As filed with the Securities & Exchange Commission on April 29, 1998
File No. 33-20957
File No. 811-05451
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
<S> <C>
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 11 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 12
(Check appropriate box or boxes)
USLICO Series Fund
(Exact Name of Registrant as Specified in Charter)
4601 North Fairfax Drive, Arlington, Virginia 22203
(Address of Principal Executive Offices) (Zip Code)
Registrants's Telephone Number: (800) 338-7737
Robert B. Saginaw, Esquire
20 Washington Avenue South
Minneapolis, Minnesota 55401
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
Immediately upon filing pursuant to paragraph (b) of Rule 485
- -----
X On May 1, 1998, pursuant to paragraph (b) of Rule 485
- -----
60 days after filing pursuant to paragraph (a)(1) of Rule 485
- -----
on (date) pursuant to paragraph (a)(1) of Rule 485
- -----
75 days after filing pursuant to paragraph (a)(2) of Rule 485
- -----
on (date) pursuant to paragraph (a)(2) of Rule 485
- -----
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
- ----- previously filed post-effective amendment
</TABLE>
Title of Securites Being Registerd: Shares of Beneficial Interest for Four
Separately Managed Portfolios.
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
Item No.
Form N-1A Part A Heading in Prospectus
<S> <C>
Item 1.............................Cover Page
Item 2.............................Synopsis - Not Applicable
Item 3.............................Condensed Financial Information
Item 4.............................General Description of the Fund; Investment Objectives and Policies;
Investment Strategies and Performance; Description of Securities and
Investment Techniques; Investment Restrictions; Risk Factors and
Special Considerations
Item 5.............................Management of the Fund
Item 5A............................Management's Discussion of Fund Performance
Item 6.............................Description of the Fund's Shares; Dividends, Distribution and Taxes
Item 7.............................Purchase of Shares; Net Asset Value Exchanges; Investment Performance
Item 8.............................Redemption or Shares
Item 9.............................Legal Proceedings - Not Applicable
Part B Heading in Statement of Additional Information
Item 10............................Cover Page
Item 11............................Table of Contents
Item 12............................Introduction; General Information and History
Item 13............................Description of Securities and Investment Techniques
Item 14............................Management of the Fund; Trustees; Compensation of Trustees;
Custodian; Administrative Services Agreement
Item 15............................Control Persons and Principal Holders of Securities
Item 16............................Investment Adviser, Subadvisor, and Other Services
Item 17............................Portfolio Transactions and Brokerage
Item 18............................Capital Stock and other Securities
Item 19............................Purchase and Redemption; Net Asset Value
Item 20............................Taxation
Item 21............................Distribution of Fund Shares
Item 22............................Calculation of Performance Data; Performance Comparisons
Item 23............................Financial Statements; Independent Auditors' Report
Part C Heading - Other Information
Item 24............................Financial Statements and Exhibits
Item 25............................Persons Controlled by or Under Common Control With Registrant
Item 26............................Number of Holders of Securities
Item 27............................Indemnification
Item 28............................Business and Other Connections with the Investment Adviser
Item 29............................Principal Underwriters
Item 30............................Location of Accounts and Records
Item 31............................Management Undertakings
Item 32............................Undertakings
</TABLE>
<PAGE>
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 ReliaStar United Services Life Insurance Company and ReliaStar
Life Insurance Company of New York 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 May 1, 1998, 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. The Statement of Additional Information is
also available without charge upon request by writing to ReliaStar at the above
address or by calling (800) 621-3750, and it may also be obtained by accessing
the SEC's internet web site (http://www.sec.gov).
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. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND
RETAINED FOR FUTURE REFERENCE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY A BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE SHARES INVOLVES
CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL.
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 May 1, 1998.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Description Page
- ----------- ----
<S> <C>
CONDENSED FINANCIAL INFORMATION........................................................................................ 3
GENERAL DESCRIPTION OF THE FUND........................................................................................ 8
INVESTMENT OBJECTIVES AND POLICIES..................................................................................... 9
The Stock Portfolio............................................................................................. 9
The Money Market Portfolio...................................................................................... 10
The Bond Portfolio.............................................................................................. 11
The Asset Allocation Portfolio.................................................................................. 11
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES.................................................................... 12
U.S. Government Securities...................................................................................... 12
Mortgage-Related Securities..................................................................................... 12
Repurchase Agreements........................................................................................... 13
Certificates of Deposit......................................................................................... 13
Bankers' Acceptances............................................................................................ 13
Commercial Paper................................................................................................ 13
Corporate Debt Securities....................................................................................... 13
Options -- Calls................................................................................................ 13
INVESTMENT RESTRICTIONS................................................................................................ 14
Additional Investment Restrictions Applicable to the Money Market and Bond Portfolios........................... 15
Diversification................................................................................................. 15
RISK FACTORS AND SPECIAL CONSIDERATIONS................................................................................ 15
MANAGEMENT OF THE FUND................................................................................................. 16
Investment Advisers............................................................................................. 16
Portfolio Managers.............................................................................................. 17
Management Fees................................................................................................. 17
Other Expenses.................................................................................................. 18
Total Expenses.................................................................................................. 18
MANAGEMENT DISCUSSION OF FUND PERFORMANCE.............................................................................. 19
The Stock Portfolio............................................................................................. 19
The Bond Portfolio.............................................................................................. 20
The Asset Allocation Portfolio.................................................................................. 21
DISTRIBUTOR, CUSTODIAN, DIVIDEND DISBURSING, TRANSFER AGENT
AND ACCOUNT SERVICES AGENT............................................................................................. 22
EXCHANGES.............................................................................................................. 22
PORTFOLIO TRANSACTIONS................................................................................................. 22
DESCRIPTION OF THE FUND'S SHARES....................................................................................... 23
Capitalization.................................................................................................. 23
Voting Rights................................................................................................... 23
DIVIDENDS, DISTRIBUTION AND TAXES...................................................................................... 23
Federal Income Tax Status....................................................................................... 23
Distributions and Dividends..................................................................................... 24
PURCHASE OF SHARES..................................................................................................... 24
NET ASSET VALUE........................................................................................................ 25
REDEMPTION OF SHARES................................................................................................... 25
INVESTMENT PERFORMANCE................................................................................................. 26
INDEPENDENT AUDITORS................................................................................................... 27
</TABLE>
<PAGE>
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 years ended December 31, 1997,
1996 and 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, 1988 through
December 31, 1994 has been derived from financial statements of the Fund (as
restated to give effect to the Reorganization described herein), for the same
period, which have been audited by KPMG Peat Marwick LLP, independent auditors.
The financial statements are incorporated by reference into the Statement of
Additional Information.
3
<PAGE>
<TABLE>
<CAPTION>
Common Stock Portfolio
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $13.25 $12.62 $10.37 $11.23 $10.45 $10.55 $9.97
Income from investment operations:
Net investment income 0.27 0.34 0.36 0.36 0.32 0.38 0.38
Net realized and unrealized gains
(losses) on securities 3.05 2.55 2.95 (0.05) 0.78 0.22 1.37
------ ---- ---- ------ ---- ---- ----
Total from investment operations 3.32 2.89 3.31 0.31 1.10 0.60 1.75
Distributions:
Distribution of income (0.27) (0.33) (0.37) (0.36) (0.32) (0.70) (0.29)
Distribution of capital gains (2.80) (1.93) (0.69) (0.81) 0 0 (0.88)
------- ------ ------ ------ ----- ----- ------
Net asset value, end of period $13.50 $13.25 $12.62 $10.37 $11.23 $10.45 $10.55
======= ====== ====== ====== ====== ====== ======
Total return 25.06% 22.90% 31.92% 2.76% 10.53% 5.69% 17.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $27,291,645 23,558,091 $19,968,336 $14,687,489 $12,449,453 $11,102,452 $10,128,224
Expense to average net assets 0.73% 0.75% 0.63% 0.75% 0.75% 0.75% 0.78%
Net investment income to
average net assets 1.87% 2.50% 3.07% 3.23% 2.93% 3.53% 3.61%
Portfolio turnover rate 88.55% 79.17% 62.51% 59.41% 51.27% 36.00% 98.05%
Weighted average number of
shares outstanding for year
ended December 31 1,760,754 1,575,455 1,450,668 1,195,719 1,079,215 994,102 847,572
<CAPTION>
<S> <C> <C> <C>
1990 1989 1988
---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $11.81 $10.36 $9.76
Income from investment operations:
Net investment income 0.37 0.33 0.52
Net realized and unrealized gains
(losses) on securities (1.15) 2.17 0.80
------ ---- ----
Total from investment operations (0.78) 2.50 1.32
Distributions:
Distribution of income (0.58) (0.33) (0.53)
Distribution of capital gains (0.48) (0.72) (0.19)
------ ------ ------
Net asset value, end of period $9.97 $11.81 $10.36
===== ====== ======
Total return (6.60%) 24.13% 10.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $7,807,886 $8,203,966 $6,876,501
Expense to average net assets 0.72% 0.84% 0.50%
Net investment income to
average net assets 3.46% 2.90% 5.20%
Portfolio turnover rate 43.06% 30.28% 12.79%
Weighted average number of
shares outstanding for year
ended December 31 729,023 663,118 614,675
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Money Market Portfolio
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income 0.05 0.05 0.05 0.04 0.02 0.03 0.05
Net realized and unrealized gains
on securities -- 0 0 0 0 0 0
------ ------ ----- ---- ----- ------ -----
Total from investment operations 0.05 0.05 0.05 0.04 0.02 0.03 0.05
Distributions:
Distribution of income (0.05) (0.05) (0.05) (0.04) (0.02) (0.03) (0.05)
Distribution of capital gains 0 0 0 0 0 0 0
------ ------ ----- ---- ----- ------ -----
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== =====
Total return 5.00% 5.00% 5.00% 4.00% 2.00% 3.00% 5.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $5,784,312 $5,979,861 $5,819,470 $5,752,426 $5,371,877 $5,464,509 $5,329,151
Expense to average net assets 0.75% 0.75% 0.63% 0.75% 0.75% 0.75% 0.75%
Net investment income to
average net assets 4.88% 4.77% 5.37% 3.54% 2.42% 2.98% 5.30%
Portfolio turnover rate N/A N/A N/A N/A N/A N/A N/A
Weighted average number of
shares outstanding for year
ended December 31 5,852,073 5,897,797 5,763,272 5,527,212 5,386,166 5,433,008 5,144,416
<CAPTION>
<S> <C> <C> <C>
1990 1989 1988
---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $1.00 $1.00 $1.00
Income from investment operations:
Net investment income 0.07 0.08 0.08
Net realized and unrealized gains
on securities 0 0 0
---- ---- ----
Total from investment operations 0.07 0.08 0.08
Distributions:
Distribution of income (0.07) (0.08) (0.08)
Distribution of capital gains 0 0 0
---- ---- ----
Net asset value, end of period $1.00 $1.00 $1.00
===== ===== =====
Total return 7.00% 8.00% 8.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $4,984,823 $4,616,689 $4,109,710
Expense to average net assets 0.68% 0.84% 0.10%
Net investment income to
average net assets 7.52% 8.39% 8.00%
Portfolio turnover rate N/A N/A N/A
Weighted average number of
shares outstanding for year
ended December 31 4,730,373 4,421,651 3,896,950
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Bond Portfolio
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991
----- ---- ---- ---- ---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.02 $10.38 $9.41 $10.49 $10.21 $10.21 $9.65
Income from investment operations:
Net investment income 0.59 0.64 0.66 0.67 0.70 0.73 0.79
Net realized and unrealized gains
(losses) on securities 0.12 (0.36) 1.04 (1.06) 0.37 0.06 0.58
------ ------ ---- ------ ---- ---- ----
Total from investment operations 0.71 0.28 1.70 (0.39) 1.07 0.79 1.37
Distributions:
Distribution of income (0.59) (0.64) (0.66) (0.67) (0.70) (0.79) (0.79)
Distribution of capital gains (0.14) 0 (0.07) (0.02) (0.09) 0 (0.02)
----- ------ ------ ------ ------ ----- ------
Net asset value, end of period $10.00 $10.02 $10.38 $9.41 $10.49 $10.21 $10.21
===== ====== ====== ===== ====== ====== ======
Total return 7.09% 2.70% 18.07% (3.72%) 10.48% 7.74% 14.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $2,802,374 $2,783,385 $3,068,825 $2,484,720 $2,631,773 $2,507,559 $2,512,214
Expense to average net assets 0.75% 0.75% 0.63% 0.75% 0.75% 0.75% 0.81%
Net investment income to
average net assets 5.88% 6.45% 6.49% 6.67% 6.62% 7.16% 7.86%
Portfolio turnover rate 117.24% 47.37% 32.67% 10.94% 19.04% 41.30% 12.17%
Weighted average number of
shares outstanding for year
ended December 31 280,426 284,090 276,475 254,126 243,616 238,112 236,131
<CAPTION>
<S> <C> <C> <C>
1990 1989 1988
---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.00 $9.63 $9.66
Income from investment operations:
Net investment income 0.78 0.78 0.92
Net realized and unrealized gains
(losses) on securities (0.36) 0.40 0.03
------ ---- ----
Total from investment operations 0.42 1.18 0.95
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
===== ====== =====
Total return 4.20% 12.25% 9.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $2,255,591 $2,375,680 $2,227,057
Expense to average net assets 0.61% 0.89% 0.50%
Net investment income to
average net assets 8.22% 7.90% 6.50%
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
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Asset Allocation Portfolio
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991
------- ---- ---- ---- ---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $11.85 $11.82 $10.18 $11.26 $10.71 $10.71 $10.08
Income from investment operations:
Net investment income 0.46 0.53 0.55 0.55 0.58 0.61 0.61
Net realized and unrealized gains
(losses) on securities 1.51 0.94 2.01 (0.70) 0.58 0.19 0.87
------ ---- ---- ------ ---- ---- ----
Total from investment operations 1.97 1.47 2.56 (0.15) 1.16 0.80 1.48
Distributions:
Distribution of income (0.46) (0.53) (0.55) (0.55) (0.58) (0.78) (0.58)
Distribution of capital gains (1.38) (0.91) (0.37) (0.38) (0.03) (0.02) (0.27)
----- ------ ------ ------ ------ ------ ------
Net asset value, end of period $11.98 $11.85 $11.82 $10.18 $11.26 $10.71 $10.71
===== ====== ====== ====== ====== ====== ======
Total return 16.62% 12.44% 25.15% (1.33%) 10.83% 7.47% 14.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $15,900,094 $14,614,568 $13,675,779 $10,548,284 $9,127,047 $8,054,067 $6,540,186
Expense to average net assets 0.74% 0.75% 0.63% 0.75% 0.75% 0.75% 0.77%
Net investment income to
average net assets 3.68% 4.39% 4.81% 5.09% 5.09% 5.61% 5.78%
Portfolio turnover rate 104.30% 61.98% 44.97% 28.53% 27.80% 26.79% 39.91%
Weighted average number of
shares outstanding for year
ended December 31 1,228,385 1,148,567 1,068,503 892,257 772,390 665,240 507,445
<CAPTION>
<S> <C> <C> <C>
1990 1989 1988
---- ---- ----
FINANCIAL HIGHLIGHTS
Net asset value, beginning of period $10.83 $9.97 $9.72
Income from investment operations:
Net investment income 0.64 0.59 0.72
Net realized and unrealized gains
(losses) on securities (0.55) 1.09 0.29
------ ---- ----
Total from investment operations 0.09 1.68 1.01
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
====== ====== =====
Total return 0.83% 16.85% 10.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $4,497,556 $4,072,387 $2,617,965
Expense to average net assets 0.69% 0.87% 0.50%
Net investment income to
average net assets 6.17% 5.53% 5.21%
Portfolio turnover rate 19.54% 17.03% 5.28%
Weighted average number of
shares outstanding for year
ended December 31 393,425 310,973 236,949
</TABLE>
7
<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. On July 1, 1996 Bankers Security Life Insurance Society
changed its name to ReliaStar Bankers Life Insurance Company and further changed
its name on January 1, 1998 to ReliaStar Life Insurance Company of New York.
United Services Life Insurance Company changed its name to ReliaStar United
Services Life Insurance Company on January 1, 1997. Both companies are
wholly-owned subsidiaries of ReliaStar Financial Corp.
ReliaStar Financial Corp. is a Minneapolis-based holding company.
ReliaStar, through its affiliates, offers individual life insurance and
annuities, employee benefits, retirement plans, life and health reinsurance,
mutual funds, personal finance education and residential mortgages.
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. Each Portfolio
share outstanding carries a par value of $.001. The Fund has an unlimited number
of shares authorized.
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 ReliaStar United Services Life Insurance Company
("RUSL") and ReliaStar Life Insurance Company of New York ("RLNY"), an indirect
wholly-owned subsidiary of RUSL, 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 RUSL or RLNY, 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.
8
<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"
under "Investment Techniques" in this prospectus.)
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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.
In addition to its other policies and restrictions, the Money Market
Portfolio is subject to the investment restrictions of Rule 2a-7 under the
Investment Company Act of 1940. Rule 2a-7 requires that the Portfolio maintain
an average weighted maturity of not more than 90 days and invest exclusively in
securities that mature within 397 days. Rule 2a-7 also requires that all
investments by the Portfolio be limited to United States dollar-denominated
investments that: (1) present "minimal credit risks," and (2) are at the time of
acquisition "Eligible Securities." Eligible Securities include, among others,
securities that are rated by two Nationally Recognized Statistical Rating
Organizations ("NRSROs") in one of the two highest categories for short-term
debt obligations, such as A-1 or A-2 by S&P, or P-1 or P-2 by Moody's. Eligible
Securities also include a long-term security if its issuer has received from two
NRSROs a rating, with respect to a class of short-term debt obligations that
currently is comparable in priority and security with the long-term security, in
one of the two highest rating categories. It is the responsibility of the
Adviser of the Portfolio to determine that the Fund's investments present only
"minimal credit risks" and are Eligible Securities.
Under Rule 2a-7, 95% of the assets of the Portfolio must be invested in
Eligible Securities that are deemed First Tier Securities, which include, among
others, securities rated by two NRSROs in the highest category (such as A-1 and
P-1). Rule 2a-7 also requires that: (1) the Portfolio may not (with certain
exceptions) invest more that 5% of its total assets in securities of a single
issuer; and (2) the Portfolio's investment in Second Tier Securities of a single
issuer may not exceed the greater of 1% of the Portfolio's total assets or $1
million. Repurchase agreements can be entered into only with regard to
Government securities or securities that are rated in the highest rating
category by two NRSROs.
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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.
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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.
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
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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.
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 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
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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 in the section Investment Techniques;
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;
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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.
Diversification
As indicated by the second fundamental investment restriction set forth
above, each Portfolio operates as a "diversified" fund. In addition, each
Portfolio intends to conduct its operations so that it will comply with
diversification requirements of Subchapter M of the Internal Revenue Code of
1986 as amended (the "Code"), and qualify as a "regulated investment company."
In order to qualify as a regulated investment company, each Portfolio must limit
its investments so that at the close of each quarter of the taxable year, with
respect to at least 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer. The Code requires
that not more than 25% in value of each Portfolio's total assets may be invested
in the securities of a single issuer at the close of each quarter of the taxable
year. These restrictions do not apply to investments in U.S. Government
securities. The 25% limit does not apply to the Money Market Fund or the Bond
Portfolio for securities or obligations issued by U.S. Banks.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Generally
The value of a Portfolio's investments, and as a result the net asset
value of the Portfolio's shares, will fluctuate in response to changes in the
market and economic conditions as well as the financial condition and prospects
of issuers in which the Portfolio invests. Because of the risks associated with
the Fund's investments, the Fund is intended as a long term investment vehicle
for Variable Life Insurance Policies and is not designed to provide
policyholders with a means of speculating on short-term stock market movements.
While the Fund may compare its total returns for benchmarking purposes to the
total returns of broad based securities indices (such as the S&P 500), the Fund
is not managed to replicate the securities contained in such indices and
therefore may achieve returns which are less than such indices.
Repurchase Agreements
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In entering into a repurchase agreement, the Portfolio bears a risk of
loss in the event that the other party to the transaction defaults on its
obligations and the Portfolio is delayed, or prevented from, exercising its
rights to dispose of the underlying securities, including the risk of possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or part of the
income from the agreement.
Options
Participation in the options market involves investment risks and
transaction costs to which the Portfolio would not be subject, absent the use of
this strategy. If predictions of movements in the direction of the securities
and interest rate markets are inaccurate, the adverse consequences to the
Portfolio may leave it in a worse position than if such strategy was not used.
Risks inherent in the use of options include: (a) dependency on the ability of
the Portfolio Manager, as the case may be, to predict correctly movements in the
direction of interest rates and securities prices; (b) imperfect correlation
between the price of options and movements in the prices of the securities; (c)
the fact that the skills needed to use these strategies are unique to this
investment technique; and (d) the possible need to defer closing out certain
positions. See "Description of Securities and Investment Techniques" in the
Statement of Additional Information.
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, David H. Roe, President, Jeri A. Eckhart, and
Wayne O. Jefferson, Jr. 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, Suite 800, 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
equity portion of the Asset Allocation Portfolio of the Fund. During 1997 the
Sub-Adviser changed its name to Pilgrim Baxter Value Investor's, Inc. The
address of the Sub-Adviser is 825 Duportail Road, Wayne, PA 19087. Both
agreements were reapproved by the Board of Trustees on March 3, 1998.
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 indirectly 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.
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.
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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 reasonably 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.
The Adviser is a wholly-owned subsidiary of ReliaStar Financial Corp.
ReliaStar Financial Corp. is also the parent company of ReliaStar United
Services Life Insurance Company, which is the indirect parent company of
ReliaStar Life Insurance Company of New York. The Adviser was established in
1981. As of December 31, 1997, total net assets of the four Portfolios of the
Fund were approximately $51.8 million.
Portfolio Managers
The Stock Portfolio, and that portion of the Asset Allocation Portfolio
investing primarily in stocks, is managed by James H. Farrell, Jr., who since
March, 1997 has had the primary responsibility for the day to day investment
management of those assets. He is the Chief Investment Officer of the
Sub-Adviser, Pilgrim Baxter Value Investors, Inc., and a Chartered Financial
Analyst (CFA). Mr. Farrell has 28 years of investment management experience and
has been employed by the Sub-Adviser since 1996. From 1980 through 1994, he was
employed by Cashman, Farrell and Associates performing senior portfolio
management responsibilities, and from 1994 to 1996 he was a principal in Farrell
& Seiwell Investment Advisors. He is a cum laude graduate of Tufts University
and earned his MBA from Drexel University.
The Money Market and Bond Portfolios, and that portion of the Asset
Allocation Portfolio which invests in bonds and money market assets, is managed
by James L. Mahnke. He has been the Portfolio Manager for these assets since
August, 1997. He is a Senior Vice President and Portfolio Manager of the
Adviser, Washington Square Advisers, where he has served in its investment
department since October, 1995. Previously he was employed by Alliance Capital
Management, L.P. from 1987 to 1995; first as an Analyst and then as a Vice
President and Portfolio Manager. He has a Masters Degree in Economics from
Purdue University.
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
17
<PAGE>
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 1997, 1996 and 1995,
the Adviser was paid a fee at an annual rate of .25% of the net asset value of
the Portfolios, except for the period from January 1, 1995 to June 30, 1995
during which no investment advisory fee was charged pending approval of new
advisory agreements June 30, 1995. For the years 1997, 1996, and 1995, the Fund
paid the Adviser the following management fees: Stock Portfolio, $64,509,
$53,353 and $23,450, respectively; Money Market Portfolio, $14,571, $14,752, and
$7,184, respectively; Bond Portfolio, $7,027, $7,176 and $3,692, respectively;
Asset Allocation Portfolio, $38,430, $34,689 and $16,081, respectively.
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.
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)]. The
Agreements were re-approved most recently by the Board and a majority of the
non-interested trustees on March 3, 1998. 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 1997, 1996, and 1995, the Fund paid $240,886, $219,940 and
$189,587, respectively for these services.
Total Expenses
In 1997, 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:
<TABLE>
<CAPTION>
Total Expenses
Portfolio Management Fee (Including Management Fees)
<S> <C> <C>
Common Stock Portfolio .25% .73%
Money Market Portfolio .25% .75%
Bond Portfolio .25% .75%
Asset Allocation Portfolio .25% .74%
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Stock Portfolio
Pilgrim Baxter Value Investors, Inc. (formerly Newbold's Asset
Management, Inc.), (the Sub-Adviser') is responsible for the investments and
reinvestments of the Stock Portfolio's assets. They are "value oriented" in
their investment philosophy, which means they proceed from the premise that
investment value and return can best be realized through buying companies with a
low price relative to current earnings. This "bottom up" approach seeks to
identify companies whose earnings growth suggests an increasing stream of future
dividend income, and whose shares' pricing represents a level below realizable
value.
In the continued strong stock market environment during 1997, the
Sub-Adviser participated reasonably well given their value style investment
approach. Individual stock selection, particularly in the Energy, Financial and
Healthcare sectors, contributed positively to the year's results. The shortfall
in return relative to the S&P 500 was largely due to the Fund's underweighting
in bank stocks and the high-performing Technology sector relative to index, and
to a higher weighting in the lagging Utility sector. The Sub-Adviser's
investment approach precluded them from holding a full market weighting in
Technology due to the high equity valuations in that sector. The increased
weighting in the Financial sector and reduced commitment to Utility stocks in
comparison with the prior year contributed positively to the Fund's performance.
Consistent with the Sub-Adviser's investment philosophy, the Fund continues to
be positioned in a portfolio of high quality stocks with low valuations and high
current dividend yields.
(Graph appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK PORTFOLIO 10.4 11.5 14.3 13.3 15.7 16.6 18.3 18.8 24.8 30.5 38.1
S & P 500 INDEX 10.0 10.5 12.3 15.9 15.6 20.4 22.0 24.2 24.5 33.7 41.6 55.3
</TABLE>
*- $10,000 INVESTED ON 12/31/86 IN FUND OR INDEX INCLUDING REINVESTMENT OF
DIVIDENDS FISCAL YEARS ENDED 12/31
The Standard and Poor's ("S&P) 500 Index is an unmanaged, market value
weighted index of 500 widely held common stocks. The index includes industrial,
utility, financial and transportation stocks primarily, but not exclusively,
traded on the New York Stock Exchange. The S&P 500 represents approximately 77%
of the NYSE market capitalization. The index assumes that no operating expenses,
transaction fees or sales charges are incurred by a hypothetical investor who
directly owns the securities maintained in the index. In order to outperform the
index over any specific time frame, a fund must return to investors an amount
greater than that provided by the index plus total operating expenses.
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.
19
<PAGE>
The Bond Portfolio
The responsibility for investments and reinvestments in the Bond
Portfolio is with Washington Square Advisers, Inc. (the "Adviser"), which is
affiliated with ReliaStar Life Insurance Company of New York and ReliaStar
United Services Life Insurance Company. Investments are primarily in
investment-grade intermediate to long-term corporate bonds. During 1997, the
Bond Portfolio was primarily invested in corporate bonds rated "A" or better by
Moody's or Standard & Poor's. The Portfolio also holds adjustable rate mortgages
and U.S. Government strips. The average maturity of the bonds was less than ten
years. The composition of the Portfolio holdings tended to have heavier emphasis
on corporate bonds than that of its broad market index, which is the Lehman
Brothers Aggregate Bond Index. The Total Return for 1997, after all expenses at
the Portfolio level was 7.09%.
(Graph appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
6/25/87 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BOND PORTFOLIO 10.0 10.1 11.1 12.5 13.0 14.9 16.0 17.7 17.1 20.1 20.7 22.2
LEHMAN BROS AGGREGATE BOND INDEX 10.0 10.1 10.9 12.4 13.5 15.6 16.8 18.7 18.0 21.5 22.1 24.3
</TABLE>
*-$10,000 INVESTED ON 6/25/87 IN FUND OR 7/1/87 IN INDEX INCLUDING REINVESTMENT
OF INCOME.
FISCAL YEARS ENDED 12/31
*- $10,000 INVESTED ON 6/25/87 IN FUND OR 7/1/87 IN INDEX INCLUDING REINVESTMENT
OF INCOME FISCAL YEARS ENDED 12/31
The Lehman Brothers Aggregate/Bond Index is a broad, unmanaged index of
securities of fixed income instruments. The index assumes that no operating
expenses, transaction fees or sales loads are incurred by a hypothetical
investor who directly owns the securities maintained in the index. In order to
outperform an index over any specific time frame, a fund must return to
investors an amount greater than that provided by the index plus total operating
expenses. For this reason, few fixed income funds are able to outperform broad
market indices over the long term. The chart above is comprised of data that
represents the cumulative total return of a hypothetical investment of $10,000
made on the dates the Fund commenced operations through December 31, 1997.
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.
20
<PAGE>
The Asset Allocation Portfolio
This Portfolio consists of stocks, intermediate to long term bonds of
primarily investment grade and money market instruments. The stocks are chosen
by Pilgrim Baxter Value Investors, Inc. (formerly Newbold's Asset Management,
Inc.), which is also responsible for choosing the stocks in the Stock Portfolio.
It is a "value oriented" investment manager and uses the same strategies to pick
stocks for this Portfolio as is described under "Investment Strategies and
Performance of the Stock Portfolio." The Adviser for the bonds and money market
portions is Washington Square Advisers, Inc. During 1997, the bonds in the
Portfolio were primarily corporate bonds rated "A" or better by Moody's or
Standard and Poor's. The average maturity of the bonds was less than ten years.
Bond holdings were slightly shorter in duration with heavier emphasis on
corporate bonds than that of Lehman Brothers Aggregate Bond Index. The Total
Return for 1997, after all expenses at the Portfolio level, was 16.62%.
(Graph appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
6/25/87 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION PORTFOLIO 10.0 9.5 10.5 12.2 12.3 14.1 15.2 16.8 16.6 20.8 23.4 27.3
LEHMAN BROS AGGREGATE BOND INDEX 10.0 10.1 10.9 12.4 13.5 15.6 16.8 18.7 18.0 21.5 22.1 24.3
S & P 500 INDEX 10.0 10.3 12.0 15.5 15.3 19.9 21.4 23.6 23.9 32.9 40.4 53.9
</TABLE>
*- $10,000 INVESTED ON 6/25/87 IN FUND OR 7/1/87 IN INDEX INCLUDING REINVESTMENT
OF DIVIDENDS FISCAL YEARS ENDED 12/31
The Lehman Brothers Aggregate Bond Index is a broad, unmanaged index of
securities of fixed income instruments. The index assumes that no operating
expenses, transaction fees or sales loads are incurred by a hypothetical
investor who directly owns the securities maintained in the index. In order to
outperform an index over any specific time frame, a fund must return to
investors an amount greater than that provided by the index plus total operating
expenses. For this reason, few fixed income funds are able to outperform broad
market indices over the long term. The chart above is comprised of data that
represents the cumulative total return of a hypothetical investment of $10,000
made on the dates the Fund commenced operations through December 31, 1997.
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.
21
<PAGE>
DISTRIBUTOR, CUSTODIAN, DIVIDEND DISBURSING AGENT, TRANSFER AGENT,
ADMINISTRATIVE AND ACCOUNT SERVICES AGENT
Distributor
The distributor for shares of the Fund is Washington Square Securities,
Inc., a wholly-owned subsidiary of ReliaStar Financial Corp. The distributor's
address is 20 Washington Avenue South, Minneapolis, Minnesota, 55402. It is a
Registered broker-dealer under the Securities Exchange Act of 1934 and a member
of the National Association of Securities Dealers and an affiliate of RUSL and
RLNY. Washington Square Securities, Inc. acts a distributor without remuneration
from the Funds.
Custodian
Effective October 1, 1997, State Street Bank and Trust Company, a
Massachusetts banking institution serves as custodian for the Fund's portfolio
securities. The prior custodian was Crestar Bank. See - "Custodian" in the
Statement of Additional Information.
Dividend Disbursing, Transfer Agent, Administrative and Account Services Agent
RUSL acts as the Fund's dividend disbursing, transfer, administrative
and accounting services agent pursuant to an Administrative Services Agreement
(the "Administration Agreement") by and between the Fund, RUSL, and the Adviser.
See - "Management of the Fund - Administrative Services Agreement" in the
Statement of Additional Information.
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 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%.
22
<PAGE>
Increased portfolio turnover may result in greater brokerage commissions.
In 1997, the Portfolio turnover rate was: Stock Portfolio -- 88.55%, Bond
Portfolio --117.24%, and Asset Allocation Portfolio -- 104.30%.
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.
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
23
<PAGE>
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 RUSL and RLNY 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 RUSL or RLNY 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.
24
<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.
25
<PAGE>
INVESTMENT PERFORMANCE
Generally
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 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. The Fund may also include in communications to Fund
shareholders evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized such as:
Barron's, Business Week, Forbes, Institutional Investor, Investor's Daily,
Money, Kiplinger's Personal Finance Magazine, Morningstar Mutual Fund Values,
The New York Times, USA Today, and the Wall Street Journal.
Advertisements and other sales literature may refer to "yield,"
"effective yield," "average annual total return," "cumulative total return," and
may compare such performance quotations with published indices and comparable
quotations of other funds. All such figures are based on historical earnings and
performance and are not intended to be indicative of future performance.
Additionally, performance information may not provide a basis for comparison
with other investments or other mutual funds using a different method of
calculating performance.
The investment return on, and principal value of, an investment in the
Fund will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Performance comparisons should NOT be
considered as representative of the Fund's performance for any future period.
The Money Market Portfolio
The Fund's yield is computed by determining the net change exclusive of
capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day calendar period, dividing
the net change in account value by the value of the account at the beginning of
the period, and multiplying the return over the seven-day period by 365/7.
The Stock Portfolio, The Bond Portfolio, The Asset Allocation Portfolio
The SEC 30 day yield quotation is based on a 30 day (or one month)
period ended on the date of the most recent balance sheet, (incorporated by
reference in the Statement of Additional Information), computed by dividing the
net investment income per share earned during the period by the maximum offering
price per share on the last day of the period.
Quotations of average annual total return will be expressed in terms of
the average annual compounded rate of return on a hypothetical investment in the
Portfolio over a period of 1, 5, and 10 years (up to the life of the Portfolio),
will reflect the deduction of a proportional share of the Portfolio's expenses
(on an annual basis), and will assume that all dividends and distributions are
reinvested when paid.
Cumulative total return is calculated by subtracting a hypothetical
$1,000 payment to the Fund from the ending redeemable value of such payment (at
the end of the relevant advertised period), dividing
26
<PAGE>
such difference by $1,000 and multiplying the quotient by 100. In calculating
ending redeemable value, all income and capital gain distributions are assumed
to be reinvested in additional Fund shares.
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 RUSL
and RLNY. 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, the market conditions during the given time
period, and should not be considered as representation of what may be achieved
in the future.
For additional information regarding the calculation yield, effective
yield, average annual total return, and cumulative total return, see
"Calculation of Performance Data" in the Statement of Additional Information.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Minneapolis, Minnesota, served as independent
auditors of the Fund, for the fiscal years ending December 31, 1995, 1996, and
1997. From 1987 to 1994 KPMG Peat Marwick LLP served as the Fund's independent
auditors.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS (AND/OR STATEMENT OF ADDITIONAL INFORMATION REFERRED TO ON THE COVER
PAGE OF THIS PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
WASHINGTON SQUARE SECURITIES, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION BY ANYONE IN THE STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OF
SOLICITATION.
27
<PAGE>
USLICO Series Fund
Statement of Additional Information
May 1, 1998
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 May 1, 1998, 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
<TABLE>
<CAPTION>
Page
<S> <C>
Introduction.............................................................................................. 1
General Information and History .......................................................................... 1
Description of Securities and Investment Techniques....................................................... 1
U.S. Government Securities......................................................................... 1
Mortgage-Related Securities........................................................................ 2
GNMA Certificates......................................................................... 2
FNMA and FHLMC Mortgage-Backed Obligations................................................ 3
Bank Obligations................................................................................... 3
Corporate Debt Securities.......................................................................... 3
Commercial Paper................................................................................... 3
Repurchase Agreements.............................................................................. 4
Options .......................................................................................... 4
Risks Associated with Call Options on Securities.......................................... 5
Concentration Policy...................................................................... 5
Management of the Fund.................................................................................... 6
Trustees and Executive Officers.................................................................... 6
Compensation of Trustees........................................................................... 7
Control Persons and Principal holders of Securities....................................................... 7
The Investment Adviser and Sub-Adviser............................................................. 8
Distribution of Fund Shares........................................................................ 9
Purchases and Redemptions.......................................................................... 9
Custodian.......................................................................................... 9
Administrative Services Agreement.................................................................. 9
Portfolio Transactions and Brokerage...................................................................... 10
Brokerage and Research Services.................................................................... 10
Portfolio Turnover................................................................................. 11
Net Asset Value........................................................................................... 11
Calculation of Performance Information.................................................................... 12
The Money Market Portfolio Yield.......................................................................... 13
The Stock Portfolio, The Bond Portfolio, The Asset Allocation Portfolio................................... 13
SEC 30 Day Yield................................................................................... 13
Average Annual Total Return........................................................................ 14
Cumulative Total Return............................................................................ 14
Performance Comparisons................................................................................... 15
Taxation.................................................................................................. 15
Distributions...................................................................................... 16
Additional Information.................................................................................... 16
Shareholder Meetings............................................................................... 16
Liability.......................................................................................... 16
Financial Statements...................................................................................... 16
Appendix I: Corporate Bond and Commercial Paper Ratings.................................................. A-1
</TABLE>
<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.
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus dated May 1, 1998, and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund. This Statement of Additional Information does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made. The delivery of this Statement of Additional Information
at any time shall not imply that there has been no change in the affairs of the
Fund since the date hereof.
GENERAL INFORMATION
USLICO Series Fund (the "Fund") is an open-end diversified management
investment company registered under the Investment Company Act of 1940 and
consists 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. On January 17, 1995,
ReliaStar United Services Life Insurance Company (hereinafter "RUSL" and
formerly known as "United Services Life Insurance Company") and ReliaStar Life
Insurance Company of New York (herein after "RLNY" and formerly known as
"Reliastar Bankers Security Life Insurance Company" and "Bankers Security Life
Insurance Society") became wholly-owned subsidiaries of ReliaStar Financial
Corp. ("ReliaStar"), previously the NWNL Companies, Inc., an insurance holding
company based in Minneapolis, Minnesota.
Shares of the Portfolios are sold only to separate accounts of RUSL and
RBSL to serve as the investment medium for variable life insurance policies
issued by these companies. 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. All shares are
non-assessable and fully transfer when issued and paid for in accordance
thereof. The Fund sends its contract holders annual audited financial statements
and six-month unaudited financial statements.
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
S-1
<PAGE>
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 mortgage-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
S-2
<PAGE>
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 risk 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 banks. A Portfolio will not invest in any security issued
by a 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
S-3
<PAGE>
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.
S-4
<PAGE>
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 expires 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.
Concentration Policy
As a fundamental policy, each Portfolio may not invest 25% or more of
its total assets in the securities of any industry, nor more than 5% of its
assets in any one issuer. Although, for purposes of this limitation, U.S.
Government obligations are not considered to be part of any industry; therefore
these restrictions do not apply to U.S. Government securities. Further, the 25%
limit does not apply to the Money Market or Bond Portfolios for securities or
obligations issued by U.S. Banks.
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<PAGE>
MANAGEMENT OF THE FUND
Trustees and Officers
Information pertaining to the Trustees and Executive Officers of the Fund is set
forth below.
The Trustee and officers are as follows:
<TABLE>
<CAPTION>
Name and Address Position Principal Occupation During the Past Five Years
- ---------------- -------- -----------------------------------------------
<S> <C> <C>
Richard C. Kaufman Chairman and Trustee Consultant, 1994-present; Assistant Director of Legislative
907 Leigh Mill Road Affairs, AUSA 1984-1994 Retired; Colonel, AUS (Ret.);
Great Falls, VA 22066 previously served on RUSL Advisory Counsel
David H. Roe President, Trustee President, Central College, Pella, Iowa, 1998; Senior Vice
6060 Sugarstone Court President, ReliaStar Financial Corp. 1995 to 1996 Retired;
McLean, VA 22101 President and Chief Operating Officer of USLICO Corporation,
1993-1995; President and CEO of ReliaStar United Services Life
Insurance Company ("RUSL"); and ReliaStar Bankers Security Life
Insurance Company ("RBSL") an officer from 1991-1996.
Jeri A. Eckhart Trustee Independent Management Consultant, 1988-present; Board
6619 Jill Court Member, White House Fellows Foundation, 1990-present.
McLean, VA 22101
Wayne O. Jefferson, Jr. Trustee Telecommunications Consultant, 1994-present; Executive
1003 Emerald Dr. Director, Support Services, LLC, Arlington, VA
Alexandria, VA 22308 1992-1994; General Manager, Telecom Solutions, Inc.,
Arlington, VA, 1991-1992; Telecommunications Consultant
and President, Jefferson Associates, Inc., Alexandria,
VA, 1989-1992.
David P. Wilken Treasurer Second Vice President of Reliastar Life Insurance Company and
20 Washington Avenue South Assistant Vice President of RLNY; Affiliated with ReliaStar
Minneapolis, MN 55401 Life since 1977.
Robert B. Saginaw Vice President, Secretary and Counsel, ReliaStar Life Insurance Company, 1995 to present; Vice
20 Washington Avenue South Counsel President and Associate Counsel of RUSL from 1980-1995.
Minneapolis, MN 55401
</TABLE>
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<PAGE>
Compensation of Trustees
Mr. Saginaw, a Vice President and Secretary of the Fund, is an
"interested person" of the Fund and is also an employee of ReliaStar Life and
an officer of RUSL or its Affiliates and receives compensation therefrom. He
does not receive additional compensation for services rendered to the Fund. Mr.
Roe, President of the Fund and an "interested person" of the Fund, and the
"Non-Interested" Trustees of the Board received in 1997, a fee of $500 for each
meeting attended. The regular meetings of the Board are held quarterly. For the
years ended December 31, 1997, 1996 and 1995, total fees paid to the Trustees
aggregated $8,000, $6,000 and $6,000 respectively for all portfolios combined.
In 1998, fees will be $1,000 per meeting.
<TABLE>
<CAPTION>
1997 Compensation
Pension or Estimated Total Compensation
Aggregate Retirement Benefits Annual From Registrant and
Compensation Accrued as Part of Benefits Upon Fund Complex Paid to
Name and Position From Registrant Fund Expense Retirement Trustee
----------------- --------------- ------------ ---------- -------
<S> <C> <C> <C> <C>
Richard C. Kaufman $2,000 0 0 $2,000
Chairman and Trustee
David H. Roe $2,000 0 0 $2,000
President and Trustee
Jeri A. Eckhart $2,000 0 0 $2,000
Trustee
Wayne O. Jefferson, Jr. $2,000 0 0 $2,000
Trustee
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On January 17, 1995, ReliaStar Financial Corp. ("ReliaStar") acquired
USLICO. USLICO was a holding company with two primary subsidiaries: United
Services Life Insurance Company, (now known as ReliaStar United Services Life
Insurance Company, or "RUSL"), of Arlington, Virginia and Bankers Security Life
Insurance Society (now known as ReliaStar Life Insurance Company of New York
or "RLNY"), of Woodbury, New York.
USLICO Series Fund (the "Fund"), consisting of four distinct
Portfolios, is an investment vehicle for the separate accounts of RUSL and RLNY.
At the present time, shares of the Fund are sold exclusively to RUSL and RLNY.
The shares serve as the investment medium for variable life insurance policies
issued by these companies.
Beneficial owners of more than 25% of the Fund's outstanding securities
as of April 1, 1998 were: ReliaStar United Services Variable Life Separate
Account I and ReliaStar Life Insurance Company of New York Variable Life
Separate Account I. For this purpose "control" means: (i) the beneficial
ownership, either directly or through one or more controlled companies, of more
than 25% of the voting securities of a company; (ii) the acknowledgment or
assertion by either the controlled or controlling party of the existence of
control; or (iii) an adjudication under the terms and conditions of the
"40 Act", which has become final, that control exists.
S-7
<PAGE>
The Investment Adviser and Sub-Adviser
Since April 1, 1995, Washington Square Advisers, Inc. ("Washington
Square" or the "Adviser") has served as Investment Adviser (the "Adviser") to
the Fund pursuant to an Investment Advisory Agreement between it and the Fund.
Washington Square is a wholly owned subsidiary of ReliaStar Financial Corp. From
April 1988 through April 1995, the Adviser for the Fund was Bankers Centennial
Management Corp. 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 Pilgrim Baxter Value
Investors, Inc., then known as 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 825 Duportail Road, Wayne, PA 19087. Pilgrim Baxter 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 reapproved
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 a meeting
held on March 3, 1998, to be effective April 1, 1998. 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 previously approved the Agreements on March 5, 1997.
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. For the years 1997,
1996, 1995, and 1994, the Fund paid the Adviser the following management fees:
Stock Portfolio, $64,509, $53,353, $23,450 and $33,276, respectively; Money
Market Portfolio, $14,571, $14,752, $7,184 and $13,776, respectively; Bond
Portfolio, $7,027, $7,176, $3,692, and $6,302 respectively; Asset Allocation
Portfolio, $38,430, $34,689, $16,081 and $24,168, respectively.
S-8
<PAGE>
Distribution of Fund Shares
Shares of the Fund are distributed through Washington Square
Securities, Inc., a wholly-owned subsidiary of ReliaStar Financial Corp. The
Fund entered into a distribution agreement, with Washington Square Securities,
Inc. on February 1, 1997. Washington Square Securities, Inc., a registered
broker-dealer under the Securities Act of 1934, and member of the National
Association of Securities Dealers, Inc., receives no remuneration from the Fund.
ReliaStar Financial Marketing Corporation, formerly known as USLICO
Securities Corp., a direct wholly-owned subsidiary of ReliaStar Financial Corp.
served as the Fund's Distributor pursuant to a distribution contract, until
February 1, 1997.
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.
Custodian
On October 1, 1997, State Street Bank and Trust Company, a
Massachusetts banking institution became Custodian for all the Fund's portfolios
and their cash. Previously Crestar Bank, a Virginia banking institution served
as custodian for the Fund's portfolios securities and cash. In its capacity as
Custodian, State Street maintains certain financial and accounting books and
records pursuant to a separate agreement with the Fund.
Administrative Services Agreement
ReliaStar United Services Life Insurance Company ("RUSL") acts as the
Fund's dividend disbursing, transfer, administrative and accounting services
agent pursuant to an Administrative Services Agreement (the "Administrative
Agreement") by and between the Fund, RUSL, and the Adviser.
As compensation, RUSL will be reimbursed for its costs associated with
providing services under the Administrative Agreement to the Fund. Such
reimbursements will be fair and reasonable and include all costs incurred by
RUSL.
The Administrative Services Agreement is renewable from year to year if
the Fund's trustees, (including a majority of the Fund's disinterested trustees)
approve the continuance of the Agreement. RUSL or the Fund may terminate the
Administrative Services Agreement on 90 days written notice to the other party.
Amendments to the Agreement may be effected if approved by the Trustees of the
Fund (including a majority of the disinterested trustees) and the Agreement is
not assignable by the Fund without the written consent of RUSL, or by RUSL
without the written authorization of the Fund's Board of Trustees.
S-9
<PAGE>
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 $50,288 for the Stock Portfolio
and $17,072 for the Asset Allocation Portfolio for the year ended December 31,
1997.
S-10
<PAGE>
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 1997, the Portfolio
turnover rate was: Stock Portfolio -- 88.55%; Bond Portfolio -- 117.24%; and
Asset Allocation Portfolio -- 104.30%.
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.
Pursuant to an exemptive rule of the Securities and Exchange
Commission, The Money Market Portfolio's securities are valued by the amortized
cost method. This method of valuation involves valuing a security at its cost at
the time of purchase and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the security. 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 security. During periods of declining interest rates, the quoted
yield on shares of the Portfolio may tend to be higher than that of a fund or
Portfolio with identical investments which uses a method of valuation based on
market prices an estimates of market prices for all its portfolio securities.
Thus, if the use of amortized cost by the Portfolio resulted in lower aggregate
portfolio value on a particular day, a prospective investor in the Portfolio
would be able to obtain a somewhat higher yield of he purchased shares on that
day than he would be able to receive from a fund or Portfolio using solely
market values. Existing investors in the Portfolio would receive less investment
income. The converse is true in a period of rising interest rates.
The Rule permitting the Portfolio to use the amortized cost method of
valuation requires that, under the direction of the Board of Trustees, certain
procedures be adopted to monitor and stabilize the price per share of the
Portfolio. Calculations are made to compare the value of its investments valued
at amortized cost with market values. Market valuations are obtained by using
actual quotations provided by
S-11
<PAGE>
issuers or market makers, estimates of market value, or values obtained from
yield data relating to classes of money market instruments or U.S. Government
securities published by reputable sources at the mean between the bid and asked
prices for the instruments. In the event that a deviation of 1/2 of 1% or more
exists between the Fund's $1.00 per share net asset value and the net asset
value calculated by reference to market quotations, or if there is any other
deviation which the Board of Trustees believes would result in a material
dilution of shareholders or purchasers, the Board of Trustees will promptly
consider what action, if any, should be initiated.
Under the exemptive Rule of the Securities and Exchange Commission
allowing the Fund to use the amortized cost method of valuation of portfolio
securities, the Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less. In addition, with certain limited exceptions, the Fund
cannot invest more than 5% of its assets in the securities of a single issuer
(other than government securities). Investments in Second Tier securities in the
aggregate must be limited to 5% of the Fund's total assets, and investment in a
single Second Tier Security cannot exceed the greater of 1% of total assets or
$1 million. See, "Investment Strategies."
The Fund can only invest in instruments having remaining maturities of
397 days or less and can only invest in securities determined by the Adviser to
be of high quality with minimal credit risks.
On December 31, 1997, the net asset value per share of each portfolio
was calculated as follows:
<TABLE>
<S> <C>
The Stock Portfolio
Net Assets $27,291,645 = Net Asset Value Per Share $13.50
-----------------------------------
Shares Outstanding 2,021,684
The Money Market Portfolio
Net Assets $5,784,312 = Net Asset Value Per Share $1.00
-----------------------------------
Shares Outstanding 5,784,312
The Bond Portfolio
Net Assets $2,802,374 = Net Asset Value Per Share $10.00
-----------------------------------
Shares Outstanding 280,298
The Asset Allocation Portfolio
Net Assets $15,900,094 = Net Asset Value Per Share $11.98
-----------------------------------
Shares Outstanding 1,327,715
</TABLE>
CALCULATION OF PERFORMANCE DATA
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 ReliaStar
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 ReliaStar Life
Insurance Company of New York (collectively, the "RUSL and RLNY Separate
Accounts"). On April 30, 1988, the investment-related assets and liabilities of
the RUSL and RLNY Separate Accounts were transferred to the Stock, Money Market,
Bond and Asset Allocation Portfolios of the Fund. Performance calculations are
based upon the RLNY Separate Accounts.
S-12
<PAGE>
THE 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, 1997, assuming the values used are as follows:
<TABLE>
<S> <C> <C>
(1) Value on Dec. 24, 1997.......................................... $100.00
(2) Value on Dec. 31, 1997 (exclusive of capital charges).......... 100.08
(3) Net change:(2) - (1)............................................ .08
(4) Net change divided by Value on Dec. 24, 1997:
(3) divided by (1)......................................... .0008
(5) Seven-day yield annualized (multiplied by 365/7)................ 4.17%
</TABLE>
THE BOND PORTFOLIO, THE COMMON STOCK PORTFOLIO,
THE ASSET ALLOCATION PORTFOLIO -
SEC 30 DAY YIELD
Yield is computed by dividing the net investment income per share
deemed earned during the computation period by the maximum offering price per
share on the last day of the period according to the following formula:
a-b
---
SEC YIELD = 2[( cd + 1)(6)-1]
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends: and,
d = the maximum offering price per share on the last day of the
period.
The SEC 30 day yield for the period ending December 31, 1997 for the
Bond Portfolio was 6.55%; the Common Stock Fund, 2.48%; and the Asset Allocation
Fund 4.62%
S-13
<PAGE>
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, AND THE ASSET ALLOCATION
PORTFOLIO - AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return is computed by finding the average annual
compounded rates of return over 1, 5, and 10 years that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1+T) = ERV or T = ERV/P 1/n - 1
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and,
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period.
This calculation assumes all dividends and capital gain distributions
are reinvested at net asset value on the appropriate reinvestment dates as
described in the Prospectus, and includes all recurring fees, such as investment
advisory and management fees, charged as expenses to all shareholder accounts.
Average annual total return figures for one year ending December 31,
1997 are: 25.06% -- Stock Portfolio; 7.09% -- Bond Portfolio; and, 16.62% --
Asset Allocation Portfolio. For the five year period ending December 31, 1997,
the average annual total return figures are: 18.63% -- Stock Portfolio; 6.92% --
Bond Portfolio; and, 12.74% -- Asset Allocation Portfolio. For the ten year
period ending December 31, 1997, the average annual total return for the Stock
Portfolio was 14.47%. For the Bond and Asset Allocation Portfolios the ten-year
period average annual total return figures are: 8.28% -- Bond Portfolio and
11.39% -- Asset Allocation Portfolio.
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, THE ASSET ALLOCATION
PORTFOLIO - CUMULATIVE TOTAL RETURN
Cumulative Total Return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR = ERV - P
---------- *100
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period; and,
P = initial payment of $1,000.
This calculation assumes all dividends and capital gain distributions
are reinvested at net asset value on the appropriate reinvestment dates as
described in the Prospectus, and includes all recurring fees, such as investment
advisory and management fees, charged as expenses to all shareholder accounts.
S-14
<PAGE>
The cumulative total return for the fiscal year ending December 31,
1997, for each Portfolio was 220.14%, Stock Portfolio; 131.15%, Bond Portfolio;
and, 151.01%, Asset Allocation Portfolio.
PERFORMANCE COMPARISONS
Comparative performance information may be used from time to time in
advertising each Portfolio's shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc. and other entities or organizations which
track the performance of investment companies. Each Portfolio's performance also
may be compared to the performance of its respective Comparison Index, if any,
as described in the Prospectus, and, additionally, to the performance of
unmanaged indices. Unmanaged indices may assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management cost
and expenses.
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 RUSL
and RLNY. 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)* 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 (iii)
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
S-15
<PAGE>
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.
ADDITIONAL INFORMATION
Shareholder Meetings
The Declaration of Trust does not require that the Fund hold annual or
regular meetings of shareholders. Meetings of the Shareholders may be called by
the Trustees and held at such times the Trustees may from time to time
determine, for the purpose of the elections of Trustees or such other purposes
as may be specified by the Trustees.
Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund, or
Portfolio thereof, organized as a Massachusetts business trust. The Declaration
of Trust further provides for indemnification out of the assets and property of
the Fund, or Portfolio thereof, for all loss and expense of any shareholder held
personally liable for the obligations of the Fund or Portfolio. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund or Portfolio would be unable to meet
its obligations.
FINANCIAL STATEMENTS
The audited Financial Statements and accompanying Report of Independent
Auditors' (Deloitte & Touche LLP for the Fund for the fiscal years ended
December 31, 1996 and 1997) are incorporated herein by reference to the
Registrant's 1997 Annual Report to Shareholders filed with the U.S. Securities
and Exchange Commission on April 16, 1998. No other portion of the Annual
Report is so incorporated. Please call 1-800-338-7737, ext. 3626 to obtain a
copy of the most recent Annual Report of the Fund at no charge.
S-16
<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 & 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 ratings Prime-1 and Prime-2 are the two
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-1 or A-2 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.
A-1
<PAGE>
Part C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Contained in Part A:
Financial Highlights for each portfolio for each year in the
ten year period ending December 31, 1997.
Contained in Part B:
The financial statements are incorporated by reference into in
Part B from the Registrant's 1997 Annual Report to
Shareholders filed April 16, 1998.
(b) Exhibits
1. Agreement and Declaration of Trust of USLICO Series
Fund, filed as an Exhibit to Form N-14 of Bankers
Security Variable Life Separate Account I, Bankers
Security Life Insurance Society, and the USLICO Series
Fund on January 19, 1988, File No. 33-19750.*
2. USLICO Series Bylaws, filed as an Exhibit to Form N-14
of Bankers Security Variable Life Separate Account I,
Bankers Security Life Insurance Society, and the
USLICO Series Fund on January 19, 1988, File No.
33-19750.*
3. Voting Trust Agreement. Not Applicable.
4. Specimen Security. Not Applicable.
5.1 Investment Advisory Agreement by and between USLICO
Series Fund and Washington Square Advisers, Inc.
restated as of March 5, 1997, to reflect a name
change.*
5.2 Sub-Investment Advisory Agreement by and between
Pilgrim Baxter Value Investors, Inc. (formerly
Newbold's Asset Management, Inc.) and Washington
Square Advisers, Inc. restated as of March 5, 1997, to
reflect a name change.*
6. Distribution Agreement by and between USLICO Series
Fund and Washington Square Securities, Inc., dated
February 1, 1997.*
7. Bonus, Profit Sharing, or Pension Plans. None.
8. Custodian Contract by and between USLICO Series Fund
and State Street Bank and Trust Company, dated October
1, 1997, filed as an Exhibit hereto.
9. Administrative Services Agreement by and between
USLICO Series Fund, Washington Square Advisers, Inc.
and ReliaStar United Services Life Insurance Company
dated January 1, 1997.*
C-1
<PAGE>
10. Opinion and Consent of Robert B. Saginaw filed as an
Exhibit to Post-Effective Amendment No. 9 to Form N-1A
on April 30, 1996, File No. 33-20957, and incorporated
herein by reference.
11.1 Consent of Deloitte & Touche LLP, dated April 21,
1998 filed as an Exhibit hereto.
11.2 Consent of KPMG Peat Marwick, dated April 21,
1998 filed as an Exhibit hereto.
12. All Financial Statements Omitted from Item 23. None.
13. Letter of Investment Intent. Not Applicable.
14. Copy of Prototype defined contribution plan. Not
Applicable.
15. Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Not Applicable.
16. Schedule for Computation of Performance Data - Common
Stock Fund, Money Market Portfolio, Bond Portfolio,
and Asset Allocation Portfolio, filed as an Exhibit
hereto.
17.1 Power of Attorney, dated May 1, 1989, filed as an
Exhibit to Post-Effective Amendment No. 2 to Form N-1A
on May 1, 1989, File No. 33-19749, and incorporated
herein by reference.
17.2 Power of Attorney, dated April 27, 1995, filed as an
Exhibit to Post-Effective Amendment No. 8 to Form N-1A
of USLICO Series Fund, on April 27, 1995, File No.
33-20957, and incorporated herein by reference.
17.3 Power of Attorney, dated May 7, 1997, filed as an
Exhibit hereto.
17.4 Financial Data Schedule - Common Stock Fund
incorporated by reference to the Fund's 1997 Report on
Form N-SAR.
17.5 Financial Data Schedule - Money Market Portfolio
incorporated by reference to the Fund's 1997 Report on
Form N-SAR.
17.6 Financial Data Schedule - Bond Portfolio incorporated
by reference to the Fund's 1997 Report on Form N-SAR.
17.7 Financial Data Schedule - Asset Allocation Portfolio
incorporated by reference to the Fund's 1997 Report
on Form N-SAR.
18. Plan pursuant to Rule 18f-3 under the Investment
Company Act of 1940. Not Applicable.
* Filed in 485BPOS on April 30, 1997, Post-Effective Amendment
No. 10, File 033-20957, 811-05451, and incorporated herein by
reference;
Item 25. Persons Controlled by or Under Common Control with Registrant
A chart identifying the subsidiaries of ReliaStar Financial Corp. and
their relationship to one another is incorporated by reference to
item 26 of Form N-4 Registration Statement of Separate Account One of
Northern Life Insurance Company, File No. 33-90474, filed April 20,
1998.
C-2
<PAGE>
Item 26. Number of Holders of Securities
Two - ReliaStar United Services Variable Life Separate Account I and
ReliaStar Bankers Security Variable Life Separate Account I.
Item 27. Indemnification
Reference is made to Article V, Section 5.4 of the Registrant's
Agreement and Declaration of Trust, which is incorporated by
reference herein.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Act") may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant pursuant
to the Declaration of Trust or otherwise, the Registrant is aware
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act, and
therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant) of expenses incurred or paid by trustees, officers or
controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding is asserted by such
trustees, officers or controlling persons in connection with the
shares being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of the Investment Advisers
(a) The directors and officers of the Adviser, Washington Square
Advisers, Inc. ("WSA") and their businesses and other
connection during the past two years are as follows:
<TABLE>
<CAPTION>
Name of Individual Business and Other Connections
------------------ ------------------------------
<S> <C>
Susan M. Bergen Counsel of ReliaStar Life Insurance Company; Secretary of
Adviser and Washington Square Securities, Inc.
Stephen L. Buchert Director of Compliance for WSA.
Richard R. Crowl Senior Vice President and General Counsel, ReliaStar Financial
Corp. and ReliaStar Life Insurance Company; Senior Vice
President and General Counsel, WSA.
Senior Vice President and Portfolio Manager, WSA.
Executive Vice President and Managing Director, WSA.
Wayne R. Huneke Senior Vice President ReliaStar Financial Corp. and
ReliaStar Life Insurance Company; Treasurer
and Chief Financial Officer, WSA.
Mark S. Jordahl Executive Vice President and Managing Director, WSA.
Kenneth U. Kuk Vice President, ReliaStar Financial Corp. and ReliaStar Life
Insurance Company; Chief Executive Officer, President and
Director, WSA.
James L. Mahnke Senior Vice President and Portfolio Manager, WSA.
Frank P. Pintens Senior Vice President and Portfolio Manager, WSA.
John J. Turner Chairman and Chief Executive Officer, ReliaStar Financial Corp.
and ReliaStar Life Insurance Company; Director, WSA.
</TABLE>
C-3
<PAGE>
(b) The directors and officers of the Sub-Adviser, Pilgrim Baxter
Value Investors, Inc. and their businesses and other
connection during the past two years are as follows:
<TABLE>
<CAPTION>
Name Title Business and Other Connections
---- ----- ------------------------------
<S> <C> <C>
Harold Joseph Baxter Chairman, CEO, Director Chairman, CEO, and Director of the sub-adviser since
July, 1996; Chairman, CEO, and Director of Pilgrim
Baxter & Associates, Ltd. since August, 1985.
James Henry Farrell, Jr. Chief Investment Officer and Chief Investment Officer and Director of the sub-adviser
Director since September, 1996; prior thereto President of
Farrell & Seiwell, Inc. from April, 1996 to April 1997;
prior thereto, Sole Proprietor of James H. Farrell, Jr.
Investment Counselor from July, 1994 to March, 1996.
David Wade Jennings President, COO, Director and President, COO, Director, and Treasurer of the Treasurer sub-adviser
since July, 1996; Director of Client Services at Pilgrim Baxter &
Associates, Ltd., since March 1996; prior thereto President of Downing
Street Associates from February, 1994 to February, 1996.
Eric Charles Schneider Chief Financial Officer CFO of the sub-adviser since July, 1996; CFO of Pilgrim Baxter &
Associates, Ltd. since February, 1996; prior thereto, Partner, Sacco,
Sweeney & Schneider from January, 1986 to January 1996.
Amy Yuter Chief Compliance Officer Chief Compliance Officer of the sub-adviser since July, 1996; Registered
Principal, SEI Financial Services Company since March, 1996; Chief
Compliance Officer, Pilgrim Baxter & Associates, Ltd. since July, 1995.
John Mark Zerr General Counsel, Secretary General Counsel and Secretary of the sub-adviser since
July, 1996; General Counsel and Secretary of Pilgrim
Baxter & Associates, Ltd. since November, 1996; prior
thereto Vice President and Assistant Secretary of
Delaware Management Company, Inc. from July, 1995 to
November, 1996.
</TABLE>
Item 29. Principal Underwriters
(a) Washington Square Securities, Inc. serves as the Fund's
Distributor and as the Distributor of ReliaStar Life Insurance
Company of New York Variable Annuity Contracts issued by
subaccounts of its Separate Accounts P and Q, pursuant to a
distribution contract. It also acts as Distributor to
ReliaStar Life Insurance Company products: ReliaStar Select
Variable Account Annuity II; ReliaStar Select Variable Account
Annuity III; Select*Life Variable Account - Life I;
Select*Life Variable Account - Life II; Select*Life Variable
Account - Life III; Select*Life Variable Account - SVUL.
Washington Square Securities, Inc. also acts as Distributor
to: Northern Life Insurance Co. - Separate Account One -
Advantage; and, ReliaStar Life Insurance Company of New York
- ReliaStar Variable Life New York.
C-4
<PAGE>
(b) The directors and officers of WSSI are as follows:
<TABLE>
<CAPTION>
Name Positions and Offices with WSSI
---- -------------------------------
<S> <C>
John H. Flittie Director and Chairman
Anne W. Dowdle Director
Wayne R. Huneke Director
Michael J. Dubes Director
Robert C. Salipante Director
James R. Gelder Director
Jeffrey A. Montgomery President and Chief Operating Officer
Susan M. Bergen Secretary
David Braun Assistant Vice President
Karin Callanan Assistant Vice President
Timothy J. Lyle Assistant Vice President and Chief Compliance Officer
Margaret B. Wall Treasurer and Chief Financial Officer
Allen L. Kidd Assistant Secretary
Loralee A. Renelt Assistant Secretary
</TABLE>
The principal business address of each of the foregoing executive
officers is 20 Washington Avenue South, Minneapolis, Minnesota 55401,
except for the following individuals whose principal business
addresses are listed after their respective names: Michael J. Dubes,
1110 3rd Avenue, Seattle, Washington 98101; Allen L. Kidd, 222 North
Arch Road, Richmond, Virginia 23236.
C-5
<PAGE>
Item 30. Location of Accounts and Records
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and the Rules thereunder will be maintained at 4601 Fairfax
Drive, Arlington, Virginia 22203.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, within
four to six months from the effective date of Registrant's
Registration Statement under the Securities Act of 1933.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 11 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Arlington, County of Arlington, Commonwealth of Virginia this 24th day
of April 1998.
USLICO SERIES FUND
By /s/Robert B. Saginaw
--------------------
Robert B. Saginaw
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Richard C. Kaufman* Chairman of the Board of Trustees April 24, 1998
Jeri A. Eckhart** Trustee April 24, 1998
Wayne O. Jefferson, Jr.** Trustee April 24, 1998
David H. Roe*** Trustee April 24, 1998
/s/David P. Wilken Treasurer April 24, 1998
-----------------------------------
David P. Wilken
</TABLE>
* By /s/Robert B. Saginaw
------------------------------------
Robert B. Saginaw
Attorney-in-Fact
April 24, 1998
* Power of Attorney filed in Post-Effective Amendment No. 2, File No.
33-19749, filed on May 1, 1989, and incorporated by reference herein.
** Powers of Attorney for Ms. Eckhart and Mr. Jefferson filed in
Post-Effective Amendment No. 8, filed April 27, 1995, filed No. 33-19749,
and incorporated by reference herein.
*** Filed herein.
<PAGE>
