As filed with the Securities and Exchange Commission on March 1, 2000
Securities Act File No. 33-20957
Investment Company Act File No. 811-05451
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
Registration Statement Under The Securities Act Of 1933 [X]
Pre-Effective Amendment No.__
Post-Effective Amendment No. 14 [X]
and/or
Registration Statement Under The Investment Company Act Of 1940 [X]
Amendment No. 15 [X]
(Check appropriate box or boxes)
USLICO SERIES FUND
(Exact Name of Registrant Specified in Charter)
20 Washington Avenue South, Route 1212,
Minneapolis, Minnesota 55401
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 333-6965
James M. Hennessy, Esq. With Copies To:
Pilgrim Investments, Inc. Jeffrey S. Puretz, Esq.
40 North Central Avenue, Suite 1200 Dechert Price & Rhoads
Phoenix, AZ 85004 1775 Eye Street, N.W.
(Name and Address of Agent for Service) Washington, D.C. 20006
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It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (b)
[X] on April 30, 2000 pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designated a new effective date for a
previously filed post-effective amendment.
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USLICO SERIES FUND
PROSPECTUS
April 30, 2000
The four Portfolios of the USLICO Series Fund are as follows:
The Stock Portfolio
The Money Market Portfolio
The Bond Portfolio
The Asset Allocation Portfolio
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of the prospectus. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is April 30, 2000
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TABLE OF CONTENTS
Page
----
Types Of Investors For Whom The Fund Is Intended............................ 2
The Stock Portfolio......................................................... 3
Risk/Return Summary....................................................... 3
The Money Market Portfolio.................................................. 4
Risk/Return Summary....................................................... 4
The Bond Portfolio.......................................................... 4
Risk/Return Summary....................................................... 4
The Asset Allocation Portfolio.............................................. 5
Risk/Return Summary....................................................... 5
Performance Information For Last 10 Years................................... 6
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Stock Portfolio.................................. 11
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Money Market Portfolio........................... 12
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Bond Portfolio................................... 14
Investment Objectives, Principal Investment Strategies,
and Related Risks of the Asset Allocation Portfolio....................... 15
General Portfolio Policies.................................................. 18
Risk Factors and Special Considerations..................................... 20
Management of the Portfolios................................................ 21
Pricing of Fund Shares...................................................... 23
Distribution and Taxes...................................................... 23
Financial Highlights........................................................ 23
Glossary of Investment Terms................................................ 28
To Obtain More Information Please Refer To The Back Cover.
TYPES OF INVESTORS FOR WHOM THE FUND IS INTENDED
Shares of the USLICO SERIES FUND (the "Fund") are sold only to insurance
companies and are used to fund variable life insurance policies ("Policies").
The Policies were offered by ReliaStar United Services Life Insurance Company
(now merged into ReliaStar Life Insurance Company) and ReliaStar Life Insurance
Company of New York (the "insurance companies") and sold with a prospectus
describing the Policies and with a prospectus of the Fund. The insurance
companies are affiliated with the Investment Adviser and Sub-Adviser of the
Fund. The Fund has four different Portfolios, each with different investment
objectives and strategies. The Portfolios are the (1) Stock Portfolio; (2) Money
Market Portfolio; (3) Bond Portfolio; and (4) Asset Allocation Portfolio.
Because Policy owners may instruct the insurance companies which Portfolio(s)
they want to use to fund their Policies, this prospectus gives you important
information about the Portfolios which you should know about before investing.
Please read this prospectus and keep it for future reference.
2
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THE STOCK PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
The Stock Portfolio seeks intermediate and long-term growth of capital. Its
secondary objective is to receive a reasonable level of income.
Investment Focus:
U.S. Common Stocks with medium to large market capitalizations.
Principal Investment Strategies:
* Identifying companies with above-average growth potential.
* Investing primarily in common stocks.
* Investing at least 70% of total assets in securities of companies with
large market capitalizations (those with market capitalizations similar to
companies in the S&P Index 500).
* Potentially investing in companies with smaller or medium market
capitalizations.
* Investing primarily in domestic issuers.
* Investing primarily in "value" stocks.
* Using fundamental analysis of each issuer's financial condition and
industry position and market and economic conditions to select investments.
Principal Investment Risks:
* STOCK MARKET VOLATILITY. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory, market
or economic developments. Different parts of the market can react
differently to these developments.
* ISSUER-SPECIFIC CHANGES. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole. The value of
securities of smaller issuers can be more volatile than that of larger
issuers.
* FOREIGN EXPOSURE. Entities located in foreign countries can be affected by
adverse political, regulatory, market or economic developments in those
countries.
* CHANGES IN VALUES. When you sell your shares of the fund, they could be
worth more or less than what you paid for them. Loss of money is a risk.
Values are not guaranteed.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not a deposit of
the bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
3
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THE MONEY MARKET PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
Seeks as high a level of current income consistent with preservation of capital
and liquidity.
Investment Focus:
Short-term U.S. Governmental Securities and Money Market instruments.
Principal Investment Strategies:
Purchasing U.S. Governmental Securities and U.S. dollar denominated high quality
money market instruments rated A-1 by Standard & Poor's Ratings Group ("S&P") or
P-1 by Moody's Investor Services, Inc. ("Moody's"), and repurchase agreements,
as follows:
Principal Investment Risks:
* INSOLVENCY RISK. Defaults in paying principal and/or interest by an issuer.
* INTEREST RATE CHANGES. Interest rate increases can cause the price of a
U.S. Government or a money market security to decrease.
* FINANCIAL SERVICES EXPOSURE. Changes in government regulation or economic
downturns can have a significant negative affect on issuers in the
financial services sector.
* ISSUER-SPECIFIC CHANGES. A decline in the credit quality of an issuer or
the provider of credit support or a maturity-shortening structure for a
security can cause the price of a money market security to decrease.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio.
4
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THE BOND PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
High level of income consistent with prudent risk and the preservation of
capital.
Investment Focus:
Investment grade bonds - rated in top four rating categories of either S&P or
Moody's.
Principal Investment Strategies:
* Investing in U.S. dollar-denominated investment-grade bonds.
* Managing the Portfolio to have similar overall interest rate risk to the
Lehman Brothers Aggregate Bond Index.
* Allocating assets across different market sectors and maturities.
* Analyzing a security's structural features, current pricing and trading
opportunities, and the credit quality of its issuer to select investments.
Principal Investment Risks:
* INSOLVENCY RISK. Default in payment of principal and/or interest by an
issuer.
* CREDIT RISK. A decline in the credit quality of an issuer can cause the
price of a bond to decrease.
* INTEREST RATE CHANGES. Interest rate increases can cause the price of a
debt security to decrease.
* FOREIGN EXPOSURE. Entities located in foreign countries can be affected by
adverse political, regulatory, market or economic developments in those
countries.
* PREPAYMENT. The ability of an issuer of a debt security to repay principal
prior to a security's maturity can cause greater price volatility if
interest rates change and less income if called in a lower interest rate
environment.
* ISSUER-SPECIFIC CHANGES. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
* CHANGES IN VALUES. Values are not guaranteed. When you sell your shares of
the Portfolio, they could be worth more or less than what you paid for
them.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not a deposit of
the bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
5
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THE ASSET ALLOCATION PORTFOLIO
RISK/RETURN SUMMARY
Investment Goal:
Seeks to obtain high total return with reduced risk over the long term by
allocating its assets among stocks, bonds, and short-term instruments.
Investment Focus:
U.S. Common Stocks, investment grade bonds and money market instruments.
Principal Investment Strategies:
* Allocating the Portfolio's assets among stocks, bonds, and short-term money
market instruments.
* Adjusting allocation among asset classes.
* Investing primarily in domestic issuers.
* Analyzing an issuer using fundamental and/or quantitative factors and
evaluating each security's current price relative to estimated long-term
value to select investments.
* Entering into repurchase agreements maturing in seven days or less.
Principal Investment Risks:
* STOCK MARKET VOLATILITY. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory, market
or economic developments. Different parts of the market can react
differently to these developments.
* INTEREST RATE CHANGES. Interest rate increases can cause the price of a
debt security to decrease.
* INSOLVENCY RISK. Default in payment of principal and/or interest by an
issuer.
* CREDIT RISK. A decline in the credit quality of an issuer can cause the
price of its bond to decrease.
* FOREIGN EXPOSURE. Foreign markets can be more volatile than the U.S. market
due to increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S. market.
* PREPAYMENT. The ability of an issuer of a debt security to repay principal
prior to a security's maturity can cause greater price volatility if
interest rates change and less income if called in a lower interest rate
environment.
* ISSUER-SPECIFIC CHANGES. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole. The value of
securities of smaller issuers can be more volatile than that of larger
issues.
* CHANGED IN VALUES. Values are not guaranteed, you may lose money. When you
sell your shares of the Portfolio, they could be worth more or less than
what you paid for them.
* NOT GUARANTEED BY FDIC. An investment in the Portfolio is not a deposit of
the bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
6
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PERFORMANCE INFORMATION FOR LAST 10 YEARS
The bar charts and the performance information listed on the following pages
illustrate the risks and volatility of investing in the Portfolios. The charts
shows the changes in each Portfolio's performance from year to year for the past
10 calendar years. The additional information shows the highest and lowest
returns for a quarter during those 10 years and compares its average annual
returns for 1, 5 and 10 years to an index. How each Portfolio has performed in
the past is not necessarily an indication of how it will perform in the future.
The bar charts reflect the management fees and expenses of the Fund but the
performance figures generally do not reflect charges assessed by the insurance
company separate accounts. If such charges had been reflected, the returns would
be less than those shown below. Performance assumes reinvestment of income and
capital gain distributions.
7
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PERFORMANCE OF THE STOCK PORTFOLIO(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-6.60 17.55 5.69 10.53 2.76 31.92 22.90 25.06 6.00 0.00
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
[ ] [ ]
Three months Three months
ending ______ ending ______
COMPARING RETURNS WITH THE S&P 500 INDEX
This table compares the Stock Portfolio's average annual total returns for 1, 5
and 10 years ending December 31, 1999 to those of the S&P 500 Index.
1 Year 5 Years 10 Years
------ ------- --------
Stock Portfolio
S&P 500 Index
INFORMATION ON THE S&P 500 INDEX
The S&P 500 Index contains 500 widely held common stocks. The index includes
industrial, technology, utility, financial and transportation stocks.
Calculations of its performance assumes reinvestment of dividends. You cannot
invest directly in the index. It does not have an investment adviser and does
not pay any commissions or expenses. If it had expenses, its performance would
be lower. 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.
- ----------
1. Prior to October 1, 1999, the Stock Portfolio was managed by a different
sub-adviser.
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PERFORMANCE OF THE MONEY MARKET PORTFOLIO
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
7.00 5.00 3.00 2.00 4.00 5.00 5.00 5.00 5.00 0.00
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
[ ] [ ]
Three months Three months
ending ______ ending ______
THE PORTFOLIO'S AVERAGE ANNUAL RETURNS
This table provides information on the Portfolio's average annual total returns
for 1, 5 and 10 years ending December 31, 1999:
1 Year 5 Years 10 Years
------ ------- --------
Money Market Portfolio
THE PORTFOLIO'S SEVEN DAY YIELD
The Portfolio's 7-day yield, as of the end of December 31, 1999 was ____%.
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PERFORMANCE OF THE BOND PORTFOLIO
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
4.20 14.20 7.74 10.48 -3.72 18.07 2.70 7.09 4.30 0.00
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
[ ] [ ]
Three month period Three month period
ending ______ ending ______
COMPARING RETURNS WITH THE LEHMAN BROTHERS AGGREGATE BOND INDEX
This table compares the Portfolio's average annual total returns for 1, 5 and 10
years ending December 31, 1999 to those of the Lehman Brothers Aggregate Bond
Index.
1 Year 5 Years 10 Years
------ ------- --------
Bond Portfolio
Lehman Brothers Aggregate
Bond Index
INFORMATION ON THE LEHMAN BROTHERS AGGREGATE BOND INDEX
The Lehman Brothers Aggregate Bond Index is a broad, unmanaged index of
securities of fixed income instruments. You cannot invest directly in an index.
It does not have an investment adviser and does not pay any commissions or
expenses. If had expenses, its performance would be lower. 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.
10
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PERFORMANCE ON THE ASSET ALLOCATION PORTFOLIO(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
0.83 14.68 7.47 10.83 -1.33 25.15 12.44 16.62 5.51 0.00
BEST AND WORST QUARTER DURING LAST 10 YEARS
Best Quarter Worst Quarter
[ ] [ ]
Three months Three months
ending ______ ending ______
COMPARING RETURNS WITH THE S&P 500 AND LEHMAN INDICES
This table compares the Portfolio's average annual total returns for 1, 5 and 10
years ending December 31, 1999 to those of the S&P 500 and Lehman Indices.
1 Year 5 Years 10 Years
------ ------- --------
Asset Allocation Portfolio
S&P Index
Lehman Brothers Aggregate
Bond Index
INFORMATION ON THE S&P 500 AND LEHMAN INDICES
The Standard and Poor's ("S&P") 500 Index contains 500 widely held common
stocks. The index includes industrial, technology, utility, financial and
transportation stocks. Calculations of its performance assumes reinvestment of
dividends. The Lehman Brothers Aggregate Bond Index ("Lehman Bond Index") is a
broad, unmanaged Index of securities of fixed income instruments.
You cannot invest directly in either the S&P or the Lehman Bond Index. Neither
has an investment adviser and neither pays any commissions or expenses. If an
Index had expenses, its performance would be lower. 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.
- ----------
1. Prior to October 1, 1999, the equity portion of the Asset Allocation
Portfolio was managed by a different sub-adviser.
11
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
STOCK PORTFOLIO
The information below is intended to provide detailed information on the Stock
Portfolio's investment objectives, strategies used in seeking to achieve those
objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVES
The Stock Portfolio's primary objective is to achieve intermediate and long-term
growth of capital. Its secondary objective is to receive a reasonable level of
income.
PRINCIPAL INVESTMENT STRATEGIES
The Stock Portfolio invests primarily in U.S. common stocks listed on national
securities exchanges, and believed to offer above average growth potential.
Under normal circumstances at least 70% of its assets will be invested in such
common stocks and other equity securities. No more than 25% of the Portfolio's
assets are invested in a single industry and no more than 5% may be invested in
any single company. The investment managers of the Stock Portfolio 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 share price is believed to
be undervalued. Consistent with this investment philosophy, the Portfolio
typically consists of large cap stocks with relatively low valuations and high
current dividend yields.
The Portfolio's investments are rotated among various market sectors based on
the investment manager's research and view of the economy. The Portfolio may buy
and sell securities frequently, resulting in portfolio turnover and higher
transaction costs.
From time to time the Portfolio will, on its common stock portfolio, write
covered call options that are traded on a U. S. securities exchange or board of
trade. It will do so when the Portfolio manager believes the price of the stock
will remain relatively stable, thus allowing the Fund to enjoy the premium
income and enhance its return. (See "Options" under "Risk Factors and Special
considerations" in this prospectus.)
This Portfolio will retain a flexible approach to the investment of funds and
the Portfolio's composition may vary with the economic outlook. The Portfolio
may invest in U.S. Governmental securities, commercial paper, and other money
market instruments, including repurchase agreements maturing in seven days or
less with Federal Reserve System banks or with dealers in U.S. Government
Securities. When, in the judgment of the investment manager, current cash needs
or market or economic conditions warrant a temporary defensive position, the
Portfolio may invest to a greater degree in such short-term U.S. Government
securities, commercial paper, and other money market instruments. Taking
temporary defensive positions may reduce the chances of the Portfolio achieving
its investment objectives.
THE RISKS OF INVESTING
Since the Stock Portfolio invests primarily in U.S. common stocks, its returns
may, and probably will vary. Your cash values and maybe the death benefit of
your Policy will vary with the investment performance of the Portfolio(s) you
select. Poor performance could result in the cash values in your insurance
Policy declining. Loss of money is a risk of investing in the Stock Portfolio.
The Portfolio is intended as a long-term investment vehicle for variable life
insurance policies and is not designed to provide policy owners with a means of
speculating on short-term stock market movements. There is no assurance the
investment objectives will be achieved. While the Portfolio may compare its
performance returns, for benchmark purposes, to the performance returns of broad
based indices such as the S&P 500 (see below), the Portfolio is not managed to
replicate the securities contained in those indices, and may achieve returns
less than those indices.
12
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In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be 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.
Participation in the options market involves investment risks and transaction
costs, which the Portfolio would not be subject to if it didn't use this
strategy. If its predictions of price movement are inaccurate, the Portfolio
might be in a worse position than if the strategy were not used. Neither the
Fund, the investments of the Stock Portfolio, the Policies' cash values, nor its
death benefit are guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
MONEY MARKET PORTFOLIO
The information below is intended to provide detailed information on the Money
Market Portfolio's investment objectives, strategies used in seeking to achieve
those objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVE
The Money Market Portfolio's primary objective 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.
PRINCIPAL INVESTMENT STRATEGIES
The Money Market 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 debt obligations rated at least AA by S&P or at least Aa
by Moody's, 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. The Portfolio is required to
maintain an average weighted maturity of not more than 90 days and invest
exclusively in securities that mature within 397 days. All investments by the
Portfolio are limited to United States dollar-denominated investments. The
Portfolio may not 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 Portfolio for
securities or obligations issued by U.S. banks.
THE RISKS OF INVESTING
Since the Money Market Portfolio invests primarily in Money Market instruments,
one risk is a default by an issuer and its loss to the Portfolio of principal
and/or interest payments. An additional risk is the Portfolio not maintaining a
13
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value of $1.00 per share. When interest rates decline, the performance return
for this Portfolio will decline. In that environment your net performance return
may be relatively small. There is no assurance the investment objectives will be
achieved.
In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be 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.
Neither the Fund nor the investments of the Money Market Portfolio are
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
BOND PORTFOLIO
The information below is intended to provide detailed information on the Bond
Portfolio's investment objectives, strategies used in seeking to achieve those
objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVES
The Bond Portfolio's primary 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.
PRINCIPAL INVESTMENT STRATEGIES
To achieve its 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
including repurchase agreements maturing in seven days or less with Federal
Reserve System banks or with dealers in U.S. Government. The Portfolio will not
invest in common stocks, rights, or other equity securities.
Generally turnover rates have been relatively low but on occasion, the Portfolio
has bought and sold securities frequently resulting in portfolio turnover and
higher transaction costs.
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.
THE RISKS OF INVESTING
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 Portfolio is intended as a long-term investment vehicle for
14
<PAGE>
variable life insurance policies. However, there is no assurance the investment
objectives will be achieved. While the Portfolio may compare its performance
returns, for benchmark purposes, to the performance returns of broad based
indices such as the Lehman Brothers Aggregate Bond Index (see below), the
Portfolio is not managed to replicate the securities contained in those indices,
and may achieve returns less than those indices.
In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be 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.
Neither the Fund nor the investments of the Portfolio are guaranteed by the
Federal Deposit Insurance Corporation or any other governmental agency.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS OF THE
ASSET ALLOCATION PORTFOLIO
The information below is intended to provide detailed information on the
Portfolio's investment objectives, strategies used in seeking to achieve those
objectives and the risks of investing in this Portfolio.
INVESTMENT OBJECTIVE
The Portfolio's primary objective is to achieve high total return, consistent
with prudent investment risk by investing in common stocks and other equity
securities, investment grade intermediate to long-term debt obligations and high
quality money market instruments.
PRINCIPAL INVESTMENT STRATEGIES
The Portfolio allocates its assets into three broad categories: (1) U.S. common
stocks and other equity securities believed to offer above average growth
potential; (2) intermediate to long-term investment grade bonds; and (3) high
quality money market instruments. Under normal circumstances at least 30% of its
assets will be invested in common stocks and other equity securities, at least
20% in investment grade bonds and the remainder in money market instruments.
With certain exceptions for money market investments, no more than 25% of the
assets of the Portfolio are invested in a single industry and no more than 5%
may be invested in any single company. The portfolio manager of the stock
portion of the Portfolio 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 share
price is believed to be undervalued. Consistent with this investment philosophy,
the stock portion of the Portfolio typically consists of large cap stocks with
low valuations and relatively high current dividend yields.
The equity investments are rotated among various market sectors based on its
portfolio manager's research and view of the economy. The Portfolio may buy and
sell equity securities frequently, resulting in portfolio turnover and higher
transaction costs.
From time to time the equity portion of the Portfolio will, on its common stock
portfolio, write covered call options that are traded on a U. S. securities
exchange or board of trade. It will do so when the portfolio manager believes
the price of the stock will remain relatively stable, thus allowing the Fund to
enjoy the premium income and enhance its return. (See "Options" under "Risk
Factors and Special Considerations" in this prospectus.)
15
<PAGE>
The bond portion of 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. This Portfolio will retain a flexible approach to the investment of
funds and the portfolio composition may vary with the economic outlook. The
Portfolio may invest U.S. Governmental securities, commercial paper, and other
money market instruments, including repurchase agreements maturing in seven days
or less. When, in the judgment of the investment manager, 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. Taking
temporary defensive positions may reduce the chances of the Portfolio achieving
its investment objectives.
The Money Market portion of 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 debt obligations rated at least AA by
S&P or at least Aa by Moody's. The Portfolio may also invest in 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 RISKS OF INVESTING
Since the Portfolio invests in U.S. common stocks, investment grade bonds and
Money Market instruments, its returns may, and probably will vary. Your cash
values and maybe the death benefit of your Policy will vary with the investment
performance of the Portfolio(s) you select. Poor investment performance may
result in the cash values in your insurance Policy declining. Loss of money is a
risk of investing in the Portfolio. There is no assurance the Portfolio's
investment objectives will be achieved. While the Portfolio may compare its
performance returns, for benchmark purposes, to the performance returns of broad
based indices such as the S&P 500 Index and the Lehman Brothers Aggregate Bond
Index ("Lehman Index") (see below), the Portfolio is not managed to replicate
the securities contained in those indices, and may achieve returns less than
those indices.
In entering into a Repurchase Agreement, the Portfolio bears the risk of loss in
the event the other party to the transaction defaults on its obligations. In
such a case the Portfolio would be 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.
Participation in the options market involves investment risks and transaction
costs which the Portfolio would not be subject to if it didn't use this
strategy. If its predictions of price movement are inaccurate, the Portfolio
might be in a worse position than if the strategy were not used.
Neither the Fund, the investments of the Portfolio, the Policies cash values,
nor the death benefit are guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
DIVERSIFICATION
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
16
<PAGE>
year. These restrictions do not apply to investments in U.S. government
securities. The 25% limit does not apply to the Money Market Portfolio or the
Bond Portfolio for securities or obligations issued by U.S. Banks.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following risk factors are applicable to all Portfolios:
GENERALLY
The value of a Portfolio's investments, and as a result the net asset value of
the Portfolio 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 or bond 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.
INVESTMENTS IN FOREIGN SECURITIES. There are certain risks in owning foreign
securities, including those resulting from: fluctuations in currency exchange
rates; devaluation of currencies; political or economic developments and the
possible imposition of currency exchange blockages or other foreign governmental
laws or restrictions; reduced availability of public information concerning
issuers; accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; settlement and clearance procedures in
some countries that may not be reliable and can result in delays in settlement;
higher transaction and custody expenses than for domestic securities; and
limitations on foreign ownership of equity securities. Also, securities of many
foreign companies may be less liquid and the prices more volatile than those of
domestic companies. With certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Portfolios, including the withholding
of dividends.
CORPORATE DEBT SECURITIES. Corporate debt securities are subject to the risk of
the issuer's inability to meet principal and interest payments on the obligation
and may also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the credit-worthiness of the issuer and
general market liquidity. When interest rates decline, the value of a
Portfolio's debt securities can be expected to rise, and when interest rates
rise, the value of those securities can be expected to decline. Debt securities
with longer maturities tend to be more sensitive to interest rate movements than
those with shorter maturities.
One measure of risk for fixed income securities is duration. Duration is one of
the tools used by a portfolio manager in selection of fixed income securities.
Historically, the maturity of a bond was used as a proxy for the sensitivity of
a bond's price to changes in interest rates, otherwise known as a bond's
"interest rate risk" or "volatility." According to this measure, the longer the
maturity of a bond, the more its price will change for a given change in market
interest rates. However, this method ignores the amount and timing of all cash
flows from the bond prior to final maturity. Duration is a measure of average
life of a bond on a present value basis, which was developed to incorporate a
bond's yield, coupons, final maturity and call features into one measure. For
point of reference, the duration of a noncallable 7% coupon bond with a
remaining maturity of 5 years is approximately 4.5 years, and the duration of a
noncallable 7% coupon bond with a remaining maturity of 10 years is
approximately 8 years. Material changes in interest rates may impact the
duration calculation.
U.S. GOVERNMENT SECURITIES. Some U.S. Government agency securities may be
subject to varying degrees of credit risk, particularly those not backed by the
full faith and credit of the United States Government. All U.S. Government
securities may be subject to price declines in the securities due to changing
interest rates.
17
<PAGE>
CONVERTIBLE SECURITIES. The price of a convertible security will normally
fluctuate in some proportion to changes in the price of the underlying equity
security, and as such is subject to risks relating to the activities of the
issuer and general market and economic conditions. The income component of
convertible securities causes fluctuations based upon changes in interest rates
and the credit quality of the issuer. Convertible securities are often lower
rated securities. A Portfolio may be required to redeem or convert a convertible
security before the holder would otherwise choose.
REPURCHASE AGREEMENTS. 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.
TEMPORARY DEFENSIVE STRATEGIES. When the adviser or sub-adviser to a Portfolio,
as the case may be, anticipates unusual market or other conditions, the
Portfolio may temporarily depart from its principal investment strategies as a
defensive measure. To the extent that a Portfolio invests defensively, it likely
will not achieve capital appreciation.
The following risk factor is applicable to the Stock and Asset Allocation
Portfolios:
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.
MANAGEMENT OF THE PORTFOLIOS
INVESTMENT ADVISERS
Since April 1, 1995, ReliaStar Investment Research, Inc. ("RIRI") (formerly,
Washington Square Advisers, Inc.), 100 Washington Avenue, Minneapolis, MN 55401,
an affiliate of the insurance companies issuing the Policies, has served as the
investment adviser to the Fund's four Portfolios and is responsible for the
day-to-day management of the Money Market and Bond Portfolios, and the
non-equity portion of the Asset Allocation Portfolio and other business affairs.
RIRI and its predecessors have been managing investment assets for their
affiliated insurance companies since 1983 and currently manages $16 billion of
fixed income assets for their affiliates.
It furnishes continuous advice and recommendations concerning the Portfolios'
non-equity investments. It also furnishes certain administrative, compliance,
legal and accounting services for the Fund, and it or its affiliated companies
may be reimbursed by the Fund for its costs in providing those services. In
addition, employees of companies affiliated with RIRI serve as officers of the
Fund, and these companies provide office space for the Fund and pay the
salaries, fees and expenses of certain Fund officers.
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 based on the following schedule:
0.50% of the first $100 million of the average daily net assets of the Portfolio
0.45% of the average daily net assets of the Portfolio in excess of $100 million
18
<PAGE>
[During 1999, 1998 and 1997, the Adviser was paid a fee at an annual rate of
0.25% of the net asset value of the Portfolios.]
The table below shows the aggregate annual advisory fee paid by each Portfolio
for the most recent fiscal year as a percentage of that Portfolio's average
daily net assets.
Portfolio Advisory Fee
--------- ------------
Stock Portfolio
Money Market Portfolio
Bond Portfolio
Asset Allocation Portfolio
Effective October 1, 1999, the Fund, RIRI and Pilgrim Advisors, Inc. ("Pilgrim
Advisors") (formerly Northstar Investment Management Corporation) entered into a
Sub-Advisory Agreement under which Pilgrim Advisors, 40 North Central Ave.,
Suite 1200, Phoenix, AZ 85004 provides advisory services to the Stock Portfolio
and the equity portion of the Asset Allocation Portfolio of the Fund, and is
responsible for the day-to-day management of those assets.
Pilgrim Advisors is an indirect wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar") (NYSE: RLR). Through its subsidiaries, ReliaStar offers
individuals and institutions life insurance and annuities, employee benefits
products and services, life and health reinsurance, retirement plans, mutual
funds, bank products, and personal finance education. Pilgrim Advisors is a
registered investment adviser that currently manages over $4 billion in mutual
funds and institutional accounts.
As compensation for the services provided by the Sub-Adviser under the
Sub-Advisory Agreement, the Advisor pays the Sub-Adviser at the end of each
calendar month an advisory fee computed daily at an annual rate equal to 0.45 of
1.00% of the average daily net asset value of the Portfolio assets managed by
the Sub-Advisor.
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<PAGE>
PORTFOLIO MANAGERS
Mary Lisanti has been responsible for the day-to-day management of the Stock
Portfolio and the equity portion of the Asset Allocation Portfolio since October
1, 1999. Ms. Lisanti joined Pilgrim Advisors in May 1998. She has over 20 years
of experience in small- and mid-cap investments. Before joining Pilgrim
Advisors, Inc., Ms. Lisanti was a Portfolio Manager at Strong Capital Management
where she managed the Strong Small Cap Fund and co-managed the Strong Mid Cap
Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and Head of Small-
and Mid-Capitalization Equity Strategies at Bankers Trust Corp. where she
managed the BT Small Cap Fund and the BT Capital Appreciation Fund. Prior to
Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen Funds. She
began her career as an Analyst specializing in emerging growth stocks with
Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, and was ranked the
number one Institutional Investor Emerging Growth Stock Analyst in 1989. She is
a Chartered Financial Analyst, and a Member of the New York Society of Security
Analysts and the Financial Analyst Federation.
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, RIRI, 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 Agricultural Economics from Purdue University.
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 1999, 1998 and 1997, the Fund paid [ ], $240,886 and $219,940,
respectively, for these services.
TOTAL EXPENSES
In 1999, 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:
Total Expenses
Portfolio Management Fee* (Including Management Fees)
- --------- -------------- ---------------------------
Common Stock Portfolio 0.25% 0.75%
Money Market Portfolio 0.25% 0.75%
Bond Portfolio 0.25% 0.75%
Asset Allocation Portfolio 0.25% 0.75%
*The Policies contain a contractual provision limiting the annual amount
Policyholders can be charged for management fees to 0.25%. Any management fees
above that amount are paid by the insurance companies. If this limit, which is
contractual, was not available, the management fees paid by the Portfolios would
have been: Stock, 0.45%; Money Market, 0.25%; Bond, 0.25%; and Asset Allocation,
0.36%.
PRICING OF PORTFOLIO SHARES
The price of Portfolio shares is based on the Portfolio's net asset value
("NAV"). All purchases, redemptions and exchanges will be processed at the NAV
next calculated after a request is received and accepted by the Portfolio. The
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<PAGE>
Portfolio's NAV is calculated at the close of the regular trading session of the
NYSE (normally 4:00 p.m. New York time) each day that the NYSE is open. The NAV
of Portfolio shares is not determined on days the NYSE is closed (generally, New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas). In order to receive a
day's price, the order must be received by the close of the regular trading
session of the NYSE. Securities are valued at market value or, if a market
quotation is not readily available, at their fair value determined in good faith
under procedures established by and under the supervision of the Trustees.
Short-term instruments maturing within 60 days are valued at amortized cost,
which approximates market value.
DISTRIBUTIONS AND TAXES
To avoid taxation, the Internal Revenue Code requires the Fund to distribute net
income and any net capital gains realized on its investments annually. The
Fund's income from dividends and interest and any net realized short-term
capital gains are paid to shareholders as ordinary income dividends. Net
realized long-term gains are paid to shareholders as capital gains
distributions.
As a contract owner invested in a Portfolio, you are entitled to a share of the
income and capital gains that the portfolio distributes. The amount you receive
is based on the number of shares you own.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned [or lost] on a
direct investment in the Portfolio (assuming reinvestment of all dividends and
distributions) but does not include charges and expenses attributable to any
insurance product.
The information for the years ended December 31, 1999, 1998, 1997 and 1996 was
audited by Deloitte & Touche, LLP, independent auditors whose report, along with
the Fund's financial statements, are included in the Fund's annual report, and
is available on request at no charge, by calling 1-800-333-6965. Information for
periods prior to 1996 was audited by another auditor.
21
<PAGE>
USLICO SERIES FUND
STOCK PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of period $ 13.50 $ 13.25 $ 12.62 $ 10.37
Income from investment operations:
Net investment income 0.20 0.27 0.34 0.36
Net Gains or Losses on Securities
(both realized and unrealized) 0.62 3.05 2.55 2.95
----------- ----------- ----------- -----------
Total from investment operations 0.82 3.32 2.89 3.31
Less Distributions:
Dividends from net investment income (0.20) (0.27) (0.33) (0.37)
Distribution from capital gains (0.48) (2.80) (1.93) (0.69)
Net asset value, end of period $ 13.64 $ 13.50 $ 13.25 $ 12.62
=========== =========== =========== ===========
Total return (1) 6.00% 25.06% 22.90% 31.92%
RATIO/SUPPLEMENT DATA
Net assets, end of period 27,774,017 27,291,645 23,558,091 19,968,336
Ratio of expenses to average net assets (2) 0.75% 0.73% 0.75% 0.63%
Ratio of net investment income to average
net assets 1.49% 1.87% 2.50% 3.07%
Portfolio turnover rate 172.22% 88.55% 79.17% 62.51%
</TABLE>
22
<PAGE>
USLICO SERIES FUND
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.05 0.05 0.05 0.05
Net Gains or Losses on Securities
(both realized and unrealized) -- -- -- --
---------- ---------- ---------- ----------
Total from investment operations 0.05 0.05 0.05 0.05
Less Distributions:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05)
Distribution from capital gains -- -- -- --
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total return (1) 5.00% 5.00% 5.00% 5.00%
RATIO/SUPPLEMENT DATA
Net assets, end of period 5,963,727 5,784,312 5,979,861 5,819,470
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.63%
Ratio of net investment income to average
net assets 4.79% 4.88% 4.77% 5.37%
Portfolio turnover rate N/A N/A N/A N/A
</TABLE>
23
<PAGE>
USLICO SERIES FUND
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of period $ 10.00 $ 10.02 $ 10.38 $ 9.41
Income from investment operations:
Net investment income 0.55 0.59 0.64 0.66
Net Gains or Losses on Securities
(both realized and unrealized) (0.13) 0.12 (0.36) 1.04
---------- ---------- ---------- ----------
Total from investment operations 0.42 0.71 0.28 1.70
Less Distributions:
Dividends from net investment income (0.55) (0.59) (0.64) (0.66)
Distribution from capital gains (0.13) (0.14) -- (0.07)
Net asset value, end of period $ 9.74 $ 10.00 $ 10.02 $ 10.38
========== ========== ========== ==========
Total return (1) 4.30% 7.09% 2.70% 18.07%
RATIO/SUPPLEMENT DATA
Net assets, end of period 2,831,882 2,802,374 2,783,385 3,068,825
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average
net assets 5.50% 5.88% 6.45% 6.49%
Portfolio turnover rate 90.97% 117.24% 47.37% 32.67%
</TABLE>
24
<PAGE>
USLICO SERIES FUND
ASSET ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (PER SHARE)
Net asset value, beginning of period $ 11.98 $ 11.85 $ 11.82 $ 10.18
Income from investment operations:
Net investment income 0.39 0.46 0.53 0.55
Net Gains or Losses on Securities
(both realized and unrealized) 0.27 1.51 0.94 2.01
----------- ----------- ----------- -----------
Total from investment operations 0.66 1.97 1.47 2.56
Less Distributions:
Dividends from net investment income (0.39) (0.46) (0.53) (0.55)
Distribution from capital gains
Net asset value, end of period $ 11.92 $ 11.98 $ 11.82 $ 10.18
=========== =========== =========== ===========
Total return (1) 5.51% 16.62% 12.44% 25.15%
RATIO/SUPPLEMENT DATA
Net assets, end of period 16,335,368 15,900,094 14,614,568 13,675,779
Ratio of expenses to average net assets (2) 0.75% 0.74% 0.75% 0.63%
Ratio of net investment income to average
net assets 3.19% 3.68% 4.39% 4.81%
Portfolio turnover rate 135.68% 104.30% 61.98% 44.97%
</TABLE>
25
<PAGE>
GLOSSARY OF INVESTMENT TERMS
U.S. GOVERNMENT SECURITIES - are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Securities 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 I a pool of conventional mortgage loans. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal and
maintains reserves to protect holders against losses due to default, but the
certificates are not backed by the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized yield
on particular FNMA and FHLMC pass-through securities will vary based on the
prepayment experience of the underlying pool of mortgages.
RISKS OF MORTGAGE-RELATED SECURITIES: In the case of mortgage pass-through
securities such as GNMA certificates or FNMA and FHLMC mortgage-backed
obligations, early repayment of principal arising from prepayments of principal
on the underlying mortgage loans due to the sale of the underlying property, the
refinancing of the loan, or foreclosure may expose a Portfolio to a lower rate
of return upon reinvestment of principal. Prepayment rates vary widely and may
be affected by changes in market interest rates. In periods of falling interest
rates, the rate of prepayment tends to increase, thereby shortening the actual
average life of the mortgage-related security. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the mortgage-related security. Accordingly, it is not
possible to accurately predict the average life of a particular pool.
Reinvestment of prepayments may occur at higher or lower rates than the original
yield on the certificates. Therefore, the actual maturity and realized yield on
pass-through or modified pass-through mortgage-related securities will vary
based upon the prepayment experience on the underlying pool of mortgages.
REPURCHASE AGREEMENTS - are agreements by which the Portfolio purchases a
security and obtains a simultaneous commitment from the seller (a member bank of
the Federal Reserve System or a recognized securities dealer) to repurchase the
security at an agreed upon price and date. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford an opportunity for a
Portfolio to maintain liquidity and earn income over periods of time as short as
overnight.
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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 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.
27
<PAGE>
FOR MORE INFORMATION
If you would like more information about the USLICO Series Fund and its four
Portfolios, the following documents are available free upon request:
ANNUAL AND SEMIANNUAL REPORT TO POLICY OWNERS
Additional information about the Fund's investments, including a list of its
Portfolios' holdings, is available in the Fund's annual and semiannual reports
to policy owners, which are incorporated herein by reference. In the Fund's
annual report, you will find, except for the Money Market Portfolio, a
discussion of the market conditions and investment strategies that significantly
affected each portfolio's performance during its most recent fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Fund and is incorporated
herein by reference.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information or make inquiries about the Fund, please
contact us as follows:
USLICO Series Fund
c/o ReliaStar Service Center
PO Box 5050
Minot, ND 58702-5050
1-877-884-5050
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
Or obtain the information at no cost by visiting the SEC's Internet website at
http://www.sec.gov.
When contacting the SEC, you will want to refer to the Fund's SEC file number.
The file number is as follows:
File number 811-05451
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<PAGE>
USLICO SERIES FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
USLICO Series Fund (the "Fund") is an open-end, diversified management
investment company consisting of four separate investment Portfolios: the Stock
Portfolio, the Money Market Portfolio, the Bond Portfolio, and the Asset
Allocation Portfolio.
The Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated April 30, 2000, of the
USLICO Series Fund, and has been filed with the Securities and Exchange
Commission as part of the Fund's Registration Statement. 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
c/o ReliaStar Life Service Center
PO Box 5050
Minot, N.D. 58702-5050
(877) 884-5050
<PAGE>
TABLE OF CONTENTS
Page
----
TABLE OF CONTENTS........................................................... 2
INTRODUCTION................................................................ 3
GENERAL INFORMATION......................................................... 3
INVESTMENT RESTRICTIONS..................................................... 3
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES......................... 4
Mortgage-Related Securities............................................... 4
Bank Obligations.......................................................... 5
Corporate Debt Securities................................................. 5
Commercial Paper.......................................................... 5
Repurchase Agreements..................................................... 6
Options................................................................... 6
Risks Associated with Call Options on Securities.......................... 7
Temporary Defensive Policy................................................ 7
MANAGEMENT OF THE FUND...................................................... 7
Trustees.................................................................. 7
Compensation of Trustees.................................................. 9
Officers.................................................................. 12
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................... 12
THE INVESTMENT ADVISER AND SUB-ADVISER...................................... 13
DISTRIBUTION OF FUND SHARES................................................. 15
Suspension of Redemptions................................................. 15
CUSTODIAN................................................................... 15
ADMINISTRATIVE SERVICES AGREEMENT........................................... 15
LEGAL COUNSEL............................................................... 16
INDEPENDENT AUDITORS........................................................ 16
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 16
Brokerage and Research Services........................................... 16
Portfolio Turnover........................................................ 17
NET ASSET VALUE............................................................. 17
CALCULATION OF PERFORMANCE DATA............................................. 18
THE MONEY MARKET PORTFOLIO YIELD............................................ 18
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, AND THE ASSET
ALLOCATION PORTFOLIO - AVERAGE ANNUAL TOTAL RETURN........................ 19
THE STOCK PORTFOLIO, THE BOND PORTFOLIO, THE ASSET
ALLOCATION PORTFOLIO - CUMULATIVE TOTAL RETURN............................ 20
PERFORMANCE COMPARISONS..................................................... 20
TAXATION.................................................................... 20
Distributions............................................................. 21
ADDITIONAL INFORMATION...................................................... 21
Shareholder Meetings...................................................... 21
Liability................................................................. 21
FINANCIAL STATEMENTS........................................................ 21
APPENDIX A.................................................................. A-1
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INTRODUCTION
This Statement of Additional Information is designed to elaborate upon the
discussion of certain securities and investment strategies 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
strategies.
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 April 30, 2000, 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
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. On December 31, 1998, RUSL was merged into ReliaStar
Life Insurance Company ("RL").
Shares of the Portfolios are sold only to separate accounts of RL and RLNY
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.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective, together with the investment
restrictions set forth below, are fundamental policies of each 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 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 less.
Unless otherwise stated, each of the following policies applies to each of
the Portfolios. 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;
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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
their sections;
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;
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.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
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 homebuyers, 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.
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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.
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.
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
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, or (2)
if not rated, are determined to be of an investment quality comparable to rated
commercial paper in which a Portfolio may invest.
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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 subadviser, as the case may be, to 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 to a portfolio, 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 investment objectives, the Stock and Asset Allocation
Portfolios may engage in the writing of call options on debt securities.
Writing Options on Securities: The Portfolios may write (sell) call options
on debt or other securities in standardized contracts traded on national
securities exchanges or boards of trade.
A call option on a security is a contract that gives the holder of the
call, in return for a premium, the right to buy the underlying security from the
writer of the option at a specified exercise price at any time during the term
of the option. The writer of a call option on a security has the obligation upon
exercise of the option to deliver the underlying security upon payment of the
exercise price.
A Portfolio may write call options only if they are "covered" or "secured".
In the case of a call option on a security, the option is "covered" if the
Portfolio owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount are placed in a segregated account by its custodian) upon conversion or
exchange of other securities held by the Portfolio.
If an option written by a Portfolio expires unexercised, the Portfolio
realizes a capital gain equal to the premium received at the time the option was
written. If an option purchased by a Portfolio 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.
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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.
TEMPORARY DEFENSIVE POLICY
Each Portfolio will retain a flexible approach to the investment of funds
and the Portfolio's composition may vary with the economic outlook. The
Portfolio may invest in U.S. Governmental securities, commercial paper, and
other money market instruments, including repurchase agreements maturing in
seven days or less. When, in the judgment of the investment manager, current
cash needs or market or economic conditions warrant a temporary defensive
position, the Portfolio may invest to a greater degree in such short-term U.S.
Government securities, commercial paper, and other money market instruments.
Taking temporary defensive positions may reduce the chances of the Portfolio
achieving its investment objectives.
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.
TRUSTEES
The Trustees of the Fund are listed below. An asterisk (*) has been placed
next to the name of each Trustee who is an "interested person," as that term is
defined in the 1940 Act, by virtue of that person's affiliation with the Fund's
Investment Adviser, ReliaStar Investment Research, Inc. ("RIRI"). Unless
otherwise noted, the mailing address of the Trustees is 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004. The Board of Trustees governs the Fund and
is responsible for protecting the interests of shareholders. The Trustees are
experienced executives who oversee the Fund's activities, review contractual
arrangements with companies that provide services to the Fund, and review the
Fund's performance.
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The Trustees are as follows:
MARY A. BALDWIN, PH.D. (Age 60) Trustee. Realtor, Coldwell Banker Success
Realty (formerly, The Prudential Arizona Realty) for more than the last
five years. Ms. Baldwin is also Vice President, United States Olympic
Committee (November 1996 - Present), and formerly Treasurer, United States
Olympic Committee (November 1992 - November 1996). Ms. Baldwin is also a
Director, Trustee, or a member of the Advisory Board of each of the Funds
in the Pilgrim Funds, a family of mutual funds managed by Pilgrim Advisors,
Inc. and Pilgrim Investments, Inc.
AL BURTON. (Age 72) Trustee. President of Al Burton Productions for more
than the last five years; formerly Vice President, First Run Syndication,
Castle Rock Entertainment (July 1992 - November 1994). Mr. Burton is also a
Director, Trustee, or a member of the Advisory Board of each of the Funds
in the Pilgrim Funds, a family of mutual funds managed by Pilgrim Advisors,
Inc. and Pilgrim Investments, Inc.
PAUL S. DOHERTY. (Age 66) Trustee. President, of Doherty, Wallace,
Pillsbury and Murphy, P.C., Attorneys. Mr. Doherty is a Director of
Tambrands, Inc. Mr. Doherty is also a Director and/or Trustee of each of
the Funds in the Pilgrim Funds, a family of mutual funds managed by Pilgrim
Advisors, Inc. and Pilgrim Investments, Inc.
ROBERT B. GOODE. (Age 69) Trustee. Currently retired. Mr. Goode was
formerly Chairman of The First Reinsurance Company of Hartford (1990-1991)
and President and Director of American Skandis Life Assurance Company
(1987-1989). Mr. Goode is also a Director and/or Trustee of each of the
Funds in the Pilgrim Funds, a family of mutual funds managed by Pilgrim
Advisors, Inc. and Pilgrim Investments, Inc.
ALAN L. GOSULE. (Age 59) Trustee. Partner, Rogers & Wells (since 1991). Mr.
Gosule is a Director of F.L. Putnam Investment Management Co., Inc. Mr.
Gosule is also a Director and/or Trustee of each of the Funds in the
Pilgrim Funds, a family of mutual funds managed by Pilgrim Advisors, Inc.
and Pilgrim Investments, Inc.
*MARK LIPSON. (Age 51) Trustee. Chairman and Director of Pilgrim Advisors,
Inc., and Director of Pilgrim Funding, Inc. Mr. Lipson was formerly
Chairman of Pilgrim Holdings Corporation and Northstar Distributors, Inc.;
Director of Northstar Administrators Corporation; President of Pilgrim
Funding, Inc.; Director, President and Chief Executive Officer of National
Securities & Research Corporation; and Director/Trustee and President of
the National Affiliated Investment Companies and certain of National's
subsidiaries (prior to August 1993). Mr. Lipson is also a Director and/or
Trustee of each of the Funds in the Pilgrim Funds, a family of mutual funds
managed by Pilgrim Advisors, Inc. and Pilgrim Investments, Inc.
WALTER H. MAY. (Age 63) Trustee. Retired. Mr. May was formerly a Senior
Executive for Piper Jaffray, Inc. Mr. May is also a Director and/or Trustee
of each of the Funds in the Pilgrim Funds, a family of mutual funds managed
by Pilgrim Advisors, Inc. and Pilgrim Investments, Inc.
JOCK PATTON. (Age 54) Trustee. Private Investor. Director of Hypercom
Corporation (since January 1999), Stuart Entertainment, Inc. (since January
1999), and JDA Software Group, Inc. (since January 1999). Mr. Patton was
formerly Director of Artisoft, Inc. (August 1994 - July 1998); President
and Co-owner of StockVal, Inc. (April 1993 - June 1997) and a Partner and
Director of the law firm of Streich, Lang, P.A. (1972 - 1993). Mr. Patton
is also a Director, Trustee, or a member of the Advisory Board of each of
the Funds in the Pilgrim Funds, a family of mutual funds managed by Pilgrim
Advisors, Inc. and Pilgrim Investments, Inc.
DAVID W.C. PUTNAM. (Age 60) Trustee. President, Clerk and Director of F.L.
Putnam Securities Company, Inc., F.L. Putnam Investment Management Company,
Inc., Trust Realty Corp. and Bow Ridge Mining Co. Mr. Putnam is Director of
Anchor Investment Management Corporation and President and Director/Trustee
of Anchor Capital Accumulation Trust, Anchor International Bond Trust,
Anchor Gold and Currency Trust, Anchor Resources and Commodities Trust and
Anchor Strategic Assets Trust. Mr. Putnam is also a Director and/or Trustee
of each of the Funds in the Pilgrim Funds, a family of mutual funds managed
by Pilgrim Advisors, Inc. and Pilgrim Investments, Inc.
B-8
<PAGE>
JOHN R. SMITH. (Age 76) Trustee. President of New England Fiduciary Company
(since 1991). Mr. Smith is Chairman of Massachusetts Educational Financing
Authority (since 1987), Vice Chairman of Massachusetts Health and Education
Authority and formerly Financial Vice President of Boston College
(1970-1991). Mr. Smith is also a Director and/or Trustee of each of the
Funds in the Pilgrim Funds, a family of mutual funds managed by Pilgrim
Advisors, Inc. and Pilgrim Investments, Inc.
*ROBERT W. STALLINGS. (Age 51) Trustee, Chief Executive Officer and
President. Chairman, Chief Executive Officer and President of Pilgrim
Group, Inc. ("Pilgrim Group") (since December 1994); Chairman, Pilgrim
Investments, Inc. (since December 1994); Chairman, Pilgrim Securities, Inc.
("Pilgrim Securities") (since December 1994); President and Chief Executive
Officer of Pilgrim Advisors, Inc. ("Pilgrim Advisors") (since November
1999); President and Chief Executive Officer of Pilgrim Funding, Inc.
(since November 1999); and Chairman, President and Chief Executive Officer
of Pilgrim Holdings Corporation (since October 1999) Mr. Stallings is also
a Director, Trustee, or a member of the Advisory Board of each of the Funds
in the Pilgrim Funds, a family of mutual funds managed by Pilgrim Advisors
and Pilgrim Investments. Formerly, Chairman (since May 1991), President and
Chief Executive Officer (since December 1993) of Pilgrim Capital
Corporation, which merged into Pilgrim Holdings Corporation in October
1999.
*JOHN G. TURNER. (Age 60) Chairman. Chairman and Chief Executive Officer of
ReliaStar Financial Corp. and ReliaStar Life Insurance Co. (since 1993);
Chairman of ReliaStar United Services Life Insurance Company and ReliaStar
Life Insurance Company of New York (since 1995); Chairman of Northern Life
Insurance Company (since 1992); Director of Northstar Investment Management
Corporation and affiliates (since October 1993); Chairman and
Director/Trustee of the Northstar affiliated investment companies (since
October 1993). Mr. Turner was formerly President of ReliaStar Financial
Corp. and ReliaStar Life Insurance Co. (1989-1991) and President and Chief
Operating Officer of ReliaStar Life Insurance Company (1986-1991). Mr.
Turner is also Chairman of each of the Funds in the Pilgrim Funds, a family
of mutual funds managed by Pilgrim Advisors, Inc. and Pilgrim Investments,
Inc.
DAVID W. WALLACE. (Age 76) Trustee. Chairman of Putnam Trust Company and
FECO Engineered Systems, Inc. Mr. Wallace is President and Director/Trustee
of the Robert R. Young Foundation, Governor of the New York Hospital and
Director of UMC Electronics and Zurn Industries, Inc. Mr. Wallace was
formerly Chairman of Lone Star Industries, Chairman and Chief Executive
Officer of Todd Shipyards, Bangor Punta Corporation, and National
Securities & Research Corporation. Mr. Wallace is also a Director and/or
Trustee of each of the Funds in the Pilgrim Funds, a family of mutual funds
managed by Pilgrim Advisors, Inc. and Pilgrim Investments, Inc.
COMPENSATION OF TRUSTEES
The regular meetings of the Board are held quarterly. [All Officers and
Interested Trustees of the Fund are compensated by RIRI or Pilgrim Advisors,
Inc.] Trustees who are not "interested persons" are paid by the Fund . The Fund
also reimburses the Trustees for expenses incurred by them in connection with
such meetings. The Trustees who are not "interested persons" received $2,500 per
year payable on a quarterly basis. Such fees are allocated evenly among the
Portfolios.
B-9
<PAGE>
COMPENSATION TABLE*
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated From
Accrued Annual Registrant
Aggregate As Part of Benefits and Fund
Name of Compensation Fund Upon Complex Paid
Person, Position From USLICO Series Fund(1) Expenses Retirement to Trustees(1)
- ---------------- -------------------------- -------- ---------- --------------
<S> <C> <C> <C> <C>
Mary A. Baldwin (2)
Advisory Officer N/A N/A (15 boards)
Al Burton (2)
Advisory Officer N/A N/A (15 boards)
Paul S. Doherty (2)
Trustee N/A N/A (15 boards)
Robert B. Goode, Jr
Trustee (3) N/A N/A (15 boards)
Alan S. Gosule (3)
Trustee N/A N/A (15 boards)
Mark L. Lipson
Trustee (3)(4) N/A N/A (15 boards)
Walter H. May (3)
Trustee N/A N/A (15 boards)
Jock Patton (2)
Advisory Officer N/A N/A (15 boards)
David W.C. Putnam (3)
Trustee N/A N/A (15 boards)
John R. Smith (3)
Trustee N/A N/A (15 boards)
Robert W. Stallings (2)(4)
President and Advisory Officer N/A N/A (15 boards)
John G. Turner (3)(4)
Trustee N/A N/A (15 boards)
David W. Wallace (3)
Trustee N/A N/A (15 boards)
</TABLE>
- ----------
* Officers and Trustees who are "interested persons" do not receive any
compensation from the Funds.
(1) Information provided for the fiscal year ended December 31, 1999. The fund
complex includes other investment companies in the Pilgrim group of funds.
(2) Elected a Trustee or non-voting advisory board member of SmallCap
Opportunities Fund, Growth Opportunities Fund, High Yield Fund III, Equity
Trust, Mayflower Trust, Balance Sheet Opportunities Fund, and Government
Securities Fund on November 16, 1999.
(3) Elected a Director/Trustee of Mutual Funds, Advisory Funds, Investment
Funds, Bank and Thrift Fund, Government Securities Income Fund, and Prime
Rate Trust on October 26, 1999.
(4) "Interested person," as defined in the Investment Company Act of 1940, of
the Company because of the affiliation with the Investment Adviser.
B-10
<PAGE>
OFFICERS
Unless otherwise noted, the mailing address of the officers is 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004. The following individuals
serve as officers for the Fund:
*ROBERT W. STALLINGS. (Age 51). Chief Executive Officer and President. Mr.
Stallings background is described above.
James R. Reis, EXECUTIVE VICE PRESIDENT AND ASSISTANT SECRETARY. (Age 42)
Executive Vice President (since April 1995), and Director of Structured
Finance (since April 1998) of Pilgrim Group, Inc. and Pilgrim Investments;
Director (since December 1994) and Vice Chairman (since November 1995) of
Pilgrim Securities; Executive Vice President and Director of Structured
Finance (since November 1999) of Pilgrim Advisors; Assistant Secretary and
Chief Financial Officer of Pilgrim Holdings Corporation (since October
1999); Executive Vice President, Assistant Secretary and Chief Credit
Officer of Pilgrim Prime Rate Trust; Executive Vice President and Assistant
Secretary of each of the Funds in the Pilgrim Funds, a family of mutual
funds managed by Pilgrim Advisors and Pilgrim Investments. Presently serves
or has served as an officer or director of other affiliates of Pilgrim
Holdings Corporation. Formerly Vice Chairman and Assistant Secretary (April
1993 - October 1999) and Chief Financial Officer (December 1993 - October
1999) of Pilgrim Capital Corporation, which merged into Pilgrim Holdings
Corporation in October 1999.
James M. Hennessy, EXECUTIVE VICE PRESIDENT AND SECRETARY. (Age 51)
Executive Vice President and Secretary of Pilgrim Group, Pilgrim Securities
and Pilgrim Investments (since April 1998), and Pilgrim Advisors (since
November 1999); Executive Vice President and Secretary of Pilgrim Holdings
Corporation (since October 1999); Executive Vice President and Secretary of
each of the Funds in the Pilgrim Funds, a family of mutual funds managed by
Pilgrim Advisors and Pilgrim Investments. Formerly Executive Vice President
(since May 1998) and Secretary (since April 1995) of Pilgrim Capital
Corporation, which merged into Pilgrim Holdings Corporation in October
1999; Senior Vice President, Pilgrim Capital (April 1995 - April 1998).
Michael J. Roland, SENIOR VICE PRESIDENT AND PRINCIPAL FINANCIAL OFFICER.
(Age 41) Senior Vice President and Chief Financial Officer of Pilgrim
Group, Pilgrim Investments and Pilgrim Securities (since June 1998), and
Pilgrim Advisors (since November 1999); Senior Vice President and Principal
Financial Officer of each of the Funds in the Pilgrim Funds, a family of
mutual funds managed by Pilgrim Advisors and Pilgrim Investments. He served
in same capacity from January 1995 - April 1997. Formerly, Chief Financial
Officer of Endeaver Group (April 1997 to June 1998).
Robert S. Naka, SENIOR VICE PRESIDENT AND ASSISTANT SECRETARY. (Age 36)
Senior Vice President of Pilgrim Investments (since November 1999), Pilgrim
Group (since August 1999), and Pilgrim Advisors (since November 1999).
Senior Vice President and Assistant Secretary of each of the Funds in the
Pilgrim Funds, a family of mutual funds managed by Pilgrim Advisors and
Pilgrim Investments. Formerly Vice President, Pilgrim Investments (April
1997 - October 1999), Pilgrim Group, Inc. (February 1997 - August 1999).
Formerly Assistant Vice President, Pilgrim Group, Inc. (August 1995 -
February 1997). Formerly Operations Manager, Pilgrim Group, Inc. (April
1992 - April 1995).
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 merged into ReliaStar Life Insurance
Company "RL"), 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.
B-11
<PAGE>
USLICO Series Fund (the "Fund"), consisting of four distinct Portfolios, is
an investment vehicle for certain separate accounts of RL and RLNY. At the
present time, shares of the Fund are sold exclusively to RL 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 3, 2000 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 1940 Act, which has become
final, that control exists.
As of April 3, 2000, no person owned of record or was known by the Fund to
own beneficially 5% or more of any Portfolio's outstanding equity securities,
except that ReliaStar United Services Variable Life Separate Account I, a
separate account of RUSL, 4601 N. Fairfax Drive, Arlington, VA 22201, owned ___%
of the ___________ Portfolios shares of beneficial interest, and ReliaStar Life
Insurance Company of New York Variable Life Separate Account I, a separate
account of RLNY, 1000 Woodbury Road, Woodbury, L.I., New York 11797, owned ___%
of the ________ Portfolio's shares of beneficial interest.
On _________, 2000, no Officer or Trustee of the Portfolios, owned
beneficially or of record or had an interest in shares of any Portfolio.
THE INVESTMENT ADVISER AND SUB-ADVISER
Since April 1, 1995, ReliaStar Investment Research, Inc. (formerly,
Washington Square Advisers, Inc.) has served as investment adviser to the Fund
pursuant to an Investment Advisory Agreement between it and the Fund. RIRI 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.
RIRI is responsible for administering affairs of and supervising the investment
program for the Fund. RIRI also furnishes to the Board of Trustees, which has
overall responsibility for the business and affairs of the Fund, with periodic
reports on the investment performance of each Portfolio. RIRI's address is 100
Washington Ave. So., Minneapolis, MN 55401.
RIRI provides the Fund with all necessary office facilities and personnel
for servicing the Fund's investments, and compensates all personnel of RIRI
performing services relating to research, statistical and investment activities.
In addition, RIRI or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services necessary
for the operation of the Fund. These services include providing facilities for
maintaining the Fund's organization: supervising relations with custodians,
transfer and pricing agents, accountants, legal counsel, underwriters, and other
persons dealing with the fund; preparing all general shareholder communications
and conducting shareholder relations; maintaining the Fund's records and the
registration of the Fund's shares under federal securities laws and making
necessary filings under state securities laws; developing management and
shareholder services for the fund; and furnishing reports, evaluations, and
analyses on a variety of subjects to the Trustees.
Effective October 1, 1999, RIRI and Pilgrim Advisors entered into a
SubAdvisory Agreement. Pilgrim Advisors provides advisory services to the Stock
Portfolio and the equity portion of the Asset Allocation Portfolio of the Fund.
The address of Pilgrim Advisors is 40 North Central Avenue, Suite 1200, Phoenix,
AZ 85004. Pilgrim Advisors has managed assets since 19__. Prior to October 1,
1999 the Stock Portfolio and the equity portion of the Asset Allocation
Portfolio were managed by another subadviser.
B-12
<PAGE>
Subject to overall supervision of the Fund's Board of Trustees, RIRI
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 Pilgrim Advisors'
performance of its investment duties. In so doing, RIRI 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 Pilgrim Advisors,
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 RIRI,
Pilgrim Advisors 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 RIRI to Pilgrim Advisors. In so doing, Pilgrim
Advisors 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, RIRI is obligated to manage the
Fund's Portfolios in accordance with applicable laws and regulations.
The Advisory Agreement ("Agreement") was reapproved last by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Agreement, or interested persons of such parties, at a meeting held on March 1,
1999, to be effective April 1, 1999. The Agreement 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 Agreement on March 3, 1998. The
Agreement may be terminated without penalty on 60 days written notice by either
party to the Agreement and will terminate automatically if assigned.
The Board of Trustees approved the SubAdvisory Agreement between RIRI and
Pilgrim Advisors, at its August 16, 1999 Board Meeting, subject to shareholder
approval. At the Shareholder Meeting on September 23, 1999, the Agreement was
approved by a "majority" of the outstanding shares (as defined in the 1940 Act).
The Agreement 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 SubAdvisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The 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 RIRI 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 RIRI 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 Pilgrim Advisors. For the years 1999, 1998 and 1997, the Fund
paid RIRI the following management fees: Stock Portfolio, $_____, $98,513 and
$64,509, respectively; Money Market Portfolio, $_____, $19,255 and $14,571,
respectively; Bond Portfolio, $_____, $12,107 and $7,027, respectively; Asset
Allocation Portfolio, $_____, $57,991 and $38,430, respectively. By contractual
provision within the Policies, the management fees that can be charged against
the Policyholders for all investment advisory services are limited to .25% on an
annual basis. All management fees above that amount are paid for by the
Insurance Companies.
RIRI pays Pilgrim Advisors at the rate of 0.45 of 1.00% of the average
daily net assets of the assets which Pilgrim Advisors manages. [For the period
from October 1, 1999 through December 31, 1999, RIRI paid Pilgrim Advisors
$________. For the period of January 1, 1999 through September 29, 1999 and for
the fiscal years ending December 31, 1998 and 1997, RIRI paid the previous
subadviser $__________, $__________ and $__________.]
B-13
<PAGE>
DISTRIBUTION OF FUND SHARES
Shares of the Fund are continuously distributed through Washington Square
Securities, Inc., a wholly-owned subsidiary of ReliaStar Financial Corp., which
is the 100% owner of RUSL and RLNY. The Fund entered into a distribution
agreement, with Washington Square Securities, Inc. on February 1, 1997 which was
last renewed on ______________. Washington Square Securities, Inc., a registered
broker-dealer under the Securities Act of 1934, as amended, and member of the
National Association of Securities Dealers, Inc., receives no remuneration from
the Fund for distributing shares of the Portfolio. Its address is 111 Washington
Ave. S., Minneapolis, MN 55401.
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 from 1988 until February 1, 1997, pursuant to a
distribution contract. It received no compensation from the Fund.
SUSPENSION OF REDEMPTIONS
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 ("State Street"), a
Massachusetts banking institution became Custodian for all the Fund's portfolios
and their cash. State Street's address is One Heritage Drive, North Quincy
Massachusetts, 02171. 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 Life Insurance Company, successor by merger, on December 31,
1998, to ReliaStar United Services Life Insurance Company ("RUSL") acts as the
Fund's dividend disbursing and transfer agent and provides administrative, legal
and accounting services pursuant to an Administrative Services Agreement (the
"Administrative Agreement") by and between the Fund, RUSL, and RIRI.
As compensation, RUSL (now merged into RL) 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.
During the fiscal years ending December 31, 1999, 1998 and 1997, RL
received $______, $________ and $________ for its services under the
Administrative Services Agreement.
B-14
<PAGE>
LEGAL COUNSEL
Dechert Price & Rhoads serves as legal counsel to the Fund and the
Portfolios
INDEPENDENT AUDITORS
[The Board of Trustees of the Trust has selected the firm of Deloitte &
Touche LLP, ________________________, to serve as independent auditors for the
Fund for the current fiscal year and to audit the annual financial statements of
the Fund, prepare the Fund's federal and state tax returns, and consult with the
Fund on matters of accounting and federal and state income taxation.]
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. Transactions on
national stock exchanges and other agency transactions 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.
RIRI or Pilgrim Advisors 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, RIRI or Pilgrim Advisors 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 transactions on national stock exchanges for the account of the Fund RIRI or
Pilgrim Advisors may pay higher commission rates than the lowest available when
RIRI or Pilgrim Advisors 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 RIRI or Pilgrim Advisors. If a
purchase or sale of securities consistent with the investment policies of a
Portfolio and one or more of these clients served by RIRI or Pilgrim Advisors 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 RIRI or Pilgrim Advisors. Although there is no specified formula
for allocating such transactions, the various allocation methods used by RIRI or
Pilgrim Advisors, 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 that 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.
B-15
<PAGE>
As permitted by Section 28(e) of the Securities Exchange Act of 1934, RIRI
may cause a Portfolio to pay a broker-dealer which provides "brokerage and
research services" (as defined in that Act) to RIRI, 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 aggregate brokerage commissions of $_________, $________ and
$________ for the three years ended December 31, 1999.
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 1999, the Portfolio
turnover rate was: Stock Portfolio -- ____%; Bond Portfolio -- ____%; and Asset
Allocation Portfolio -- _____%.
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.
B-16
<PAGE>
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 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.
The Fund can only invest in instruments having remaining maturities of 397
days or less and can only invest in securities determined by RIRI to be of high
quality with minimal credit risks.
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.
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, 1999, assuming the values used are as follows:
(1) Value on Dec. 24, 1998..................................... $100.00
(2) Value on Dec. 31, 1998 (exclusive of capital charges)...... 100.08
(3) Net change:(2) - (1)....................................... .08
(4) Net change divided by Value on Dec. 24, 1998:
(3) divided by (1)....................................... .0008
(5) Seven-day yield annualized (multiplied by 365/7)........... 4.17%
B-17
<PAGE>
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, 1999 for the Bond
Portfolio was ____%; the Common Stock Fund, ____%; and the Asset Allocation Fund
____%
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.
The average annual return for the Stock Portfolio for the one-year,
five-year and ten-year period ended December 31, 1999 are ____%, _____% and
_____% respectively. The average annual return for the Bond Portfolio for the
one-year, five-year and ten-year period ended December 31, 1999 are ____%,
_____% and _____% respectively. The average annual return for the Asset
Allocation Portfolio for the one-year, five-year and ten-year period ended
December 31, 1999 are ____%, _____% and _____% respectively.
B-18
<PAGE>
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.
The cumulative total return for the fiscal year ending December 31, 1999,
for each Portfolio was ____%, Stock Portfolio; ____%, Bond Portfolio; and,
____%, 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
B-19
<PAGE>
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 [more than 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
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 Report of Independent Auditors
(Deloitte & Touche LLP for the Fund for the fiscal year ended December 31, 1999)
are incorporated herein by reference to the Registrant's 1999 Annual Report to
Shareholders filed with the U.S. Securities and Exchange Commission. No other
portion of the Annual Report is so incorporated. Copies of the Fund's Annual
Report may be obtained without charge by contacting Pilgrim Funds at Suite 1200,
40 North Central Avenue, Phoenix, Arizona 85004, (800) 992-0180.
B-20
<PAGE>
APPENDIX A
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>
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Agreement and Declaration of Trust of USLICO Series Fund.(2)
(b) USLICO Series Fund Bylaws.(2)
(c) Not Applicable.
(d)(1) Investment Advisory Agreement by and between USLICO Series Fund and
ReliaStar Investment Research, Inc. (formerly, Washington Square
Advisers, Inc.).(1)
(d)(2) Sub-Investment Advisory Agreement by and between Pilgrim Baxter
Value Investors, Inc. (formerly Newbold's Asset Management, Inc.)
and Washington Square Advisers, Inc.(2)
(d)(3) Subadvisory Agreement by and between Pilgrim Advisors, Inc. and
ReliaStar Investment Research, Inc.(4)
(e) Distribution Agreement by and between USLICO Series Fund and
Washington Square Securities, Inc.(2)
(f) Not Applicable.
(g) Custodian Contract by and between USLICO Series Fund and State
Street Bank and Trust Company.(3)
(h) Administrative Services Agreement by and between USLICO Series
Fund, Washington Square Advisers, Inc. and ReliaStar United
Services Life Insurance Company.(2)
(i)(1) Opinion and Consent of Robert B. Saginaw.(2)
(i)(2) Consent of Dechert Price & Rhoads (filed herewith)
(j) Consent of Deloitte & Touche LLP.(4)
(k) Not Applicable.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Code of Ethics.(4)
C-1
<PAGE>
(p)(1) Powers of Attorney (filed herewith).
(p)(2) Power of Attorney (filed herewith).
- ----------
1. Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A as filed on April 30, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A as filed on April 30, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A as filed on April 29, 1998.
4. To be filed by amendment.
ITEM 24. 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 23, 1999.
ITEM 25. INDEMNIFICATION
Reference is made to Article V 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 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISERS
Information as to the directors and officers of ReliaStar Investment
Research, Inc., together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the directors and
officers of ReliaStar Investment Research, Inc. in the last two years, is
included in its application for registration as an investment adviser on Form
ADV (File No. 801-16715) filed under the Investment Advisers Act of 1940, as
amended, and is incorporated herein by reference thereto.
C-2
<PAGE>
Information as to the directors and officers of Pilgrim Advisors, Inc.,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by the directors and officers of
Pilgrim Advisors, Inc. in the last two years, is included in its application for
registration as an investment adviser on Form ADV (File No. 801-44637) filed
under the Investment Advisers Act of 1940, as amended, and is incorporated
herein by reference thereto.
ITEM 27. 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.
(b) Information as to the directors and officers of Washington Square
Securities, Inc., together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by
the directors and officers of Washington Square Securities, Inc. in the
last two years, is included in its application for registration as a
broker-dealer on Form BD (File No. 008-13987) filed under the Securities
Exchange Act of 1934, as amended, and is incorporated herein by reference
thereto.
(c) Not applicable.
ITEM 28. 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 c/o ReliaStar Life Insurance Company, 20
Washington Avenue S., Route 1212 Minneapolis, MN 55401, or c/o Pilgrim Advisors,
Inc., 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
None.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Phoenix and
the State of Arizona on the 1st day of March 2000.
USLICO SERIES FUND
By:
------------------------------------
Robert W. Stallings,*
Chief Executive Officer
and 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.
SIGNATURE TITLE DATE
- --------- ----- ----
Trustee, Chief Executive March 1, 2000
- -------------------------- Officer and President
Robert W. Stallings*
Trustee March 1, 2000
- --------------------------
Al Burton*
Trustee March 1, 2000
- --------------------------
Mary A. Baldwin*
Trustee March 1, 2000
- --------------------------
John G. Turner*
Trustee March 1, 2000
- --------------------------
Mark L. Lipson*
Trustee March 1, 2000
- --------------------------
Paul S. Doherty*
Trustee March 1, 2000
- --------------------------
Robert B. Goode, Jr.*
Trustee March 1, 2000
- --------------------------
David W. Wallace*
Trustee March 1, 2000
- --------------------------
Walter May*
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
Trustee March 1, 2000
- --------------------------
Alan L. Gosule*
Trustee March 1, 2000
- --------------------------
Jock Patton*
Trustee March 1, 2000
- --------------------------
David W.C. Putnam*
Trustee March 1, 2000
- --------------------------
John R. Smith*
Senior Vice President and March 1, 2000
- -------------------------- Principal Financial Officer
Michael J. Roland*
* By: /s/ James M. Hennessy
----------------------------
James M. Hennessy, Attorney-in-fact**
** Powers of Attorney for Trustees and Michael J. Roland are attached hereto.
[LETTERHEAD OF DECHERT PRICE & RHOADS]
March 1, 2000
USLICO Series Fund
c/o ReliaStar Life Insurance Company
20 Washington Avenue South
Route 1212
Minneapolis, MN 55401
Re: Post-Effective Amendment No. 14 to Registration Statement on
Form N-1A for USLICO Series Fund
(File Nos. 033-20957 and 811-05451)
Dear Sirs and Madams:
We hereby consent to the reference to our firm as counsel to USLICO Series
Fund (the "Trust") in the Statement of Additional Information contained in the
Registration Statement of the Trust.
Very truly yours,
/s/ Dechert Price & Rhoads
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Robert W. Stallings, James M. Hennessy, Jeffrey S. Puretz and Karen L.
Anderberg, and each of them his true and lawful attorney-in-fact as agent with
full power of substitution and resubstitution of him in his name, place, and
stead, to sign any and all registration statements on Form N-1A applicable to
the USLICO Series Fund and any amendment or supplement thereto, and to file the
same with all exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
Dated: November 16, 1999
/s/ Al Burton /s/ Mary A. Baldwin
- ---------------------------------- ----------------------------------
Al Burton Mary A. Baldwin, Ph.D
/s/ Robert B. Goode, Jr. /s/ Paul S. Doherty
- ---------------------------------- ----------------------------------
Robert B. Goode, Jr. Paul S. Doherty
/s/ Mark Lipson /s/ Alan L. Gosule
- ---------------------------------- ----------------------------------
Mark Lipson Alan L. Gosule
/s/ Jock Patton /s/ Walter H. May
- ---------------------------------- ----------------------------------
Jock Patton Walter H. May
/s/ John R. Smith /s/ David W.C. Putnam
- ---------------------------------- ----------------------------------
John R. Smith David W.C. Putnam
/s/ John G. Turner /s/ Robert W. Stallings
- ---------------------------------- ----------------------------------
John G. Turner Robert W. Stallings
/s/ David W. Wallace
----------------------------------
David W. Wallace
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Robert W. Stallings, James M. Hennessy, Jeffrey S. Puretz and Karen L.
Anderberg, and each of them his true and lawful attorney-in-fact as agent with
full power of substitution and resubstitution of him in his name, place, and
stead, to sign any and all registration statements on Form N-1A applicable to
the USLICO Series Fund and any amendment or supplement thereto, and to file the
same with all exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
Dated: February 29, 2000
/s/ Michael J. Roland
- ----------------------------------
Michael J. Roland