Portfolio. The Fund
purchased securities through Newbold's Asset Management, Inc. in the
normal course of business.
Officers of the Fund are also officers of ReliaStar, Washington Square
Securities, Inc., Washington Square Capital, Inc., United Services and
Bankers Security and receive compensation therefrom. They do not
receive additional compensation for services rendered to the Fund.
Trustees of the Board receive a fee of $500 for each meeting attended.
For the six month periods ended June 30, 1995 and 1994, total fees paid
to the Trustees aggregated $3,000 in both periods for all Portfolios
combined.
<PAGE>
(4) INVESTMENTS - As of December 31, 1995, net unrealized appreciation
for each portfolio was as follows:
Net
Unrealized Portfolio Appreciation Depreciation Appreciation
Common Stock $3,105,171 $ (148,804) $2,956,367
Money Market N/A N/A N/A
Bond 158,974 (902) 158,072
Asset Allocation 1,376,094 (53,047) 1,323,047
(5) CAPITAL SHARE TRANSACTIONS - Transactions in capital stock were as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
1995 1994 1995 1994
<S> <C> <C> <C> <C>
COMMON STOCK PORTFOLIO:
Shares sold................ 47,165 181,788 $ 586,962 $ 2,036,931
Shares issued in 118,938 125,478 1,540,133 1,399,495
reinvestment of dividends 166,103 307,266 2,127,095 3,436,426
Shares redeemed............ - - - -
Net increase............... 166,103 307,266 $2,127,095 $ 3,436,426
MONEY MARKET PORTFOLIO:
Shares sold............... . 36,248 184,848 $ 36,248 $ 184,848
Shares issued in 309,717 195,701 309,717 195,701
reinvestment of dividends 345,965 380,549 345,965 380,549
Shares redeemed............ (278,921) - (278,921) -
Net increase(decrease) (67,044) 380,549 $ 67,044 $ 380,549
BOND PORTFOLIO:
Shares sold................ 12,189 8,229 $ 125,525 $ 79,701
Shares issued in 19,469 17,714 201,702 175,533
reinvestment of dividends 31,658 25,943 327,227 255,234
Shares redeemed............ - (12,977) - (126,482)
Net increase............... 31,658 12,966 $ 327,227 $ 128,752
ASSET ALLOCATION PORTFOLIO:
Shares sold................ 42,559 148,183 $ 496,970 $ 1,598,960
Shares issued in 82,056 77,594 975,979 835,402
reinvestment of dividends 124,615 225,777 1,472,949 2,434,362
Shares redeemed............ (3,664) - (42,331) -
Net increase............... 120,951 225,777 $1,430,618 $ 2,434,362
</TABLE>
<PAGE>
<TABLE>
USLICO SERIES FUND
CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
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 $ 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
FOR THE YEAR ENDED DECEMBER 31, 1994
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>
<PAGE>
<TABLE>
USLICO SERIES FUND
CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1993
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 $ 10.45 $ 1.00 $ 10.21 $ 10.71
Income from investment operations:
Net investment income 0.32 0.02 0.70 0.58
Net realized and unrealized
gains on securities 0.78 - 0.37 0.58
----------- ----------- ----------- -----------
Total from investment operations 1.10 0.02 1.07 1.16
Distributions:
Distribution of income (0.32) (0.02) (0.70) (0.58)
Distribution of capital gains - - (0.09) (0.03)
----------- ----------- ----------- -----------
Net asset value, end of year $ 11.23 $ 1.00 $ 10.49 $ 11.26
=========== =========== =========== ===========
Total return 10.53% 2.00% 10.48% 10.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $12,449,453 $ 5,371,877 $ 2,631,773 $ 9,127,047
Expenses to average net assets 0.75% 0.75% 0.75% 0.75%
Net investment income to average net assets 2.93% 2.42% 6.62% 5.09%
Portfolio turnover rate 51.27% N/A 19.04% 27.80%
Weighted average number of shares outstanding
for year ended December 31, 1993 1,079,215 5,386,166 243,616 772,390
FOR THE YEAR ENDED DECEMBER 31, 1992
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of year $ 10.55 $ 1.00 $ 10.21 $ 10.71
Income from investment operations:
Net investment income 0.38 0.03 0.73 0.61
Net realized and unrealized
gains on securities 0.22 - 0.06 0.19
----------- ----------- ----------- -----------
Total from investment operations 0.60 0.03 0.79 0.80
Distributions:
Distribution of income (0.70) (0.03) (0.79) (0.78)
Distribution of capital gains - - - (0.02)
----------- ----------- ----------- -----------
Net asset value, end of year $ 10.45 $ 1.00 $ 10.21 $ 10.71
=========== =========== =========== ===========
Total return 5.69% 3.00% 7.74% 7.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $11,102,452 $ 5,464,509 $ 2,507,559 $ 8,054,067
Expenses to average net assets 0.75% 0.75% 0.75% 0.75%
Net investment income to average net assets 3.53% 2.98% 7.16% 5.61%
Portfolio turnover rate 36.00% N/A 41.30% 26.79%
Weighted average number of shares outstanding
for year ended December 31, 1992 994,102 5,433,008 238,112 665,240
</TABLE>
<PAGE>
<TABLE>
USLICO SERIES FUND
CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1991
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 $ 9.97 $ 1.00 $ 9.65 $ 10.08
Income from investment operations:
Net investment income 0.38 0.05 0.79 0.61
Net realized and unrealized
gains on securities 1.37 - 0.58 0.87
----------- ----------- ----------- -----------
Total from investment operations 1.75 0.05 1.37 1.48
Distributions:
Distribution of income (0.29) (0.05) (0.79) (0.58)
Distribution of capital gains (0.88) - (0.02) (0.27)
----------- ----------- ----------- -----------
Net asset value, end of year $ 10.55 $ 1.00 $ 10.21 $ 10.71
=========== =========== =========== ===========
Total return 17.55% 5.00% 14.20% 14.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $10,128,224 $ 5,329,151 $ 2,512,214 $ 6,540,186
Expenses to average net assets 0.78% 0.75% 0.81% 0.77%
Net investment income to average net assets 3.61% 5.30% 7.86% 5.78%
Portfolio turnover rate 98.05% N/A 12.17% 39.91%
Weighted average number of shares outstanding
for year ended December 31, 1991 847,572 5,144,416 236,131 507,445
</TABLE>
<PAGE>
